Table
of Contents
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: December 31, 2009
|
|
OR
|
|
|
|
o
|
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the transition period from
to
Commission File Number: 1-4221
HELMERICH &
PAYNE, INC.
(Exact name of registrant as specified in its charter)
Delaware
|
|
73-0679879
|
(State or other
jurisdiction of
|
|
(I.R.S. Employer
I.D. Number)
|
incorporation or
organization)
|
|
|
1437 South Boulder Avenue, Tulsa, Oklahoma,74119
(Address of
principal executive office)(Zip Code)
(918)
742-5531
(Registrants
telephone number, including area code)
N/A
(Former name,
former address and former fiscal year,
if changed since last report)
Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes
x
No
o
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Yes
x
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of large accelerated
filer, accelerated filer and small reporting company in Rule 12b-2 of
the Exchange Act.
Large
accelerated filer
x
|
|
Accelerated
filer
o
|
|
|
|
Non-accelerated
filer
o
|
|
Smaller
reporting company
o
|
(Do not check if a smaller reporting company)
|
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).
Yes
o
No
x
CLASS
|
|
OUTSTANDING AT January 31, 2010
|
Common Stock, $0.10 par
value
|
|
105,714,528
|
Table
of Contents
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
|
|
December 31,
|
|
September 30,
|
|
|
|
2009
|
|
2009
|
|
ASSETS
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
153,053
|
|
$
|
141,486
|
|
Short-term
investments
|
|
12,516
|
|
12,500
|
|
Accounts
receivable, less reserve of $658 at December 31, 2009 and $659 at
September 30, 2009
|
|
270,509
|
|
246,790
|
|
Inventories
|
|
46,370
|
|
44,723
|
|
Deferred
income taxes
|
|
20,560
|
|
12,861
|
|
Assets
held for sale
|
|
|
|
1,023
|
|
Prepaid
expenses and other
|
|
77,488
|
|
63,549
|
|
Total
current assets
|
|
580,496
|
|
522,932
|
|
|
|
|
|
|
|
Investments
|
|
366,672
|
|
356,404
|
|
Property,
plant and equipment, net
|
|
3,273,643
|
|
3,265,907
|
|
Other
assets
|
|
14,803
|
|
15,781
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
4,235,614
|
|
$
|
4,161,024
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Accounts
payable
|
|
$
|
58,981
|
|
$
|
70,218
|
|
Accrued
liabilities
|
|
156,366
|
|
126,688
|
|
Short-term
debt
|
|
105,000
|
|
105,000
|
|
Total
current liabilities
|
|
320,347
|
|
301,906
|
|
|
|
|
|
|
|
Noncurrent
liabilities:
|
|
|
|
|
|
Long-term
debt
|
|
380,000
|
|
420,000
|
|
Deferred
income taxes
|
|
701,257
|
|
681,542
|
|
Other
|
|
78,028
|
|
74,567
|
|
Total
noncurrent liabilities
|
|
1,159,285
|
|
1,176,109
|
|
|
|
|
|
|
|
Shareholders
equity:
|
|
|
|
|
|
Common
stock, $.10 par value, 160,000,000 shares authorized,107,057,904 shares issued
as of December 31 and September 30, 2009 and 105,673,378 and 105,486,218
shares outstanding as of December 31 and September 30, 2009,
respectively
|
|
10,706
|
|
10,706
|
|
Preferred
stock, no par value, 1,000,000 shares authorized, no shares issued
|
|
|
|
|
|
Additional
paid-in capital
|
|
182,121
|
|
176,039
|
|
Retained
earnings
|
|
2,472,875
|
|
2,414,942
|
|
Accumulated
other comprehensive income
|
|
119,005
|
|
112,451
|
|
Treasury
stock, at cost
|
|
(28,725
|
)
|
(31,129
|
)
|
Total
shareholders equity
|
|
2,755,982
|
|
2,683,009
|
|
|
|
|
|
|
|
Total
liabilities and shareholders equity
|
|
$
|
4,235,614
|
|
$
|
4,161,024
|
|
The accompanying
notes are an integral part of these statements.
3
Table
of Contents
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(in thousands,
except per share data)
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Operating
revenues:
|
|
|
|
|
|
Drilling
U.S. Land
|
|
$
|
285,069
|
|
$
|
475,204
|
|
Drilling
Offshore
|
|
52,290
|
|
50,488
|
|
Drilling
International Land
|
|
59,398
|
|
95,178
|
|
Other
|
|
3,086
|
|
2,884
|
|
|
|
399,843
|
|
623,754
|
|
|
|
|
|
|
|
Operating
costs and other:
|
|
|
|
|
|
Operating
costs, excluding depreciation
|
|
212,693
|
|
330,928
|
|
Depreciation
|
|
62,803
|
|
54,772
|
|
General
and administrative
|
|
20,844
|
|
15,148
|
|
Research
and development
|
|
1,815
|
|
1,677
|
|
Gain
from involuntary conversion of long-lived assets
|
|
|
|
(277
|
)
|
Income
from asset sales
|
|
(698
|
)
|
(914
|
)
|
|
|
297,457
|
|
401,334
|
|
|
|
|
|
|
|
Operating income
|
|
102,386
|
|
222,420
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
Interest
and dividend income
|
|
439
|
|
1,786
|
|
Interest
expense
|
|
(4,694
|
)
|
(3,700
|
)
|
Other
|
|
15
|
|
128
|
|
|
|
(4,240
|
)
|
(1,786
|
)
|
|
|
|
|
|
|
Income
before income taxes and equity in income of affiliate
|
|
98,146
|
|
220,634
|
|
|
|
|
|
|
|
Income
tax provision
|
|
34,911
|
|
81,248
|
|
Equity
in income of affiliate net of income taxes
|
|
|
|
5,889
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
63,235
|
|
$
|
145,275
|
|
|
|
|
|
|
|
Earnings
per common share:
|
|
|
|
|
|
Basic
|
|
$
|
0.60
|
|
$
|
1.38
|
|
Diluted
|
|
$
|
0.59
|
|
$
|
1.36
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
Basic
|
|
105,575
|
|
105,249
|
|
Diluted
|
|
107,238
|
|
106,310
|
|
|
|
|
|
|
|
D
ividends
declared per common share
|
|
$
|
0.050
|
|
$
|
0.050
|
|
The accompanying
notes are an integral part of these statements.
4
Table
of Contents
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
Net
income
|
|
$
|
63,235
|
|
$
|
145,275
|
|
Adjustments
to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation
|
|
62,803
|
|
54,772
|
|
Provision
for bad debt
|
|
2
|
|
8
|
|
Equity
in income of affiliate before income taxes
|
|
|
|
(9,500
|
)
|
Stock-based
compensation
|
|
7,008
|
|
2,200
|
|
Gain
from involuntary conversion of long-lived assets
|
|
|
|
(277
|
)
|
Income
from asset sales
|
|
(698
|
)
|
(914
|
)
|
Deferred
income tax expense
|
|
8,235
|
|
28,141
|
|
Other
|
|
|
|
1
|
|
Change
in assets and liabilities-
|
|
|
|
|
|
Accounts
receivable
|
|
(23,721
|
)
|
2,259
|
|
Inventories
|
|
(1,647
|
)
|
(8,896
|
)
|
Prepaid
expenses and other
|
|
(12,978
|
)
|
(5,675
|
)
|
Accounts
payable
|
|
(15,747
|
)
|
20,611
|
|
Accrued
liabilities
|
|
29,999
|
|
21,834
|
|
Deferred
income taxes
|
|
(22
|
)
|
3,884
|
|
Other
noncurrent liabilities
|
|
3,681
|
|
856
|
|
Net cash provided by operating activities
|
|
120,150
|
|
254,579
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
Capital
expenditures
|
|
(64,754
|
)
|
(250,381
|
)
|
Insurance
proceeds from involuntary conversion
|
|
|
|
277
|
|
Proceeds
from asset sales
|
|
2,486
|
|
1,411
|
|
Purchase
of short-term investments
|
|
(16
|
)
|
|
|
Other
|
|
|
|
(16
|
)
|
Net
cash used in investing activities
|
|
(62,284
|
)
|
(248,709
|
)
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
Decrease
in notes payable
|
|
|
|
(1,733
|
)
|
Proceeds
from lines of credit
|
|
435,000
|
|
920,000
|
|
Payments
on lines of credit
|
|
(475,000
|
)
|
(905,000
|
)
|
Increase
(decrease) in bank overdraft
|
|
(2,038
|
)
|
2,330
|
|
Dividends
paid
|
|
(5,287
|
)
|
(5,273
|
)
|
Exercise
of stock options
|
|
(623
|
)
|
300
|
|
Excess
tax benefit from stock-based compensation
|
|
1,649
|
|
17
|
|
Net
cash provided by (used in) financing activities
|
|
(46,299
|
)
|
10,641
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
11,567
|
|
16,511
|
|
Cash and cash equivalents, beginning of period
|
|
141,486
|
|
121,513
|
|
Cash and cash equivalents, end of period
|
|
$
|
153,053
|
|
$
|
138,024
|
|
The accompanying
notes are an integral part of these statements.
5
Table of Contents
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS
EQUITY
THREE MONTHS ENDED
DECEMBER 31, 2009
(Unaudited)
(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, 2009
|
|
107,058
|
|
$
|
10,706
|
|
$
|
176,039
|
|
$
|
2,414,942
|
|
$
|
112,451
|
|
1,572
|
|
$
|
(31,129
|
)
|
$
|
2,683,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
63,235
|
|
|
|
|
|
|
|
63,235
|
|
Other
comprehensive income, Unrealized gains on available-for-sale securities
|
|
|
|
|
|
|
|
|
|
6,220
|
|
|
|
|
|
6,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of net periodic benefit costs-net of actuarial gain
|
|
|
|
|
|
|
|
|
|
334
|
|
|
|
|
|
334
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends ($0.05 per share)
|
|
|
|
|
|
|
|
(5,302
|
)
|
|
|
|
|
|
|
(5,302
|
)
|
Exercise
of stock options
|
|
|
|
|
|
(1,582
|
)
|
|
|
|
|
(117
|
)
|
959
|
|
(623
|
)
|
Tax
benefit of stock-based awards, including excess tax benefits of $1.7 million
|
|
|
|
|
|
2,101
|
|
|
|
|
|
|
|
|
|
2,101
|
|
Treasury
stock issued for vested restricted stock
|
|
|
|
|
|
(1,445
|
)
|
|
|
|
|
(70
|
)
|
1,445
|
|
|
|
Stock-based
compensation
|
|
|
|
|
|
7,008
|
|
|
|
|
|
|
|
|
|
7,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2009
|
|
107,058
|
|
$
|
10,706
|
|
$
|
182,121
|
|
$
|
2,472,875
|
|
$
|
119,005
|
|
1,385
|
|
$
|
(28,725
|
)
|
$
|
2,755,982
|
|
The
accompanying notes are an integral part of these statements.
6
Table of
Contents
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1.
Basis of Presentation
Unless the context
otherwise requires, the use of the terms the Company, we, us and our in
these Notes to Consolidated Condensed Financial Statements refers to Helmerich &
Payne, Inc. and its consolidated subsidiaries.
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 our 2009 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.
The adoption of
the guidance contained in Accounting Standards Codification (ASC) 260-10-45,
Earnings per Share
, discussed below in Note 2 changed the
calculation of basic earnings per share requiring restricted stock grants that
have previously been included in our diluted weighted-average shares to be
included in basic weighted-average shares.
Earnings per share for the quarter ended December 31, 2008 has been
recalculated to conform to the current year presentation.
As more fully
described in our 2009 Annual Report on Form 10-K, our contract drilling
revenues are comprised of daywork drilling contracts for which the related
revenues and expenses are recognized as services are performed. For contracts that are terminated by
customers prior to the expirations of their fixed term, contractual provisions
customarily require early termination amounts to be paid to us. Revenues from early terminated contracts are
recognized when all contractual requirements have been met.
2.
Earnings per Share
Effective October 1,
2009, we adopted the guidance contained in ASC 260-10-45,
Earnings per
Share
. ASC 260-10-45
addresses whether instruments granted in share-based payment transactions are
participating securities prior to vesting and therefore need to be included in
the earnings allocation in calculating earnings per share under the two-class
method described in ASC 260-10-45. ASC 260-10-45 requires companies to treat
unvested share-based payment awards that have non-forfeitable rights to
dividend or dividend equivalents as a separate class of securities in
calculating earnings per share. We have granted and expect to continue to grant
restricted stock grants to employees and non-employee directors that contain
non-forfeitable rights to dividend. Such grants are considered participating
securities under ASC 260-10-45. As such, we are required to include these
grants in the calculation of our basic earnings per share and will need to
calculate basic earnings per share using the two-class method. Restricted stock
grants have previously been included in our dilutive earnings per share
calculation using the treasury stock method. The two-class method of computing
earnings per share is an earnings allocation formula that determines earnings
per share for each class of common stock and participating security according
to dividends declared (or accumulated) and participation rights in
undistributed earnings. Since the
adoption of ASC 260-10-45 is to be applied retrospectively, the earnings per
share for the prior period have been recalculated to conform to the current
year presentation. As a result, the number
7
Table of
Contents
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
of shares used to compute
earnings per share changed; however, the adoption did not change the basic and
diluted earnings per share amounts previously reported for the three months
ended December 31, 2008.
Basic net income per
share is computed utilizing the two-class method and is calculated based on
weighted-average number of common shares outstanding during the periods
presented.
Diluted net income per
share is computed using the weighted-average number of common and common
equivalent shares outstanding during the periods utilizing the two-class method
for stock options and nonvested restricted stock.
The following table sets
forth the computation of basic and diluted earnings per share (in thousands, except
per share amounts):
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
Net income
|
|
$
|
63,235
|
|
$
|
145,275
|
|
Earnings allocated to unvested shareholders
|
|
(134
|
)
|
(285
|
)
|
Numerator for basic earnings per share
|
|
63,101
|
|
144,990
|
|
Effect of reallocating undistributed earnings of
unvested shareholders
|
|
2
|
|
3
|
|
Numerator for diluted earnings per share
|
|
$
|
63,103
|
|
$
|
144,993
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
Denominator for basic earnings per share
weighted-average shares
|
|
105,575
|
|
105,249
|
|
Effect of dilutive shares from stock options and
restricted stock
|
|
1,663
|
|
1,061
|
|
Denominator for diluted earnings per share
adjusted weighted-average shares
|
|
107,238
|
|
106,310
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
Basic
|
|
$
|
0.60
|
|
$
|
1.38
|
|
Diluted
|
|
$
|
0.59
|
|
$
|
1.36
|
|
The following
shares attributable to outstanding equity awards were excluded from the
calculation of diluted earnings per shares because their inclusion would have
been anti-dilutive (in thousands, except per share amounts):
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Shares
excluded from calculation of diluted earnings per share
|
|
570
|
|
1,869
|
|
Weighted-average
price per share
|
|
$
|
38.02
|
|
$
|
30.95
|
|
|
|
|
|
|
|
|
|
3.
Operations and Risks in Venezuela
We continue to record
revenue in Venezuela as cash is collected from Petroleos de Venezuela, S.A.
(PDVSA) as more fully described in Note 14 of the Consolidated Financial
Statements in our Annual Report on Form 10-K for fiscal
8
Table of
Contents
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
year ended September 30,
2009. As adjusted for the January 2010
currency devaluation discussed below, the amount of revenue that has not been
recognized since the end of the first quarter of fiscal 2009 and will be
recognized upon collection is approximately $41.9 million. During the first quarter of fiscal 2010, we
received approximately $20.8 million (U.S. dollars and U.S. currency
equivalent). Approximately 73 percent of
this amount corresponded to accounts receivable at the end of the first quarter
of fiscal 2009 and the remainder to invoices issued for work performed after
the first quarter of fiscal 2009. At December 31,
2009, the Consolidated Condensed Balance Sheet includes accounts receivable
from PDVSA of $13.0 million, $10.6 million adjusted for the January 2010
currency devaluation discussed below. We
do not have enough information to conclude that this remaining receivable
balance is not probable of collection.
However, there continues to be uncertainty regarding the timing of the
collection due to the current political, economic and social instability in Venezuela,
the dependence by Venezuela on oil to largely support its economy and the
failure of PDVSA to pay many service companies working in Venezuela. We proactively continue efforts to collect
unpaid invoice amounts. Subsequent to December 31, 2009, we received
approximately $5.1 million (U.S. currency equivalent) from PDVSA of which
approximately $2.2 million will be recognized in revenues during the second
quarter of fiscal 2010.
At December 31,
2009, all eleven rigs that formerly worked for PDVSA in Venezuela were
idle. We continue to pursue future
drilling opportunities for these eleven rigs but we do not expect to commit to
new contracts until additional progress is made on pending receivable
collections and on conversion of local currency to U.S. dollars.
In addition to the
outstanding accounts receivable above, PDVSA has unilaterally paid U.S. dollar
invoices in bolivar fuerte (Bsf) which increases our exposure to foreign
currency devaluation. We have provided
all supporting documentation to PDVSA and await approval from them to exchange
those payments to U.S. dollars. The
approval and subsequent payment would result in reducing the foreign currency
exposure. We are unable to determine
when payment will be received.
On January 8, 2010,
the Venezuelan government devalued its currency and established a two tier
exchange structure. The official
exchange rate has been devalued from 2.15 Bsf to each U.S. dollar to 4.30 for
non-essential goods and services and to 2.60 for essential goods. We expect our drilling services to fall into
the non-essential classification. As a
result of the devaluation, we expect to record an exchange loss of
approximately $20.0 million in the second quarter of fiscal 2010.
We have, since July 22,
2008, had an outstanding application with the Venezuelan government requesting
approval to convert Bsf cash balances to U.S. dollars. When and if we receive approval from the
Venezuelan government, our Venezuelan subsidiary will remit approximately $28.4
million, $14.2 million adjusted for the January 2010 currency devaluation,
as a dividend to its U.S. based parent as cash balances permit. While we have been successful in the past in
obtaining government approval for conversion of Bsf 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 Bsf cash balances could increase and we would be
exposed to increased risk of devaluation.
Readers should
refer to Note 15 of these Consolidated Condensed Financial Statements for
additional information related to risk factors in international operations.
9
Table of
Contents
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
4.
Inventories
Inventories
consist primarily of replacement parts and supplies held for use in our
drilling operations.
5.
Financial Instruments and Fair Value Measurement
The estimated fair
value of our available-for-sale securities is primarily based on market
quotes. The following is a summary of
available-for-sale securities, which excludes investments in limited
partnerships carried at cost and assets held in a Non-qualified Supplemental
Savings Plan:
|
|
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
|
|
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
12/31/09
|
|
$
|
129,183
|
|
$
|
220,592
|
|
$
|
|
|
$
|
349,775
|
|
Equity securities
09/30/09
|
|
$
|
129,183
|
|
$
|
210,640
|
|
$
|
|
|
$
|
339,823
|
|
On an on-going
basis, we evaluate the marketable equity securities to determine if a decline
in fair market is other-than-temporary.
If a decline in fair market value is determined to be
other-than-temporary, an impairment charge is recorded and a new cost basis
established. We review several factors
to determine whether a loss is other-than-temporary. These factors include, but are not limited
to, (i) the length of time a security is in an unrealized loss position, (ii) the
extent to which fair value is less than cost, (iii) the financial
condition and near term prospects of the issuer, and (iv) our intent and
ability to hold the security for a period of time sufficient to allow for any
anticipated recovery in fair value. The
cost of securities used in determining realized gains and losses is based on
the average cost basis of the security sold.
We had no sales of marketable equity available-for-sale securities
during the first quarter of fiscal 2010 and 2009.
Investments in
limited partnerships carried at cost were approximately $12.4 million at December 31,
2009 and September 30, 2009. The
estimated fair value of the limited partnerships was $20.6 million and $19.7 million
at December 31, 2009 and September 30, 2009, respectively. The estimated fair value exceeded the cost of
investments at December 31, 2009 and September 30, 2009 and, as such,
the investments were not impaired.
Assets held in the
Non-qualified Supplemental Savings Plan are carried at fair market value which
totaled $4.5 million at December 31, 2009 and $4.2 million at September 30,
2009, respectively.
The majority of
cash equivalents are invested in taxable and non-taxable money-market mutual
funds. The carrying amount of cash and
cash equivalents approximates fair value due to the short maturity of those
investments.
At December 31,
2009, our short-term investments consisted of a bank certificate of deposit
with an original maturity greater than three months. Interest earned is included in interest and
dividend income on the Consolidated Condensed Statement of Income. The carrying amount of the certificate of
deposit approximates fair value.
The carrying value
of other assets, accrued liabilities and other liabilities approximated fair
value at December 31, 2009 and September 30, 2009.
10
Table of
Contents
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
On October 1,
2009, we implemented the previously deferred provisions of ASC 820,
Fair Value Measurements and Disclosures
, for nonfinancial
assets and liabilities recorded at fair value, as required. Additionally, we adopted Accounting Standards
Update No. 2009-05,
Measuring Liabilities at
Fair Value
(ASU 2009-05), which provided amendments to ASC 820 for
the fair value measurements of liabilities when a quoted price in an active
market is not available. The adoption of
these pronouncements had no impact on these Consolidated Condensed Financial
Statements.
ASC 820 defines
fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. We use the fair
value hierarchy established in ASC 820-10 to measure fair value to prioritize
the inputs:
·
Level 1 Observable inputs that reflect quoted prices in active markets
for identical assets or liabilities in active markets.
·
Level 2 Inputs other than Level 1 that are observable, either
directly or indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that
are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.
·
Level 3 Valuations based on inputs that are unobservable and not
corroborated by market data.
At December 31,
2009, our financial assets utilizing Level 1 inputs include cash equivalents,
equity securities with active markets, and money market funds we have elected
to classify as restricted assets that are included in other current assets and
other assets. For these items, quoted
current market prices are readily available.
At December 31,
2009, we had an interest rate swap agreement with a $105 million notional
amount to hedge the risk of changes in the interest rate associated with
amounts outstanding under an unsecured line of credit that expires in January 2010. The fair value of the swap agreement was
determined using Level 2 inputs. Level 2 inputs also include a bank certificate
of deposit classified as a short-term investment and bank certificates of
deposit included in other current assets.
Currently, we do
not have any financial instruments utilizing Level 3 inputs.
11
Table
of Contents
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The following
table summarizes our assets and liabilities measured at fair value on a
recurring basis presented in our Consolidated Condensed Balance Sheet as of December 31,
2009:
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
Total
|
|
in Active
|
|
Significant
|
|
|
|
|
|
Measure
|
|
Markets for
|
|
Other
|
|
Significant
|
|
|
|
at
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
Fair
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
|
|
Value
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
|
(in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
153,053
|
|
$
|
153,053
|
|
$
|
|
|
$
|
|
|
Short-term investments
|
|
12,516
|
|
|
|
12,516
|
|
|
|
Investments
|
|
349,775
|
|
349,775
|
|
|
|
|
|
Other current assets
|
|
11,558
|
|
11,308
|
|
250
|
|
|
|
Other assets
|
|
2,000
|
|
2,000
|
|
|
|
|
|
Total assets measured
at fair value
|
|
$
|
528,902
|
|
$
|
516,136
|
|
$
|
12,766
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Other current liabilitiesinterest rate swap
|
|
$
|
59
|
|
$
|
|
|
$
|
59
|
|
$
|
|
|
Total liabilities
measured at fair value
|
|
$
|
59
|
|
$
|
|
|
$
|
59
|
|
$
|
|
|
The following
information presents the supplemental fair value information about long-term
fixed-rate debt at December 31, and September 30, 2009:
|
|
December 31,
|
|
September 30,
|
|
|
|
2009
|
|
2009
|
|
|
|
(in thousands)
|
|
Carrying value
of long-term fixed-rate debt
|
|
$
|
350.0
|
|
$
|
350.0
|
|
Fair value of
long-term fixed-rate debt
|
|
$
|
381.4
|
|
$
|
380.9
|
|
The fair value for
fixed-rate debt was estimated using discounted cash flows and interest rates
currently being offered on credits with similar maturities and credit
profiles. The outstanding line of credit
and short-term debt bear interest at market rates and the cost of borrowings,
if any, would approximate fair value.
12
Table of
Contents
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
6.
Comprehensive Income
Comprehensive
income, net of related income taxes, is as follows (in thousands):
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
Net Income
|
|
$
|
63,235
|
|
$
|
145,275
|
|
Other
comprehensive income:
|
|
|
|
|
|
Unrealized
appreciation (depreciation) on securities
|
|
9,952
|
|
(34,598
|
)
|
Income taxes
|
|
(3,732
|
)
|
13,147
|
|
|
|
6,220
|
|
(21,451
|
)
|
|
|
|
|
|
|
Minimum pension
liability adjustments
|
|
536
|
|
|
|
Income taxes
|
|
(202
|
)
|
|
|
|
|
334
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
$
|
69,789
|
|
$
|
123,824
|
|
The components of
accumulated other comprehensive income, net of related income taxes, are as
follows (in thousands):
|
|
December 31,
|
|
September 30,
|
|
|
|
2009
|
|
2009
|
|
Unrealized
appreciation on securities
|
|
$
|
136,817
|
|
$
|
130,597
|
|
Unrecognized
actuarial gain (loss) and prior service cost
|
|
(17,812
|
)
|
(18,146
|
)
|
Accumulated
other comprehensive income
|
|
$
|
119,005
|
|
$
|
112,451
|
|
7.
Derivative
Financial Instruments
We are exposed to market risk in the normal course of
business operations due to ongoing investing and financing activities. The risk
of loss can be assessed from the perspective of adverse changes in fair values,
cash flows and future earnings. ASC 815,
Derivatives and Hedging
, requires an
entity to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. We have not historically entered
into derivative financial instruments for trading purposes or for
speculation. For further information
regarding the derivative instruments including our disclosures of our interest
rate swap, refer to Note 10, Debt, and Note 5, Financial Instruments and Fair
Value Measurement, of these Consolidated Condensed Financial Statements.
8.
Cash Dividends
The $0.05 cash
dividend declared September 2, 2009, was paid December 1, 2009. On December 1,
2009, a cash dividend of $0.05 per share was declared for shareholders of
record on February 15, 2010, payable March 1, 2010. The dividend payable is included in accounts
payable in the Consolidated Condensed Balance Sheet.
9.
Stock-Based Compensation
We have 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. 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 the market price of the underlying stock on the
date of grant. Stock options expire ten
years after the grant date.
13
Table of
Contents
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Vesting
requirements are determined by the Human Resources Committee of our Board of
Directors. Readers should refer to Note
5 of the Consolidated Financial Statements in our Annual Report on Form 10-K
for the fiscal year ended September 30, 2009 for additional information
related to stock-based compensation.
We use 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. We have the right to satisfy option exercises
from treasury shares and from authorized but unissued shares.
On December 1, 2009, the plan was amended to
provide for continued vesting (and accelerated vesting upon death) of
restricted stock and stock options effective upon a participant becoming
retirement eligible. A participant meets
the definition of retirement eligible if the participant attains age 55 and has
15 or more years of continuous service as a full-time employee. The plan amendments apply retroactively. As a result of the continued vesting
provisions, we incurred additional compensation cost of approximately $4.4
million for the three months ended December 31, 2009.
A summary of
compensation cost for stock-based payment arrangements recognized in general
and administrative expense is as follows (in thousands):
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
Compensation
expense
|
|
|
|
|
|
Stock options
|
|
$
|
5,676
|
|
$
|
1,837
|
|
Restricted stock
|
|
1,332
|
|
363
|
|
|
|
$
|
7,008
|
|
$
|
2,200
|
|
STOCK OPTIONS
The following
summarizes the weighted-average assumptions utilized in determining the fair
value of options granted during the three months ended December 31, 2009
and 2008:
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
2.3
|
%
|
1.7
|
%
|
Expected stock volatility
|
|
49.9
|
%
|
43.4
|
%
|
Dividend yield
|
|
.5
|
%
|
.9
|
%
|
Expected term (in years)
|
|
5.8
|
|
5.8
|
|
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 our stock
based upon historical experience over a period which approximates the expected
term of the option.
14
Table of
Contents
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Dividend
Yield.
The expected
dividend yield is based on our current dividend yield.
Expected
Term.
The expected
term of the options granted represents the period of time that they are
expected to be outstanding. We estimate
the expected term of options granted based on historical experience with grants
and exercises.
A summary of stock
option activity under the Plan for the three months ended December 31,
2009 is presented in the following table:
|
|
Three Months Ended December 31, 2009
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Weighted-
|
|
Average
|
|
Aggregate
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Intrinsic
|
|
|
|
Shares
|
|
Exercise
|
|
Contractual
|
|
Value
|
|
Options
|
|
(in thousands)
|
|
Price
|
|
Term
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at October 1, 2009
|
|
5,401
|
|
$
|
20.55
|
|
|
|
|
|
Granted
|
|
570
|
|
38.02
|
|
|
|
|
|
Exercised
|
|
(183
|
)
|
11.47
|
|
|
|
|
|
Forfeited/Expired
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
5,788
|
|
$
|
22.56
|
|
6.0
|
|
$
|
100.3
|
|
Vested and expected to vest at December 31,
2009
|
|
5,710
|
|
$
|
22.46
|
|
5.9
|
|
$
|
99.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009
|
|
4,102
|
|
$
|
19.46
|
|
4.8
|
|
$
|
83.8
|
|
The
weighted-average fair value of options granted in the first quarter of fiscal
2010 was $17.64.
The total
intrinsic value of options exercised during the three months ended December 31,
2009 was $5.5 million.
As of December 31,
2009, the unrecognized compensation cost related to the stock options was $15.7
million. That cost is expected to be
recognized over a weighted-average period of 3.2 years.
RESTRICTED STOCK
Restricted stock
grants consist of our common stock and are time vested over three to five
years. Compensation expense is
recognized 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 our shares on the grant date.
15
Table of
Contents
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
A summary of the
status of our restricted stock grants as of December 31, 2009 and changes
during the three months then ended is presented below:
|
|
Three Months Ended
|
|
|
|
December 31, 2009
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
Grant-Date
|
|
Restricted Stock
|
|
(in thousands)
|
|
Fair Value
|
|
|
|
|
|
|
|
Unvested at October 1,
|
|
177
|
|
$
|
30.06
|
|
Granted
|
|
182
|
|
38.02
|
|
Vested
|
|
(70
|
)
|
29.36
|
|
Forfeited
|
|
|
|
|
|
Unvested at December 31,
|
|
289
|
|
$
|
35.23
|
|
As of December 31,
2009, there was $7.8 million of total unrecognized compensation cost related to
restricted stock granted under the Plan.
That cost is expected to be recognized over a weighted-average period of
2.5 years.
10.
Debt
At December 31, 2009, we had the following
unsecured long-term debt outstanding (in thousands):
Unsecured
intermediate debt issued August 15, 2002:
|
|
|
|
Series C,
due August 15, 2012, 6.46%
|
|
$
|
75,000
|
|
Series D,
due August 15, 2014, 6.56%
|
|
75,000
|
|
Unsecured senior
notes issued July 21, 2009:
|
|
|
|
Due
July 21, 2012, 6.10%
|
|
40,000
|
|
Due
July 21, 2013, 6.10%
|
|
40,000
|
|
Due July 21,
2014, 6.10%
|
|
40,000
|
|
Due
July 21, 2015, 6.10%
|
|
40,000
|
|
Due
July 21, 2016, 6.10%
|
|
40,000
|
|
Unsecured senior
credit facility due December 18, 2011, .59%
|
|
30,000
|
|
|
|
$
|
380,000
|
|
Less long-term
debt due within one year
|
|
|
|
Long-term debt
|
|
$
|
380,000
|
|
The terms of the
fixed rate debt obligations require that we maintain a minimum ratio of debt to
total capitalization.
We have $200
million senior unsecured fixed-rate notes that will mature July 2016. Interest on the notes will be paid
semi-annually based on an annual rate of 6.10 percent. We will make five equal annual principal
repayments of $40 million starting on the third anniversary of the closing
date. Financial covenants require us to
maintain a funded leverage ratio of less than 55 percent and an interest
coverage ratio (as defined) of not less than 2.50 to 1.00. The note purchase agreement also contains
additional terms, conditions, and restrictions that we believe are usual and
customary in unsecured debt arrangements for companies that are similar in size
and credit quality.
16
Table of Contents
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
We have an
agreement with a multi-bank syndicate for a $400 million senior unsecured
credit facility maturing December 2011.
While we have the option to borrow at the prime rate for maturities of
less than 30 days, we anticipate that the majority of all of the borrowings
over the life of the facility will accrue interest at a spread over the London
Interbank Bank Offered Rate (LIBOR). We
pay 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 our total
debt to total capitalization. The LIBOR
spread ranges from .30 percent to .45 percent over LIBOR depending on the
ratios. At December 31, 2009, the
LIBOR spread on borrowings was .35 percent and the commitment fee was .075
percent per annum. At December 31,
2009, we had two letters of credit totaling $21.9 million under the facility
and had $30 million borrowed against the facility with $348.1 million available
to borrow. The advances bear an interest rate of 0.59 percent at December 31,
2009. On January 19, 2010, we borrowed
$75 million that was used to pay the $105 million unsecured line discussed
below. Subsequently, we repaid $10 million and currently have $283.1 million
available to borrow.
At December 31,
2009, we had an agreement with a multi-bank syndicate for a $105 million
unsecured line of credit that matured January 2010. We fully funded this facility for the entire
term at a spread over 30 day LIBOR. The
spread over LIBOR was determined according to the same scale of debt to total
capitalization used in our $400 million facility which is described in the
preceding paragraph. At December 31, 2009, the spread on the borrowing was
2.25 percent over LIBOR. Simultaneous
with the closing of this facility, we entered into an interest-rate swap with
the same maturity and a notional amount of $105 million. The interest rate swap
qualified as a derivative and was not designated as a hedging instrument and,
as such, we did not apply hedge accounting.
At the end of an accounting period, the interest rate swap is recorded
in the Consolidated Balance Sheet at fair value, either in other current assets
or accrued liabilities, and any related gains or losses are recognized on our
Consolidated Statement of Income within interest expense. The fair value of the interest rate swap
liability at December 31, 2009 was less than $0.1 million and is included
in accrued liabilities in the Consolidated Condensed Balance Sheet. In January 2010, this debt was paid in
full using operating cash flow and borrowings under the $400 million
facility. At the same time, the interest
rate swap expired.
Financial
covenants in both facilities require we 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. Both
facilities contain additional terms, conditions, and restrictions that we
believe are usual and customary in unsecured debt arrangements for companies
that are similar in size and credit quality.
At December 31, 2009, we were in compliance with all debt
covenants.
11.
Income Taxes
Our effective tax
rate for the three months ended December 31, 2009 and 2008 was 35.6
percent and 36.8 percent, respectively.
The effective rate differs from the U.S. federal statutory rate of 35.0
percent primarily due to state and foreign taxes.
17
Table of
Contents
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
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, we do not expect the change to have a material effect on
results of operations or financial position.
12.
Contingent Liabilities and Commitments
In conjunction
with our current drilling rig construction program, purchase commitments for
equipment, parts and supplies of approximately $14.9 million are outstanding at
December 31, 2009.
Various legal
actions, the majority of which arise in the ordinary course of business, are
pending. We maintain insurance against
certain business risks subject to certain deductibles. None of these legal actions are expected to
have a material adverse effect on our financial condition, cash flows or
results of operations.
We are
contingently liable to sureties in respect of bonds issued by the sureties in
connection with certain commitments entered into by us in the normal course of
business. We have agreed to indemnify
the sureties for any payments made by them in respect of such bonds.
13.
Segment Information
We operate
principally in the contract drilling industry. Our 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 large oil and gas exploration companies. Our primary international areas of operation
include Colombia, Ecuador, Argentina, Mexico, Venezuela, Tunisia 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,
we have aggregated our 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.
We evaluate
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 we believe to be a reasonable reflection of the utilization
of services provided.
Segment operating
income is a non-GAAP financial measure of our performance, as it excludes
general and administrative expenses, corporate depreciation, income from asset
sales and other corporate income and expense.
We consider segment operating income to be an important supplemental
measure of operating performance by presenting trends in our core
businesses. We use this measure to
facilitate period-to-period comparisons in operating performance of our
reportable segments in the aggregate by eliminating items that affect
comparability between periods.
18
Table of
Contents
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
We believe that
segment operating income is useful to investors because it provides a means to
evaluate the operating performance of the segments 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 our
operating performance in future periods.
Summarized
financial information of our reportable segments for the three months ended December 31,
2009, and 2008, is shown in the following tables:
|
|
|
|
|
|
|
|
Segment
|
|
|
|
External
|
|
Inter-
|
|
Total
|
|
Operating
|
|
(in
thousands)
|
|
Sales
|
|
Segment
|
|
Sales
|
|
Income (Loss)
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
Contract Drilling:
|
|
|
|
|
|
|
|
|
|
U.S.
Land
|
|
$
|
285,069
|
|
$
|
|
|
$
|
285,069
|
|
$
|
91,523
|
|
Offshore
|
|
52,290
|
|
|
|
52,290
|
|
15,106
|
|
International
Land
|
|
59,398
|
|
|
|
59,398
|
|
8,403
|
|
|
|
396,757
|
|
|
|
396,757
|
|
115,032
|
|
Other
|
|
3,086
|
|
205
|
|
3,291
|
|
(794
|
)
|
|
|
399,843
|
|
205
|
|
400,048
|
|
114,238
|
|
Eliminations
|
|
|
|
(205
|
)
|
(205
|
)
|
|
|
Total
|
|
$
|
399,843
|
|
$
|
|
|
$
|
399,843
|
|
$
|
114,238
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
|
External
|
|
Inter-
|
|
Total
|
|
Operating
|
|
(in
thousands)
|
|
Sales
|
|
Segment
|
|
Sales
|
|
Income (Loss)
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
Contract
Drilling:
|
|
|
|
|
|
|
|
|
|
U.S.
Land
|
|
$
|
475,204
|
|
$
|
|
|
$
|
475,204
|
|
$
|
194,048
|
|
Offshore
|
|
50,488
|
|
|
|
50,488
|
|
14,710
|
|
International
Land
|
|
95,178
|
|
|
|
95,178
|
|
22,628
|
|
|
|
620,870
|
|
|
|
620,870
|
|
231,386
|
|
Other
|
|
2,884
|
|
223
|
|
3,107
|
|
(861
|
)
|
|
|
623,754
|
|
223
|
|
623,977
|
|
230,525
|
|
Eliminations
|
|
|
|
(223
|
)
|
(223
|
)
|
|
|
Total
|
|
$
|
623,754
|
|
$
|
|
|
$
|
623,754
|
|
$
|
230,525
|
|
19
Table of
Contents
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
|
|
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Segment
operating income
|
|
$
|
114,238
|
|
$
|
230,525
|
|
Gain
from involuntary conversion of long-lived assets
|
|
|
|
277
|
|
Income
from asset sales
|
|
698
|
|
914
|
|
Corporate
general and administrative costs and corporate depreciation
|
|
(12,550
|
)
|
(9,296
|
)
|
Operating
income
|
|
102,386
|
|
222,420
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
Interest
and dividend income
|
|
439
|
|
1,786
|
|
Interest
expense
|
|
(4,694
|
)
|
(3,700
|
)
|
Other
|
|
15
|
|
128
|
|
Total
other income (expense)
|
|
(4,240
|
)
|
(1,786
|
)
|
|
|
|
|
|
|
Income
before income taxes and equity in income of affiliate
|
|
$
|
98,146
|
|
$
|
220,634
|
|
|
|
December 31,
|
|
September 30,
|
|
|
|
2009
|
|
2009
|
|
|
|
(in thousands)
|
|
Total
Assets
|
|
|
|
|
|
U.S.
Land
|
|
$
|
2,977,987
|
|
$
|
2,962,062
|
|
Offshore
|
|
156,098
|
|
129,465
|
|
International
Land
|
|
499,239
|
|
491,807
|
|
Other
|
|
30,909
|
|
31,585
|
|
|
|
|
|
|
|
Investments
and Corporate Operations
|
|
571,381
|
|
546,105
|
|
Total
|
|
$
|
4,235,614
|
|
$
|
4,161,024
|
|
The following
table presents revenues from external customers by country based on the
location of service provided.
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(in thousands)
|
|
Operating revenues
|
|
|
|
|
|
United
States
|
|
$
|
326,663
|
|
$
|
517,352
|
|
Venezuela
|
|
3,601
|
|
42,949
|
|
Colombia
|
|
16,488
|
|
19,458
|
|
Ecuador
|
|
12,542
|
|
12,992
|
|
Argentina
|
|
11,340
|
|
15,441
|
|
Other
Foreign
|
|
29,209
|
|
15,562
|
|
Total
|
|
$
|
399,843
|
|
$
|
623,754
|
|
20
Table of
Contents
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
14.
Pensions and Other Post-retirement Benefits
The following provides information at December 31,
2009 and 2008 related to the Company-sponsored domestic defined benefit pension
plan.
Components of Net Periodic Benefit Cost
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(in thousands)
|
|
|
|
|
|
Interest
cost
|
|
$
|
1,194
|
|
$
|
1,217
|
|
Expected
return on plan assets
|
|
(1,107
|
)
|
(1,147
|
)
|
Recognized
net actuarial loss
|
|
536
|
|
|
|
Net
pension expense
|
|
$
|
623
|
|
$
|
70
|
|
Employer
Contributions
We contributed $1.0
million to the Pension Plan during the three months ended December 31,
2009 to fund distributions. We estimate
contributing at least $3.0 million in fiscal 2010 to meet the minimum
contribution required by law and expect to make additional contributions to
continue funding distributions.
Foreign Plan
We maintain an
unfunded pension plan in one of the international subsidiaries. Pension expense was approximately $145,000
and $90,000 for the three months ended December 31, 2009 and 2008,
respectively.
15.
Risk Factors
International operations
are subject to certain political, economic and other uncertainties not
encountered in U.S. operations, including increased risks of terrorism,
kidnapping of employees, expropriation of equipment as well as expropriation of
a particular oil company operators property and drilling rights, taxation
policies, foreign exchange restrictions, currency rate fluctuations and general
hazards associated with foreign sovereignty over certain areas in which
operations are conducted. There can be no assurance that there will not be
changes in local laws, regulations and administrative requirements or the
interpretation thereof which could have a material adverse effect on the
profitability of our operations or on our ability to continue operations in
certain areas. For additional information regarding risks in Venezuela, refer
to Note 3 of these Consolidated Condensed Financial Statements.
Effective January 1,
2010, Venezuela was designated hyper-inflationary, which is defined as
cumulative inflation rates exceeding 100 percent in the most recent three-year
period. All of our foreign subsidiaries
use the U.S. dollar as the functional currency and local currency monetary
assets are remeasured into U.S. dollars with gains and losses resulting from
foreign currency transactions included in current results of operations. As such, the designation of Venezuela as
hyper-inflationary will have no impact on our Consolidated Financial
Statements.
16.
Recently Issued Accounting Standards
ASC 715-20-65,
Transition related to SFAS 132R-1, Employers Disclosures about
Postretirement Benefit Plan Assets
, was issued by the Financial
Accounting Standards Board (FASB) in December 2008. The new guidance requires employers of public
and nonpublic companies to disclose more information about how investment
allocation decisions are made, more information about major categories of plan
21
Table of Contents
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS
(Unaudited)
assets, including
concentration of risk and fair-value measurements, and the fair-value
techniques and inputs used to measure plan assets. The disclosure requirements are effective for
annual financial statements for years ending after December 15, 2009. The disclosure requirements will be adopted
for our annual financial statements for the year ended September 30, 2010,
on a prospective basis. We do not expect the adoption to have a material impact
on the Consolidated Financial Statements.
On January 21, 2010,
the FASB issued ASU No. 2010-06,
Fair Value Measurements
and Disclosures (Topic 820) Improving Disclosures about Fair Value
Measurements
. Reporting
entities will have to provide information about movements of assets among
Levels 1 and 2 of the three-tier fair value hierarchy established by ASC 820,
Fair Value Measurements
.
Also required will be a reconciliation of purchases, sales, issuance,
and settlements of financial instruments valued with a Level 3 method, which is
used to price the hardest to value instruments.
Entities will have to provide fair value measurement disclosures for
each class of financial assets and liabilities.
The guidance will be effective for fiscal years beginning after December 15,
2010. We are currently evaluating the
impact, if any, the adoption will have on the Consolidated Financial
Statements.
17.
Subsequent Events
In evaluating events and
transactions through the time of our filing on February 3, 2010, we
determined we have no recognized subsequent events and three nonrecognized
subsequent events.
On January 8, 2010,
the Venezuelan government devalued its currency and we expect to record an
exchange loss of approximately $20.0 million in the second quarter of fiscal
2010. See Note 3 for further details on
the devaluation.
Our $105 million
unsecured line of credit matured January 20, 2010 and we paid the amount
in full. We used operating cash flow and
borrowed $75 million from our senior unsecured credit facility to fund the
payment. On January 29, 2010, we paid
$10 million on our $400 million senior unsecured credit facility. See Note 10 for further details on debt.
22
Table
of Contents
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
December 31, 2009
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 our 2009 Annual
Report on Form 10-K. Our future
operating results may be affected by various trends and factors which are
beyond our 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 the business
of our limited source vendors or fabricators, currency exchange losses,
deterioration of credit markets, changes in general economic and political
conditions, adverse weather conditions including hurricanes, rapid or
unexpected changes in technologies, and uncertain business conditions that
affect our businesses. Accordingly, past results and trends should not be used
by investors to anticipate future results or trends. Our risk factors are more fully described in
our 2009 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. We caution that, while we believe such
assumptions to be reasonable and make them in good faith, assumptions about
future events and conditions almost always vary from actual results. The differences between assumed facts and
actual results can be material. We are 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 us or
persons acting on our behalf. 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 us or
persons acting on our behalf. We
undertake no duty to update or revise our forward-looking statements based on
changes of internal estimates on expectations or otherwise.
RESULTS OF OPERATIONS
Three
Months Ended December 31, 2009 vs. Three Months Ended December 31,
2008
We reported net income of $63.2 million ($0.59 per diluted share) from
operating revenues of $399.8 million for the first quarter ended December 31,
2009, compared with net income of $145.3 million ($1.36 per diluted share) from
operating revenues of $623.8 million for the first quarter of fiscal year
2009. Net income for the first quarter
of fiscal 2009 includes approximately $0.8 million ($0.01 per diluted share) of
after-tax gains from the sale of assets.
The following tables
summarize operations by business segment for the three months ended December 31,
2009 and 2008. 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.
23
Table of Contents
|
|
Three Months Ended December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(in
thousands, except days and per day amounts)
|
|
U.S. LAND OPERATIONS
|
|
|
|
|
|
Revenues
|
|
$
|
285,069
|
|
$
|
475,204
|
|
Direct
operating expenses
|
|
138,355
|
|
233,306
|
|
General
and administrative expense
|
|
6,661
|
|
4,427
|
|
Depreciation
|
|
48,530
|
|
43,423
|
|
Segment
operating income
|
|
$
|
91,523
|
|
$
|
194,048
|
|
|
|
|
|
|
|
Revenue
days
|
|
11,260
|
|
16,322
|
|
Average
rig revenue per day
|
|
$
|
24,113
|
|
$
|
27,066
|
|
Average
rig expense per day
|
|
$
|
11,083
|
|
$
|
12,246
|
|
Average
rig margin per day
|
|
$
|
13,030
|
|
$
|
14,820
|
|
Rig
utilization
|
|
62
|
%
|
95
|
%
|
U.S. LAND segment
operating income decreased to $91.5 million for the first quarter of fiscal
2010 compared to $194.0 million in the same period of fiscal 2009. Revenues were $285.1 million and $475.2
million in the first quarter of fiscal 2010 and 2009, respectively. Included in
U.S. land revenues for the three months ended December 31, 2009 and 2008
are reimbursements for out-of-pocket expenses of $13.6 million and $33.4
million, respectively. Also included in U.S. land revenues for the first
quarter of fiscal 2010 and 2009 is approximately $15.6 million and $18.4
million, respectively, attributable to early termination related revenue and
customer requested delivery delay revenue for new FlexRigs.
The average revenue per
day for the first quarter of fiscal 2010 compared to the first quarter of
fiscal 2009 decreased $2,953. The decrease
is a result of lower average dayrates in the first quarter of fiscal 2010
compared to the first quarter of fiscal 2009.
The decrease of $1,163 in average rig expense per day for the first
quarter of fiscal 2010 compared to the first quarter of fiscal 2009 is
primarily due to reduced labor costs associated with bonuses incurred in the
first quarter of fiscal 2009.
U.S. land rig utilization
decreased to 62 percent for the first quarter of fiscal 2010 compared to 95
percent for the first quarter of fiscal 2009.
U.S. land rig activity days for the first quarter of fiscal 2010 were
11,260 compared with 16,322 for the same period of fiscal 2009, with an average
of 122.4 and 177.4 rigs working during the first quarter of fiscal 2010 and
2009, respectively. The decrease in rig
days and average rigs working is attributable to early terminations and other
rigs that stacked during fiscal 2009.
During fiscal 2009, the
economic recession, including the decrease in oil and gas prices and
deterioration in the credit markets, had an effect on customer spending. As a result, the industrys active land
drilling rig count in the U.S. land market declined by over fifty percent from
the fall of 2008 to the summer of 2009.
Since June 2009, the industrys U.S. land rig count has been
experiencing a steady recovery, but the rig count still remains about 40
percent below the peak level reported during the fall of 2008. At December 31, 2009, 143 out of 210
existing rigs in the U.S. Land segment were generating revenue. Of the 143 rigs generating revenue, 101 were
under fixed term contracts, and 42 were working in the spot market. At January 28, 2010, the number of
existing rigs under fixed term contracts in the segment increased to 103, and
the number of rigs working in the spot market increased to 45.
24
Table of Contents
|
|
Three Months Ended December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(in thousands, except days and per day amounts)
|
|
OFFSHORE OPERATIONS
|
|
|
|
|
|
Revenues
|
|
$
|
52,290
|
|
$
|
50,488
|
|
Direct
operating expenses
|
|
32,576
|
|
31,762
|
|
General
and administrative expense
|
|
1,630
|
|
1,052
|
|
Depreciation
|
|
2,978
|
|
2,964
|
|
Segment
operating income
|
|
$
|
15,106
|
|
$
|
14,710
|
|
|
|
|
|
|
|
Revenue
days
|
|
700
|
|
735
|
|
Average
rig revenue per day
|
|
$
|
52,960
|
|
$
|
53,057
|
|
Average
rig expense per day
|
|
$
|
28,024
|
|
$
|
29,468
|
|
Average
rig margin per day
|
|
$
|
24,936
|
|
$
|
23,589
|
|
Rig
utilization
|
|
85
|
%
|
89
|
%
|
OFFSHORE revenues include
reimbursements for out-of-pocket expenses of $6.7 million and $5.5 million
for the three months ended December 31, 2009 and 2008, respectively.
At December 31,
2009, we had eight of our nine platform rigs working, with one of the eight
becoming idle subsequent to December 31, 2009.
|
|
Three Months Ended December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(in thousands, except days and per day amounts)
|
|
INTERNATIONAL LAND OPERATIONS
|
|
|
|
|
|
Revenues
|
|
$
|
59,398
|
|
$
|
95,178
|
|
Direct
operating expenses
|
|
41,297
|
|
65,648
|
|
General
and administrative expense
|
|
696
|
|
696
|
|
Depreciation
|
|
9,002
|
|
6,206
|
|
Segment
operating income
|
|
$
|
8,403
|
|
$
|
22,628
|
|
|
|
|
|
|
|
Revenue
days
|
|
1,689
|
|
2,383
|
|
Average
rig revenue per day
|
|
$
|
33,714
|
|
$
|
36,737
|
|
Average
rig expense per day
|
|
$
|
23,138
|
|
$
|
24,320
|
|
Average
rig margin per day
|
|
$
|
10,576
|
|
$
|
12,417
|
|
Rig
utilization
|
|
44
|
%
|
98
|
%
|
INTERNATIONAL LAND
segment operating income for the first quarter of fiscal 2010 was $8.4 million,
compared to $22.6 million in the same period of fiscal 2009. Rig utilization for international land
operations was 44 percent for the first quarter of fiscal 2010, compared with
98 percent for the first quarter of fiscal 2009. During the current quarter, an average of
18.6 rigs worked compared to an average of 26.2 rigs in the first quarter of
fiscal 2009.
25
Table of
Contents
The ability to
collect accounts receivables in U.S. dollars from PDVSA deteriorated to the
point that during the second quarter of fiscal 2009, we decided to discontinue
work as contracts expire. The decrease
in revenue days and rig utilization is primarily the result of all eleven rigs
in Venezuela being idle by the end of the first quarter of fiscal 2010 compared
to all eleven working during the first quarter of fiscal 2009. Additionally, rigs in two other countries
that were working in the first quarter of fiscal 2009 became idle during fiscal
2009 due to capital reductions by operators and they remained idle through the
first quarter of fiscal 2010. Twelve
rigs were transferred to the International Land segment in late fiscal 2009
with seven under contract and five used for bidding prospective work. The seven under contract had all begun
operations as of the end of the first quarter of fiscal 2010. Those seven along with four FlexRigs that
began working subsequent to the first quarter of fiscal 2009 offset part of the
decline in rig activity. The five held
for bidding at September 30, 2009 were transferred back to the U.S. Land
segment during the first quarter of fiscal 2010 under contract.
Revenues in the
first quarter of fiscal 2010 decreased $35.8 million compared to the first
quarter of fiscal 2009 with Venezuela contributing $39.3 million to the
decrease as we continue to record revenue in Venezuela as cash is collected
(see Note 3 of the Consolidated Condensed Financial Statements). Excluding Venezuela in the comparable
quarters, revenue increased $3.5 million, primarily the result of additional
rigs working in the segment during the first quarter of fiscal 2010 compared to
the first quarter of fiscal 2009.
Included in international land revenues for the three months ended December 31,
2009 and 2008 are reimbursements for out-of-pocket expenses of $2.5 million
and $7.6 million, respectively.
Depreciation
expense increased due to rigs transferring to the International Land segment in
late fiscal 2009 and the addition of new FlexRigs during fiscal 2009.
On January 8,
2010, the Venezuelan government announced its intent to devalue its local
currency. As a result, we expect to
record an exchange loss of approximately $20.0 million in the second quarter of
fiscal 2010.
RESEARCH AND DEVELOPMENT
For the three months
ended December 31, 2009 and 2008, we incurred $1.8 million and $1.7
million, respectively, of research and development expenses related to ongoing
development of a rotary steerable system.
We anticipate research and development expenses of up to approximately
$2.5 million in each quarter during fiscal 2010.
OTHER
General and
administrative expenses increased to $20.8 million in the first quarter of
fiscal 2010 from $15.1 million in the first quarter of fiscal 2009. The $5.7 million increase is primarily due to
a change in our Long-Term Incentive Plan whereby stock-based compensation was
accelerated and additional expense of $4.4 million was incurred. Also contributing to the increase was
additional pension expense in fiscal 2010 of $0.5 million and an increase in
employee bonus accruals of $0.4 million.
Equity in income
of affiliate, net of income tax, was $5.9 million in the first quarter of
fiscal 2009. Effective April 1,
2009, we determined we no longer exercised significant influence and
discontinued accounting for the investee using the equity method.
Income tax expense
decreased to $34.9 million in the first quarter of fiscal 2010 from $81.2
million in the first quarter of fiscal 2009, with the effective tax rate
decreasing to 35.6 percent from 36.8 percent for the two comparable quarters.
26
Table of
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Interest
expense was $4.7 million and $3.7 million in the first quarter of fiscal 2010
and 2009, respectively. Capitalized interest, all attributable to our rig construction,
was $1.7 million for both comparable quarters.
Interest expense before capitalized interest increased $1.0 million
during the first quarter of fiscal 2010 compared to the first quarter of fiscal
2009 primarily due to additional borrowings under a fixed-rate credit facility
obtained in July 2009.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Cash
and cash equivalents increased to $153.1 million at December 31, 2009 from
$141.5 million at September 30, 2009. The following table provides a
summary of cash flows for the three-month period ended December 31, (in
thousands):
Net Cash provided (used) by:
|
|
2009
|
|
2008
|
|
Operating activities
|
|
$
|
120,150
|
|
$
|
254,579
|
|
Investing activities
|
|
(62,284
|
)
|
(248,709
|
)
|
Financing activities
|
|
(46,299
|
)
|
10,641
|
|
Increase in cash and cash equivalents
|
|
$
|
11,567
|
|
$
|
16,511
|
|
Operating
activities
Cash
flows from operating activities were approximately $120.2 million for the three
months ended December 31, 2009 compared to approximately $254.6 million for
the same period ended December 31, 2008. The decrease in cash provided
from operating activities is primarily due to decreases in net income and
changes during the comparable three month periods in accounts receivable and
accounts payable. Accounts receivable
increased in the three months ended December 31, 2009 as drilling activity
improved compared to a decrease in the three months ended December 31,
2008 as we began to see a decline in activity.
The change in accounts payable is due to the fluctuation in drilling
activity.
Investing
activities
Capital
expenditures decreased $185.6 million primarily attributable to the decreased
building of new FlexRigs.
Financing
activities
During
the three months ended December 31, 2009, we reduced our outstanding debt
by $40.0 million compared to net additional borrowings of $13.3 million during
the three months ended December 31, 2008.
During the three months ended December 31, 2009, we reduced our
bank overdraft position $2.0 million compared to increasing the bank overdraft
position by $2.3 million in the three months ended December 31, 2008.
Other
Liquidity
Funds
generated by operating activities, available cash and cash equivalents, and
credit facilities continue to be our significant source of liquidity. We believe these sources of liquidity will be
sufficient to sustain operations and finance estimated capital expenditures,
including rig construction, for fiscal 2010.
There can be no assurance that we will continue to generate cash flows
at current levels or obtain additional financing. Our indebtedness totaled $485 million at December 31,
2009. In January 2010, we paid off
an unsecured $105 million note that matured and borrowed a net $65 million from
our line of credit. For additional
information regarding debt agreements, refer to Note 10 of the Consolidated
Condensed Financial Statements.
27
Table of
Contents
Backlog
Our
contract drilling backlog, being the expected future revenue from executed
contracts with original terms in excess of one year, as of December 31,
2009 and September 30, 2009 was $2,349 million and $2,528 million,
respectively. Approximately 69.9 percent
of the December 31, 2009 backlog is not reasonably expected to be filled
in fiscal 2010. Term contracts customarily provide for termination at the
election of the customer with an early termination payment to be paid to us
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 us, or delivery of a rig beyond certain grace and/or liquidated
damage periods, no early termination payment would be paid to us. In addition, a portion of the backlog
represents term contracts for new rigs that will be constructed in the
future. We obtain 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 the risk factors under Item 1A. Risk Factors of our Annual Report
on Form 10-K, filed with the Securities and Exchange Commission on November 25,
2009, regarding fixed term contract risk, operational risks, including weather,
and vendors that are limited in number and thinly capitalized.
The
following table sets forth the total backlog by reportable segment as of December 31,
2009 and September 30, 2009, and the percentage of the December 31,
2009 backlog not reasonably expected to be filled in fiscal 2010:
Reportable
|
|
Total Backlog
|
|
Percentage Not Reasonably
|
|
Segment
|
|
12/31/2009
|
|
09/30/2009
|
|
Expected to be Filled in Fiscal 2010
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Land
|
|
$
|
1,872
|
|
$
|
2,016
|
|
68.6
|
%
|
Offshore
|
|
158
|
|
169
|
|
79.8
|
%
|
I
nternational Land
|
|
319
|
|
343
|
|
73.0
|
%
|
|
|
$
|
2,349
|
|
$
|
2,528
|
|
|
|
Capital
Resources
In
December 2009, we announced we had increased our capital expenditures
estimate for fiscal 2010 by $40 million to $265 million. Given improving market conditions, the
capital expenditure increase provides adequate levels of FlexRig spare
component availability and the flexibility to control and adapt our
manufacturing effort to potentially build and complete additional FlexRigs at a
rate of one per month beginning in May 2010 through the end of fiscal 2010. These potential new builds would be in
addition to the new FlexRigs under fixed term contracts that we expect to
complete by the end of April 2010.
The increase in the capital expenditures estimate also allows us to
execute selected special projects and increased maintenance levels. During the
three months ended December 31, 2009, we completed four FlexRigs that are
under fixed term contract with two of those beginning work during the quarter
and two completed and ready for delivery.
We have three remaining new FlexRigs under fixed term contract to
complete by the end of April 2010.
Like those completed in prior fiscal periods, each of these new FlexRigs
are committed to work for an exploration and production company under a fixed
term contract of at least three years in duration, performing drilling services
on a daywork contract basis.
Capital
expenditures were $64.8 million and $250.4 million for the first three months
of fiscal 2010 and 2009, respectively.
Capital expenditures decreased from 2009 primarily due to the reduction
in the number of new rigs completed during the comparable quarters and a
reduction in the number of rigs to be completed as of December 31, 2009
compared to December 31, 2008.
28
Table of
Contents
There
were no other significant changes in our financial position since September 30,
2009.
MATERIAL COMMITMENTS
Material
commitments as reported in our 2009 Annual Report on Form 10-K have not
changed significantly at December 31, 2009.
CRITICAL ACCOUNTING POLICIES
Our
accounting policies that are critical or the most important to understand our
financial condition and results of operations and that require management to
make the most difficult judgments are described in our 2009 Annual Report on Form 10-K. There have been no material changes in these
critical accounting policies other than the adoption of ASC 260-10-45,
Earnings per Share
, on October 1, 2009. The adoption of this did not have a material
impact on our financial position, results of operations or cash flows. The adoption of ASC 260-10-45 is included in
Note 2 to the Consolidated Condensed Financial Statements.
RECENTLY
ISSUED ACCOUNTING STANDARDS
ASC
715-20-65,
Transition related to SFAS 132R-1, Employers
Disclosures about Postretirement Benefit Plan Assets
, was issued by
the Financial Accounting Standards Board (FASB) in December 2008. The new guidance requires employers of public
and nonpublic companies to disclose more information about how investment
allocation decisions are made, more information about major categories of plan
assets, including concentration of risk and fair-value measurements, and the
fair-value techniques and inputs used to measure plan assets. The disclosure requirements are effective for
annual financial statements for years ending after December 15, 2009. The disclosure requirements will be adopted
for our annual financial statements for the year ended September 30, 2010,
on a prospective basis. We do not expect
the adoption to have a material impact on the Consolidated Financial
Statements.
On
January 21, 2010, the FASB issued ASU No. 2010-06,
Fair Value Measurements and Disclosures (Topic 820) Improving
Disclosures about Fair Value Measurements
. Reporting entities will have to provide
information about movements of assets among Levels 1 and 2 of the three-tier
fair value hierarchy established by ASC 820,
Fair Value
Measurements
. Also required
will be a reconciliation of purchases, sales, issuance, and settlements of
financial instruments valued with a Level 3 method, which is used to price the
hardest to value instruments. Entities
will have to provide fair value measurement disclosures for each class of
financial assets and liabilities. The
guidance will be effective for fiscal years beginning after December 15,
2010. We are currently evaluating the
impact, if any, the adoption will have on the Consolidated Financial
Statements.
29
Table of Contents
PART I. FINANCIAL INFORMATIO
N
December 31, 2009
ITEM
3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET
RISK
For
a description of our market risks, see
·
Note 5 to the
Consolidated Condensed Financial Statements contained in Item 1 of Part I
hereof with regard to equity price risk is incorporated herein by reference;
·
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk in our 2009 Annual
Report on Form 10-K filed with the Securities and Exchange Commission on November 25,
2009;
·
Note 7 and Note
10 to the Consolidated Condensed Financial Statements contained in Item 1 of Part I
hereof with regard to interest rate risk are incorporated herein by reference;
and
·
Note 3 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 are
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 our management,
including the Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on that evaluation,
our management, including the Chief Executive Officer and Chief Financial
Officer, concluded that our disclosure controls and procedures were effective as
of December 31, 2009, at ensuring that information required to be disclosed by
us in the reports we file or submit 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 our internal controls over financial
reporting that occurred during the most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting.
30
Table of
Contents
PART II. OTHER INFORMATION
ITEM
1A. RISK FACTORS
International
operations are subject to certain political, economic and other uncertainties
not encountered in U.S. operations, including increased risks of terrorism,
kidnapping of employees, expropriation of equipment as well as expropriation of
a particular oil company operators property and drilling rights, taxation
policies, foreign exchange restrictions, currency rate fluctuations and general
hazards associated with foreign sovereignty over certain areas in which
operations are conducted. There can be no assurance that there will not be changes
in local laws, regulations and administrative requirements or the
interpretation thereof which could have a material adverse effect on the
profitability of our operations or on our ability to continue operations in
certain areas.
Because
of the impact of local laws, our future operations in certain areas may be
conducted through entities in which local citizens own interests and through
entities (including joint ventures) in which we hold only a minority interest
or pursuant to arrangements under which we conduct operations under contract to
local entities. While we believe that neither operating through such entities
nor pursuant to such arrangements would have a material adverse effect on our
operations or revenues, there can be no assurance that we will in all cases be
able to structure or restructure our operations to conform to local law (or the
administration thereof) on terms acceptable to us.
Venezuela
continues to experience significant political, economic and social instability.
In the event that extended labor strikes occur or turmoil increases, we could
experience shortages in labor and/or materials and supplies necessary to
operate some or all of our Venezuelan drilling rigs, which could have a
material adverse effect on our business, financial condition and results of
operations.
During
the mid-1970s, the Venezuelan government nationalized the exploration and
production business. More recently, Venezuela has nationalized some industries
unrelated to the oilfield services industry.
At the present time it appears the Venezuelan government will not
nationalize the contract drilling business. Any such nationalization could
result in the loss of all or a portion of our assets and business in Venezuela.
Although
we attempt to minimize the potential impact of such risks by operating in more
than one geographical area, during the three months ended December 31,
2009, approximately 15 percent of our consolidated operating revenues were
generated from the international contract drilling business. During the three
months ended December 31, 2009, approximately 74 percent of the
international operating revenues were from operations in South America and
approximately 66 percent of South American operating revenues were from
Ecuador and Colombia.
Reference
is made to the risk factors pertaining to currency devaluation risk and
receivable balances in Venezuela, interest rate risk and the Companys
securities portfolio in Item 1A of Part 1 of the Companys Form 10-K
for the year ended September 30, 2009.
In order to update these risk factors for developments that have
occurred during the first three months of fiscal 2010, the risk factors are
hereby amended and updated by reference to, and incorporation herein of, Notes
3, 5, 7, 10 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, 2009.
31
Table of
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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
|
|
Helmerich &
Payne, Inc. Annual Bonus Plan for Executive Officers (incorporated by
reference to Exhibit 10.1 of the Companys Form 8-K filed December 7,
2009).
|
10.2
|
|
Form of
Agreements for the Helmerich & Payne, Inc. 2005 Long-Term Incentive
Plan applicable to certain executives: Nonqualified Stock Option Agreement,
Incentive Stock Option Agreement, and Restricted Stock Award Agreement
(incorporated by reference to Exhibit 10.2 of the Companys Form 8-K
filed December 7, 2009).
|
10.3
|
|
Form of
Agreements for the Helmerich & Payne, Inc. 2005 Long-Term Incentive
Plan applicable to participants other than certain executives: Nonqualified
Stock Option Agreement, Incentive Stock Option Agreement, and Restricted
Stock Award Agreement (incorporated by reference to Exhibit 10.3 of the Companys
Form 8-K filed December 7, 2009).
|
10.4
|
|
Form of
Amendment to Nonqualified Stock Option Agreements and Amendment to Restricted
Stock Award Agreements for the Helmerich & Payne, Inc. 2005 Long-Term
Incentive Plan applicable to certain executive officers (incorporated by
reference to Exhibit 10.4 of the Companys Form 8-K filed December 7,
2009).
|
10.5
|
|
Form of
Amendment to Nonqualified Stock Option Agreements and Amendment to Restricted
Stock Award Agreements for the Helmerich & Payne, Inc. 2005 Long-Term
Incentive Plan applicable to participants other than certain executive
officers (incorporated by reference to Exhibit 10.5 of the Companys
Form 8-K filed December 7, 2009).
|
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.
|
101
|
|
Financial
statements from the quarterly report on Form 10-Q of
Helmerich & Payne, Inc. for the quarter ended December 31,
2009, filed on February 3, 2010, formatted in XBRL: (i) the
Consolidated Condensed Statements of Income, (ii) the Consolidated Condensed
Balance Sheets, (iii) the Consolidated Condensed Statements of
Stockholders Equity, (iv) the Consolidated Condensed Statements of Cash
Flows and (v) the Notes to Consolidated Condensed Financial Statements
tagged as blocks of text.
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32
Table of Contents
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.
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HELMERICH & PAYNE, INC.
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(Registrant)
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Date:
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February 3, 2010
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By:
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/S/HANS
C. HELMERICH
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Hans
C. Helmerich, President
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Date:
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February 3,
2010
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By:
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/S/DOUGLAS
E. FEARS
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Douglas
E. Fears, Chief Financial Officer
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(Principal
Financial Officer)
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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
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Number
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Description
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10.1
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Helmerich &
Payne, Inc. Annual Bonus Plan for Executive Officers (incorporated by
reference to Exhibit 10.1 of the Companys Form 8-K filed December 7,
2009).
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10.2
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Form of
Agreements for the Helmerich & Payne, Inc. 2005 Long-Term Incentive
Plan applicable to certain executives: Nonqualified Stock Option Agreement,
Incentive Stock Option Agreement, and Restricted Stock Award Agreement
(incorporated by reference to Exhibit 10.2 of the Companys Form 8-K
filed December 7, 2009).
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10.3
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Form of
Agreements for the Helmerich & Payne, Inc. 2005 Long-Term Incentive
Plan applicable to participants other than certain executives: Nonqualified
Stock Option Agreement, Incentive Stock Option Agreement, and Restricted
Stock Award Agreement (incorporated by reference to Exhibit 10.3 of the
Companys Form 8-K filed December 7, 2009).
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10.4
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Form of
Amendment to Nonqualified Stock Option Agreements and Amendment to Restricted
Stock Award Agreements for the Helmerich & Payne, Inc. 2005 Long-Term
Incentive Plan applicable to certain executive officers (incorporated by
reference to Exhibit 10.4 of the Companys Form 8-K filed December 7,
2009).
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10.5
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Form of
Amendment to Nonqualified Stock Option Agreements and Amendment to Restricted
Stock Award Agreements for the Helmerich & Payne, Inc. 2005 Long-Term
Incentive Plan applicable to participants other than certain executive
officers (incorporated by reference to Exhibit 10.5 of the Companys
Form 8-K filed December 7, 2009).
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31.1
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Certification
of Chief Executive Officer, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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31.2
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Certification
of Chief Financial Officer, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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32
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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.
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101
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Financial
statements from the quarterly report on Form 10-Q of
Helmerich & Payne, Inc. for the quarter ended December 31,
2009, filed on February 3, 2010, formatted in XBRL: (i) the
Consolidated Condensed Statements of Income, (ii) the Consolidated Condensed
Balance Sheets, (iii) the Consolidated Condensed Statements of Stockholders
Equity, (iv) the Consolidated Condensed Statements of Cash Flows and
(v) the Notes to Consolidated Condensed Financial Statements tagged as
blocks of text.
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33
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