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: June 30,
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.
Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of
large accelerated filer, accelerated filer, and smaller 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).
CLASS
|
|
OUTSTANDING
AT July 31, 2008
|
Common
Stock, $0.10 par value
|
|
105,210,721
|
Total
Number of Pages 39
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
|
|
June 30,
|
|
September 30,
|
|
|
|
2008
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
99,018
|
|
$
|
89,215
|
|
Accounts
receivable, less reserve of $3,649 at June 30, 2008 and $2,957 at
September 30, 2007
|
|
396,623
|
|
339,819
|
|
Inventories
|
|
31,880
|
|
29,145
|
|
Deferred income
tax
|
|
18,350
|
|
11,559
|
|
Assets held for
sale
|
|
5,724
|
|
|
|
Prepaid expenses
and other
|
|
59,804
|
|
29,226
|
|
Total current
assets
|
|
611,399
|
|
498,964
|
|
|
|
|
|
|
|
Investments
|
|
218,869
|
|
223,360
|
|
Property, plant
and equipment, net
|
|
2,534,931
|
|
2,152,616
|
|
Other assets
|
|
13,322
|
|
10,429
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,378,521
|
|
$
|
2,885,369
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Notes payable
|
|
$
|
2,259
|
|
$
|
|
|
Accounts payable
|
|
156,559
|
|
124,556
|
|
Accrued
liabilities
|
|
113,290
|
|
102,056
|
|
Total current
liabilities
|
|
272,108
|
|
226,612
|
|
|
|
|
|
|
|
Noncurrent
liabilities:
|
|
|
|
|
|
Long-term notes
payable
|
|
455,000
|
|
445,000
|
|
Deferred income
taxes
|
|
435,912
|
|
363,534
|
|
Other
|
|
49,329
|
|
34,707
|
|
Total noncurrent
liabilities
|
|
940,241
|
|
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
|
|
167,456
|
|
143,146
|
|
Retained
earnings
|
|
1,961,306
|
|
1,645,766
|
|
Accumulated
other comprehensive income
|
|
62,615
|
|
75,885
|
|
Treasury stock,
at cost
|
|
(35,911
|
)
|
(59,987
|
)
|
Total
shareholders equity
|
|
2,166,172
|
|
1,815,516
|
|
|
|
|
|
|
|
Total
liabilities and shareholders equity
|
|
$
|
3,378,521
|
|
$
|
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
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues:
|
|
|
|
|
|
|
|
|
|
Drilling U.S.
Land
|
|
$
|
391,755
|
|
$
|
303,514
|
|
$
|
1,104,662
|
|
$
|
842,559
|
|
Drilling
Offshore
|
|
47,298
|
|
29,626
|
|
104,368
|
|
94,083
|
|
Drilling
International Land
|
|
80,585
|
|
85,357
|
|
234,944
|
|
235,153
|
|
Other
|
|
2,879
|
|
2,777
|
|
8,850
|
|
8,414
|
|
|
|
522,517
|
|
421,274
|
|
1,452,824
|
|
1,180,209
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs
and other:
|
|
|
|
|
|
|
|
|
|
Operating costs,
excluding depreciation
|
|
274,168
|
|
229,025
|
|
763,921
|
|
627,948
|
|
Depreciation
|
|
51,210
|
|
38,125
|
|
147,066
|
|
101,228
|
|
General and
administrative
|
|
14,723
|
|
11,538
|
|
42,716
|
|
35,501
|
|
Research and
development
|
|
522
|
|
|
|
522
|
|
|
|
Acquired in-process
research and development
|
|
11,129
|
|
|
|
11,129
|
|
|
|
Gain from
involuntary conversion of long-lived assets
|
|
(5,426
|
)
|
(5,900
|
)
|
(10,236
|
)
|
(11,070
|
)
|
Income from
asset sales
|
|
(1,616
|
)
|
(6,186
|
)
|
(4,404
|
)
|
(39,008
|
)
|
|
|
344,710
|
|
266,602
|
|
950,714
|
|
714,599
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
177,807
|
|
154,672
|
|
502,110
|
|
465,610
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(expense):
|
|
|
|
|
|
|
|
|
|
Interest and
dividend income
|
|
1,034
|
|
962
|
|
3,369
|
|
3,240
|
|
Interest expense
|
|
(4,651
|
)
|
(3,260
|
)
|
(14,255
|
)
|
(6,092
|
)
|
Gain on sale of
investment securities
|
|
16,388
|
|
25,298
|
|
21,994
|
|
51,812
|
|
Other
|
|
66
|
|
120
|
|
(370
|
)
|
250
|
|
|
|
12,837
|
|
23,120
|
|
10,738
|
|
49,210
|
|
|
|
|
|
|
|
|
|
|
|
Income before
income taxes and equity in income of affiliate
|
|
190,644
|
|
177,792
|
|
512,848
|
|
514,820
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
provision
|
|
70,187
|
|
64,960
|
|
189,117
|
|
188,396
|
|
Equity in income
of affiliate net of income taxes
|
|
4,912
|
|
2,372
|
|
11,522
|
|
6,427
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$
|
125,369
|
|
$
|
115,204
|
|
$
|
335,253
|
|
$
|
332,851
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
common share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.20
|
|
$
|
1.11
|
|
$
|
3.22
|
|
$
|
3.22
|
|
Diluted
|
|
$
|
1.18
|
|
$
|
1.09
|
|
$
|
3.16
|
|
$
|
3.17
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
104,530
|
|
103,323
|
|
103,973
|
|
103,292
|
|
Diluted
|
|
106,689
|
|
105,313
|
|
106,130
|
|
104,990
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared per common share
|
|
$
|
0.0500
|
|
$
|
0.0450
|
|
$
|
0.1400
|
|
$
|
0.1350
|
|
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)
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
Net income
|
|
$
|
335,253
|
|
$
|
332,851
|
|
Adjustments to
reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation
|
|
147,066
|
|
101,228
|
|
Provision for
bad debt
|
|
696
|
|
23
|
|
Equity in income
of affiliate before income taxes
|
|
(18,584
|
)
|
(10,367
|
)
|
Stock-based
compensation
|
|
5,610
|
|
5,279
|
|
Gain on sale of
investment securities
|
|
(21,864
|
)
|
(51,674
|
)
|
Gain from
involuntary conversion of long-lived assets
|
|
(10,236
|
)
|
(11,070
|
)
|
Income from asset
sales
|
|
(4,404
|
)
|
(39,008
|
)
|
Acquired in-process
research and development
|
|
11,129
|
|
|
|
Other
|
|
(1
|
)
|
|
|
Deferred income
tax expense
|
|
66,593
|
|
51,768
|
|
Change in assets
and liabilities-
|
|
|
|
|
|
Accounts
receivable
|
|
(61,787
|
)
|
(37,184
|
)
|
Inventories
|
|
(2,735
|
)
|
(2,233
|
)
|
Prepaid expenses
and other
|
|
(31,594
|
)
|
(16,832
|
)
|
Accounts payable
|
|
(974
|
)
|
51,707
|
|
Accrued
liabilities
|
|
13,120
|
|
5,794
|
|
Deferred income
taxes
|
|
7,774
|
|
3,765
|
|
Other noncurrent
liabilities
|
|
8,526
|
|
1,352
|
|
|
|
|
|
|
|
Net cash
provided by operating activities
|
|
443,588
|
|
385,399
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES:
|
|
|
|
|
|
Capital
expenditures
|
|
(509,018
|
)
|
(681,149
|
)
|
Acquisition of
business, net of cash acquired
|
|
(12,024
|
)
|
|
|
Insurance
proceeds from involuntary conversion
|
|
13,926
|
|
11,070
|
|
Proceeds from
sale of investments
|
|
25,507
|
|
112,938
|
|
Proceeds from
asset sales
|
|
6,077
|
|
45,526
|
|
Net cash used in
investing activities
|
|
(475,532
|
)
|
(511,615
|
)
|
|
|
|
|
|
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
Repurchase of
common stock
|
|
|
|
(17,621
|
)
|
Increase
(decrease) in notes payable
|
|
2,259
|
|
(3,721
|
)
|
Proceeds from
line of credit
|
|
2,630,000
|
|
805,000
|
|
Payments on line
of credit
|
|
(2,620,000
|
)
|
(600,000
|
)
|
Increase
(decrease) in bank overdraft
|
|
4,465
|
|
(11,293
|
)
|
Dividends paid
|
|
(14,060
|
)
|
(13,971
|
)
|
Proceeds from
exercise of stock options
|
|
14,267
|
|
3,277
|
|
Excess tax
benefit from stock-based compensation
|
|
24,816
|
|
1,254
|
|
Net cash
provided by financing activities
|
|
41,747
|
|
162,925
|
|
|
|
|
|
|
|
Net increase in
cash and cash equivalents
|
|
9,803
|
|
36,709
|
|
Cash and cash
equivalents, beginning of period
|
|
89,215
|
|
33,853
|
|
Cash and cash
equivalents, end of period
|
|
$
|
99,018
|
|
$
|
70,562
|
|
The accompanying
notes are an integral part of these statements.
5
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
CONSOLIDATED
CONDENSED STATEMENT OF SHAREHOLDERS EQUITY
NINE MONTHS ENDED
JUNE 30, 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
|
|
|
|
|
|
|
|
335,253
|
|
|
|
|
|
|
|
335,253
|
|
Other comprehensive
income,
Unrealized losses on available-for-sale securities (net of $230 income tax),
net of realized gains included in net income of $13,636
|
|
|
|
|
|
|
|
|
|
(13,264
|
)
|
|
|
|
|
(13,264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
net periodic benefit costs-net actuarial gain (net of $4 income tax)
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
(6
|
)
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
321,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
adjustment of equity investee
|
|
|
|
|
|
1,546
|
|
|
|
|
|
|
|
|
|
1,546
|
|
Cash dividends
($0.140 per share)
|
|
|
|
|
|
|
|
(14,665
|
)
|
|
|
|
|
|
|
(14,665
|
)
|
Exercise of
stock options
|
|
|
|
|
|
(9,753
|
)
|
|
|
|
|
(1,721
|
)
|
24,020
|
|
14,267
|
|
Tax benefit of
stock-based awards, including excess tax benefits of $24,816
|
|
|
|
|
|
26,963
|
|
|
|
|
|
|
|
|
|
26,963
|
|
Treasury stock
issued for vested restricted stock
|
|
|
|
|
|
(56
|
)
|
|
|
|
|
(3
|
)
|
56
|
|
|
|
Stock-based
compensation
|
|
|
|
|
|
5,610
|
|
|
|
|
|
|
|
|
|
5,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2008
|
|
107,058
|
|
$
|
10,706
|
|
$
|
167,456
|
|
$
|
1,961,306
|
|
$
|
62,615
|
|
1,849
|
|
$
|
(35,911
|
)
|
$
|
2,166,172
|
|
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 and the Real Estate segment previously shown separately has been
included with all other non-reportable business 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
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted
average shares
|
|
104,530
|
|
103,323
|
|
103,973
|
|
103,292
|
|
Effect of
dilutive shares:
|
|
|
|
|
|
|
|
|
|
Stock options
and restricted stock
|
|
2,159
|
|
1,990
|
|
2,157
|
|
1,698
|
|
Diluted weighted
average shares
|
|
106,689
|
|
105,313
|
|
106,130
|
|
104,990
|
|
For the nine
months ended June 30, 2008 and 2007, options to purchase shares of common
stock outstanding but not included in the computation of diluted earnings per
share were 25,132 and 597,950, respectively. Inclusion of these shares would be
antidilutive. For the three months ended June 30, 2008 and 2007 all
options were included in the computation of diluted earnings per share.
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 securities 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 06/30/08
|
|
$
|
7,685
|
|
$
|
96,254
|
|
$
|
|
|
$
|
103,939
|
|
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 June 30, 2008
and September 30, 2007. The estimated fair value of the investments
carried at cost was $19.5 million and $22.3 million at June 30, 2008 and September 30,
2007, respectively. The assets held in the Non-qualified Supplemental Savings
Plan are valued at fair market which totaled $7.3 million at June 30, 2008
and $7.8 million at September 30, 2007. The recorded amounts for
investments accounted for under the equity method are $95.3 million and $74.2
million at June 30, 2008 and September 30, 2007, respectively. During
the nine months ended June 30, 2008, the Company increased the equity
investment $2.5 million ($1.5 million, net of tax) to account for capital
transactions of Atwood Oceanics, Inc. (Atwood). At June 30, 2008, the
Company owned 4,000,000 shares of Atwood. Subsequent to June 30, 2008,
Atwood had a 2-for-1 stock split and the Company received an additional
4,000,000 shares. The additional shares will not have any affect on the Companys
recorded investment.
5.
Comprehensive
Income
Comprehensive
income, net of related income taxes, is as follows (in thousands):
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
125,369
|
|
$
|
115,204
|
|
$
|
335,253
|
|
$
|
332,851
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
Unrealized
appreciation (depreciation) on securities
|
|
22,714
|
|
24,314
|
|
602
|
|
34,863
|
|
Income taxes
|
|
(8,632
|
)
|
(9,240
|
)
|
(230
|
)
|
(13,248
|
)
|
|
|
14,082
|
|
15,074
|
|
372
|
|
21,615
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
of realized gains in net income
|
|
(16,388
|
)
|
(25,298
|
)
|
(21,994
|
)
|
(51,812
|
)
|
Income taxes
|
|
6,228
|
|
9,613
|
|
8,358
|
|
19,689
|
|
|
|
(10,160
|
)
|
(15,685
|
)
|
(13,636
|
)
|
(32,123
|
)
|
|
|
|
|
|
|
|
|
|
|
Minimum pension
liability adjustments
|
|
(4
|
)
|
|
|
(10
|
)
|
|
|
Income taxes
|
|
2
|
|
|
|
4
|
|
|
|
|
|
(2
|
)
|
|
|
(6
|
)
|
|
|
Total
comprehensive income
|
|
$
|
129,289
|
|
$
|
114,593
|
|
$
|
321,983
|
|
$
|
322,343
|
|
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):
|
|
June 30,
|
|
September 30,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Unrealized
appreciation on securities, net
|
|
$
|
59,677
|
|
$
|
72,941
|
|
Minimum pension
liability
|
|
2,938
|
|
2,944
|
|
Accumulated
other comprehensive income
|
|
$
|
62,615
|
|
$
|
75,885
|
|
6.
Financial
Instruments
During the nine
months ended June 30, 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 nine months ended June 30, 2008.
7.
Cash
Dividends
The $0.045 cash
dividend declared March 5, 2008, was paid June 2, 2008. On June 4,
2008, a cash dividend of $0.05 per share was declared for shareholders of
record on August 15, 2008, payable September 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 nine
months ended June 30, 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
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Compensation
expense
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
1,533
|
|
$
|
1,372
|
|
$
|
4,698
|
|
$
|
4,262
|
|
Restricted stock
|
|
365
|
|
347
|
|
912
|
|
1,017
|
|
|
|
$
|
1,898
|
|
$
|
1,719
|
|
$
|
5,610
|
|
$
|
5,279
|
|
|
|
|
|
|
|
|
|
|
|
After-tax stock
based compensation
|
|
$
|
1,176
|
|
$
|
1,066
|
|
$
|
3,478
|
|
$
|
3,273
|
|
|
|
|
|
|
|
|
|
|
|
Per basic share
|
|
$
|
.01
|
|
$
|
.01
|
|
$
|
.03
|
|
$
|
.03
|
|
Per diluted
share
|
|
$
|
.01
|
|
$
|
.01
|
|
$
|
.03
|
|
$
|
.03
|
|
|
|
|
|
|
|
|
|
|
|
Cash received
from exercise of stock options
|
|
$
|
5,983
|
|
$
|
2,405
|
|
$
|
14,267
|
|
$
|
3,277
|
|
STOCK OPTIONS
The following
summarizes the weighted-average assumptions utilized in determining the fair
value of options granted during the nine months ended June 30, 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 June 30, 2008
and 2007 is presented in the following tables:
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Weighted-
|
|
Average
|
|
Aggregate
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Intrinsic
|
|
June 30, 2008
|
|
Shares
|
|
Exercise
|
|
Contractual
|
|
Value
|
|
Options
|
|
(in thousands)
|
|
Price
|
|
Term
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
April 1, 2008
|
|
6,020
|
|
$
|
18.44
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
(1,156
|
)
|
11.54
|
|
|
|
|
|
Forfeited/Expired
|
|
(16
|
)
|
27.71
|
|
|
|
|
|
Outstanding at
June 30, 2008
|
|
4,848
|
|
$
|
20.06
|
|
6.01
|
|
$
|
251,937
|
|
Vested and
expected to vest at June 30, 2008
|
|
4,822
|
|
$
|
19.98
|
|
5.99
|
|
$
|
250,937
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at
June 30, 2008
|
|
3,220
|
|
$
|
15.09
|
|
4.75
|
|
$
|
183,281
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Weighted-
|
|
Average
|
|
Aggregate
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Intrinsic
|
|
June 30, 2007
|
|
Shares
|
|
Exercise
|
|
Contractual
|
|
Value
|
|
Options
|
|
(in thousands)
|
|
Price
|
|
Term
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
April 1, 2007
|
|
6,271
|
|
$
|
15.74
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
(186
|
)
|
12.94
|
|
|
|
|
|
Forfeited/Expired
|
|
(7
|
)
|
28.81
|
|
|
|
|
|
Outstanding at
June 30, 2007
|
|
6,078
|
|
$
|
15.81
|
|
5.77
|
|
$
|
119,183
|
|
Vested and
expected to vest at June 30, 2007
|
|
6,021
|
|
$
|
15.71
|
|
5.75
|
|
$
|
118,677
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at
June 30, 2007
|
|
4,373
|
|
$
|
12.71
|
|
4.75
|
|
$
|
99,314
|
|
A summary of stock
option activity under the Plan for the nine months ended June 30, 2008 and
2007 is presented in the following table:
|
|
Nine months ended June 30,
|
|
|
|
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
|
|
(1,833
|
)
|
11.81
|
|
(260
|
)
|
12.62
|
|
Forfeited/Expired
|
|
(93
|
)
|
26.64
|
|
(12
|
)
|
28.84
|
|
Outstanding at
June 30,
|
|
4,848
|
|
$
|
20.06
|
|
6,078
|
|
$
|
15.81
|
|
The weighted-average
fair value of options granted in the first quarter of fiscal 2008 was $10.81. 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. No options were granted in the second
quarter of fiscal 2008 or in the third quarters of fiscal 2008 and 2007.
11
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The total
intrinsic value of options exercised during the three and nine months ended June 30,
2008 was $60.7 million and $80.9 million respectively. The total intrinsic
value of options exercised during the three and nine months ended June 30,
2007 was $4.0 million and $5.0 million, respectively.
As of June 30,
2008, the unrecognized compensation cost related to the stock options was $13.2
million. That cost is expected to be recognized over a weighted-average period
of 2.7 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 nine months
ended June 30, 2008 and 2007 was $35.19 and $26.90, respectively.
A summary of the
status of the Companys restricted stock awards as of June 30, 2008 and
2007, and changes during the nine months then ended is presented below:
|
|
Nine months ended June 30,
|
|
|
|
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
June 30,
|
|
245
|
|
$
|
29.92
|
|
240
|
|
$
|
29.27
|
|
As of June 30,
2008, there was $4.0 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 2.75 years.
9.
Notes Payable
and Long-term Debt
At June 30,
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
|
|
2.74%-2.84%
|
|
280,000,000
|
|
|
|
|
|
$
|
455,000,000
|
|
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 June 30,
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 June 30, 2008, the Company had three letters of credit
totaling $25.9 million under the facility and had $280 million borrowed against
the facility with $94.1 million available to borrow. The advances bear interest
ranging from 2.74 percent to 2.84 percent. Subsequent to June 30, 2008,
the debt was reduced $5.0 million.
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 June 30, 2008,
the Company had no outstanding borrowings against this line.
The Company
maintains an 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 June 30, 2008, unsecured letters of credit
outstanding totaled $7.6 million.
At June 30,
2008, the Company had an unsecured note payable to a bank totaling $2.3 million
denominated in a foreign currency. The interest rate of the note is 16.0
percent with a one year maturity payable in quarterly installments. Subsequent
to June 30, 2008, the note was reduced $0.6 million.
10.
Acquisition
of TerraVici Drilling Solutions
On May 21, 2008,
the Company acquired a private limited partnership, TerraVici Drilling
Solutions (TerraVici) in a transaction accounted for under the purchase method
of accounting. Under the purchase method of accounting, the assets acquired and
liabilities assumed of TerraVici are recorded as of the acquisition date, at
their respective fair values, and consolidated with those of the Company. TerraVicis
results of operations are included in the Companys consolidated financial
statements from the date of acquisition. TerraVici is included with all other
non-reportable business segments.
The Company paid a
total purchase price of $12.2 million to acquire TerraVici and it is now a
wholly-owned subsidiary of the Company. The total purchase price included
acquisition-related costs of $1.2 million. The transaction includes future
contingency payments up to $11 million based on specific commerciality
milestones plus certain earn-out provisions based on future earnings.
13
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
TerraVici is
developing patented rotary steerable technology to enhance horizontal and
directional drilling operations. The
Company acquired TerraVici to complement technology currently used with the
FlexRig. By combining this new
technology with the Companys existing capabilities, the Company expects to
improve drilling productivity and reduce total well cost to the customer.
The acquisition
was accounted for using the purchase method of accounting and the purchase
price allocation resulted in the following amounts being allocated to the
assets acquired and liabilities assumed at the acquisition date based upon
their respective fair values.
Amounts in thousands
|
|
May 21, 2008
|
|
Current assets
|
|
$
|
352
|
|
Fixed assets
|
|
4,257
|
|
Trademark
|
|
919
|
|
In-process
research and development
|
|
11,129
|
|
Other noncurrent
assets
|
|
280
|
|
Assets acquired
|
|
16,937
|
|
Liabilities
assumed
|
|
(5,452
|
)
|
Net assets
acquired
|
|
11,485
|
|
Goodwill
|
|
672
|
|
Acquisition cost
|
|
$
|
12,157
|
|
The fair value of
the acquired intangible assets consists primarily of trademarks of $0.9 million
and non-compete agreements of $0.3 million.
The weighted average amortization period for the non-compete agreements
is 4.0 years.
In-process
research and development, or IPR&D, represents rotary steerable system
(RSS) tools under development by TerraVici at the date of acquisition that had
not yet achieved technological feasibility, and would have no future
alternative use. Accordingly, the
purchase price allocated to IPR&D was expensed immediately subsequent to
the acquisition. This charge will be
amortized over 15 years for tax purposes.
The $11.1 million estimated fair value of these intangible assets was
derived using the multi-period excess-earnings method.
Detailed pro forma
summary financial results for the three and nine months ended June 30,
2008 are not presented because the consolidated results of operations, assuming
the acquisition of TerraVici had occurred at the beginning of the reporting
period, are not materially different from the Consolidated Condensed Statement
of Income as reported.
14
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The excess of
purchase price over the fair value assigned to the assets acquired and
liabilities assumed represents the goodwill resulting from the
acquisition. The amount allocated to
goodwill is preliminary and subject to change, depending on the results of the
final purchase price allocation. The
Company does not expect any portion of this goodwill to be deductible for tax
purposes. The goodwill attributable to
the Companys acquisition of TerraVici has been recorded as a noncurrent asset
in the Companys June 30, 2008 Consolidated Balance Sheet and will not be
amortized, but is subject to review for impairment, on an annual basis, or as
indicators of impairment exist.
The allocation of the
purchase price is subject to finalization of the Companys management analysis
of the fair value of the assets acquired and liabilities assumed of TerraVici
as of the acquisition date. The final
allocation of the purchase price may result in additional adjustments to the
recorded amounts of assets and liabilities and may also result in adjustments
to depreciation, amortization and acquired in-process research and
development. The final allocation is
expected to be completed as soon as practicable but no later than 12 months
after the acquisition date.
11.
Income Taxes
The Companys
effective tax rate for the first nine months of fiscal 2008 and 2007 was 36.9
percent and 36.6 percent, respectively.
The effective tax rate for the three months ended June 30, 2008 and
2007 was 36.8 percent and 36.5 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 prescribes a recognition threshold of
more-likely-than-not, and a measurement attribute for all tax positions taken
or expected to be taken on a tax return, in order to be recognized in the
financial statements. The cumulative
effect of initially applying the Interpretation was reported as an adjustment
to the opening balance of retained earnings on October 1, 2007.
15
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. The liabilities for unrecognized tax benefits
and related interest and penalties are included in other noncurrent liabilities
on the balance sheet.
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 $5.4 million at June 30,
2008, mainly due to the current period impact of tax positions taken in prior
years. Included in this balance is $4.9
million which, if recognized, would favorably 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 June 30, 2008, the Company
had accrued interest and penalties of $2.0 million and $2.2 million,
respectively.
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 2004 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.
12. Contingent Liabilities and Commitments
In conjunction
with the Companys current drilling rig construction program, purchase
commitments for equipment, parts and supplies of approximately $192.5 million
are outstanding at June 30, 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.
16
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
13.
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. Each reportable segment is a
strategic business unit which is managed separately. Other includes
non-reportable operating segments.
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.
17
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
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.
Due to the
continued growth of the drilling segments over the past few years, the Company
re-evaluated its reportable segments.
With the growth of the drilling segments, the Real Estate segment has
become a smaller percentage of total segment operating income. In the evaluation of segment reporting, the
Company determined that the total of external revenues reported by the three
reportable operating segments, U.S. Land, Offshore and International Land,
comprised more than 75 percent of total consolidated revenue. As a result, the
Real Estate segment previously shown as a reportable segment has been included
with all other non-reportable business segments. Revenues included in all other consist
primarily of rental income. Prior period
balances have been restated to reflect this change.
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 June 30, 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.
18
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Summarized
financial information of the Companys reportable segments for the nine months
ended June 30, 2008, and 2007, is shown in the following tables:
|
|
|
|
|
|
Segment
|
|
|
|
|
|
External
|
|
Inter-
|
|
Total
|
|
Operating
|
|
(in thousands)
|
|
Sales
|
|
Segment
|
|
Sales
|
|
Income (Loss)
|
|
June 30,
2008
|
|
|
|
|
|
|
|
|
|
Contract
Drilling:
|
|
|
|
|
|
|
|
|
|
U.S. Land
|
|
$
|
1,104,662
|
|
$
|
|
|
$
|
1,104,662
|
|
$
|
446,994
|
|
Offshore
|
|
104,368
|
|
|
|
104,368
|
|
19,730
|
|
International
Land
|
|
234,944
|
|
|
|
234,944
|
|
51,400
|
|
|
|
1,443,974
|
|
|
|
1,443,974
|
|
518,124
|
|
Other
|
|
8,850
|
|
657
|
|
9,507
|
|
(7,596
|
)
|
|
|
1,452,824
|
|
657
|
|
1,453,481
|
|
510,528
|
|
Eliminations
|
|
|
|
(657
|
)
|
(657
|
)
|
|
|
Total
|
|
$
|
1,452,824
|
|
$
|
|
|
$
|
1,452,824
|
|
$
|
510,528
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
|
External
|
|
Inter-
|
|
Total
|
|
Operating
|
|
(in thousands)
|
|
Sales
|
|
Segment
|
|
Sales
|
|
Income
|
|
June 30,
2007
|
|
|
|
|
|
|
|
|
|
Contract
Drilling:
|
|
|
|
|
|
|
|
|
|
U.S. Land
|
|
$
|
842,559
|
|
$
|
|
|
$
|
842,559
|
|
$
|
342,809
|
|
Offshore
|
|
94,083
|
|
|
|
94,083
|
|
15,738
|
|
International
Land
|
|
235,153
|
|
|
|
235,153
|
|
72,821
|
|
|
|
1,171,795
|
|
|
|
1,171,795
|
|
431,368
|
|
Other
|
|
8,414
|
|
617
|
|
9,031
|
|
3,713
|
|
|
|
1,180,209
|
|
617
|
|
1,180,826
|
|
435,081
|
|
Eliminations
|
|
|
|
(617
|
)
|
(617
|
)
|
|
|
Total
|
|
$
|
1,180,209
|
|
$
|
|
|
$
|
1,180,209
|
|
$
|
435,081
|
|
19
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Summarized financial
information of the Companys reportable segments for the three months ended June 30,
2008, and 2007, is shown in the following tables:
|
|
|
|
|
|
|
|
Segment
|
|
|
|
External
|
|
Inter-
|
|
Total
|
|
Operating
|
|
(in thousands)
|
|
Sales
|
|
Segment
|
|
Sales
|
|
Income (Loss)
|
|
June 30,
2008
|
|
|
|
|
|
|
|
|
|
Contract
Drilling:
|
|
|
|
|
|
|
|
|
|
U.S. Land
|
|
$
|
391,755
|
|
$
|
|
|
$
|
391,755
|
|
$
|
159,413
|
|
Offshore
|
|
47,298
|
|
|
|
47,298
|
|
12,013
|
|
International
Land
|
|
80,585
|
|
|
|
80,585
|
|
17,492
|
|
|
|
519,638
|
|
|
|
519,638
|
|
188,918
|
|
Other
|
|
2,879
|
|
220
|
|
3,099
|
|
(10,421
|
)
|
|
|
522,517
|
|
220
|
|
522,737
|
|
178,497
|
|
Eliminations
|
|
|
|
(220
|
)
|
(220
|
)
|
|
|
Total
|
|
$
|
522,517
|
|
$
|
|
|
$
|
522,517
|
|
$
|
178,497
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
|
External
|
|
Inter-
|
|
Total
|
|
Operating
|
|
(in thousands)
|
|
Sales
|
|
Segment
|
|
Sales
|
|
Income
|
|
June 30,
2007
|
|
|
|
|
|
|
|
|
|
Contract
Drilling:
|
|
|
|
|
|
|
|
|
|
U.S. Land
|
|
$
|
303,514
|
|
$
|
|
|
$
|
303,514
|
|
$
|
114,619
|
|
Offshore
|
|
29,626
|
|
|
|
29,626
|
|
4,553
|
|
International
Land
|
|
85,357
|
|
|
|
85,357
|
|
28,873
|
|
|
|
418,497
|
|
|
|
418,497
|
|
148,045
|
|
Other
|
|
2,777
|
|
212
|
|
2,989
|
|
1,285
|
|
|
|
421,274
|
|
212
|
|
421,486
|
|
149,330
|
|
Eliminations
|
|
|
|
(212
|
)
|
(212
|
)
|
|
|
Total
|
|
$
|
421,274
|
|
$
|
|
|
$
|
421,274
|
|
$
|
149,330
|
|
20
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
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
operating income
|
|
$
|
178,497
|
|
$
|
149,330
|
|
$
|
510,528
|
|
$
|
435,081
|
|
Gain from
involuntary conversion of long-lived assets
|
|
5,426
|
|
5,900
|
|
10,236
|
|
11,070
|
|
Income from
asset sales
|
|
1,616
|
|
6,186
|
|
4,404
|
|
39,008
|
|
Corporate
general and administrative costs and corporate depreciation
|
|
(7,732
|
)
|
(6,744
|
)
|
(23,058
|
)
|
(19,549
|
)
|
Operating income
|
|
177,807
|
|
154,672
|
|
502,110
|
|
465,610
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(expense):
|
|
|
|
|
|
|
|
|
|
Interest and
dividend income
|
|
1,034
|
|
962
|
|
3,369
|
|
3,240
|
|
Interest expense
|
|
(4,651
|
)
|
(3,260
|
)
|
(14,255
|
)
|
(6,092
|
)
|
Gain on sale of investment
securities
|
|
16,388
|
|
25,298
|
|
21,994
|
|
51,812
|
|
Other
|
|
66
|
|
120
|
|
(370
|
)
|
250
|
|
Total other
income (expense)
|
|
12,837
|
|
23,120
|
|
10,738
|
|
49,210
|
|
|
|
|
|
|
|
|
|
|
|
Income before
income taxes and equity in income of affiliate
|
|
$
|
190,644
|
|
$
|
177,792
|
|
$
|
512,848
|
|
$
|
514,820
|
|
|
|
June 30,
|
|
September 30,
|
|
|
|
2008
|
|
2007
|
|
|
|
(in thousands)
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
U.S. Land
|
|
$
|
2,485,360
|
|
$
|
2,073,015
|
|
Offshore
|
|
151,421
|
|
124,014
|
|
International
Land
|
|
352,985
|
|
314,625
|
|
Other
|
|
35,559
|
|
30,351
|
|
|
|
3,025,325
|
|
2,542,005
|
|
Investments and
Corporate Operations
|
|
353,196
|
|
343,364
|
|
|
|
$
|
3,378,521
|
|
$
|
2,885,369
|
|
The following table
presents revenues from external customers by country based on the location of
service provided.
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
434,230
|
|
$
|
331,201
|
|
$
|
1,208,681
|
|
$
|
930,931
|
|
Venezuela
|
|
43,958
|
|
40,348
|
|
123,663
|
|
87,080
|
|
Ecuador
|
|
7,864
|
|
22,536
|
|
41,381
|
|
75,081
|
|
Other Foreign
|
|
36,465
|
|
27,189
|
|
79,099
|
|
87,117
|
|
Total
|
|
$
|
522,517
|
|
$
|
421,274
|
|
$
|
1,452,824
|
|
$
|
1,180,209
|
|
21
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
14.
Pensions
and Other Post-retirement Benefits
The following
provides information at June 30, 2008 and 2007 related to the
Company-sponsored domestic defined benefit pension plan.
Components of Net Periodic Benefit Cost
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
(in thousands)
|
|
|
|
Service Cost
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Interest Cost
|
|
1,189
|
|
1,216
|
|
3,569
|
|
3,648
|
|
Expected return
on plan assets
|
|
(1,458
|
)
|
(1,281
|
)
|
(4,374
|
)
|
(3,843
|
)
|
Recognized net
actuarial loss
|
|
(3
|
)
|
35
|
|
(9
|
)
|
105
|
|
Net pension
expense
|
|
$
|
(272
|
)
|
$
|
(30
|
)
|
$
|
(814
|
)
|
$
|
(90
|
)
|
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 June 30, 2008, the Company had contributed $2.3 million to
the Pension Plan.
Foreign Plan
The Company
maintains an unfunded pension plan in one of the international
subsidiaries. Pension expense was
approximately $115,000 and $58,000 for the three months ended June 30,
2008 and 2007, respectively. Pension
expense was approximately $247,000 and $215,000 for the nine months ended June 30,
2008 and 2007, respectively.
15.
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 June 30, 2008, the net
receivable from PDVSA was approximately $63 million. As of August 1, 2008, the net receivable
from PDVSA was approximately $61 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.
The Company has made
applications 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 $28.4 million as a
dividend to its U.S. based parent.
While the Company has been
successful in obtaining government approval for conversion of bolivar 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.
The Venezuelan subsidiary has
received notification from PDVSA that reimbursement of U.S. dollar invoices
previously paid in Bsf will be made only when
supporting
documentation has been approved. The supporting documentation has been
delivered to PDVSA and is awaiting approval.
The approval and subsequent payment would result in reducing the foreign
currency exposure by approximately $44.5 million. The Company is unable to determine the timing
of when payment will be received.
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 Bsf 2.150 to one
U.S. dollar since the devaluation in March 2005, the
22
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
exact amount and timing of
devaluation is uncertain. At August 1,
2008, the Company had the equivalent of $46 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 $9.5 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 four
rigs in Ecuador, and all rigs are working.
Two rigs that were previously in Ecuador were transferred from Ecuador
to Colombia and began work in the third quarter of fiscal 2008. In June 2008, an agreement was signed to
sell two rigs in Ecuador. The rigs were
classified as Assets held for sale in the Companys June 30, 2008
Consolidated Balance Sheet. The sale
closed in the fourth quarter of fiscal 2008 and the Company recorded a gain
from the transaction.
Insurance coverage for named
wind storm perils has been limited for the past few years. The Company purchased an aggregate limit of
$100 million of named wind storm coverage and self-insures 10 percent of that
limit as well as a $3.5 million deductible.
For other insured perils, the Company insures rigs and related equipment
at values that approximate current replacement cost on the inception date of
the policy. The Company self-insures 10
percent of the value for offshore rig property and 30 percent of the value for
land rig property. The Company also
self-insures a $1.0 million per occurrence deductible. No insurance is carried against loss of
earnings or business interruption. The
Company is unable to obtain significant amounts of insurance to cover risks of
underground reservoir damage; however, the Company is generally entitled to
indemnification under its drilling contracts from this risk.
16. 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 nine months ended June 30, 2008, gross insurance proceeds of
approximately $8.7 million were received and a gain of approximately $5.0
million was recorded. The Company
anticipates settling the insurance claim in fiscal 2008 and expects to receive
additional insurance proceeds of less than $0.2 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 nine months ending June 30,
2008, proceeds of approximately $5.2 million were received and recorded as a
gain from involuntary conversion. The
Company continues to work with insurance providers to settle remaining
claims. Any future proceeds received
will continue to 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
of less than $0.1 million.
23
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
17. Recently Issued Accounting Standards
In June 2008, the
Financial Accounting Standards Board (FASB) issued Staff Position (FSP) EITF
03-6-1,
Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities
, to clarify
that all outstanding unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents, whether paid or
unpaid, are participating securities. An
entity must include participating securities in its calculation of basic and
diluted earnings per share pursuant to the two-class method pursuant to SFAS
No. 128,
Earnings per Share
. FSP EITF 03-6-1 is effective for fiscal years
beginning after December 15, 2008. The
Company is currently evaluating FSP EITF 03-6-1 to determine the impact, if
any, on the Consolidated Financial Statements.
In December 2007,
the 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.
24
ITEM 2. MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
June 30, 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 and elsewhere
in this Form 10-Q.
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 June 30, 2008 vs. Three Months Ended June 30, 2007
The Company reported net income of $125.4 million ($1.18 per diluted
share) from operating revenues of $522.5 million for the third quarter ended June 30,
2008, compared with net income of $115.2 million ($1.09 per diluted share) from
operating revenues of $421.3 million for the third quarter of fiscal year
2007. Net income for the third quarter
of fiscal 2008 includes approximately $10.0 million ($0.09 per diluted share)
of after-tax gains from the sale of available-for-sale securities. Net income for the third quarter of fiscal
2008 includes approximately $1.0 million ($0.01 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. Net income for the third quarter
of fiscal 2007 includes approximately $3.9 million ($0.03 per diluted share) of
after-tax gains from the sale of assets and approximately $3.7 million ($0.03
per diluted share) of after-tax gains from involuntary conversion of long-lived
assets. Included in net income for the
third quarter of fiscal 2008 is an approximate after-tax charge of $6.9 million
($0.07 per diluted share) from in-process research and development.
ACQUISITION OF
TERRAVICI DRILLING SOLUTIONS
On May 21,
2008, the Company acquired a private limited partnership, TerraVici Drilling
Solutions (TerraVici) in a transaction accounted for under the purchase method
of accounting. Under the purchase method
of accounting, the assets and liabilities of TerraVici were recorded as of the
acquisition date, at their respective fair values, and consolidated with the
Companys financial statements. The new segment is included with all other
non-reportable business segments.
25
MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
June 30, 2008
TerraVici is
developing patented rotary steerable technology to enhance horizontal and
directional drilling operations. The
Company acquired TerraVici to complement technology currently used with the
FlexRig. The process of drilling has
become increasingly challenging as preferred well types deviate from simple
vertical drilling. By combining this new
technology with the Companys existing capabilities, the Company expects to
improve drilling productivity and reduce total well cost to the customer.
The Company paid a total purchase
price of $12.2 million, including acquisition related fees of $1.2
million. The impact of the purchase
method of accounting resulted in the Company recording an in-process research and
development (IPR&D) charge of $11.1 million in the three months ended June 30,
2008. The IPR&D represents rotary steerable system (RSS) tools under
development by TerraVici at the date of acquisition that had not yet achieved
technological feasibility, and would have no future alternative use. The $11.1 million estimated fair value of the
IPR&D was derived using the multi-period excess-earnings method. The transaction includes future contingency
payments up to $11 million based on specific commerciality milestones plus
certain earn-out provisions based on future earnings.
The following tables summarize operations by business segment for the
three months ended June 30, 2008 and 2007.
The Offshore and International Land segments for the three and nine
months ended June 30, 2007 have been restated to reflect a change made to
the reportable operating segments in the fourth fiscal quarter of 2007 more
fully described in Note 13 to the Consolidated Condensed Financial
Statements. 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 13 to the consolidated condensed financial
statements.
26
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF
OPERATIONS
June 30, 2008
|
|
Three Months Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
|
|
(in thousands,
|
|
U.S. LAND OPERATIONS
|
|
except days and per day amounts)
|
|
Revenues
|
|
$
|
391,755
|
|
$
|
303,514
|
|
Direct operating
expenses
|
|
187,771
|
|
157,758
|
|
General and
administrative expense
|
|
4,801
|
|
3,625
|
|
Depreciation
|
|
39,770
|
|
27,512
|
|
Segment
operating income
|
|
$
|
159,413
|
|
$
|
114,619
|
|
|
|
|
|
|
|
Revenue days
|
|
15,263
|
|
12,371
|
|
Average rig
revenue per day
|
|
$
|
24,543
|
|
$
|
23,401
|
|
Average rig
expense per day
|
|
$
|
11,178
|
|
$
|
11,619
|
|
Average rig
margin per day
|
|
$
|
13,365
|
|
$
|
11,782
|
|
Rig utilization
|
|
96
|
%
|
96
|
%
|
U.S. LAND segment
operating income increased to $159.4 million for the third quarter of fiscal 2008
compared to $114.6 million in the same period of fiscal 2007. Revenues were $391.8 million and $303.5
million in the third quarter of fiscal 2008 and 2007, respectively. Included in
U.S. land revenues for the three months ended June 30, 2008 and 2007 are
reimbursements for out-of-pocket expenses of $17.2 million and $14.0 million,
respectively.
The $1,142 increase in
average revenue per day for the third quarter of fiscal 2008 compared to the
third quarter of fiscal 2007 is attributable to higher dayrates for new rigs
added since the third quarter of fiscal 2007 compared to dayrates on existing
rigs working at June 30, 2007. The
decrease in average rig expense per day for the third quarter of fiscal 2008
compared to the third quarter of fiscal 2007 is primarily due to reduced
training cost associated with a slower delivery schedule of new FlexRigs.
Average U.S. land rig
margin per day increased 13.4 percent for the comparable quarters. U.S. land rig utilization was 96 percent for
both comparable quarters. U.S. land rig
activity days for the third quarter of fiscal 2008 were 15,263 compared with
12,371 for the same period of fiscal 2007, with an average of 167.7 and 135.9
rigs working during the third quarter of fiscal 2008 and 2007,
respectively. The increase in rig days
and average rigs working is attributable to 31 new rigs entering the fleet
since the end of the third quarter of fiscal 2007.
|
|
Three Months Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
|
|
(in thousands,
|
|
OFFSHORE OPERATIONS
|
|
except days and per day amounts)
|
|
Revenues
|
|
$
|
47,298
|
|
$
|
29,626
|
|
Direct operating
expenses
|
|
31,166
|
|
21,748
|
|
General and
administrative expense
|
|
1,276
|
|
907
|
|
Depreciation
|
|
2,843
|
|
2,418
|
|
Segment
operating income
|
|
$
|
12,013
|
|
$
|
4,553
|
|
|
|
|
|
|
|
Revenue days
|
|
732
|
|
546
|
|
Average rig
revenue per day
|
|
$
|
51,309
|
|
$
|
30,263
|
|
Average rig
expense per day
|
|
$
|
31,181
|
|
$
|
21,734
|
|
Average rig
margin per day
|
|
$
|
20,128
|
|
$
|
8,529
|
|
Rig utilization
|
|
89
|
%
|
67
|
%
|
OFFSHORE revenues include
reimbursements for out-of-pocket expenses of $4.3 million and $3.6 million
for the three months ended June 30, 2008 and 2007, respectively.
27
MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
June 30, 2008
Segment operating income
increased in the third quarter of fiscal 2008 compared to the third quarter of
fiscal 2007, primarily as a result of two rigs beginning work in the third
quarter of fiscal 2008 that were not working in the third quarter of fiscal
2007, and Rig 201 returning to full operations late in the third quarter of
fiscal 2007. Additionally, the offshore
segment experienced increases in dayrates associated with wage increases,
producer price index increases and general increases caused by a higher demand
for offshore rigs. One of the rigs
beginning work in the third quarter of fiscal 2008 is in an international
location. The increased rig activity also increased revenue days for the two
comparable quarters.
At June 30,
2008, the Company had eight of its nine platform rigs working. The ninth rig is
currently in the yard undergoing capital improvement and is expected to return
to work with a contract in the third quarter of fiscal 2009.
|
|
Three Months Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
INTERNATIONAL LAND OPERATIONS
|
|
in thousands,
except days and per day amounts)
|
|
Revenues
|
|
$
|
80,585
|
|
$
|
85,357
|
|
Direct operating
expenses
|
|
55,093
|
|
49,166
|
|
General and
administrative expense
|
|
1,182
|
|
670
|
|
Depreciation
|
|
6,818
|
|
6,648
|
|
Segment
operating income
|
|
$
|
17,492
|
|
$
|
28,873
|
|
|
|
|
|
|
|
Revenue days
|
|
1,951
|
|
2,235
|
|
Average rig
revenue per day
|
|
$
|
38,709
|
|
$
|
34,200
|
|
Average rig
expense per day
|
|
$
|
25,638
|
|
$
|
18,246
|
|
Average rig
margin per day
|
|
$
|
13,071
|
|
$
|
15,954
|
|
Rig utilization
|
|
79
|
%
|
90
|
%
|
INTERNATIONAL LAND
segment operating income for the third quarter of fiscal 2008 was $17.5
million, compared to $28.9 million in the same period of fiscal 2007. Rig utilization for international land
operations was 79 percent for the third quarter of fiscal 2008, compared with
90 percent for the third quarter of fiscal 2007. During the current quarter, an average of
21.2 rigs worked compared to an average of 24.3 rigs in the third quarter of
fiscal 2007. International land revenues decreased to $80.6 million in the
third quarter of fiscal 2008, compared with $85.4 million in the third quarter
of fiscal 2007. The decrease in revenue
is attributable to decreased revenue days, primarily in Ecuador, during the
third quarter of fiscal 2008. Third
quarter average rig expense per day for fiscal 2008 increased 41 percent from
the third quarter of fiscal 2007, primarily from labor costs increases and
transportation costs and customs fees recognized during the third quarter of
fiscal 2008. Additionally, rig
utilization decreased and segment operating income decreased as idle rigs
continued to incur operating expenses and depreciation. Included in
international land revenues for the three months ended June 30, 2008 and
2007 are reimbursements for out-of-pocket expenses of $5.1 million and $8.6
million, respectively.
28
MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
June 30, 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 four
rigs in Ecuador, and all rigs are working.
Two rigs that were previously in Ecuador were transferred from Ecuador
to Colombia and began work in the third quarter of fiscal 2008. In June 2008, an agreement was signed to
sell two rigs in Ecuador. The rigs were
classified as Assets held for sale in the Companys June 30, 2008
Consolidated Balance Sheet. The sale
closed in the fourth quarter of fiscal 2008 and the Company recorded a gain
from the transaction.
RESEARCH AND DEVELOPMENT
For the three months
ended June 30, 2008, the Company incurred $0.5 million research and
development expenses related to ongoing development of the RSS. The Company anticipates research and development
expenses to be approximately $2.5 million in the fourth quarter of fiscal 2008
and in each quarter through June 30, 2009.
OTHER
General and
administrative expenses increased to $14.7 million in the third quarter of
fiscal 2008 from $11.5 million in the third quarter of fiscal 2007. The $3.2 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 $4.7
million and $3.3 million in the third quarter of fiscal 2008 and 2007,
respectively. Capitalized interest, all attributable to the Companys rig
construction, was $0.7 million and $2.1 million for the three months ended June 30,
2008 and 2007, respectively. With
advances on the credit facility, interest expense before capitalized interest
increased $0.1 million during the third quarter of fiscal 2008 compared to the
third quarter of fiscal 2007.
Income from the sale of
investment securities was $16.4 million, $10.0 million after-tax ($0.09 per
diluted share) in the third quarter of fiscal 2008 compared to $25.3 million,
$15.5 million after-tax ($0.15 per diluted share) in the third quarter of
fiscal 2007. The gain in both periods
was from the sale of available-for-sale investments.
29
MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
June 30, 2008
Nine Months
Ended June 30, 2008 vs. Nine Months Ended June 30, 2007
The Company reported net
income of $335.3 million ($3.16 per diluted share) from operating revenues of
$1.5 billion for the nine months ended June 30, 2008, compared with net
income of $332.9 million ($3.17 per diluted share) from operating revenues of
$1.2 billion for the first nine months of fiscal year 2007. Net income for the first nine months of
fiscal 2008 includes $13.5 million ($0.13 per diluted share) of after-tax gains
from the sale of available-for-sale securities.
The proceeds from the sale of securities in the nine months ended June 30,
2008 were used to fund capital expenditures.
Net income for the first nine months of fiscal 2007 includes $31.8
million ($0.30 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 $2.8
million ($0.02 per diluted share) for the nine months ended June 30, 2008,
compared to approximately $24.7 million ($0.24 per diluted share) for the nine
months ended June 30, 2007. Also
included in net income for fiscal 2008 is approximately $6.5 million ($0.06 per
diluted share) of after-tax gains from involuntary conversion of long-lived
assets compared to approximately $7.0 million ($0.06 per diluted share) of
after-tax gains from involuntary conversion of long-lived assets in fiscal
2007. Included in net income for fiscal
2008 is an approximate after-tax charge of $6.9 million ($0.07 per diluted
share) from in-process research and development. Refer to previous discussion regarding the
acquisition of TerraVici Drilling Solutions.
The following tables
summarize operations by business segment for the nine months ended June 30,
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 13 to the financial statements.
|
|
Nine Months Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
U.S. LAND OPERATIONS
|
|
(in thousands,
except days and per day amounts)
|
|
Revenues
|
|
$
|
1,104,662
|
|
$
|
842,559
|
|
Direct operating
expenses
|
|
535,093
|
|
417,514
|
|
General and
administrative expense
|
|
13,452
|
|
10,228
|
|
Depreciation
|
|
109,123
|
|
72,008
|
|
Segment
operating income
|
|
$
|
446,994
|
|
$
|
342,809
|
|
|
|
|
|
|
|
Revenue days
|
|
43,422
|
|
34,075
|
|
Average rig
revenue per day
|
|
$
|
24,329
|
|
$
|
23,537
|
|
Average rig
expense per day
|
|
$
|
11,212
|
|
$
|
11,063
|
|
Average rig
margin per day
|
|
$
|
13,117
|
|
$
|
12,474
|
|
Rig utilization
|
|
95
|
%
|
97
|
%
|
30
MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
June 30, 2008
U.S. LAND segment
operating income in the first nine months of fiscal 2008 increased to $447.0
million from $342.8 million in the first nine months of fiscal 2007.
Revenues were $1.1
billion in the first nine months of fiscal 2008, compared with $842.6 million
in the same period of fiscal 2007.
Included in U.S. land revenues for the nine months ended June 30,
2008 and 2007 are reimbursements for out-of-pocket expenses of $48.2 million
and $40.5 million, respectively. The $104.2 million increase in segment
operating income was primarily the result of increased activity days and
increased dayrates for new rigs placed in service during fiscal 2008 compared
to rigs in service prior to fiscal 2008.
U.S. land rig revenue
days for the first nine months of fiscal 2008 were 43,422 compared with 34,075
for the same period of 2007, with an average of 158.5 and 124.8 rigs working
during the first nine 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.
|
|
Nine Months Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
OFFSHORE OPERATIONS
|
|
(in thousands,
except days and per day amounts)
|
|
Revenues
|
|
$
|
104,368
|
|
$
|
94,083
|
|
Direct operating
expenses
|
|
72,295
|
|
66,595
|
|
General and
administrative expense
|
|
3,488
|
|
3,865
|
|
Depreciation
|
|
8,855
|
|
7,885
|
|
Segment
operating income
|
|
$
|
19,730
|
|
$
|
15,738
|
|
|
|
|
|
|
|
Revenue days
|
|
1,706
|
|
1,656
|
|
Average rig
revenue per day
|
|
$
|
45,711
|
|
$
|
33,095
|
|
Average rig
expense per day
|
|
$
|
29,483
|
|
$
|
21,921
|
|
Average rig
margin per day
|
|
$
|
16,228
|
|
$
|
11,174
|
|
Rig utilization
|
|
70
|
%
|
67
|
%
|
U.S. OFFSHORE operating
revenues, direct operating expenses and segment operating income increased due
to higher activity and a rig beginning work in Trinidad during fiscal 2008.
Included in offshore revenues for the nine months ended June 30, 2008 and June 30,
2007 are reimbursements for out-of-pocket expenses of $10.5 million and $11.2
million, respectively.
At June 30, 2008,
the Company had eight of its nine platform rigs working. The ninth rig is
currently in the yard undergoing capital improvement and is expected to return
to work with a contract in the third quarter of fiscal 2009.
31
MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
June 30, 2008
|
|
Nine Months Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
INTERNATIONAL LAND OPERATIONS
|
|
in thousands,
except days and per day amounts)
|
|
Revenues
|
|
$
|
234,944
|
|
$
|
235,153
|
|
Direct operating
expenses
|
|
156,004
|
|
142,530
|
|
General and
administrative expense
|
|
3,420
|
|
2,264
|
|
Depreciation
|
|
24,120
|
|
17,538
|
|
Segment
operating income
|
|
$
|
51,400
|
|
$
|
72,821
|
|
|
|
|
|
|
|
Revenue days
|
|
5,727
|
|
6,863
|
|
Average rig
revenue per day
|
|
$
|
37,570
|
|
$
|
29,583
|
|
Average rig
expense per day
|
|
$
|
23,704
|
|
$
|
16,253
|
|
Average rig
margin per day
|
|
$
|
13,866
|
|
$
|
13,330
|
|
Rig utilization
|
|
77
|
%
|
93
|
%
|
INTERNATIONAL LAND
segment operating income in the first nine months of fiscal 2008 was $51.4
million, compared to $72.8 million in the same period of 2007. Depreciation and operating income for the
nine months ended June 30, 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
nine months of fiscal 2008, compared with 93 percent for the first nine months
of fiscal 2007. An average of 20.9 rigs
worked during the first nine months of fiscal 2008, compared to 25.1 rigs in
the first nine months of fiscal 2007.
International revenues were $234.9 million and $235.2 million in the
first nine 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 nine months ended June 30, 2008 and
2007 are reimbursements for out-of-pocket expenses of $19.8 million and $31.6
million, respectively.
Direct operating
expenses for the first nine months of fiscal 2008 were up nine percent from the
first nine 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 $42.7 million in the first nine months of
fiscal 2008 from $35.5 million in the first nine months of fiscal 2007. The $7.2 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.
Interest expense was
$14.3 million and $6.1 million for the nine months ended June 30, 2008 and
2007, respectively. With advances on the credit facility to fund capital expenditures
and growth, interest expense before capitalized interest increased $4.6 million
for the nine months ended June 30, 2008, compared to the nine months ended
June 30, 2007. During these same comparable periods, capitalized interest
related to the Companys rig construction decreased $3.5 million as fewer new
rigs are built in fiscal 2008 compared to fiscal 2007.
In the first nine months
of fiscal 2008, income from the sale of investment securities was $22.0
million, $13.5 million after-tax ($0.13 per diluted share). Income from the sale of investment securities
was $51.8 million, $31.8 million after-tax ($0.30 per diluted share) in the
first nine months of fiscal 2007. The gain in both periods was from the sale of
available-for-sale investments and the proceeds were used to fund capital
expenditures in both fiscal periods. In
fiscal 2007, proceeds were also used to repurchase 681,900 shares of Company
common stock for approximately $15.9 million.
32
MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
June 30, 2008
Income from asset sales
decreased to $4.4 million in the first nine months of fiscal 2008, compared to
$39.0 million for the same period of fiscal 2007. The decrease of $34.6 million is primarily
due to the sale of two domestic offshore rigs and one U.S. land rig in fiscal
2007.
In the first nine months
of fiscal 2008, the Company recorded income of approximately $10.2 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 and insurance proceeds on Rig 201 that sustained damage as a result of
hurricane Katrina in 2005. For the nine
months ended June 30, 2007, income from involuntary conversion of
long-lived assets was $11.1 million, all attributable to Rig 201.
LIQUIDITY
AND CAPITAL RESOURCES
Liquidity
Cash and cash equivalents
increased to $99.0 million at June 30, 2008 from $89.2 million at September 30,
2007. The following table provides a summary of cash flows for the nine-month
periods ended June 30 (in thousands):
Net Cash provided (used) by:
|
|
2008
|
|
2007
|
|
Operating
activities
|
|
$
|
443,588
|
|
$
|
385,399
|
|
Investing
activities
|
|
(475,532
|
)
|
(511,615
|
)
|
Financing
activities
|
|
41,747
|
|
162,925
|
|
Increase in cash
and cash equivalents
|
|
$
|
9,803
|
|
$
|
36,709
|
|
Operating activities
Cash flows from operating
activities increased $58.2 million for the nine months ended June 30, 2008
compared to the same period ended June 30, 2007. The increase is primarily due to the net
effect of an increase in depreciation, a decrease in gain on sale of investment
securities and sale of assets and a reduction in accounts payable. Depreciation
increased $45.8 million for the nine months ended June 30, 2008 compared
to the nine months ended June 30, 2007 as a result of additional rigs
being placed into service during the past two fiscal years. In the nine months ended June 30, 2008,
the Company had gains from investment securities and sales of assets of $26.3
million compared to gains of $90.7 million in the first nine months of fiscal
2007. Accounts payable decreased $52.7
million at June 30, 2008 as a result of reduced capital spending
associated with the construction of FlexRigs.
Investing activities
Capital expenditures
decreased $172.1 million as the building of new FlexRigs was at a reduced pace
in the first nine months of fiscal 2008 compared to the first nine months of
fiscal 2007. Proceeds from sales of investments, sales of assets and
involuntary conversion of long-lived assets decreased $124.0 million. This decrease is primarily due to the sale of
available-for-sale securities and auction rate securities in fiscal 2007 that
were used to help fund capital expenditures.
During the third quarter of fiscal 2008, the Company used $12.0 million
for the acquisition of TerraVici.
Financing activities
The Companys net
proceeds from long-term debt and notes payable totaled $12.3 million in the
first nine months of fiscal 2008 compared to $201.3 million in the first nine
months of fiscal 2007. In fiscal 2007,
the Company purchased treasury shares for $17.6 million. Comparing the nine
months ended June 30, 2008 to the same period at June 30, 2007, the
Company had an increase in proceeds from the exercise of stock options and the
excess tax benefit from stock-based compensation of $23.6 million and $11.0
million, respectively and increased bank overdraft positions $15.8 million.
33
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
June 30, 2008
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 $455 million at June 30, 2008, as described
in Note 9 to the Consolidated Condensed Financial Statements.
Backlog
The Companys contract drilling
backlog, being the expected future revenue from executed contracts with
original terms in excess of one year, as of August 1, 2008 and October 31,
2007 was $2.898 billion and $1.969 billion, respectively. The increase in the Companys backlog from
September 30, 2007 to June 30, 2008 is primarily due to the execution of
additional long-term contracts for the operation of new FlexRigs. Approximately 91.7 percent of the August 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 August 1, 2008 and October 31, 2007, and the percentage of the August 1,
2008 backlog not reasonably expected to be filled in fiscal 2008:
Reportable
|
|
Total Backlog
|
|
Percentage Not Reasonably
|
|
Segment
|
|
08/01/2008
|
|
10/31/2007
|
|
Expected to be Filled in Fiscal 2008
|
|
|
|
(in billions)
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Land
|
|
$
|
2.359
|
|
$
|
1.696
|
|
90.5%
|
|
Offshore
|
|
.212
|
|
.234
|
|
93.6%
|
|
International Land
|
|
.327
|
|
.039
|
|
98.9%
|
|
|
|
$
|
2.898
|
|
$
|
1.969
|
|
|
|
Capital Resources
During the nine months ended June 30,
2008, the Company committed to build 32 new FlexRigs. Seven of the new rigs will work in Latin
American locations and the remaining 25 will be deployed in locations in the
United States. Most of these contracts
have minimum term durations of three years, and the remainder have minimum term
durations ranging from four to seven years.
Subsequent to June 30, 2008, the Company announced contracts had
been signed for an additional 18 rigs to be built. These 50, along with the 77
rigs announced in fiscal years 2005, 2006 and 2007 brings the Companys
commitment to a total of 127 new FlexRigs.
The drilling services are performed on a daywork contract basis. Through June 30, 2008, 92 rigs were
completed for delivery, and 90 of the 92 had begun field operations by June 30,
2008. The remaining rigs are expected to
be completed by the end of fiscal 2009.
Capital expenditures were $509.0 million and $681.1 million for the
first nine 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.
34
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
June 30, 2008
The Company anticipates capital expenditures to be approximately $800
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. After the adoption of FIN 48 at October 1,
2007, the Company had $6.6 million of obligations for uncertain tax positions
and related interest and penalties. At June 30,
2008, the Company had $7.6 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. Changes in these critical accounting policies
include:
On October 1, 2007 the Company adopted
FIN 48. 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
11 to the Companys consolidated condensed financial statements for additional
information and related disclosures.
The Company accounts for acquired businesses
using the purchase method of accounting which requires that the assets acquired
and liabilities assumed be recorded at the date of acquisition at their
respective fair values. Any excess of
the purchase price over the estimated fair values of the net assets acquired is
recorded as goodwill. Amounts allocated
to acquired in-process research and development are expensed at the date of
acquisition. The judgments made in
determining the estimated fair value assigned to each class of assets acquired
and liabilities assumed, as well as asset lives, can materially impact results
of operations. Accordingly, for
significant items, assistance from third party valuation specialists is
typically obtained. The valuations are
based on information available near the acquisition date and are based on
expectations and assumptions that have been deemed reasonable by management.
Goodwill represents the excess of cost over
the fair market value of net assets acquired in business combinations. Indefinite-lived intangibles are comprised of
trademarks. At June 30, 2008,
goodwill and other indefinite-lived intangibles totaled $1.2 million, which
arose from the acquisition of TerraVici.
The Company reviews goodwill and other intangibles at least annually for
impairment or more frequently if indicators of impairment warrant additional
analysis. Any excess in carrying value
over the estimated fair value is charged to the results of operations.
35
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
June 30, 2008
RECENTLY ISSUED ACCOUNTING STANDARDS
In
June 2008, the Financial Accounting Standards Board (FASB) issued Staff
Position (FSP) EITF 03-6-1,
Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities
, to clarify that all outstanding unvested share-based
payment awards that contain nonforfeitable rights to dividends or dividend
equivalents, whether paid or unpaid, are participating securities. An entity must include participating
securities in its calculation of basic and diluted earnings per share pursuant
to the two-class method pursuant to SFAS No. 128,
Earnings per
Share
. FSP EITF 03-6-1 is effective
for fiscal years beginning after December 15, 2008. The Company is currently evaluating FSP EITF
03-6-1 to determine the impact, if any, on the Consolidated Financial
Statements.
In December 2007, the 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.
36
PART I. FINANCIAL
INFORMATION
June 30, 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
15 to the Consolidated Condensed Financial Statements contained in Item 1 of Part I
hereof with regard to credit risk and foreign currency exchange rate 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 June 30, 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.
37
PART II. OTHER INFORMATION
ITEM 1A.
RISK FACTORS
Reference
is made to the risk factors entitled Indemnification and Insurance Coverage, Currency
Risk, Increased Receivables in Venezuela and Interest Rate Risk in Item 1A
of Part 1 of the Companys Form 10-K for the year ended September 30,
2007. In order to update these risk
factors for developments that have occurred during the third quarter of fiscal
2008, the risk factors are hereby amended and updated by reference to, and
incorporation herein of, Notes 9 and 15 to the Consolidated Condensed Financial
Statements contained in Item 1 of Part I hereof.
Except
as discussed above, there have been no material changes to the risk factors
disclosed in Item 1A of Part 1 in our Form 10-K for the year ended September 30,
2007.
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
|
|
|
|
10.1
|
|
First Amendment to Lease between ASP, Inc. and
Helmerich & Payne, Inc. (incorporated herein by reference to
Exhibit 10.1 of Form 8-K filed by the Company on May 29,
2008).
|
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.
|
38
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:
|
August 5, 2008
|
|
By:
|
/S/ HANS C HELMERICH
|
|
|
|
|
|
Hans C. Helmerich, President
|
|
|
|
|
|
|
|
|
|
|
Date:
|
August 5, 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
|
10.1
|
|
First Amendment to Lease between ASP, Inc. and
Helmerich & Payne, Inc. (incorporated herein by reference to
Exhibit 10.1 of Form 8-K filed by the Company on May 29,
2008).
|
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.
|
39
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