Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 1 NATURE OF OPERATIONS
Helmerich & Payne, Inc. (“H&P,” which, together with its subsidiaries, is identified as the “Company,” “we,” “us,” or “our,” except where stated or the context requires otherwise) through its operating subsidiaries provides performance-driven drilling solutions and technologies that are intended to make hydrocarbon recovery safer and more economical for oil and gas exploration and production companies.
During the third quarter of fiscal year 2020, we restructured our operations (see Note 18—Restructuring Charges) to accommodate scale during an industry downturn and to re-organize our operations to align to new marketing and management strategies. Operations previously reported within the H&P Technologies reportable segment are now managed and presented within the North America Solutions reportable segment. As a result, beginning with the third quarter of fiscal year 2020, our contract drilling services operations were organized into the following reportable operating business segments: North America Solutions, Offshore Gulf of Mexico and International Solutions. All segment disclosures have been recast for these segment changes. Our real estate operations, our incubator program for new research and development projects and our wholly-owned captive insurance companies are included in "Other." Refer to Note 17—Business Segments and Geographic Information for further details on our reportable segments.
Our North America Solutions operations are primarily located in Colorado, Louisiana, Ohio, Oklahoma, New Mexico, North Dakota, Pennsylvania, Texas, Utah, West Virginia and Wyoming. Additionally, Offshore Gulf of Mexico operations are conducted in the Gulf of Mexico and our International Solutions operations have rigs primarily located in four international locations: Argentina, Bahrain, Colombia and United Arab Emirates.
We also own, develop and operate limited commercial real estate properties. Our real estate investments, which are located exclusively within Tulsa, Oklahoma, include a shopping center, multi-tenant industrial warehouse properties, and undeveloped real estate.
Fiscal Year 2020 Dispositions
In December 2019, we closed on the sale of a wholly-owned subsidiary of Helmerich & Payne International Drilling Co. ("HPIDC"), TerraVici Drilling Solutions, Inc. ("TerraVici"). As a result of the sale, 100% of TerraVici's outstanding capital stock was transferred to the purchaser in exchange for approximately $15.1 million, resulting in a total gain on the sale of TerraVici of approximately $15.0 million. Prior to the sale, TerraVici was a component of the H&P Technologies reportable segment, which transitioned to the North America Solutions operating segment. This transaction does not represent a strategic shift in our operations and will not have a significant effect on our operations and financial results going forward.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, RISKS AND UNCERTAINTIES
Interim Financial Information
The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) pertaining to interim financial information. Accordingly, these interim financial statements do not include all information or footnote disclosures required by GAAP for complete financial statements and, therefore, should be read in conjunction with the Consolidated Financial Statements and notes thereto in our 2019 Annual Report on Form 10-K and other current filings with the SEC. 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.
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of Helmerich & Payne, Inc. and its domestic and foreign subsidiaries. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the fiscal year are included in the unaudited condensed consolidated statements of operations and comprehensive income (loss) from the date the Company gains control until the date when the Company ceases to control the subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
COVID-19 and OPEC+ Production Impacts
The recent outbreak of a novel strain of coronavirus (“COVID-19”) and its development into a pandemic have resulted in significant global economic disruption, including North America and many of the other geographic areas where we operate, or where our customers are located, or suppliers or vendors operate. Actions taken to prevent the spread of COVID-19 by governmental authorities around the world, including imposing mandatory closures of all non-essential business facilities, seeking voluntary closures of such facilities and imposing restrictions on, or advisories with respect to, travel, business operations and public gatherings or interactions, have significantly reduced global economic activity, thereby resulting in lower demand for crude oil. In particular, the travel restrictions in certain countries where we operate, including the closure of their borders to travel into the country, have resulted in an inability to effectively staff or rotate personnel at, and thereby operate, certain of our rigs and could lead to an inability to fulfill our contractual obligations under contracts with customers. State and local authorities have also implemented multi-step policies with the goal of re-opening. However, certain jurisdictions have begun re-opening only to return to restrictions in the face of increases in new COVID-19 cases, which has resulted in us experiencing further disruptions to our business operations. In addition, the perceived risk of infection and health risk associated with COVID-19, and the illness of many individuals across the globe, has and will continue to alter behaviors of consumers, and policies of companies around the world, resulting in many of the same effects intended by such governmental authorities to stop the spread of COVID-19, such as self-imposed or voluntary social distancing and quarantining and remote work policies. We are complying with local governmental jurisdiction policies and procedures where our operations reside. In some cases, policies and procedures are more stringent in our foreign operations than in our North America operations and this has resulted in a complete suspension, for a certain period of time, of all drilling operations in at least one foreign jurisdiction. In addition, a customer in one foreign jurisdiction has claimed force majeure resulting in zero chargeable revenues during the suspension period.
In early March 2020, the increase in crude oil supply resulting from production escalations from the Organization of the Petroleum Exporting Countries and other oil producing nations (“OPEC+”) combined with a decrease in crude oil demand stemming from the global response and uncertainties surrounding the COVID-19 pandemic resulted in a sharp decline in crude oil prices. Consequently, we have seen a significant decrease in customer 2020 capital budgets and a corresponding dramatic decline in the demand for land rigs. Further, in April 2020, OPEC+ finalized an agreement to cut oil production by 9.7 million barrels per day during May and June 2020. On June 6, 2020, OPEC+ agreed to extend such production cuts until the end of July 2020. However, prices in the oil and gas market have remained depressed, as the oversupply and lack of demand in the market persist. Oil and natural gas prices are expected to continue to be volatile as a result of the near-term production instability and the ongoing COVID-19 outbreaks and as changes in oil and natural gas inventories, industry demand and global and national economic performance are reported.
These events have had, and could continue to have, an adverse impact on numerous aspects of our business, financial condition and results of operations. The ultimate extent of the impact of COVID-19 and prolonged excess oil supply on our business, financial condition and results of operations will depend largely on future developments, including the duration and spread of the COVID-19 outbreak within the United States and the parts of the world in which we operate and the related impact on the oil and gas industry, all of which are highly uncertain and cannot be predicted with certainty at this time.
From a financial perspective, we believe the Company is operationally and financially well positioned to continue operating even through a more protracted disruption caused by COVID-19, oil oversupply and low oil prices. At June 30, 2020, the Company had cash and cash equivalents and short-term investments of $492.0 million. The 2018 Credit Facility (as defined within Note 8—Debt) has $750.0 million in aggregate availability with a maximum of $75.0 million available for use as letters of credit. As of June 30, 2020, there were no borrowings or letters of credit outstanding, leaving $750.0 million available to borrow under the 2018 Credit Facility. We currently do not anticipate the need to draw on the 2018 Credit Facility. Furthermore, the Company 2025 Notes (as defined within Note 8—Debt) do not come due until March 19, 2025.
Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents include cash on hand, demand deposits with banks and all highly liquid investments with original maturities of three months or less. Approximately $376.1 million of cash and cash equivalents resides in accounts in the United States and the remaining $50.1 million are in other countries. Our cash, cash equivalents and short-term investments are subject to potential credit risk, and certain of our cash accounts carry balances greater than the federally insured limits.
We had restricted cash of $50.0 million and $34.3 million at June 30, 2020 and 2019, respectively, and $35.0 million and $41.8 million at September 30, 2019 and 2018, respectively. Of the total at June 30, 2020 and September 30, 2019, $1.9 million and $3.0 million, respectively, is related to the acquisition of drilling technology companies, $2.0 million as of both fiscal period ends is from the additional capitalization of our wholly-owned captive insurance company, $46.1 million and $30.0 million, respectively, represents an additional amount management has elected to restrict for the purpose of potential insurance claims in our wholly-owned captive insurance companies, and $0.03 million at June 30, 2020 is for other restricted purposes. The restricted amounts are primarily invested in federally insured deposit accounts.
The restricted cash and cash equivalents are reflected within the following line items on the Unaudited Condensed Consolidated Balance Sheets:
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June 30,
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September 30,
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(in thousands)
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2020
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2019
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2019
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2018
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Cash
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$
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426,245
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$
|
334,775
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$
|
347,943
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|
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$
|
284,355
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|
Restricted Cash
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Prepaid expenses and other
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46,643
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|
|
30,543
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|
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31,291
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|
|
39,830
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Other assets
|
3,336
|
|
|
3,788
|
|
|
3,737
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|
|
2,000
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|
|
Total cash, cash equivalents, and restricted cash
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$
|
476,224
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|
|
$
|
369,106
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$
|
382,971
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$
|
326,185
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Leases
We lease various offices, warehouses, equipment and vehicles. Rental contracts are typically made for fixed periods of 1 to 15 years but may have extension options. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes.
Up until the end of fiscal year 2019, leases of property, plant and equipment were classified as either finance or operating leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to the income statement on a straight-line basis over the period of the lease (“levelized lease cost”).
Beginning October 1, 2019, leases are recognized as a right-of-use asset and a corresponding liability within accrued liabilities and other non-current liabilities at the date at which the leased asset is available for use by the Company. Each lease payment is allocated between the liability and finance cost. The finance cost is recognized over the lease period to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis for finance type leases and as the difference between the levelized lease cost and the finance cost for operating leases.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:
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•
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Fixed payments (including in-substance fixed payments), less any lease incentives receivable
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•
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Variable lease payments that are based on an index or a rate
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•
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Amounts expected to be payable by the lessee under residual value guarantees
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•
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The exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and
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•
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Payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.
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The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee’s incremental borrowing rate is used, which is the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.
Right-of-use assets are measured at cost and are comprised of the following:
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•
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The amount of the initial measurement of lease liability
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•
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Any lease payments made at or before the commencement date less any lease incentives received
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•
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Any initial direct costs, and
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•
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Asset retirement obligations related to that lease, as applicable.
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Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets are comprised of IT-equipment and office furniture.
In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). The assessment is reviewed if a significant event or a significant change in circumstances occurs and is within the control of the lessee. Refer to Note 6—Leases for additional information regarding our leases.
Recently Issued Accounting Updates
Changes to U.S. GAAP are established by the Financial Accounting Standards Board ("FASB") in the form of Accounting Standards Updates ("ASUs") to the FASB Accounting Standards Codification ("ASC"). We consider the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable, clarifications of ASUs listed below, immaterial, or already adopted by the Company.
The following table provides a brief description of recent accounting pronouncements and our analysis of the effects on our financial statements:
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Standard
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Description
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Date of
Adoption
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Effect on the Financial Statements or Other Significant Matters
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Recently Adopted Accounting Pronouncements
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ASU No. 2016-02, Leases (Topic 842) and related ASUs issued subsequent
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ASU No. 2016-02 requires organizations that lease assets — referred to as “lessees” — to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases with lease terms of more than 12 months. Lessor accounting remains substantially similar to current U.S. GAAP. In addition, disclosures of leasing activities are to be expanded to include qualitative along with specific quantitative information. ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. ASU 2016-02 mandates a modified retrospective transition method of adoption with an option to use certain practical expedients.
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October 1, 2019
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We adopted this ASU during the first quarter of fiscal year 2020, as required. Refer to Note 6—Leases for additional information.
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ASU No. 2018-15, Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract
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This ASU aims to reduce complexity in the accounting for costs of implementing a cloud computing service arrangement. ASU No. 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This update is effective for annual and interim periods beginning after December 15, 2019. The amendments in this update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Early adoption is permitted.
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October 1, 2019
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We early adopted this ASU during the first quarter of fiscal year 2020 on a prospective basis. The prospective impact was not material to our unaudited condensed consolidated financial statements and disclosures.
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Standards that are not yet adopted as of June 30, 2020
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ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) and related ASUs issued subsequent
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This ASU introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The new model will apply to: (1) loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, (2) loan commitments and certain other off-balance sheet credit exposures, (3) debt securities and other financial assets measured at fair value through other comprehensive income(loss), and (4) beneficial interests in securitized financial assets. This update is effective for annual and interim periods beginning after December 15, 2019.
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October 1, 2020
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We are currently evaluating the impact the new guidance may have on our unaudited condensed consolidated financial statements and disclosures.
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ASU No. 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans—General (Topic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans
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This ASU amends ASC 715 to add, remove, and clarify disclosure requirements related to defined benefit, pension and other postretirement plans. This update is effective for annual and interim periods ending after December 15, 2020.
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October 1, 2021
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We are currently evaluating the impact the new guidance may have on our unaudited condensed consolidated financial statements and disclosures.
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ASU No. 2019-12, Financial Instruments – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
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This ASU simplifies the accounting for income taxes by removing certain exceptions related to Topic 740. The ASU also improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This update is effective for annual and interim periods beginning after December 15, 2020. Early adoption of the amendment is permitted, including adoption in any interim period for public entities for periods for which financial statements have not yet been issued. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period.
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October 1, 2021
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We are currently evaluating the impact the new guidance may have on our unaudited condensed consolidated financial statements and disclosures.
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Self-Insurance
We self-insure a significant portion of expected losses relating to workers’ compensation, general liability and automobile liability. Generally, deductibles range from $1 million to $10 million per occurrence depending on the coverage and whether a claim occurs outside or inside of the United States. Insurance is purchased over deductibles to reduce our exposure to catastrophic events. Estimates are recorded for incurred outstanding liabilities for workers’ compensation, general liability claims and claims that are incurred but not reported. Estimates are based on adjusters' estimates, historical experience and statistical methods commonly used within the insurance industry that we believe are reliable. We have also engaged a third-party actuary to perform a review of our domestic casualty losses as well as losses in our captive insurance companies. Nonetheless, insurance estimates include certain assumptions and management judgments regarding the frequency and severity of claims, claim development and settlement practices. Unanticipated changes in these factors may produce materially different amounts of expense that would be reported under these programs.
On October 1, 2019, we elected to utilize a wholly-owned insurance captive (“Captive”) to insure the deductibles for our workers’ compensation, general liability and automobile liability insurance programs. Casualty claims occurring prior to October 1, 2019 will remain on the operating segment books and future adjustments to these claims will continue to be reflected within the operating segments. Reserves for legacy claims occurring prior to October 1, 2019, will remain as liabilities in our operating segments until they have been resolved. Changes in those reserves will be reflected in segment earnings as they occur. We will continue to utilize the Captive to finance the risk of loss to equipment and rig property assets. The Company and the Captive maintain excess property and casualty reinsurance programs with third-party insurers in an effort to limit the financial impact of significant events covered under these programs. Our operating subsidiaries are paying premiums to the Captive, typically on a monthly basis, for the estimated losses based on the external actuarial analysis. These premiums are currently held in a restricted account, resulting in a transfer of risk from our operating subsidiaries to the Captive. The actuarial estimated underwriting expenses for the three and nine months ended June 30, 2020 was approximately $1.1 million and $15.8 million, respectively, and was recorded within contract drilling services operating expenses in our Unaudited Condensed Consolidated Statement of Operations. Intercompany premium revenues and expenses during the three and nine months ended June 30, 2020 amounted to $10.4 million and $28.9 million, respectively, which were eliminated upon consolidation. These intercompany insurance premiums are reflected as segment operating expenses within the North America Solutions, Offshore Gulf of Mexico, and International Solutions reportable operating segments and are reflected as intersegment sales within "Other." The Company previously self-insured employee health plan exposures in excess of employee deductibles. Starting in the second quarter of fiscal year 2020, the Captive insurer issued a stop-loss program that will reimburse the Company's health plan for claims that exceed $50,000. This program will also be reviewed at the end of each policy year by an outside actuary. One hundred percent of the stop-loss premium is being set aside by the Captive as reserves. The stop-loss program does not have a material impact on a consolidated basis.
International Solutions Drilling Risks
International Solutions drilling operations may significantly contribute to our revenues and net operating income. There can be no assurance that we will be able to successfully conduct such operations, and a failure to do so may have an adverse effect on our financial position, results of operations, and cash flows. Also, the success of our International Solutions operations will be subject to numerous contingencies, some of which are beyond management’s control. These contingencies include general and regional economic conditions, fluctuations in currency exchange rates, modified exchange controls, changes in international regulatory requirements and international employment issues, risk of expropriation of real and personal property and the burden of complying with foreign laws. Additionally, in the event that extended labor strikes occur or a country experiences significant political, economic or social instability, we could experience shortages in labor and/or material and supplies necessary to operate some of our drilling rigs, thereby potentially causing an adverse material effect on our business, financial condition and results of operations.
Many of the countries in which we operate have implemented measures in response to the COVID-19 pandemic. These measures, including imposing mandatory closures of all non-essential business facilities, seeking voluntary closures of such facilities and imposing restrictions on, or advisories with respect to, travel, business operations and public gatherings or interactions, have significantly reduced global economic activity, thereby, resulting in lower demand for crude oil. In particular, the travel restrictions in certain countries where we operate, including the closure of their borders to travel into the country, have resulted in an inability to effectively staff or rotate personnel at, and thereby operate, certain of our rigs and could lead to an inability to fulfill our contractual obligations under contracts with customers.
We have also experienced certain risks related to our Argentine operations. In Argentina, while our dayrate is denominated in U.S. dollars, we are paid in Argentine pesos. The Argentine branch of one of our second-tier subsidiaries remits U.S. dollars to its U.S. parent by converting the Argentine pesos into U.S. dollars through the Argentine Foreign Exchange Market and repatriating the U.S. dollars. Argentina also has a history of implementing currency controls which restrict the conversion and repatriation of U.S. dollars, including controls that were implemented in September 2019 and are presently in effect. As a result of these currency controls, our ability to remit funds from our Argentine subsidiary to its U.S. parent has been limited. In the past, the Argentine government has also instituted price controls on crude oil, diesel and gasoline prices and instituted an exchange rate freeze in connection with those prices. These price controls and an exchange rate freeze could be instituted again in the future. In addition, in 2020, the Argentine government introduced labor regulations that prohibit employee dismissals or suspensions without just cause, for lack of (or reduction in) work or due to force majeure, subject to certain exceptions that may result in the payment of compensation to suspended employees and/or increased severance costs to the company. These prohibitions have resulted in significant challenges for our Argentine operations and it remains uncertain for how long they will be in effect. Further, there are ongoing concerns regarding Argentina's debt burden, as Argentina defaulted on some of its international debt obligations in May 2020. These concerns could further negatively impact Argentina's economy and adversely affect our Argentine operations. Argentina’s economy is considered highly inflationary, which is defined as cumulative inflation rates exceeding 100 percent in the most recent three-year period based on inflation data published by the respective governments. Nonetheless, all of our foreign subsidiaries use the U.S. dollar as the functional currency and local currency monetary assets and liabilities are remeasured into U.S. dollars with gains and losses resulting from foreign currency transactions included in current results of operations.
For the three and nine months ended June 30, 2020, we experienced aggregate foreign currency losses of $3.2 million and $6.0 million, respectively. For the three and nine months ended June 30, 2019, we recorded aggregate foreign currency losses of $0.1 million and $4.6 million, respectively. In the future, we may incur larger currency devaluations, foreign exchange restrictions or other difficulties repatriating U.S. dollars from Argentina or elsewhere, which could have a material adverse impact on our business, financial condition and results of operations. As of June 30, 2020, our cash balance in Argentina was $38.6 million.
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.
Although we attempt to minimize the potential impact of such risks by operating in more than one geographical area, during the three and nine months ended June 30, 2020, approximately 7.3 percent and 7.9 percent, respectively, of our operating revenues were generated from international locations in our contract drilling business compared to 6.8 percent and 7.7 percent during the three and nine months ended June 30, 2019, respectively. During the three and nine months ended June 30, 2020, approximately 33.2 percent and 68.2 percent, respectively, of operating revenues from international locations were from operations in South America compared to 95.1 percent and 92.1 percent during the three and nine months ended June 30, 2019, respectively. Substantially all of the South American operating revenues were from Argentina and Colombia. The future occurrence of one or more international events arising from the types of risks described above could have a material adverse impact on our business, financial condition and results of operations.
NOTE 3 BUSINESS COMBINATIONS
Fiscal Year 2019 Acquisitions
On August 21, 2019, we completed an acquisition of an unaffiliated company, DrillScan Energy SAS and its subsidiaries ("DrillScan"), which is now a wholly-owned subsidiary of the Company, for total consideration of approximately $32.7 million, which includes $17.7 million of contingent consideration. The fair value of the total assets acquired, and liabilities assumed, as of the acquisition date, were $36.3 million and $3.6 million, respectively, including goodwill of $14.9 million. Of the total assets acquired, $19.1 million was allocated to identifiable intangible assets. DrillScan is a leading provider of proprietary drilling engineering software, well engineering services and training for the oil and gas industry. The operations of DrillScan are included in the North America Solutions reportable segment. The acquisition of DrillScan was accounted for as a business combination in accordance with FASB ASC 805, Business Combinations, which requires the assets acquired and liabilities assumed to be recorded at their acquisition date fair values. In accordance with GAAP, an entity is allowed a reasonable period of time (not to exceed one year) to obtain the information necessary to identify and measure the fair value of the assets acquired and liabilities assumed in a business combination. During the second quarter of fiscal year 2020, as a result of new information identified related to the acquisition of DrillScan, the acquisition date fair value of the contingent consideration and goodwill increased by approximately $1.2 million. This acquisition's measurement period closed during the quarter ended June 30, 2020 and, as a result, the purchase price accounting was finalized.
On November 1, 2018, we completed an acquisition of an unaffiliated company, Angus Jamieson Consulting (“AJC”), which is now a wholly-owned subsidiary of the Company, for total consideration of approximately $3.4 million. AJC is a software-based training and consultancy company based in Inverness, Scotland and is widely recognized as an industry leader in wellbore positioning. The operations of AJC are included in the North America Solutions reportable segment. The acquisition of AJC has been accounted for as a business combination in accordance with FASB ASC 805, Business Combinations, which requires the assets acquired and liabilities assumed to be recorded at their acquisition date fair values. The allocation of the purchase price included goodwill of $3.1 million.
NOTE 4 DISCONTINUED OPERATIONS
Current and noncurrent liabilities from discontinued operations consist of municipal and income taxes payable and social obligations due within the country of Venezuela. Expenses incurred for in-country obligations are reported as discontinued operations within our Unaudited Condensed Consolidated Statements of Operations.
The activity for the three and nine months ended June 30, 2020 was primarily due to the remeasurement of uncertain tax liabilities as a result of the devaluation of the Venezuela Bolivar. Early in 2018, the Venezuelan government announced that it changed the existing dual-rate foreign currency exchange system by eliminating its heavily subsidized foreign exchange rate, which was 10 Bolivars per United States dollar, and relaunched an exchange system known as DICOM. The Venezuela government also established a new currency called the “Sovereign Bolivar,” which was determined by the elimination of five zeros from the old currency. The DICOM floating rate was approximately 204,418 Bolivars per United States dollar at June 30, 2020. The DICOM floating rate might not reflect the barter market exchange rates.
NOTE 5 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of June 30, 2020 and September 30, 2019 consisted of the following:
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(in thousands)
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Estimated Useful Lives
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June 30, 2020
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September 30, 2019
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Contract drilling services equipment
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4 - 15 years
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$
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7,330,464
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$
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7,881,323
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Tubulars
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4 years
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616,460
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618,310
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Real estate properties
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10 - 45 years
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|
72,525
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72,507
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Other
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2 - 23 years
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|
465,278
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471,803
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Construction in progress (1)
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70,062
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117,761
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8,554,789
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9,161,704
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Accumulated depreciation
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(4,800,583
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)
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(4,659,620
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)
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Property, plant and equipment, net
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$
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3,754,206
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|
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$
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4,502,084
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(1)
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Included in construction in progress are costs for projects in progress to upgrade or refurbish certain rigs in our existing fleet. Additionally, we include other capital maintenance purchase-orders that are open/in process. As these various projects are completed, the costs are then classified to their appropriate useful life category.
|
Depreciation
Depreciation expense in the Unaudited Condensed Consolidated Statements of Operations was $108.4 million and $141.9 million for the three months ended June 30, 2020 and 2019, respectively, and $366.8 million and $423.7 million for the nine months ended June 30, 2020 and 2019, respectively. Included in depreciation expenses is abandonments of $0.9 million and $1.4 million for the three months ended June 30, 2020 and 2019, respectively, and $2.6 million and $6.8 million for the nine months ended June 30, 2020 and 2019, respectively.
Gain on Sale of Assets
We had gains on sales of assets of $4.2 million and $10.0 million for the three months ended June 30, 2020 and 2019, respectively, and $18.8 million and $27.1 million for the nine months ended June 30, 2020 and 2019, respectively. These gains were primarily related to reimbursement for drill pipe damaged or lost in drilling operations.
Impairments
Consistent with our policy, we evaluate our drilling rigs and related equipment for impairment whenever events or changes in circumstances indicate the carrying value of these assets may exceed the estimated undiscounted future net cash flows. Our evaluation, among other things, includes a review of external market factors and an assessment on the future marketability of specific rigs’ asset group.
During the second quarter of fiscal year 2020, several significant economic events took place that severely impacted the current demand on drilling services, including the significant drop in crude oil prices caused by OPEC+'s price war coupled with the decrease in the demand due to the COVID-19 pandemic. To maintain a competitive edge in a challenging market, the Company’s management introduced a new strategy focused on operating various types of highly capable upgraded rigs and phasing out the older, less capable fleet. This resulted in grouping the super-spec rigs of our legacy Domestic FlexRig3 asset group with our FlexRig5 asset group creating a new "Domestic super-spec FlexRig" asset group, while combining the legacy Domestic conventional asset group, FlexRig4 asset group and FlexRig3 non-super-spec rigs into one asset group (Domestic non-super-spec asset group). Given the current and projected low utilization for our Domestic non-super-spec asset group and all International asset groups, we considered these economic factors to be indicators that these asset groups may be impaired.
As a result of these indicators, we performed impairment testing at March 31, 2020 on each of our Domestic non super-spec and International conventional, FlexRig3, and FlexRig4 asset groups which had an aggregate net book value of $605.8 million. We concluded that the net book value of each asset group is not recoverable through estimated undiscounted cash flows and recorded a non-cash impairment charge of $441.4 million in the Unaudited Condensed Consolidated Statement of Operations during the nine months ended June 30, 2020. Of the $441.4 million total impairment charge recorded, $292.4 million and $149.0 million was recorded in the North America Solutions and International Solutions segments, respectively. No further impairments were recognized in the third quarter of fiscal year 2020. Impairment was measured as the amount by which the net book value of each asset group exceeds its fair value.
The most significant assumptions used in our undiscounted cash flow model include timing on awards of future drilling contracts, drilling rig utilization, estimated remaining useful life, and net proceeds received upon future sale/disposition. These assumptions are classified as Level 3 inputs by ASC Topic 820 Fair Value Measurement and Disclosures as they are based upon unobservable inputs and primarily rely on management assumptions and forecasts.
In determining the fair value of each asset group, we utilized a combination of income and market approaches. The significant assumptions in the valuation are based on those of a market participant and are classified as Level 2 and Level 3 inputs by ASC Topic 820 Fair Value Measurement and Disclosures.
As of March 31, 2020, the Company also recorded an additional non-cash impairment charge related to in-progress drilling equipment and rotational inventory of $44.9 million and $38.6 million, respectively, which had aggregate book values of $68.4 million and $38.6 million, respectively, in the Unaudited Condensed Consolidated Statement of Operations during the nine months ended June 30, 2020. Of the $83.5 million total impairment charge recorded for in-progress drilling equipment and rotational inventory, $75.8 million and $7.7 million was recorded in the North America Solutions and International Solutions segments, respectively.
Decommissioning
While the crude oil market imbalance is a global phenomenon, it has more acutely impacted the U.S. market as a result of storage limitations during the three months ended June 30, 2020. The abruptness of and the overall size of the decrease in demand for refined products, such as gasoline and diesel, has created an abundance of supply for such products which has caused the inventory levels of crude oil and its related refined products to become greatly elevated, reaching the high end of storage capabilities. This has greatly reduced the need, or in some cases, entirely eliminated the ability of refineries to use crude oil as a feedstock. As such, E&P companies, our customers, may have limited opportunities to offload their production and even then, the selling price could be at very low, uneconomical prices. Consequently, some E&P companies have chosen to shut-in and stop production, not complete additional wells drilled and/or not drill any more wells until the market imbalance corrects and it is economical to resume production and drilling wells.
During the three months ended June 30, 2020, we decommissioned two rigs and 35 rigs from our legacy Domestic Conventional asset group and FlexRig3 asset group, respectively. The decommissioned rigs were impaired as of March 31, 2020.
NOTE 6 LEASES
ASC 842 Adoption
On October 1, 2019, we adopted ASC 842, retrospectively through a cumulative-effect adjustment without restating comparative periods for the 2019 and 2018 fiscal years as permitted under the specific transitional provisions in ASC 842. The reclassifications and the adjustments arising from the new leasing rules are therefore recognized in the opening balance sheet on October 1, 2019.
Upon the adoption of ASC 842, we recognized lease liabilities in relation to leases that had previously been classified as operating leases under the principles of ASC 840. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of October 1, 2019, as most of our contracts do not provide an implicit rate. The weighted average lessee’s incremental borrowing rate applied to the operating lease liabilities on October 1, 2019 was approximately 2.9%.
The change in accounting policy affected the following items in the balance sheet on October 1, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2019
|
|
Adjustments
|
|
October 1, 2019
|
|
Other Noncurrent Assets:
|
|
|
|
|
|
|
Operating lease right-of-use asset
|
$
|
—
|
|
|
$
|
56,071
|
|
|
$
|
56,071
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
Accrued liabilities
|
—
|
|
|
16,277
|
|
|
16,277
|
|
|
Noncurrent Liabilities:
|
|
|
|
|
|
|
Other
|
—
|
|
|
39,794
|
|
|
39,794
|
|
As of June 30, 2020, segment assets and liabilities have all increased from September 30, 2019 as a result of the change in accounting policy. All reportable segments were affected by the change in policy.
In applying ASC 842 for the first time, we have used the following practical expedients permitted by the topic:
|
|
|
|
•
|
The use of a single discount rate to a portfolio of leases with reasonably similar characteristics,
|
|
|
|
|
•
|
Not to reassess whether a contract is, or contains a lease at the date of initial application; instead, for contracts entered into before the transition date, we relied on our assessment in which we applied ASC 840 prior to the adoption date,
|
|
|
|
|
•
|
The option to not reassess initial direct cost for existing leases, and
|
|
|
|
|
•
|
The use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
|
We have made the accounting policy election to not recognize a right-of-use asset and corresponding liability for leases with a term of 12 months or less and leases of low-value. Additionally, ASC 842 provides lessors with a practical expedient, by class of underlying asset, to not separate lease and non-lease components and account for the combined component under ASC 606 when the non-lease component is the predominant element of the combined component. The lessor practical expedient is limited to circumstances in which the lease, if accounted for separately, would be classified as an operating lease under ASC 842.
With respect to our drilling service contracts that commenced or were amended during the nine months ended June 30, 2020, we concluded that our drilling contracts contain a lease component and that the non-lease component is the predominant element of the combined component of such contracts. As such, we elected to apply the practical expedient to not separate the lease and non-lease components and account for the combined component under ASC 606. Therefore, we do not expect any change in our revenue recognition patterns or disclosures as a result of our adoption of ASC 842.
Lease Position
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
October 1, 2019
|
|
June 30, 2020
|
|
Operating lease commitments disclosed
|
$
|
62,218
|
|
|
$
|
54,333
|
|
|
|
|
|
|
|
Discounted using the lessee's incremental borrowing rate at the date of initial application
|
$
|
57,323
|
|
|
$
|
53,107
|
|
|
(Less): short-term leases recognized on a straight-line basis as expense
|
(1,252
|
)
|
|
(5,602
|
)
|
|
Lease liability recognized
|
$
|
56,071
|
|
|
$
|
47,505
|
|
|
|
|
|
|
|
Of which:
|
|
|
|
|
Current lease liabilities
|
$
|
16,277
|
|
|
$
|
11,792
|
|
|
Non-current lease liabilities
|
39,794
|
|
|
35,713
|
|
The recognized right-of-use assets relate to the following types of assets:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
October 1, 2019
|
|
June 30, 2020
|
|
Properties
|
$
|
52,188
|
|
|
$
|
44,413
|
|
|
Equipment
|
3,652
|
|
|
2,606
|
|
|
Other
|
231
|
|
|
515
|
|
|
Total right-of-use assets
|
$
|
56,071
|
|
|
$
|
47,534
|
|
The right-of-use assets were measured at the amount equal to the lease liability, adjusted for the amount of any prepaid or accrued lease payments recognized on the balance sheet at September 30, 2019.
Lease Costs
The following table presents certain information related to the lease costs for our operating leases:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Three Months Ended
June 30, 2020
|
|
Nine Months Ended
June 30, 2020
|
|
Operating lease cost
|
$
|
4,085
|
|
|
$
|
12,642
|
|
|
Short-term lease cost
|
234
|
|
|
1,303
|
|
|
Total lease cost
|
$
|
4,319
|
|
|
$
|
13,945
|
|
Lease Terms and Discount Rates
The table below presents certain information related to the weighted average remaining lease terms and weighted average discount rates for our operating leases as of June 30, 2020.
|
|
|
|
|
|
|
|
June 30, 2020
|
|
Weighted average remaining lease term
|
5.1
|
|
|
Weighted average discount rate
|
2.6
|
%
|
Lease Obligations
Future minimum rental payments required under operating leases having initial or remaining non-cancelable lease terms in excess of one year at June 30, 2020 (in thousands) are as follows:
|
|
|
|
|
|
|
|
Fiscal Year
|
Amount
|
|
2020
|
$
|
6,186
|
|
|
2021
|
12,218
|
|
|
2022
|
9,011
|
|
|
2023
|
7,696
|
|
|
2024
|
7,311
|
|
|
Thereafter
|
11,911
|
|
|
Total
|
$
|
54,333
|
|
Total rent expense was $4.3 million and $3.9 million for the three months ended June 30, 2020 and 2019, respectively, and $13.9 million and $11.6 million for the nine months ended June 30, 2020 and 2019, respectively. The future minimum lease payments for our Tulsa corporate office and our Tulsa industrial facility represent a material portion of the amounts shown in the table above. The lease agreement for our Tulsa corporate office commenced on May 30, 2003 and has subsequently been amended, most recently on March 12, 2018. The agreement will expire on January 31, 2025; however, we have two five-year renewal options, which were not recognized as part of our right-of-use assets and lease liabilities. The lease agreement for our Tulsa industrial facility, where we perform maintenance and assembly of FlexRig components commenced on December 21, 2018 and will expire on June 30, 2025; however, we have two two-year renewal options which were recognized as part of our right-of-use assets and lease liabilities.
NOTE 7 GOODWILL AND INTANGIBLE ASSETS
Goodwill
Goodwill represents the excess of the purchase price over the fair values of the assets acquired and liabilities assumed in a business combination, at the date of acquisition. Goodwill is not amortized but is tested for potential impairment at the reporting unit level, at a minimum on an annual basis, or when indications of potential impairment exist. All of our goodwill is within our North America Solutions reportable segment.
The following is a summary of changes in goodwill (in thousands):
|
|
|
|
|
|
|
|
Balance at September 30, 2019
|
$
|
82,786
|
|
|
Additions
|
1,200
|
|
|
Impairment
|
(38,333
|
)
|
|
Balance at June 30, 2020
|
$
|
45,653
|
|
During the second quarter of fiscal year 2020, as a result of new information identified related to the acquisition of DrillScan, the acquisition date fair value of the contingent consideration and goodwill increased by approximately $1.2 million.
Intangible Assets
Finite-lived intangible assets are amortized using the straight-line method over the period in which these assets contribute to our cash flows and are evaluated for impairment in accordance with our policies for valuation of long-lived assets. All of our intangible assets are within our North America Solutions reportable segment. Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
September 30, 2019
|
|
(in thousands)
|
Weighted Average Estimated Useful Lives
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Finite-lived intangible asset:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed technology
|
15 years
|
|
$
|
89,097
|
|
|
$
|
14,817
|
|
|
$
|
74,280
|
|
|
$
|
89,096
|
|
|
$
|
10,256
|
|
|
$
|
78,840
|
|
|
Intellectual property
|
13 years
|
|
1,500
|
|
|
75
|
|
|
1,425
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Trade name
|
20 years
|
|
5,865
|
|
|
763
|
|
|
5,102
|
|
|
5,865
|
|
|
522
|
|
|
5,343
|
|
|
Customer relationships
|
5 years
|
|
4,000
|
|
|
2,067
|
|
|
1,933
|
|
|
4,000
|
|
|
1,467
|
|
|
2,533
|
|
|
|
|
|
$
|
100,462
|
|
|
$
|
17,722
|
|
|
$
|
82,740
|
|
|
$
|
98,961
|
|
|
$
|
12,245
|
|
|
$
|
86,716
|
|
Amortization expense in the Unaudited Condensed Consolidated Statements of Operations was $1.8 million and $1.4 million for the three months ended June 30, 2020 and 2019, respectively, and $5.5 million and $4.2 million for nine months ended June 30, 2020 and 2019, respectively. Intangible amortization is estimated to be approximately $1.8 million for the remainder of fiscal year 2020, approximately $7.2 million for fiscal years 2021 and 2022, approximately $6.5 million for fiscal year 2023 and approximately $6.4 million for fiscal year 2024.
Impairment
Consistent with our policy, we test goodwill annually for impairment in the fourth quarter of our fiscal year, or more frequently if there are indicators that goodwill might be impaired. Due to the market conditions described in Note 5—Property, Plant and Equipment, during the second quarter of fiscal year 2020, we concluded that goodwill might be impaired and tested the H&P Technologies reporting unit, where the goodwill balance is allocated, for recoverability. This resulted in a non-cash impairment charge of $38.3 million recorded in the Unaudited Condensed Consolidated Statement of Operations during the nine months ended June 30, 2020.
The recoverable amount of the H&P Technologies reporting unit is determined based on a fair value calculation which uses cash flow projections based on the Company’s financial projections presented to the board of directors covering a five-year period, and a discount rate of 14 percent. Cash flows beyond that five-year period have been extrapolated using the fifth-year data with no implied growth factor. The reporting unit level is defined as an operating segment or one level below an operating segment.
The recoverable amount of the intangible assets tested for impairment within the H&P Technologies reporting unit is determined based on undiscounted cash flow projections using the Company’s financial projections presented to the board of directors covering a five-year period, and extrapolated for the remaining weighted average useful lives of the intangible assets.
The most significant assumptions used in our cash flow model include timing on awards of future contracts, commercial pricing terms, utilization, discount rate, and the terminal value. These assumptions are classified as Level 3 inputs by ASC Topic 820 Fair Value Measurement and Disclosures as they are based upon unobservable inputs and primarily rely on management assumptions and forecasts. Although we believe the assumptions used in our analysis and the probability-weighted average of expected future cash flows are reasonable and appropriate, different assumptions and estimates could materially impact the analysis and our resulting conclusion.
NOTE 8 DEBT
We had the following unsecured long-term debt outstanding with maturities shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
September 30, 2019
|
|
(in thousands)
|
Face
Amount
|
|
Unamortized
Discount and Debt Issuance
Cost
|
|
Book
Value
|
|
Face
Amount
|
|
Unamortized
Discount and Debt Issuance
Cost
|
|
Book
Value
|
|
Unsecured senior notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Due March 19, 2025
|
$
|
487,148
|
|
|
$
|
(6,879
|
)
|
|
$
|
480,269
|
|
|
$
|
487,148
|
|
|
$
|
(7,792
|
)
|
|
$
|
479,356
|
|
|
|
487,148
|
|
|
(6,879
|
)
|
|
480,269
|
|
|
487,148
|
|
|
(7,792
|
)
|
|
479,356
|
|
|
Less long-term debt due within one year
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Long-term debt
|
$
|
487,148
|
|
|
$
|
(6,879
|
)
|
|
$
|
480,269
|
|
|
$
|
487,148
|
|
|
$
|
(7,792
|
)
|
|
$
|
479,356
|
|
Senior Notes
HPIDC 2025 Notes
On March 19, 2015, our subsidiary, Helmerich & Payne International Drilling Co. ("HPIDC") issued $500.0 million of 4.65 percent unsecured senior notes due 2025 of HPIDC (the "HPIDC 2025 Notes"), which were redeemed in full on September 27, 2019 as described under "––Exchange Offer, Consent Solicitation and Redemption." Interest on the HPIDC 2025 Notes was payable semi-annually on March 15 and September 15. The debt discount was being amortized to interest expense using the effective interest method. The debt issuance costs were being amortized straight-line over the stated life of the obligation, which approximated the effective interest method.
Exchange Offer, Consent Solicitation and Redemption
On December 20, 2018, we settled an offer to exchange (the “Exchange Offer”) any and all outstanding HPIDC 2025 Notes for (i) up to $500.0 million aggregate principal amount of new 4.65 percent unsecured senior notes due 2025 of the Company (the “Company 2025 Notes”), with registration rights, and (ii) cash, pursuant to which we issued approximately $487.1 million in aggregate principal amount of Company 2025 Notes. Interest on the Company 2025 Notes is payable semi-annually on March 15 and September 15 of each year, commencing March 15, 2019. The debt issuance costs are being amortized straight-line over the stated life of the obligation, which approximates the effective interest method.
Following the consummation of the Exchange Offer, HPIDC had outstanding approximately $12.9 million in aggregate principal amount of HPIDC 2025 Notes. On December 20, 2018, HPIDC, the Company and Wells Fargo Bank, National Association, as trustee, entered into a supplemental indenture to the indenture governing the HPIDC 2025 Notes to adopt certain proposed amendments pursuant to a consent solicitation conducted concurrently with the Exchange Offer.
On September 27, 2019, we redeemed the remaining approximately $12.9 million in aggregate principal amount of HPIDC 2025 Notes for approximately $14.6 million, including accrued interest and a prepayment premium. Simultaneously with the redemption of the HPIDC 2025 Notes, HPIDC was released as a guarantor under the Company 2025 Notes and the 2018 Credit Facility (as defined herein). As a result of such release, H&P is the only obligor under the Company 2025 Notes and the 2018 Credit Facility.
Credit Facilities
On November 13, 2018, we entered into a credit agreement by and among the Company, as borrower, Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto, providing for an unsecured revolving credit facility (as amended, the “2018 Credit Facility”), which is set to mature on November 13, 2024. The 2018 Credit Facility has $750.0 million in aggregate availability with a maximum of $75.0 million available for use as letters of credit. The 2018 Credit Facility also permits aggregate commitments under the facility to be increased by $300.0 million, subject to the satisfaction of certain conditions and the procurement of additional commitments from new or existing lenders. The borrowings under the 2018 Credit Facility accrue interest at a spread over either the London Interbank Offered Rate ("LIBOR") or the Base Rate. We also pay a commitment fee on the unused balance of the facility. Borrowing spreads as well as commitment fees are determined based on the debt rating for senior unsecured debt of the Company, as determined by Moody’s and Standard & Poor’s. The spread over LIBOR ranges from 0.875 percent to 1.500 percent per annum and commitment fees range from 0.075 percent to 0.200 percent per annum. There is a financial covenant in the 2018 Credit Facility that requires us to maintain a total debt to total capitalization ratio of less than or equal to 50 percent. The 2018 Credit Facility contains additional terms, conditions, restrictions and covenants that we believe are usual and customary in unsecured debt arrangements for companies of similar size and credit quality, including a limitation that priority debt (as defined in the credit agreement) may not exceed 17.5 percent of the net worth of the Company. As of June 30, 2020, there were no borrowings or letters of credit outstanding, leaving $750.0 million available to borrow under the 2018 Credit Facility.
As of June 30, 2020, we had two outstanding letters of credit with banks, in the amounts of $24.8 million and $2.1 million, respectively.
As of June 30, 2020, we also had a $20.0 million unsecured standalone line of credit facility, for the purpose of obtaining the issuance of international letters of credit, bank guarantees, and performance bonds. Of the $20.0 million, $14.3 million of financial guarantees were outstanding as of June 30, 2020.
The applicable agreements for all unsecured debt 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 June 30, 2020, we were in compliance with all debt covenants.
NOTE 9 INCOME TAXES
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") became law. The CARES Act, among other things, includes certain income tax provisions for corporations; however, as of June 30, 2020, we are not anticipating any of the benefits to significantly impact the Company’s income tax provision.
We use an estimated annual effective tax rate for purposes of determining the income tax provision during interim reporting periods. In calculating our estimated annual effective tax rate, we consider forecasted annual pre-tax income and estimated permanent book versus tax differences. Adjustments to the effective tax rate and estimates will occur as information and assumptions change.
Our income tax benefit from continuing operations for the three months ended June 30, 2020 and 2019 was $17.6 million and $32.0 million, respectively, resulting in effective tax rates of 27.6 percent and 17.2 percent, respectively. Our income tax benefit from continuing operations for the nine months ended June 30, 2020 and 2019 was $116.9 million and $5.6 million, respectively, resulting in effective tax rates of 21.1 percent and 7.0 percent, respectively. The discrete adjustments for the three and nine months ended June 30, 2020 and 2019 relate to decreases in our deferred state income tax rate, return to provision adjustments, and reversals of uncertain tax liabilities.
For the next 12 months, we cannot predict with certainty whether we will achieve ultimate resolution of any uncertain tax positions associated with our U.S. and international operations that could result in increases or decreases of our unrecognized tax benefits. However, we do not expect the increases or decreases to have a material effect on our results of continuing operations or financial position.
NOTE 10 SHAREHOLDERS’ EQUITY
The Company has authorization from the Board of Directors (the "Board") for the repurchase of up to four million common shares per calendar year. The repurchases may be made using our cash and cash equivalents or other available sources. We had no purchases of common shares during the three months ended June 30, 2020. During the nine months ended June 30, 2020, we purchased 1.5 million common shares at an aggregate cost of $28.5 million, which are held as treasury shares. We had no purchases of common shares during the three and nine months ended June 30, 2019.
A cash dividend of $0.71 per share was declared on March 4, 2020 for shareholders of record on May 11, 2020 and was paid on June 1, 2020. An additional cash dividend of $0.25 per share was declared on June 3, 2020 for shareholders of record on August 17, 2020, payable on August 31, 2020. As a result, we recorded a dividend payable of $27.2 million within Dividends Payable on our Unaudited Condensed Consolidated Balance Sheets as of June 30, 2020.
Components of accumulated other comprehensive loss were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30,
2020
|
|
September 30,
2019
|
|
Pre-tax amounts:
|
|
|
|
|
Unrealized actuarial loss
|
$
|
(35,078
|
)
|
|
$
|
(37,084
|
)
|
|
|
$
|
(35,078
|
)
|
|
$
|
(37,084
|
)
|
|
After-tax amounts:
|
|
|
|
|
Unrealized actuarial loss
|
$
|
(27,082
|
)
|
|
$
|
(28,635
|
)
|
|
|
$
|
(27,082
|
)
|
|
$
|
(28,635
|
)
|
The following is a summary of the changes in accumulated other comprehensive loss, net of tax, related to the defined benefit pension plan for the three and nine months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Three Months Ended June 30, 2020
|
|
Nine Months Ended June 30, 2020
|
|
Balance at beginning of period
|
$
|
(27,603
|
)
|
|
$
|
(28,635
|
)
|
|
Activity during the period
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive income
|
521
|
|
|
1,553
|
|
|
Net current-period other comprehensive income
|
521
|
|
|
1,553
|
|
|
Balance at June 30, 2020
|
$
|
(27,082
|
)
|
|
$
|
(27,082
|
)
|
NOTE 11 REVENUE FROM CONTRACTS WITH CUSTOMERS
Contract Drilling Services Revenue
Due to the sharp decline in the price of oil during the second quarter of fiscal year 2020, our customers have reduced their drilling activity and we have received rig release notifications for rigs under term and well-to-well contracts. The releases for rigs under term contracts result in early termination compensation owed to us, while releases for rigs under well-to-well contracts given outside the notification window per the contract result in notification fees owed to us. During the three months ended June 30, 2020 and 2019, early termination revenue associated with term contracts was approximately $49.5 million and $0.8 million, respectively, and $57.8 million and $9.1 million, respectively, for the nine months ended June 30, 2020 and 2019. During the three months ended June 30, 2020 and 2019, notification fee revenue related to well-to-well contracts was approximately $0.9 million and $0.8 million, respectively, and $3.0 million and $1.0 million for the nine months ended June 30, 2020 and 2019, respectively.
As a result of the depressed market conditions and negative outlook for the near term, certain of our customers have opted to renegotiate existing drilling contracts. During the second quarter of fiscal year 2020, we agreed to certain price concessions on some of our existing drilling contracts; however, the total impact on current and future periods is not material.
Contract Costs
We had capitalized fulfillment costs of $6.3 million and $13.9 million as of June 30, 2020 and September 30, 2019, respectively.
Remaining Performance Obligations
The total aggregate transaction price allocated to the unsatisfied performance obligations, commonly referred to as backlog, as of June 30, 2020 was approximately $650.7 million, of which approximately $173.3 million is expected to be recognized during the remainder of fiscal year 2020, approximately $331.8 million during fiscal year 2021, and approximately $145.6 million during fiscal year 2022 and thereafter. These amounts do not include anticipated contract renewals. Additionally, contracts that currently contain month-to-month terms are represented in our backlog as one month of unsatisfied performance obligations. Our contracts are subject to cancellation or modification at the election of the customer; however, due to the level of capital deployed by our customers on underlying projects, we have not been materially adversely affected by contract cancellations or modifications in the past. However, the impact of the COVID-19 pandemic is inherently uncertain, and, as a result, the Company is unable to reasonably estimate the duration and ultimate impacts of the pandemic, including the effect it may have on our contractual obligations with our customers.
Contract Assets and Liabilities
The following tables summarize the balances of our contract assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30, 2020
|
|
September 30, 2019
|
|
Contract assets
|
$
|
2,337
|
|
|
$
|
2,151
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30, 2020
|
|
Contract liabilities balance at September 30, 2019
|
$
|
23,354
|
|
|
Payment received/accrued and deferred
|
16,005
|
|
|
Revenue recognized during the period
|
(29,138
|
)
|
|
Contract liabilities balance at June 30, 2020
|
$
|
10,221
|
|
NOTE 12 STOCK-BASED COMPENSATION
On March 3, 2020, the Helmerich & Payne, Inc. 2020 Omnibus Incentive Plan (the “2020 Plan”) was approved by our stockholders. The 2020 Plan replaces our stockholder-approved Helmerich & Payne, Inc. 2016 Omnibus Incentive Plan (the "2016 Plan"). The 2020 Plan is a stock and cash-based incentive plan that, among other things, authorizes the Board or Human Resources Committee of the Board to grant executive officers, employees and non-employee directors stock options, stock appreciation rights, restricted shares and restricted share units, share bonuses, other share-based awards and cash awards. Awards outstanding under the Helmerich & Payne, Inc. 2005 Long-Term Incentive Plan, the Helmerich & Payne, Inc. 2010 Long-Term Incentive Plan and the 2016 Plan remain subject to the terms and conditions of those plans. Beginning with fiscal year 2019, we replaced stock options with performance share units as a component of our executives’ long-term equity incentive compensation. As a result, there were no new non-qualified stock options granted during the nine months ended June 30, 2020. We have also eliminated stock options as an element of our non-employee director compensation program. The Board has determined to award stock-based compensation to non-employee directors solely in the form of restricted stock. During the nine months ended June 30, 2020, 727,009 shares of restricted stock awards and 258,857 performance share units were granted under the 2016 Plan and 54,118 shares of restricted stock awards were granted under the 2020 Plan.
A summary of compensation cost for stock-based payment arrangements recognized in contract drilling services operating expense and selling, general and administrative expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Nine Months Ended June 30,
|
|
(in thousands)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
Stock options
|
$
|
422
|
|
|
$
|
719
|
|
|
$
|
1,409
|
|
|
$
|
3,073
|
|
|
Restricted stock
|
8,716
|
|
|
6,771
|
|
|
24,359
|
|
|
19,374
|
|
|
Performance share units
|
1,969
|
|
|
1,388
|
|
|
6,291
|
|
|
3,020
|
|
|
Stock-based compensation benefit included in restructuring charges
|
(3,483
|
)
|
|
—
|
|
|
(3,483
|
)
|
|
—
|
|
|
|
$
|
7,624
|
|
|
$
|
8,878
|
|
|
$
|
28,576
|
|
|
$
|
25,467
|
|
Of the total stock-based compensation expense, for the three and nine months ended June 30, 2020, $2.4 million and $7.6 million, respectively, was recorded in contract drilling services operating expenses on our Unaudited Condensed Consolidated Statements of Operations. For the three and nine months ended June 30, 2019, $1.9 million and $5.4 million, respectively, was recorded in contract drilling services operating expenses.
Of the total stock-based compensation expense, for the three and nine months ended June 30, 2020, $8.7 million and $24.5 million, respectively, was recorded in selling, general and administrative expense on our Unaudited Condensed
Consolidated Statements of Operations. For the three and nine months ended June 30, 2019, $6.9 million and $20.1 million, respectively, was recorded in selling, general and administrative expense.
Stock Options
A summary of stock option activity under all existing long-term incentive plans for the three and nine months ended June 30, 2020 is presented in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
(in thousands, except per share amounts and years)
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term in Years
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at March 31, 2020
|
3,028
|
|
|
$
|
62.44
|
|
|
|
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
|
|
|
|
Forfeited/Expired
|
(29
|
)
|
|
62.74
|
|
|
|
|
|
|
Outstanding at June 30, 2020
|
2,999
|
|
|
$
|
62.43
|
|
|
4.57
|
|
$
|
—
|
|
|
Vested and expected to vest at June 30, 2020
|
2,999
|
|
|
$
|
62.43
|
|
|
4.57
|
|
$
|
—
|
|
|
Exercisable at June 30, 2020
|
2,650
|
|
|
$
|
62.42
|
|
|
4.22
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2020
|
|
(in thousands, except per share amounts and years)
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding at September 30, 2019
|
3,238
|
|
$
|
60.86
|
|
|
Exercised
|
(202)
|
|
38.02
|
|
|
Forfeited/Expired
|
(37)
|
|
57.67
|
|
|
Outstanding at June 30, 2020
|
2,999
|
|
$
|
62.43
|
|
No options were exercised during the three months ended June 30, 2020. The total intrinsic value of options exercised during the three months ended June 30, 2019 was $0.3 million. The total intrinsic value of options exercised during the nine months ended June 30, 2020 and 2019 was $0.3 million and $7.9 million, respectively.
As of June 30, 2020, the unrecognized compensation cost related to stock options was $1.6 million, which is expected to be recognized over a weighted-average period of 1.4 years.
Restricted Stock
Restricted stock awards consist of our common stock and are time-vested over four years. Non-forfeitable dividends are paid on non-vested shares of restricted stock. We recognize compensation expense on a straight-line basis over the vesting period. The fair value of restricted stock awards is determined based on the closing price of our shares on the grant date. As of June 30, 2020, there was $38.8 million of total unrecognized compensation cost related to unvested restricted stock awards. That cost is expected to be recognized over a weighted-average period of 2.5 years.
A summary of the status of our restricted stock awards as of June 30, 2020 and changes in non-vested restricted stock outstanding during the nine months then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2020
|
|
(in thousands, except per share amounts)
|
Shares
|
|
Weighted Average
Grant Date Fair
Value per Share
|
|
Non-vested restricted stock outstanding at September 30, 2019
|
1,085
|
|
|
$
|
61.28
|
|
|
Granted (1)
|
781
|
|
|
39.99
|
|
|
Vested (2)
|
(482
|
)
|
|
60.04
|
|
|
Forfeited
|
(58
|
)
|
|
49.37
|
|
|
Non-vested restricted stock outstanding at June 30, 2020
|
1,326
|
|
|
$
|
49.70
|
|
|
|
|
|
(1)
|
The number of restricted stock awards granted includes phantom shares that confer the benefits of owning company stock without the actual ownership or transfer of any shares. The number of phantom shares granted for the nine months ended June 30, 2020 was 20,616.
|
|
|
|
|
(2)
|
The number of restricted stock awards vested includes shares that we withheld on behalf of our employees to satisfy the statutory tax withholding requirements.
|
Performance Share Units
We have made awards to certain employees that are subject to market-based performance conditions ("performance share units"). Subject to the terms and conditions set forth in the applicable performance share unit award agreements and the 2016 Plan, grants of performance share units are subject to a vesting period of three years (the “Vesting Period”) that is dependent on the achievement of certain performance goals. Such performance share unit awards consist of two separate components. Performance share units that comprise the first component are subject to a three-year performance cycle. Performance share units that comprise the second component are further divided into three separate tranches, each of which is subject to a separate one-year performance cycle within the full three-year performance cycle. The vesting of the performance share units is generally dependent on (i) the achievement of the Company’s total shareholder return (“TSR”) performance goals relative to the TSR achievement of a peer group of companies (the “Peer Group”) over the applicable performance cycle, and (ii) the continued employment of the recipient of the performance share unit award throughout the Vesting Period.
At the end of the Vesting Period, recipients receive dividend equivalents, if any, with respect to the number of vested performance share units. The vesting of units ranges from zero to 200 percent of the units granted depending on the Company’s TSR relative to the TSR of the Peer Group on the vesting date.
The grant date fair value of performance share units was determined through use of the Monte Carlo simulation method. The Monte Carlo simulation method requires the use of highly subjective assumptions. Our key assumptions in the method include the price and the expected volatility of our stock and our self-determined Peer Group companies’ stock, risk free rate of return and cross-correlations between the Company and our Peer Group companies. The valuation model assumes dividends are immediately reinvested. As of June 30, 2020, there was $8.5 million of unrecognized compensation cost related to unvested performance share units. That cost is expected to be recognized over a weighted-average period of 1.9 years.
A summary of the status of our performance share units as of June 30, 2020 and changes in non-vested performance share units outstanding during the nine months then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2020
|
|
(in thousands, except per share amounts)
|
Shares
|
|
Weighted Average
Grant Date Fair
Value per Share
|
|
Non-vested performance share units outstanding at September 30, 2019
|
145
|
|
|
$
|
62.66
|
|
|
Granted
|
259
|
|
|
43.40
|
|
|
Forfeited
|
(45
|
)
|
|
$
|
50.98
|
|
|
Non-vested performance share units outstanding at June 30, 2020
|
359
|
|
|
$
|
50.23
|
|
The weighted-average fair value calculation for performance share units granted during the nine months ended June 30, 2020 is based on the following weighted-average assumptions set forth in the table below.
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2020
|
|
Risk-free interest rate (1)
|
1.6
|
%
|
|
Expected stock volatility (2)
|
34.8
|
%
|
|
Expected term (in years)
|
3.2
|
|
|
|
|
|
(1)
|
The risk-free interest rate is based on U.S. Treasury securities for the expected term of the performance share units.
|
|
|
|
|
(2)
|
Expected volatilities are based on the daily closing price of our stock based upon historical experience over a period which approximates the expected term of the performance share units.
|
NOTE 13 EARNINGS (LOSSES) PER COMMON SHARE
ASC 260, Earnings per Share, requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividends or dividend equivalents as a separate class of securities in calculating earnings per share. We have granted and expect to continue to grant to employees restricted stock grants that contain non-forfeitable rights to dividends. Such grants are considered participating securities under ASC 260. As such, we are required to include these grants in the calculation of our basic earnings per share and calculate basic earnings per share using the two-class 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.
Basic earnings per share is computed utilizing the two-class method and is calculated based on the weighted-average number of common shares outstanding during the periods presented.
Diluted earnings 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, non-vested restricted stock and performance share units.
Under the two-class method of calculating earnings per share, dividends paid and a portion of undistributed net income, but not losses, are allocated to unvested restricted stock grants that receive dividends, which are considered participating securities.
The following table sets forth the computation of basic and diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Nine Months Ended
June 30,
|
|
(in thousands, except per share amounts)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
$
|
(46,007
|
)
|
|
$
|
(154,621
|
)
|
|
$
|
(435,746
|
)
|
|
$
|
(74,400
|
)
|
|
Income (loss) from discontinued operations
|
408
|
|
|
(62
|
)
|
|
212
|
|
|
(433
|
)
|
|
Net loss
|
(45,599
|
)
|
|
(154,683
|
)
|
|
(435,534
|
)
|
|
(74,833
|
)
|
|
Adjustment for basic loss per share
|
|
|
|
|
|
|
|
|
Loss allocated to unvested shareholders
|
(331
|
)
|
|
(772
|
)
|
|
(2,327
|
)
|
|
(2,332
|
)
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic loss per share:
|
|
|
|
|
|
|
|
|
From continuing operations
|
(46,338
|
)
|
|
(155,393
|
)
|
|
(438,073
|
)
|
|
(76,732
|
)
|
|
From discontinued operations
|
408
|
|
|
(62
|
)
|
|
212
|
|
|
(433
|
)
|
|
|
(45,930
|
)
|
|
(155,455
|
)
|
|
(437,861
|
)
|
|
(77,165
|
)
|
|
Adjustment for diluted loss per share:
|
|
|
|
|
|
|
|
|
Effect of reallocating undistributed earnings of unvested shareholders
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for diluted loss per share:
|
|
|
|
|
|
|
|
|
From continuing operations
|
(46,338
|
)
|
|
(155,393
|
)
|
|
(438,073
|
)
|
|
(76,732
|
)
|
|
From discontinued operations
|
408
|
|
|
(62
|
)
|
|
212
|
|
|
(433
|
)
|
|
|
$
|
(45,930
|
)
|
|
$
|
(155,455
|
)
|
|
$
|
(437,861
|
)
|
|
$
|
(77,165
|
)
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic loss per share - weighted-average shares
|
107,439
|
|
|
109,425
|
|
|
108,185
|
|
|
109,324
|
|
|
Effect of dilutive shares from stock options, restricted stock and performance share units
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Denominator for diluted loss per share - adjusted weighted-average shares
|
107,439
|
|
|
109,425
|
|
|
108,185
|
|
|
109,324
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per common share:
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
$
|
(0.43
|
)
|
|
$
|
(1.42
|
)
|
|
$
|
(4.05
|
)
|
|
$
|
(0.71
|
)
|
|
Loss from discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net loss
|
$
|
(0.43
|
)
|
|
$
|
(1.42
|
)
|
|
$
|
(4.05
|
)
|
|
$
|
(0.71
|
)
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per common share:
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
$
|
(0.43
|
)
|
|
$
|
(1.42
|
)
|
|
$
|
(4.05
|
)
|
|
$
|
(0.71
|
)
|
|
Loss from discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net loss
|
$
|
(0.43
|
)
|
|
$
|
(1.42
|
)
|
|
$
|
(4.05
|
)
|
|
$
|
(0.71
|
)
|
We had a net loss for the three and nine months ended June 30, 2020 and 2019. Accordingly, our diluted earnings per share calculation this period was equivalent to our basic earnings per share calculation since diluted earnings per share excluded any assumed exercise of equity awards. These were excluded because they were deemed to be anti-dilutive, meaning their inclusion would have reduced the reported net loss per share in the applicable period.
The following average shares attributable to outstanding equity awards were excluded from the calculation of diluted loss per share because their inclusion would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Nine Months Ended
June 30,
|
|
(in thousands, except per share amounts)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Shares excluded from calculation of diluted loss per share
|
4,708
|
|
|
2,753
|
|
|
3,882
|
|
|
2,768
|
|
|
Weighted-average price per share
|
$
|
58.27
|
|
|
$
|
64.22
|
|
|
$
|
60.63
|
|
|
$
|
64.21
|
|
NOTE 14 FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS
We have certain assets and liabilities that are required to be measured and disclosed at fair value. Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or 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 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.
|
|
|
|
|
•
|
Level 2 — Observable inputs, other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
|
|
|
|
|
•
|
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
|
The assets held in a Non-Qualified Supplemental Savings Plan are carried at fair value, which totaled $16.3 million at June 30, 2020 and $15.7 million at September 30, 2019. The assets are comprised of mutual funds that are measured using Level 1 inputs.
Short-term investments include securities classified as trading securities. Both realized and unrealized gains and losses on trading securities are included in other income (expense) in the Unaudited Condensed Consolidated Statements of Operations. The securities are recorded at fair value.
Our non-financial assets, such as intangible assets, goodwill and property, plant and equipment, are recorded at fair value when acquired in a business combination or when an impairment charge is recognized. If measured at fair value in the Unaudited Condensed Consolidated Balance Sheets, these would generally be classified within Level 2 or 3 of the fair value hierarchy.
The majority of cash equivalents are invested in highly liquid money-market mutual funds invested primarily in direct or indirect obligations of the U.S. Government and in federally insured deposit accounts. The carrying amount of cash and cash equivalents approximates fair value due to the short maturity of those investments.
The carrying value of other current assets, accrued liabilities and other liabilities approximated fair value at June 30, 2020 and September 30, 2019.
The following table summarizes our assets and liabilities measured at fair value presented in our Unaudited Condensed Consolidated Balance Sheet as of June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Recurring fair value measurements:
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
$
|
1,743
|
|
|
$
|
—
|
|
|
$
|
1,743
|
|
|
$
|
—
|
|
|
Corporate and municipal debt securities
|
45,185
|
|
|
—
|
|
|
45,185
|
|
|
—
|
|
|
U.S. government and federal agency securities
|
18,859
|
|
|
18,859
|
|
|
—
|
|
|
—
|
|
|
Total short-term investments
|
65,787
|
|
|
18,859
|
|
|
46,928
|
|
|
—
|
|
|
Cash and cash equivalents
|
426,245
|
|
|
426,245
|
|
|
—
|
|
|
—
|
|
|
Investments
|
8,940
|
|
|
8,597
|
|
|
343
|
|
|
—
|
|
|
Other current assets
|
46,643
|
|
|
46,643
|
|
|
—
|
|
|
—
|
|
|
Other assets
|
3,336
|
|
|
3,336
|
|
|
—
|
|
|
—
|
|
|
Total assets measured at fair value
|
$
|
550,951
|
|
|
$
|
503,680
|
|
|
$
|
47,271
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Contingent earnout liability
|
$
|
12,723
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,723
|
|
At June 30, 2020, our financial instruments measured at fair value utilizing Level 1 inputs include cash equivalents, U.S. Agency issued debt securities, equity securities with active markets and money market funds that are classified as restricted assets. The current portion of restricted amounts are included in prepaid expenses and other and the noncurrent portion is included in other assets. For these items, quoted current market prices are readily available.
At June 30, 2020, assets measured at fair value using Level 2 inputs include certificates of deposit, municipal bonds and corporate bonds measured using broker quotations that utilize observable market inputs.
Our financial instruments measured using Level 3 unobservable inputs consist of potential earnout payments primarily associated with our business acquisitions in fiscal year 2019.
The following table presents a reconciliation of changes in the fair value of our financial assets and liabilities classified as Level 3 fair value measurements in the fair value hierarchy for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Nine Months Ended
June 30,
|
|
(in thousands)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Net liabilities at beginning of period
|
$
|
11,823
|
|
|
$
|
9,015
|
|
|
$
|
18,373
|
|
|
$
|
11,160
|
|
|
Additions
|
—
|
|
|
—
|
|
|
1,500
|
|
|
673
|
|
|
Total gains or losses:
|
|
|
|
|
|
|
|
|
Included in earnings
|
900
|
|
|
540
|
|
|
(2,900
|
)
|
|
(2,278
|
)
|
|
Settlements (1)
|
—
|
|
|
—
|
|
|
(4,250
|
)
|
|
—
|
|
|
Net liabilities at June 30,
|
$
|
12,723
|
|
|
$
|
9,555
|
|
|
$
|
12,723
|
|
|
$
|
9,555
|
|
|
|
|
|
(1)
|
Settlements represent earnout payments that have been paid or earned during the period.
|
The following table provides quantitative information (in thousands) about our Level 3 unobservable inputs at June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Unobservable Input
|
|
Range
|
|
Weighted Average (1)
|
|
$1,000
|
|
Monte Carlo simulation
|
|
Discount rate
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
Revenue Volatility
|
|
34.6
|
%
|
|
|
|
|
|
|
|
|
|
Risk free rate
|
|
1.2
|
%
|
|
|
|
|
|
$11,723
|
|
Probability Analysis
|
|
Discount rate
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
Payment amounts
|
|
|
|
$3,000 - $7,000
|
|
$
|
5,400
|
|
|
|
|
|
|
Probabilities
|
|
|
|
40% - 60%
|
|
53
|
%
|
|
|
|
|
(1)
|
The weighted average of the payment amounts and the probabilities (Level 3 unobservable inputs), associated with the contingent consideration valued using probability analysis, were weighted by the relative undiscounted fair value of payment amounts and of probability payment amounts, respectively.
|
The above significant unobservable inputs are subject to change based on changes in economic and market conditions. The use of significant unobservable inputs creates uncertainty in the measurement of fair value as of the reporting date. The significant unobservable inputs used in the fair value measurement of the contingent consideration using Monte Carlo simulation are (i) discount rate, (ii) revenue volatility and (iii) risk-free rate. Significant increases or decreases in the discount rate and risk-free rate in isolation would result in a significantly lower or higher fair value measurement. Significant changes in revenue volatility in isolation would result in a significantly lower or higher fair value measurement. The significant unobservable inputs used in the fair value measurement of the contingent consideration using probability analysis are (i) discount rate, (ii) payment amounts and (iii) probabilities. Significant increases or decreases in the discount rate in isolation would result in a significantly lower or higher fair value measurement. Significant increases or decreases in the payment amounts or probabilities in isolation would result in a significantly higher or lower fair value measurement. It is not possible for us to predict the effect of future economic or market conditions on our estimated fair values.
The following information presents the supplemental fair value information about long-term fixed-rate debt at June 30, 2020 and September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
June 30, 2020
|
|
September 30, 2019
|
|
Carrying value of long-term fixed-rate debt
|
$
|
480.3
|
|
|
$
|
479.4
|
|
|
Fair value of long-term fixed-rate debt
|
520.5
|
|
|
526.4
|
|
The fair value for the $520.5 million fixed-rate debt is based on broker quotes. The notes are classified within Level 2 as they are not actively traded in markets.
The estimated fair value of our investments, reflected on our Unaudited Condensed Consolidated Balance Sheets as Investments, is based on Level 1 inputs. As a result of the change in the fair value of our investments, we recorded a gain of $2.3 million and a loss of $7.3 million for the three and nine months ended June 30, 2020, respectively.
NOTE 15 EMPLOYEE BENEFIT PLANS
Components of Net Periodic Benefit Cost
The following provides information at June 30, 2020 and 2019, related to the Company-sponsored domestic defined benefit pension plan, the Helmerich & Payne, Inc. Employee Retirement Plan (the “Pension Plan”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Nine Months Ended
June 30,
|
|
(in thousands)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Interest cost
|
$
|
1,097
|
|
|
$
|
1,097
|
|
|
$
|
3,291
|
|
|
$
|
3,291
|
|
|
Expected return on plan assets
|
(1,381
|
)
|
|
(1,386
|
)
|
|
(4,143
|
)
|
|
(4,158
|
)
|
|
Recognized net actuarial loss
|
669
|
|
|
291
|
|
|
2,007
|
|
|
874
|
|
|
Settlement
|
$
|
1,814
|
|
|
$
|
1,548
|
|
|
$
|
1,814
|
|
|
$
|
1,548
|
|
|
Net pension expense
|
$
|
2,199
|
|
|
$
|
1,550
|
|
|
$
|
2,969
|
|
|
$
|
1,555
|
|
According to ASC 715, Compensation—Retirement Benefits, if the lump sum distributions made during a plan year exceed the total of the projected service cost and interest cost for the plan year, settlement accounting is required. Lump sum payments exceeded this threshold during both the three and nine months ended June 30, 2019 and three and nine months ended June 30, 2020. Accordingly, we recognized settlement expense of $1.5 million for the three and nine months ended June 30, 2019, and settlement expense of $1.8 million for the three and nine months ended June 30, 2020 in other expense within our Condensed Consolidated Statements of Operations.
Employer Contributions
We did not contribute to the Pension Plan during the nine months ended June 30, 2020. For the remainder of fiscal year 2020, we do not expect minimum contributions required by law to be needed; however, we may make contributions during the remainder of fiscal year 2020 if needed to fund unexpected distributions in lieu of liquidating pension assets.
NOTE 16 COMMITMENTS AND CONTINGENCIES
Purchase Commitments
Equipment, parts and supplies are ordered in advance to promote efficient construction and capital improvement progress. At June 30, 2020, we had purchase commitments for equipment, parts and supplies of approximately $11.2 million.
Lease Obligations
Refer to Note 6—Leases for additional information on our lease obligations.
Guarantee Arrangements
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.
Contingencies
During the ordinary course of our business, contingencies arise resulting from an existing condition, situation or set of circumstances involving an uncertainty as to the realization of a possible gain or loss contingency. We account for gain contingencies in accordance with the provisions of ASC 450, Contingencies, and, therefore, we do not record gain contingencies or recognize income until realized. The property and equipment of our Venezuelan subsidiary was seized by the Venezuelan government on June 30, 2010. HPIDC, our wholly-owned subsidiary and the parent company of our Venezuelan subsidiary, has a lawsuit pending in the United States District Court for the District of Columbia against the Bolivarian Republic of Venezuela, Petroleos de Venezuela, S.A. and PDVSA Petroleo, S.A., seeking damages for the taking of their Venezuelan drilling business in violation of international law. While there exists the possibility of realizing a recovery, we are currently unable to determine the timing or amounts we may receive, if any, or the likelihood of recovery.
In October 2017, an employee of HPIDC suffered personal injury and subsequently brought a lawsuit against the operator. Pursuant to the terms of the drilling contract between HPIDC and the operator, HPIDC indemnified the operator in the lawsuit,
subject to certain limitations. A settlement agreement was reached with the operator. As of September 30, 2019, we accrued $9.5 million for this lawsuit, which was subsequently paid out during the nine months ended June 30, 2020.
The Company and its subsidiaries are parties to various other pending legal actions arising in the ordinary course of our business. We maintain insurance against certain business risks subject to certain deductibles. Although no assurance can be given, we believe, based on our experiences to date and taking into account established reserves and insurance, that the ultimate resolution of such items will not have a material adverse impact on our financial condition, cash flows, or results of operations. When we determine a loss is probable of occurring and is reasonably estimable, we accrue an undiscounted liability for such contingencies based on our best estimate using information available at that time. If the estimated loss is a range of potential outcomes and there is no better estimate within the range, we accrue the amount at the low end of the range. We disclose contingencies where an adverse outcome may be material, or in the judgment of management, we conclude the matter should otherwise be disclosed.
NOTE 17 BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION
Description of the Business
We are a performance-driven drilling solutions and technologies company based in Tulsa, Oklahoma with operations in all major U.S. onshore basins as well as South America and the Middle East. Our contract drilling operations consist mainly of contracting Company-owned drilling equipment primarily to large oil and gas exploration companies. We believe we are the recognized industry leader in drilling as well as technological innovation.
During the third quarter of fiscal year 2020, as part of our restructuring efforts (see Note 18—Restructuring Charges) and consistent with the manner in which our chief operating decision maker evaluates performance and allocates resources we implemented organizational changes. We are moving from a product-based offering, such as a rig or separate technology package, to an integrated solution-based approach by combining proprietary rig technology, automation software, and digital expertise into our rig operations. Operations previously reported within the H&P Technologies reportable segment are now managed and presented within the North America Solutions reportable segment. As a result, beginning with the third quarter of fiscal year 2020, our contract drilling services operations are organized into the following reportable operating business segments: North America Solutions, Offshore Gulf of Mexico and International Solutions. All segment disclosures have been recast for these segment changes. Our real estate operations, our incubator program for new research and development projects, and our wholly-owned captive insurance companies are included in "Other." Consolidated revenues and expenses reflect the elimination of intercompany transactions.
Each reportable operating segment is a strategic business unit that is managed separately, and consolidated revenues and expenses reflect the elimination of all material intercompany transactions. Other includes additional non-reportable operating segments. External revenues included in “Other” primarily consist of rental income.
Segment Performance
We evaluate segment performance based on income or loss from continuing operations (segment operating income (loss)) before income taxes which includes:
|
|
|
|
•
|
Revenues from external and internal customers
|
|
|
|
|
•
|
Depreciation and amortization
|
|
|
|
|
•
|
Allocated general and administrative costs
|
|
|
|
|
•
|
Asset impairment charges
|
but excludes gain on sale of assets and corporate selling, general and administrative costs, corporate depreciation, and corporate restructuring charges.
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.
Summarized financial information of our reportable segments for the three months ended June 30, 2020 and 2019 is shown in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
(in thousands)
|
North America Solutions
|
|
Offshore Gulf of Mexico
|
|
International
Solutions
|
|
Other
|
|
Eliminations
|
|
Total
|
|
External Sales
|
$
|
254,434
|
|
|
$
|
37,494
|
|
|
$
|
22,477
|
|
|
$
|
2,959
|
|
|
$
|
—
|
|
|
$
|
317,364
|
|
|
Intersegment
|
—
|
|
|
—
|
|
|
—
|
|
|
10,384
|
|
|
(10,384
|
)
|
|
—
|
|
|
Total Sales
|
254,434
|
|
|
37,494
|
|
|
22,477
|
|
|
13,343
|
|
|
(10,384
|
)
|
|
317,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Income (Loss)
|
(25,157
|
)
|
|
3,013
|
|
|
(9,540
|
)
|
|
4,389
|
|
|
—
|
|
|
(27,295
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
(in thousands)
|
North America Solutions (1)
|
|
Offshore Gulf of Mexico
|
|
International
Solutions
|
|
Other
|
|
Eliminations
|
|
Total
|
|
External Sales
|
$
|
600,831
|
|
|
$
|
37,674
|
|
|
$
|
46,283
|
|
|
$
|
3,186
|
|
|
$
|
—
|
|
|
$
|
687,974
|
|
|
Intersegment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total Sales
|
600,831
|
|
|
37,674
|
|
|
46,283
|
|
|
3,186
|
|
|
—
|
|
|
687,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Income (Loss)
|
(147,015
|
)
|
|
5,078
|
|
|
(5,023
|
)
|
|
(731
|
)
|
|
—
|
|
|
(147,691
|
)
|
|
|
|
|
(1)
|
Prior period information has been restated to reflect the transition of the H&P Technologies reportable segment to the North America Solutions reportable segment.
|
Summarized financial information of our reportable segments for the nine months ended June 30, 2020 and 2019 is shown in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2020
|
|
(in thousands)
|
North America Solutions
|
|
Offshore Gulf of Mexico
|
|
International
Solutions
|
|
Other
|
|
Eliminations
|
|
Total
|
|
External Sales
|
$
|
1,325,076
|
|
|
$
|
110,828
|
|
|
$
|
120,189
|
|
|
$
|
9,567
|
|
|
$
|
—
|
|
|
$
|
1,565,660
|
|
|
Intersegment
|
—
|
|
|
—
|
|
|
—
|
|
|
28,927
|
|
|
(28,927
|
)
|
|
—
|
|
|
Total Sales
|
1,325,076
|
|
|
110,828
|
|
|
120,189
|
|
|
38,494
|
|
|
(28,927
|
)
|
|
1,565,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Income (Loss)
|
(315,705
|
)
|
|
6,022
|
|
|
(158,894
|
)
|
|
3,704
|
|
|
—
|
|
|
(464,873
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2019
|
|
(in thousands)
|
North America Solutions (1)
|
|
Offshore Gulf of Mexico
|
|
International
Solutions
|
|
Other
|
|
Eliminations
|
|
Total
|
|
External Sales
|
$
|
1,867,253
|
|
|
$
|
109,167
|
|
|
$
|
163,378
|
|
|
$
|
9,642
|
|
|
$
|
—
|
|
|
$
|
2,149,440
|
|
|
Intersegment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total Sales
|
1,867,253
|
|
|
109,167
|
|
|
163,378
|
|
|
9,642
|
|
|
—
|
|
|
2,149,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Income
|
20,514
|
|
|
16,778
|
|
|
9,575
|
|
|
1,988
|
|
|
—
|
|
|
48,855
|
|
|
|
|
|
(1)
|
Prior period information has been restated to reflect the transition of the H&P Technologies reportable segment to the North America Solutions reportable segment.
|
The following table reconciles segment operating income (loss) per the tables above to income (loss) from continuing operations before income taxes as reported on the Unaudited Condensed Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Nine Months Ended June 30,
|
|
(in thousands)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Segment operating income (loss)
|
$
|
(27,295
|
)
|
|
$
|
(147,691
|
)
|
|
$
|
(464,873
|
)
|
|
$
|
48,855
|
|
|
Gain on sale of assets
|
4,201
|
|
|
9,960
|
|
|
18,790
|
|
|
27,050
|
|
|
Corporate selling, general and administrative costs, corporate depreciation and corporate restructuring charges
|
(34,490
|
)
|
|
(30,143
|
)
|
|
(98,674
|
)
|
|
(94,344
|
)
|
|
Operating loss from continuing operations
|
(57,584
|
)
|
|
(167,874
|
)
|
|
(544,757
|
)
|
|
(18,439
|
)
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Interest and dividend income
|
771
|
|
|
2,349
|
|
|
6,551
|
|
|
6,861
|
|
|
Interest expense
|
(6,125
|
)
|
|
(6,257
|
)
|
|
(18,320
|
)
|
|
(17,145
|
)
|
|
Gain (loss) on investment securities
|
2,267
|
|
|
(13,271
|
)
|
|
(7,325
|
)
|
|
(50,228
|
)
|
|
Gain on sale of subsidiary
|
—
|
|
|
—
|
|
|
14,963
|
|
|
—
|
|
|
Other
|
(2,914
|
)
|
|
(1,599
|
)
|
|
(3,711
|
)
|
|
(1,051
|
)
|
|
Total unallocated amounts
|
(6,001
|
)
|
|
(18,778
|
)
|
|
(7,842
|
)
|
|
(61,563
|
)
|
|
Loss from continuing operations before income taxes
|
$
|
(63,585
|
)
|
|
$
|
(186,652
|
)
|
|
$
|
(552,599
|
)
|
|
$
|
(80,002
|
)
|
The following table presents total assets by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30,
2020
|
|
September 30,
2019
|
|
Total assets (1)
|
|
|
|
|
North America Solutions (2)
|
$
|
3,990,736
|
|
|
$
|
5,284,141
|
|
|
Offshore Gulf of Mexico
|
104,262
|
|
|
102,442
|
|
|
International Solutions
|
188,126
|
|
|
217,094
|
|
|
Other
|
33,655
|
|
|
32,532
|
|
|
|
4,316,779
|
|
|
5,636,209
|
|
|
Investments and corporate operations
|
645,547
|
|
|
203,306
|
|
|
Total assets from continuing operations
|
4,962,326
|
|
|
5,839,515
|
|
|
Discontinued operations
|
—
|
|
|
—
|
|
|
|
$
|
4,962,326
|
|
|
$
|
5,839,515
|
|
|
|
|
|
(1)
|
Assets by segment exclude investments in subsidiaries and intersegment activity.
|
|
|
|
|
(2)
|
Prior period information has been restated to reflect the transition of the H&P Technologies reportable segment to the North America Solutions reportable segment.
|
The following table presents revenues from external customers by country based on the location of service provided:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Nine Months Ended June 30,
|
|
(in thousands)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
United States
|
$
|
294,335
|
|
|
$
|
641,270
|
|
|
$
|
1,442,670
|
|
|
$
|
1,984,695
|
|
|
Argentina
|
7,231
|
|
|
40,977
|
|
|
77,522
|
|
|
123,666
|
|
|
Bahrain
|
6,430
|
|
|
1,855
|
|
|
21,497
|
|
|
6,909
|
|
|
United Arab Emirates
|
8,403
|
|
|
—
|
|
|
14,857
|
|
|
4,728
|
|
|
Colombia
|
413
|
|
|
3,451
|
|
|
6,313
|
|
|
28,075
|
|
|
Other Foreign
|
552
|
|
|
421
|
|
|
2,801
|
|
|
1,367
|
|
|
Total
|
$
|
317,364
|
|
|
$
|
687,974
|
|
|
$
|
1,565,660
|
|
|
$
|
2,149,440
|
|
Refer to Note 11—Revenue from Contracts with Customers for additional information regarding the recognition of revenue upon adoption of ASC 606.
NOTE 18 RESTRUCTURING CHARGES
Beginning in the third quarter of fiscal year 2020, we implemented cost controls and began evaluating further measures to respond to the combination of weakened commodity prices, uncertainties related to the COVID-19 pandemic, and the resulting market volatility. We restructured our operations to accommodate scale during an industry downturn and to re-organize our operations to align to new marketing and management strategies. We commenced a number of restructuring efforts as a result of this evaluation, which included, among other things a reduction in our capital allocation plans, changes to our organizational structure, and a reduction of staffing levels. Costs incurred, as of June 30, 2020, in connection with the restructuring are comprised of one-time severance benefits to employees who are voluntarily or involuntarily terminated, benefits related to forfeitures and costs related to modification of stock-based compensation awards.
The following table summarizes the Company's restructuring charges incurred during the nine months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
North America Solutions
|
|
Offshore Gulf of Mexico
|
|
International Solutions
|
|
Other
|
|
Corporate G&A
|
|
Total
|
|
Employee termination benefits
|
$
|
10,273
|
|
|
$
|
1,440
|
|
|
$
|
2,308
|
|
|
$
|
328
|
|
|
$
|
4,629
|
|
|
$
|
18,978
|
|
|
Stock-based compensation benefit
|
(3,036
|
)
|
|
(178
|
)
|
|
(11
|
)
|
|
(61
|
)
|
|
(197
|
)
|
|
(3,483
|
)
|
|
Total restructuring charges
|
$
|
7,237
|
|
|
$
|
1,262
|
|
|
$
|
2,297
|
|
|
$
|
267
|
|
|
$
|
4,432
|
|
|
$
|
15,495
|
|
The following table summarizes the Company's accrual for restructuring charges for the nine months ended June 30, 2020:
|
|
|
|
|
|
|
|
(in thousands)
|
Employee Termination Benefits
|
|
Accrued restructuring charges at September 30, 2019
|
$
|
—
|
|
|
Charges
|
18,978
|
|
|
Cash payments
|
(11,959
|
)
|
|
Accrued restructuring charges at June 30, 2020
|
$
|
7,019
|
|
These expenses are recorded within restructuring charges on our Unaudited Condensed Consolidated Statements of Operations and the related liability is recorded within accounts payable on our Unaudited Condensed Consolidated Balance Sheets.