Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For quarterly period ended: June 30, 2009

 

OR

 

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                    to                   

 

Commission File Number: 1-4221

 

HELMERICH & PAYNE, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

73-0679879

(State or other jurisdiction of

 

(I.R.S. Employer I.D. Number)

incorporation or organization)

 

 

 

1437 South Boulder Avenue, Tulsa, Oklahoma,74119

(Address of principal executive office)(Zip Code)

 

(918) 742-5531

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year,

if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x  No  o

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.:

 

Large accelerated filer  x

 

Accelerated filer  o

 

 

 

Non-accelerated filer  o

 

Smaller reporting company  o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o  No  x

 

 

CLASS

 

OUTSTANDING AT July 31, 2009

Common Stock, $0.10 par value

 

105,454,592

 

 

 



Table of Contents

 

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

 

TABLE OF CONTENTS

 

 

 

Page No.

 

 

 

PART  I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Condensed Balance Sheets as of June 30, 2009 and September 30, 2008

3

 

 

 

 

Consolidated Condensed Statements of Income for the Three and Nine Months Ended June 30, 2009 and 2008

4

 

 

 

 

Consolidated Condensed Statements of Cash Flows for the Nine Months Ended June 30, 2009 and 2008

5

 

 

 

 

Consolidated Condensed Statement of Shareholders’ Equity for the Nine Months Ended June 30, 2009

6

 

 

 

 

Notes to Consolidated Condensed Financial Statements

7-24

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25-36

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

37

 

 

 

Item 4.

Controls and Procedures

37

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

38

 

 

 

Item 1A.

Risk Factors

38-39

 

 

 

Item 6.

Exhibits

40

 

 

 

Signatures

 

41

 

2



Table of Contents

 

PART I. FINANCIAL INFORMATION

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)

(in thousands, except share and per share amounts)

 

ITEM 1. FINANCIAL STATEMENTS

 

 

 

June 30,

 

September 30,

 

 

 

2009

 

2008

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

141,705

 

$

121,513

 

Short-term investments

 

12,500

 

 

Accounts receivable, less reserve of $711 at June 30, 2009 and $1,331 at September 30, 2008

 

319,827

 

462,833

 

Inventories

 

45,685

 

33,098

 

Deferred income taxes

 

8,250

 

21,939

 

Prepaid expenses and other

 

64,107

 

51,264

 

Total current assets

 

592,074

 

690,647

 

 

 

 

 

 

 

Investments

 

267,554

 

199,266

 

Property, plant and equipment, net

 

3,209,344

 

2,682,251

 

Other assets

 

10,882

 

15,881

 

 

 

 

 

 

 

Total assets

 

$

4,079,854

 

$

3,588,045

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

110,640

 

$

153,851

 

Accrued liabilities

 

118,152

 

128,373

 

Short-term debt

 

105,000

 

 

Notes payable

 

 

1,733

 

Long-term debt due within one year

 

25,000

 

25,000

 

Total current liabilities

 

358,792

 

308,957

 

 

 

 

 

 

 

Noncurrent liabilities:

 

 

 

 

 

Long-term debt

 

430,000

 

475,000

 

Deferred income taxes

 

647,975

 

479,963

 

Other

 

49,145

 

58,651

 

Total noncurrent liabilities

 

1,127,120

 

1,013,614

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Common stock, $.10 par value, 160,000,000 shares authorized, 107,057,904 shares issued

 

10,706

 

10,706

 

Preferred stock, no par value, 1,000,000 shares authorized, no shares issued

 

 

 

Additional paid-in capital

 

174,008

 

169,497

 

Retained earnings

 

2,368,737

 

2,082,518

 

Accumulated other comprehensive income

 

72,247

 

38,407

 

Treasury stock, at cost

 

(31,756

)

(35,654

)

Total shareholders’ equity

 

2,593,942

 

2,265,474

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

4,079,854

 

$

3,588,045

 

 

The accompanying notes are an integral part of these statements.

 

3



Table of Contents

 

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Unaudited)

(in thousands, except per share data)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

Operating revenues:

 

 

 

 

 

 

 

 

 

Drilling – U.S. Land

 

$

282,358

 

$

391,755

 

$

1,172,076

 

$

1,104,662

 

Drilling – Offshore

 

55,605

 

47,298

 

157,424

 

104,368

 

Drilling – International Land

 

47,290

 

80,585

 

194,297

 

234,944

 

Other

 

2,514

 

2,879

 

8,024

 

8,850

 

 

 

387,767

 

522,517

 

1,531,821

 

1,452,824

 

 

 

 

 

 

 

 

 

 

 

Operating costs and other:

 

 

 

 

 

 

 

 

 

Operating costs, excluding depreciation

 

220,339

 

274,168

 

814,561

 

763,921

 

Depreciation

 

61,043

 

51,210

 

172,928

 

147,066

 

General and administrative

 

14,225

 

14,723

 

45,807

 

42,716

 

Research and development

 

2,777

 

522

 

6,630

 

522

 

Acquired in-process research and development

 

 

11,129

 

 

11,129

 

Gain from involuntary conversion of long-lived assets

 

(264

)

(5,426

)

(541

)

(10,236

)

Income from asset sales

 

(1,785

)

(1,616

)

(4,754

)

(4,404

)

 

 

296,335

 

344,710

 

1,034,631

 

950,714

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

91,432

 

177,807

 

497,190

 

502,110

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest and dividend income

 

542

 

1,034

 

4,478

 

3,369

 

Interest expense

 

(2,793

)

(4,651

)

(9,047

)

(14,255

)

Gain on sale of investment securities

 

 

16,388

 

 

21,994

 

Other

 

514

 

66

 

614

 

(370

)

 

 

(1,737

)

12,837

 

(3,955

)

10,738

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes and equity in income of affiliate

 

89,695

 

190,644

 

493,235

 

512,848

 

 

 

 

 

 

 

 

 

 

 

Income tax provision

 

36,651

 

70,187

 

201,289

 

189,117

 

Equity in income of affiliate net of income taxes

 

 

4,912

 

10,111

 

11,522

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

53,044

 

$

125,369

 

$

302,057

 

$

335,253

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

.50

 

$

1.20

 

$

2.87

 

$

3.22

 

Diluted

 

$

.50

 

$

1.18

 

$

2.84

 

$

3.16

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

105,425

 

104,530

 

105,330

 

103,973

 

Diluted

 

106,829

 

106,689

 

106,544

 

106,130

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.050

 

$

0.050

 

$

0.150

 

$

0.140

 

 

The accompanying notes are an integral part of these statements.

 

4



Table of Contents

 

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

 

Nine Months Ended

 

 

 

June 30,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

OPERATING ACTIVITIES:

 

 

 

 

 

Net income

 

$

302,057

 

$

335,253

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation

 

172,928

 

147,066

 

Provision for bad debt

 

580

 

696

 

Equity in income of affiliate before income taxes

 

(16,308

)

(18,584

)

Stock-based compensation

 

6,292

 

5,610

 

Gain on sale of investment securities

 

 

(21,864

)

Gain from involuntary conversion of long-lived assets

 

(541

)

(10,236

)

Income from asset sales

 

(4,754

)

(4,404

)

Acquired in-process research and development

 

 

11,129

 

Other

 

 

(1

)

Deferred income tax expense

 

153,997

 

66,593

 

Change in assets and liabilities-

 

 

 

 

 

Accounts receivable

 

142,426

 

(61,787

)

Inventories

 

(12,587

)

(2,735

)

Prepaid expenses and other

 

(7,882

)

(31,594

)

Accounts payable

 

(15,720

)

(974

)

Accrued liabilities

 

(9,834

)

13,120

 

Deferred income taxes

 

6,514

 

7,774

 

Other noncurrent liabilities

 

(6,625

)

8,526

 

Net cash provided by operating activities

 

710,543

 

443,588

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

Capital expenditures

 

(738,411

)

(509,018

)

Acquisition of business, net of cash acquired

 

(16

)

(12,024

)

Insurance proceeds from involuntary conversion

 

541

 

13,926

 

Proceeds from sale of investments

 

 

25,507

 

Proceeds from asset sales

 

6,706

 

6,077

 

Purchase of short-term investments

 

(12,500

)

 

Net cash used in investing activities

 

(743,680

)

(475,532

)

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

Increase (decrease) in notes payable

 

(1,733

)

2,259

 

Proceeds from lines of credit

 

3,185,000

 

2,630,000

 

Payments on lines of credit

 

(3,125,000

)

(2,620,000

)

Increase in bank overdraft

 

8,992

 

4,465

 

Dividends paid

 

(15,829

)

(14,060

)

Proceeds from exercise of stock options

 

710

 

14,267

 

Excess tax benefit from stock-based compensation

 

1,189

 

24,816

 

Net cash provided by financing activities

 

53,329

 

41,747

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

20,192

 

9,803

 

Cash and cash equivalents, beginning of period

 

121,513

 

89,215

 

Cash and cash equivalents, end of period

 

$

141,705

 

$

99,018

 

 

The accompanying notes are an integral part of these statements.

 

5



Table of Contents

 

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS’ EQUITY

NINE MONTHS ENDED JUNE 30, 2009

(Unaudited)

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

 

 

 

 

Total

 

 

 

Common Stock

 

Paid-In

 

Retained

 

Comprehensive

 

Treasury Stock

 

Shareholders’

 

 

 

Shares

 

Amount

 

Capital

 

Earnings

 

Income

 

Shares

 

Amount

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2008

 

107,058

 

$

10,706

 

$

169,497

 

$

2,082,518

 

$

38,407

 

1,835

 

$

(35,654

)

$

2,265,474

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

302,057

 

 

 

 

 

 

 

302,057

 

Other comprehensive income, Unrealized gains on available-for-sale securities (net of $20,741 income tax)

 

 

 

 

 

 

 

 

 

33,840

 

 

 

 

 

33,840

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

335,897

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital adjustment of equity investee

 

 

 

 

 

174

 

 

 

 

 

 

 

 

 

174

 

Cash dividends ($0.15 per share)

 

 

 

 

 

 

 

(15,838

)

 

 

 

 

 

 

(15,838

)

Exercise of stock options

 

 

 

 

 

(1,913

)

 

 

 

 

(166

)

2,623

 

710

 

Tax benefit of stock-based awards, including excess tax benefits of $1,199

 

 

 

 

 

1,233

 

 

 

 

 

 

 

 

 

1,233

 

Treasury stock issued for vested restricted stock

 

 

 

 

 

(1,275

)

 

 

 

 

(66

)

1,275

 

 

Stock-based compensation

 

 

 

 

 

6,292

 

 

 

 

 

 

 

 

 

6,292

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2009

 

107,058

 

$

10,706

 

$

174,008

 

$

2,368,737

 

$

72,247

 

1,603

 

$

(31,756

)

$

2,593,942

 

 

The accompanying notes are an integral part of these statements.

 

6



Table of Contents

 

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

1.     Basis of Presentation

 

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States and applicable rules and regulations of the Securities and Exchange Commission (the “Commission”) pertaining to interim financial information.  Accordingly, these interim financial statements do not include all information or footnote disclosures required by accounting principles generally accepted in the United States for complete financial statements and, therefore should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s 2008 Annual Report on Form 10-K and other current filings with the Commission.  In the opinion of management, all adjustments, consisting of those of a normal recurring nature, necessary to present fairly the results of the periods presented have been included. The results of operations for the interim periods presented may not necessarily be indicative of the results to be expected for the full year.

 

As more fully described in the Company’s 2008 Annual Report on Form 10-K, the Company’s contract drilling revenues are comprised of daywork drilling contracts for which the related revenues and expenses are recognized as services are performed.  For contracts that are terminated by customers prior to the expirations of their fixed term, contractual provisions customarily require early termination amounts to be paid to the Company.  Revenues from early terminated contracts are recognized when all contractual requirements have been met.

 

2.     Earnings per Share

 

Basic earnings per share is based on the weighted-average number of common shares outstanding during the period.  Diluted earnings per share includes the dilutive effect of stock options and restricted stock.

 

A reconciliation of the weighted-average common shares outstanding on a basic and diluted basis is as follows (in thousands):

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares

 

105,425

 

104,530

 

105,330

 

103,973

 

Effect of dilutive shares:

 

 

 

 

 

 

 

 

 

Stock options and restricted stock

 

1,404

 

2,159

 

1,214

 

2,157

 

Diluted weighted average shares

 

106,829

 

106,689

 

106,544

 

106,130

 

 

7



Table of Contents

 

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

The following shares attributable to outstanding equity awards were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive (in thousands):

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

Shares excluded from calculation of diluted earnings per share

 

718 

 

— 

 

1,215 

 

— 

 

 

3.     Operations and Risks in Venezuela

 

Typically, contract drilling revenues are recognized as services are performed.  In U.S. generally accepted accounting principles, one of the basic revenue recognition criteria is that collectability of the revenue is reasonably assured. The Company’s revenue in Venezuela is from providing drilling services to Petroleos de Venezuela, S.A. (PDVSA), the Venezuelan state-owned petroleum company.  The Company determined, as of the beginning of the second quarter of fiscal 2009 and forward, the revenue recognition criteria in Venezuela is no longer met as collectability of revenue is not reasonably assured, primarily due to the uncertainty of the timing of collectability as discussed further below. As a result of this change, $19.7 million and $55.3 million of revenue was not recorded in the International Land segment in the three and nine months ended June 30, 2009 respectively.  As of June 30, 2009 the Consolidated Balance Sheet reflected accounts receivable from PDVSA of $76.7 million.  During the third quarter of fiscal 2009, approximately $13.0 million (U.S. dollars and U.S. currency equivalent) was collected from PDVSA of which approximately $8.8 million was applicable to the accounts receivable.  Additionally, subsequent to the end of the third fiscal quarter, additional payments of approximately $43.0 million (U.S. currency equivalent) were received through July 31, 2009 of which approximately $41.5 million was applicable to the June 30, 2009 accounts receivable balance.  The Company does not have enough information to conclude that the remaining receivable balance is not probable of collection.  However, there is uncertainty regarding the timing of the collection due to the current political, economic and social instability in Venezuela, the dependence by Venezuela on oil to largely support its economy and the failure of PDVSA to pay many service companies working in Venezuela.  The collection of receivables from PDVSA has historically been more difficult and slower than that of other customers in international countries in which the Company has drilling operations due to PDVSA policies and procedures.

 

The Company is also exposed to risks of currency devaluation in Venezuela primarily as a result of bolivar fuerte (Bsf) receivable and Bsf cash balances.

 

The Company has made applications with the Venezuelan government requesting the approval to convert bolivar fuerte cash balances to U.S. dollars. Upon approval from the Venezuelan government, the Company’s Venezuelan subsidiary may remit approximately $28.4 million as a dividend to its U.S. based parent as cash balances permit.  While the Company has been successful in the past in obtaining government approval for conversion of bolivar fuerte to U.S. dollars, there is no guarantee that future conversion to U.S. dollars will be permitted.  In the event that conversion to U.S. dollars would be prohibited, then bolivar fuerte cash balances would increase and expose the Company to increased risk of devaluation.

 

In addition to the accounts receivable discussed above, the Venezuelan subsidiary has received notification from PDVSA that reimbursement of U.S. dollar invoices previously paid in Bsf will be made only when supporting documentation has been approved.  The supporting documentation has been delivered to PDVSA and is awaiting approval.  The approval and subsequent payment would result in reducing the foreign currency exposure by approximately $38.6 million. The Company is unable to determine when payment will be received.

 

Past devaluation losses may not be reflective of the potential for future devaluation losses.  Venezuela continues to operate under exchange controls and the Venezuelan bolivar fuerte exchange rate has remained fixed at Bsf 2.150 to

 

8



Table of Contents

 

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

one U.S. dollar since March 2005.  The exact amount and timing of any future devaluations of the Venezuelan bolivar fuerte exchange rate is uncertain.  At June 30, 2009, the Company had the equivalent of $16.0 million in cash in Bsf’s exposed to the risk of currency devaluation.

 

While the Company is unable to predict the potential magnitude and timing of future devaluation in Venezuela, if current activity levels continue and if a 10 percent to 30 percent devaluation were to occur, the Company could experience potential currency devaluation losses ranging from approximately $4.9 million to $12.2 million.

 

During the second quarter of fiscal 2009, the Company began discontinuing work for PDVSA as contracts expired.  All of the Company’s eleven rigs were active in Venezuela during the first quarter of fiscal 2009.  At the end of the third quarter of fiscal 2009, only three of the rigs were active.  The Company will continue to idle rigs along with other efforts until satisfactory payments for services rendered are received.  At July 31, 2009, one additional rig had been idled and if satisfactory payments are not received, it is likely that the remaining two rigs will become idle by the end of September 2009.  At June 30, 2009, the net book value of long-lived assets in Venezuela was $74.3 million.

 

Readers should refer to Note 16 of these Consolidated Condensed Financial Statements for additional information related to risk factors in international operations.

 

4.     Inventories

 

Inventories consist primarily of replacement parts and supplies held for use in the Company’s drilling operations.

 

5.     Financial Instruments

 

The Company had $175 million of fixed-rate long-term debt outstanding at June 30, 2009, which had an estimated fair value of $201 million.  The debt was valued based on the prices of similar securities with similar terms and credit ratings.  The Company used the expertise of an outside investment banking firm to assist with the estimate of the fair value of the long-term debt.  The Company’s line of credit bears interest at market rates and the cost of borrowings, if any, would approximate fair value.  The Company has an interest rate swap agreement with a $105 million notional.  The fair value of the interest rate swap liability at June 30, 2009 was $0.3 million.  The fair value is based on the present value of expected future cash flows, inclusive of the risk of nonperformance, using a discount rate appropriate for the duration.  For further information regarding debt and the interest swap, refer to Note 11 of these consolidated condensed financial statements.

 

Effective April 1, 2009, Atwood Oceanics, Inc. (Atwood) was accounted for as an available-for-sale investment, as the Company determined it no longer exercised significant influence and discontinued accounting for Atwood using the equity method.  Mark-to-market gains or losses are now deferred as a component of other comprehensive income.

 

The estimated fair value of the Company’s available-for-sale securities is primarily based on market quotes.  The following is a summary of available-for-sale securities, which excludes those accounted for under the equity method of accounting, investments in limited partnerships carried at cost and assets held in a Non-qualified Supplemental Savings Plan:

 

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HELMERICH & PAYNE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

 

 

 

 

Gross

 

Gross

 

Estimated

 

 

 

 

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Equity securities 06/30/09

 

$

129,183

 

$

122,448

 

$

 

$

251,631

 

Equity securities 09/30/08

 

$

7,685

 

$

67,867

 

$

 

$

75,552

 

 

On an on-going basis, the Company evaluates the marketable equity securities to determine if a decline in fair market is other-than-temporary.  If a decline in fair market value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis established.  In determining if an unrealized loss is other than temporary, the Company considers how long the market value of the investment has been below cost, how significant the decline in value is as a percentage of the original cost and the market in general and analyst recommendations.

 

The cost of securities used in determining realized gains and losses is based on the average cost basis of the security sold.  During the nine months ended June 30, 2008, marketable equity available-for-sale securities with a fair value at the date of sale of $25.5 million were sold with gross realized gains of $22.0 million.  There have been no sales of available-for-sale securities during the nine months ended June 30, 2009.

 

The investments in the limited partnerships carried at cost were approximately $12.4 million at June 30, 2009 and September 30, 2008.  The estimated fair value of the limited partnerships was $17.6 million and $17.3 million at June 30, 2009 and September 30, 2008, respectively.  The estimated fair value exceeded the cost of investments at June 30, 2009 and September 30, 2008 and, as such, the investments were not impaired.

 

The assets held in the Non-qualified Supplemental Savings Plan are carried at fair market value which totaled $3.6 million and $6.4 million at June 30, 2009 and September 30, 2008, respectively.

 

The majority of cash equivalents are invested in taxable and non-taxable money-market mutual funds.  The carrying amount of cash and cash equivalents approximates fair value due to the short maturity of those investments.

 

At June 30, 2009, the Company’s short-term investments consisted of a bank certificate of deposit with an original maturity greater than three months.  Interest earned is included in interest and dividend income on the Consolidated Condensed Statement of Income.

 

The carrying value of other assets, accrued liabilities and other liabilities approximated fair value at June 30, 2009 and September 30, 2008.

 

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HELMERICH & PAYNE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

6.     Comprehensive Income

 

Comprehensive income, net of related income taxes, is as follows (in thousands):

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

Net Income

 

$

53,044

 

$

125,369

 

$

302,057

 

$

335,253

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

Unrealized appreciation on securities

 

90,833

 

22,714

 

54,581

 

602

 

Income taxes

 

(34,516

)

(8,632

)

(20,741

)

(230

)

 

 

56,317

 

14,082

 

33,840

 

372

 

 

 

 

 

 

 

 

 

 

 

Reclassification of realized gains in net income

 

 

(16,388

)

 

(21,994

)

Income taxes

 

 

6,228

 

 

8,358

 

 

 

 

(10,160

)

 

(13,636

)

 

 

 

 

 

 

 

 

 

 

Minimum pension liability adjustments

 

 

(4

)

 

(10

)

Income taxes

 

 

2

 

 

4

 

 

 

 

(2

)

 

 

(6

)

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

$

109,361

 

$

129,289

 

$

335,897

 

$

321,983

 

 

The components of accumulated other comprehensive income, net of related income taxes, are as follows (in thousands):

 

 

 

June 30,

 

September 30,

 

 

 

2009

 

2008

 

Unrealized appreciation on securities

 

$

75,918

 

$

42,078

 

Unrecognized actuarial gain (loss) and prior service cost

 

(3,671

)

(3,671

)

Accumulated other comprehensive income

 

$

72,247

 

$

38,407

 

 

7.     Derivative Financial Instruments

 

In March 2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (SFAS No. 161).  SFAS No. 161 provides companies with requirements for enhanced disclosures about derivative instruments and hedging activities to enable investors to better understand their effects on a company’s financial position, financial performance and cash flows.  In accordance with the effective date of SFAS No. 161, the Company adopted the disclosure provisions of SFAS No. 161 on January 1, 2009.

 

The Company is exposed to market risk in the normal course of business operations due to ongoing investing and financing activities. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings.  SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS No. 133), requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value.  The Company has not historically entered into derivative financial instruments for trading purposes or for speculation.

 

In January 2009, the Company executed an interest rate swap agreement to limit the Company’s exposure to changes in interest rates.  The interest rate swap qualifies as a derivative and was not designated as a hedging instrument and as such, the Company has not applied hedge accounting.  At the end of each period, the interest rate swap is recorded in the Consolidated Condensed Balance Sheet at fair value, either in other current assets or accrued liabilities, and any

 

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HELMERICH & PAYNE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

related gains or losses are recognized on the Company’s Consolidated Condensed Statement of Income within interest expense.  The fair value of the interest rate swap liability at June 30, 2009 was $0.3 million and is included in accrued liabilities in the Consolidated Condensed Balance Sheet.  Interest expense of $0.2 million and $0.5 million was recorded for the three and nine months ended June 30, 2009, respectively.

 

8.     Fair Value Measurement

 

On September 15, 2006, the FASB issued SFAS No. 157 which addresses standardizing the measurement of fair value for companies who are required to use a fair value measure for recognition or disclosure purposes.  The FASB defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”  The Company’s adoption of the required portions of SFAS 157 as of October 1, 2008 did not have a material impact on the Company’s financial position, results of operations and cash flows.  In February 2008, the FASB issued Staff Position No. FAS 157-2, Effective Date of FASB Statement No. 157 (FSP 157-2), which delayed the required adoption of portions of SFAS 157 related to nonfinancial assets and nonfinancial liabilities, except for items recognized or disclosed at fair value on a recurring basis.  Accordingly, the Company will adopt the provisions of SFAS 157 related to nonfinancial assets and nonfinancial liabilities recognized or disclosed at fair value on a nonrecurring basis in fiscal 2010.  The Company is currently evaluating the impact, if any, of the adoption of FSP 157-2 on its financial position, results of operations or cash flows.

 

SFAS 157 establishes a fair value hierarchy to prioritize the inputs used in valuation techniques into three levels as follows:

 

·      Level 1 — Observable inputs that reflect quoted prices in active markets for identical assets or liabilities in active markets.

 

·      Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

·      Level 3 — Valuations based on inputs that are unobservable and not corroborated by market data.

 

At June 30, 2009, the Company’s financial assets utilizing Level 1 inputs include cash equivalents, money market funds the Company has elected to classify as restricted assets and equity securities with active markets.  For these items, quoted current market prices are readily available.

 

During the nine months ended June 30, 2009, the Company entered into an interest rate swap agreement with a $105 million notional to hedge a portion of the risk of changes in the interest rate associated with amounts outstanding under an unsecured line of credit that expires in January 2010.  The fair value of the swap agreement was determined using Level 2 inputs. Level 2 inputs also include a bank certificate of deposit classified as a short-term investment and restricted cash included in current assets.

 

The Company does not currently have any financial instruments utilizing Level 3 inputs.

 

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HELMERICH & PAYNE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

The following presents information about the Company’s fair value hierarchy for financial assets as of June 30, 2009:

 

 

 

 

 

Quoted Prices

 

 

 

 

 

 

 

Total

 

in Active

 

Significant

 

 

 

 

 

Measure

 

Markets for

 

Other

 

Significant

 

 

 

at

 

Identical

 

Observable

 

Unobservable

 

 

 

Fair

 

Assets

 

Inputs

 

Inputs

 

 

 

Value

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

Money market funds

 

$

117,159

 

$

116,136

 

$

1,023

 

$

 

Equity securities

 

251,631

 

251,631

 

 

 

Certificate of deposit

 

12,500

 

 

12,500

 

 

 

 

 

 

 

 

 

 

 

 

Total assets at fair value

 

$

381,290

 

$

367,767

 

$

13,523

 

$

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Interest rate swap

 

$

(273

)

$

 

$

(273

)

$

 

 

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis presented in the Company’s Consolidated Condensed Balance Sheet as of June 30, 2009:

 

 

 

 

 

Quoted Prices

 

 

 

 

 

 

 

Total

 

in Active

 

Significant

 

 

 

 

 

Measure

 

Markets for

 

Other

 

Significant

 

 

 

at

 

Identical

 

Observable

 

Unobservable

 

 

 

Fair

 

Assets

 

Inputs

 

Inputs

 

 

 

Value

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

103,188

 

$

103,188

 

$

 

$

 

Short-term investments

 

12,500

 

 

12,500

 

 

Investments

 

251,631

 

251,631

 

 

 

Other current assets

 

11,971

 

10,948

 

1,023

 

 

Other assets

 

2,000

 

2,000

 

 

 

Total assets measured at fair value

 

$

381,290

 

$

367,767

 

$

13,523

 

$

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Other current liabilities

 

$

(273

)

$

 

$

(273

)

$

 

Total liabilities measured at fair value

 

$

(273

)

$

 

$

(273

)

$

 

 

The following information presents the supplemental fair value information about long-term fixed-rate debt at June 30, 2009 and September 30, 2008.

 

 

 

June 30,

 

September 30,

 

 

 

2009

 

2008

 

 

 

(in thousands)

 

Carrying value of long-term fixed-rate debt

 

$

175.0

 

$

175.0

 

Fair value of long-term fixed-rate debt

 

$

201.3

 

$

198.0

 

 

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HELMERICH & PAYNE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

In February 2007, the FASB issued SFAS No. 159 which permits companies to choose, at specified election dates, to measure many financial instruments and certain other items at fair value that are not currently measured at fair value.  Unrealized gains and losses on items for which the fair value option has been elected would be reported in earnings at each subsequent reporting date.  Upfront costs and fees related to items for which the fair value option is elected shall be recognized in earnings as incurred and not deferred.  The Company did not elect the fair value option for any of its existing financial instruments other than those already measured at fair value.  Therefore, the Company’s adoption of SFAS No. 159 as of October 1, 2008 did not have an impact on the Company’s financial position, results of operations or cash flows.

 

9.     Cash Dividends

 

The $0.05 cash dividend declared March 4, 2009, was paid June 1, 2009. On June 3, 2009, a cash dividend of $0.05 per share was declared for shareholders of record on August 14, 2009, payable September 1, 2009.

 

10.   Stock-Based Compensation

 

The Company has one plan providing for common-stock based awards to employees and to non-employee Directors.  The plan permits the granting of various types of awards including stock options and restricted stock awards.  Restricted stock may be granted for no consideration other than prior and future services.  The purchase price per share for stock options may not be less than market price of the underlying stock on the date of grant.  Stock options expire ten years after the grant date.  Vesting requirements are determined by the Human Resources Committee of the Company’s Board of Directors.  Readers should refer to Note 5 of the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2008 for additional information related to stock-based compensation.

 

The Company uses the Black-Scholes formula to estimate the value of stock options granted.  The fair value of the options is amortized to compensation expense on a straight-line basis over the requisite service periods of the stock awards, which are generally the vesting periods. The Company has the right to satisfy option exercises from treasury shares and from authorized but unissued shares.

 

A summary of compensation cost for stock-based payment arrangements recognized in general and administrative expense is as follows (in thousands):

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

Compensation expense

 

 

 

 

 

 

 

 

 

Stock options

 

$

1,691

 

$

1,533

 

$

5,205

 

$

4,698

 

Restricted stock

 

363

 

365

 

1,087

 

912

 

 

 

$

2,054

 

$

1,898

 

$

6,292

 

$

5,610

 

 

STOCK OPTIONS

 

The following summarizes the weighted-average assumptions utilized in determining the fair value of options granted during the nine months ended June 30, 2009 and 2008:

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Risk-free interest rate

 

1.7

%

3.3

%

Expected stock volatility

 

43.4

%

31.1

%

Dividend yield

 

.9

%

.5

%

Expected term (in years)

 

5.8

 

4.8

 

 

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HELMERICH & PAYNE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

Risk-Free Interest Rate.  The risk-free interest rate is based on U.S. Treasury securities for the expected term of the option.

 

Expected Volatility Rate.  Expected volatility is based on the daily closing price of the Company’s stock based upon historical experience over a period which approximates the expected term of the option.

 

Dividend Yield.  The expected dividend yield is based on the Company’s current dividend yield.

 

Expected Term.  The expected term of the options granted represents the period of time that they are expected to be outstanding.  The Company estimates the expected term of options granted based on historical experience with grants and exercises.

 

A summary of stock option activity under the Plan for the three and nine months ended June 30, 2009 is presented in the following tables:

 

 

 

Three Months Ended June 30, 2009

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

Weighted-

 

Average

 

Aggregate

 

 

 

 

 

Average

 

Remaining

 

Intrinsic

 

 

 

Shares

 

Exercise

 

Contractual

 

Value

 

Options

 

(in thousands)

 

Price

 

Term

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Outstanding at April 1, 2009

 

5,648

 

$

20.21

 

 

 

 

 

Granted

 

 

 

 

 

 

 

Exercised

 

(204

)

11.07

 

 

 

 

 

Forfeited/Expired

 

(1

)

30.24

 

 

 

 

 

Outstanding at June 30, 2009

 

5,443

 

$

20.55

 

5.8

 

$

59,236

 

Vested and expected to vest at June 30, 2009

 

5,383

 

$

20.50

 

5.8

 

$

58,805

 

 

 

 

 

 

 

 

 

 

 

Exercisable at June 30, 2009

 

3,631

 

$

17.42

 

4.5

 

$

49,670

 

 

 

 

Nine Months Ended

 

 

 

June 30, 2009

 

 

 

 

 

Weighted-

 

 

 

 

 

Average

 

 

 

Shares

 

Exercise

 

Options

 

(in thousands)

 

Price

 

 

 

 

 

 

 

Outstanding at October 1, 2008

 

4,819

 

$

20.02

 

Granted

 

865

 

21.07

 

Exercised

 

(235

)

11.43

 

Forfeited/Expired

 

(6

)

29.33

 

Outstanding at June 30, 2009

 

5,443

 

$

20.55

 

 

The weighted-average fair value of options granted in the first quarter of fiscal 2009 was $8.16.  No options were granted in the second or third quarters of fiscal 2009.

 

The total intrinsic value of options exercised during the three and nine months ended June 30, 2009 was $4.0 million and $4.3 million, respectively.

 

15



Table of Contents

 

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

As of June 30, 2009, the unrecognized compensation cost related to the stock options was $13.2 million.  That cost is expected to be recognized over a weighted-average period of 2.6 years.

 

RESTRICTED STOCK

 

Restricted stock awards consist of the Company’s common stock and are time vested over 3-5 years.  The Company recognizes compensation expense on a straight-line basis over the vesting period.  The fair value of restricted stock awards is determined based on the closing trading price of the Company’s shares on the grant date.

 

A summary of the status of the Company’s restricted stock awards as of June 30, 2009 and changes during the nine months then ended is presented below:

 

 

 

Nine Months Ended

 

 

 

June 30, 2009

 

 

 

 

 

Weighted-

 

 

 

 

 

Average

 

 

 

Shares

 

Grant-Date

 

Restricted Stock Awards

 

(in thousands)

 

Fair Value

 

 

 

 

 

 

 

Unvested at October 1,

 

243

 

$

29.27

 

Granted

 

 

 

Vested

 

(66

)

29.52

 

Forfeited

 

 

 

Unvested at June 30,

 

177

 

$

30.06

 

 

As of June 30, 2009, there was $2.5 million of total unrecognized compensation cost related to restricted stock options granted under the Plan.  That cost is expected to be recognized over a weighted-average period of 1.7 years.

 

11.   Debt

 

At June 30, 2009, the Company had the following unsecured long-term debt outstanding (in thousands):

 

Maturity Date

 

Interest Rate

 

 

 

Fixed rate debt:

 

 

 

 

 

August 15, 2009

 

5.91%

 

$

25,000

 

August 15, 2012

 

6.46%

 

75,000

 

August 15, 2014

 

6.56%

 

75,000

 

Senior credit facility:

 

 

 

 

 

December 18, 2011

 

.67%-.68%

 

280,000

 

 

 

 

 

455,000

 

Less long-term debt due within one year

 

 

 

25,000

 

Long-term debt

 

 

 

$

430,000

 

 

The terms of the fixed rate debt obligations require the Company to maintain a minimum ratio of debt to total capitalization.

 

16



Table of Contents

 

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

The Company has an agreement with a multi-bank syndicate for a $400 million senior unsecured credit facility which matures December 2011.  While the Company has the option to borrow at the prime rate for maturities of less than 30 days, the Company anticipates that the majority of all of the borrowings over the life of the facility will accrue interest at a spread over the London Interbank Bank Offered Rate (LIBOR).  The Company pays a commitment fee based on the unused balance of the facility.  The spread over LIBOR as well as the commitment fee is determined according to a scale based on a ratio of the Company’s total debt to total capitalization.  The spread ranges from .30 percent to .45 percent over LIBOR depending on the ratios.  At June 30, 2009, the spread on borrowings was .35 percent over LIBOR and the commitment fee was ..075 percent per annum.  At June 30, 2009, the Company had two letters of credit totaling $20.9 million under the facility and had $280 million borrowed against the facility with $99.1 million available to borrow. The advances bear interest ranging from 0.67 percent to 0.68 percent.  Subsequent to June 30, 2009, the debt was reduced by $115 million with proceeds from a new facility discussed below.

 

Short-term debt consists of a $105 million unsecured line of credit that will mature January 2010.  The Company closed on the agreement with a five-bank syndicate January 21, 2009.  The Company anticipates that this loan will remain funded for the entire term and that all borrowings will accrue interest at a spread over 30 day LIBOR. The spread over LIBOR is determined according to the same scale of debt to total capitalization used in the Company’s $400 million facility which is described in the preceding paragraph.  The spread over LIBOR for the new facility has increased to a range of 2 percent to 2.75 percent.  At June 30, 2009, the spread on the borrowing was 2.25 percent over LIBOR.  Simultaneous with the closing of this facility, the Company entered into an interest-rate swap with the same maturity and a notional amount of $105 million. The Company believes that the swap will act to fix the annualized interest rate of the facility at approximately 3.17 percent assuming the spread remains at 2.25 percent over LIBOR.  For further information regarding the interest rate swap, refer to Note 7 of these consolidated condensed financial statements.

 

Financial covenants in both facilities require the Company to maintain a funded leverage ratio (as defined) of less than 50 percent and an interest coverage ratio (as defined) of not less than 3.00 to 1.00.  Both facilities contain additional terms, conditions, and restrictions that the Company believes are usual and customary in unsecured debt arrangements for companies that are similar in size and credit quality.  At June 30, 2009, the Company was in compliance with all debt covenants.

 

Additionally, as of June 30, 2009, the Company had unsecured letters of credit totaling $3.3 million which were used to obtain surety bonds for the international operations.

 

On July 21, 2009, the Company closed on a private placement and received proceeds of $200 million from senior unsecured fixed-rate notes that will mature July 2016.  Interest on the notes will be paid semi-annually based on an annual rate of 6.10 percent.  The Company will make five equal annual principal repayments of $40 million starting on the third anniversary of the closing date.  Financial covenants require the Company to maintain a funded leverage ratio of less than 55 percent and an interest coverage ratio (as defined) of not less than 2.50 to 1.00.  The note purchase agreement also contains additional terms, conditions, and restrictions that the Company believes are usual and customary in unsecured debt arrangements for companies that are similar in size and credit quality.  The $200 million proceeds from this facility will be used to fund capital expenditures, repay indebtedness and for other general corporate purposes.

 

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HELMERICH & PAYNE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

12.   Income Taxes

 

The Company’s effective tax rate for the first nine months of fiscal 2009 and 2008 was 40.8 percent and 36.9 percent, respectively.  The Company’s effective tax rate for the three months ended June 30, 2009 and 2008 was 40.9 percent and 36.8 percent, respectively.  The effective rate differs from the U.S. federal statutory rate of 35.0 percent primarily due to state and foreign taxes.

 

It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain unrecognized tax positions will increase or decrease during the next 12 months; however, the Company does not expect the change to have a material effect on results of operations or financial position.

 

13.   Contingent Liabilities and Commitments

 

In conjunction with the Company’s current drilling rig construction program, purchase commitments for equipment, parts and supplies of approximately $160.5 million are outstanding at June 30, 2009.

 

Various legal actions, the majority of which arise in the ordinary course of business, are pending.  The Company maintains insurance against certain business risks subject to certain deductibles.  None of these legal actions are expected to have a material adverse effect on the Company’s financial condition, cash flows or results of operations.

 

The Company is contingently liable to sureties in respect of bonds issued by the sureties in connection with certain commitments entered into by the Company in the normal course of business.  The Company has agreed to indemnify the sureties for any payments made by them in respect of such bonds.

 

14.   Segment Information

 

The Company operates principally in the contract drilling industry. The Company’s contract drilling business includes the following reportable operating segments: U.S. Land, Offshore, and International Land.  The contract drilling operations consist mainly of contracting Company-owned drilling equipment primarily to large oil and gas exploration companies.  The Company’s primary international areas of operation include Venezuela, Colombia, Ecuador, Argentina and other South American countries.  The International Land operations have similar services, have similar types of customers, operate in a consistent manner and have similar economic and regulatory characteristics.  Therefore, the Company has aggregated its International Land operations into one reportable segment.  Each reportable segment is a strategic business unit which is managed separately. Other includes non-reportable operating segments.

 

The Company evaluates segment performance based on income or loss from operations (segment operating income) before income taxes which includes:

 

·      revenues from external and internal customers

·      direct operating costs

·      depreciation and

·      allocated general and administrative costs

 

but excludes corporate costs for other depreciation, income from asset sales and other corporate income and expense.

 

General and administrative costs are allocated to the segments based primarily on specific identification and, to the extent that such identification is not practical, on other methods which the Company believes to be a reasonable reflection of the utilization of services provided.

 

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HELMERICH & PAYNE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

Segment operating income is a non-GAAP financial measure of the Company’s performance, as it excludes general and administrative expenses, corporate depreciation, income from asset sales and other corporate income and expense.

 

The Company considers segment operating income to be an important supplemental measure of operating performance by presenting trends in the Company’s core businesses.  This measure is used by the Company to facilitate period-to-period comparisons in operating performance of the Company’s reportable segments in the aggregate.  The Company believes that segment operating income is useful to investors because it provides a means to evaluate the operating performance of the segments and the Company on an ongoing basis using criteria that are used by our internal decision makers.  Additionally, it highlights operating trends and aids analytical comparisons.  However, segment operating income has limitations and should not be used as an alternative to operating income or loss, a performance measure determined in accordance with GAAP, as it excludes certain costs that may affect the Company’s operating performance in future periods.

 

Summarized financial information of the Company’s reportable segments for the nine months ended June 30, 2009, and 2008, is shown in the following tables:

 

 

 

 

 

 

 

 

 

Segment

 

 

 

External

 

Inter-

 

Total

 

Operating

 

(in thousands)

 

Sales

 

Segment

 

Sales

 

Income (Loss)

 

June 30, 2009

 

 

 

 

 

 

 

 

 

Contract Drilling:

 

 

 

 

 

 

 

 

 

U.S. Land

 

$

1,172,076

 

$

 

$

1,172,076

 

$

483,571

 

Offshore

 

157,424

 

 

157,424

 

43,270

 

International Land

 

194,297

 

 

194,297

 

(975

)

 

 

1,523,797

 

 

1,523,797

 

525,866

 

Other

 

8,024

 

630

 

8,654

 

(4,656

)

 

 

1,531,821

 

630

 

1,532,451

 

521,210

 

Eliminations

 

 

(630

)

(630

)

 

Total

 

$

1,531,821

 

$

 

$

1,531,821

 

$

521,210

 

 

 

 

 

 

 

 

 

 

Segment

 

 

 

External

 

Inter-

 

Total

 

Operating

 

(in thousands)

 

Sales

 

Segment

 

Sales

 

Income (Loss)

 

June 30, 2008

 

 

 

 

 

 

 

 

 

Contract Drilling:

 

 

 

 

 

 

 

 

 

U.S. Land

 

$

1,104,662

 

$

 

$

1,104,662

 

$

446,994

 

Offshore

 

104,368

 

 

104,368

 

19,730

 

International Land

 

234,944

 

 

234,944

 

51,400

 

 

 

1,443,974

 

 

1,443,974

 

518,124

 

Other

 

8,850

 

657

 

9,507

 

(7,596

)

 

 

1,452,824

 

657

 

1,453,481

 

510,528

 

Eliminations

 

 

(657

)

(657)

 

 

Total

 

$

1,452,824

 

$

 

$

1,452,824

 

$

510,528

 

 

19



Table of Contents

 

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

Summarized financial information of the Company’s reportable segments for the three months ended June 30, 2009, and 2008, is shown in the following tables:

 

 

 

 

 

 

 

 

 

Segment

 

 

 

External

 

Inter-

 

Total

 

Operating

 

(in thousands)

 

Sales

 

Segment

 

Sales

 

Income (Loss)

 

June 30, 2009

 

 

 

 

 

 

 

 

 

Contract Drilling:

 

 

 

 

 

 

 

 

 

U.S. Land

 

$

282,358

 

$

 

$

282,358

 

$

96,593

 

Offshore

 

55,605

 

 

55,605

 

12,723

 

International Land

 

47,290

 

 

47,290

 

(8,321

)

 

 

385,253

 

 

385,253

 

100,995

 

Other

 

2,514

 

189

 

2,703

 

(2,304

)

 

 

387,767

 

189

 

387,956

 

98,691

 

Eliminations

 

 

(189

)

(189

)

 

Total

 

$

387,767

 

$

 

$

387,767

 

$

98,691

 

 

 

 

 

 

 

 

 

 

Segment

 

 

 

External

 

Inter-

 

Total

 

Operating

 

(in thousands)

 

Sales

 

Segment

 

Sales

 

Income (Loss)

 

June 30, 2008

 

 

 

 

 

 

 

 

 

Contract Drilling:

 

 

 

 

 

 

 

 

 

U.S. Land

 

$

391,755

 

$

 

$

391,755

 

$

159,413

 

Offshore

 

47,298

 

 

47,298

 

12,013

 

International Land

 

80,585

 

 

80,585

 

17,492

 

 

 

519,638

 

 

519,638

 

188,918

 

Other

 

2,879

 

220

 

3,099

 

(10,421

)

 

 

522,517

 

220

 

522,737

 

178,497

 

Eliminations

 

 

(220

)

(220

)

 

Total

 

$

522,517

 

$

 

$

522,517

 

$

178,497

 

 

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Table of Contents

 

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

The following table reconciles segment operating income per the table above to income before income taxes and equity in income of affiliate as reported on the Consolidated Condensed Statements of Income.

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Segment operating income

 

$

98,691

 

$

178,497

 

$

521,210

 

$

510,528

 

Gain from involuntary conversion of long-lived assets

 

264

 

5,426

 

541

 

10,236

 

Income from asset sales

 

1,785

 

1,616

 

4,754

 

4,404

 

Corporate general and administrative costs and corporate depreciation

 

(9,308

)

(7,732

)

(29,315

)

(23,058

)

Operating income

 

91,432

 

177,807

 

497,190

 

502,110

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest and dividend income

 

542

 

1,034

 

4,478

 

3,369

 

Interest expense

 

(2,793

)

(4,651

)

(9,047

)

(14,255

)

Gain on sale of investment securities

 

 

16,388

 

 

21,994

 

Other

 

514

 

66

 

614

 

(370

)

Total other income (expense)

 

(1,737

)

12,837

 

(3,955

)

10,738

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes and equity in income of affiliate

 

$

89,695

 

$

190,644

 

$

493,235

 

$

512,848

 

 

 

 

June 30,

 

September 30,

 

 

 

2009

 

2008

 

 

 

(in thousands)

 

Total Assets

 

 

 

 

 

U.S. Land

 

$

2,964,271

 

$

2,660,232

 

Offshore

 

161,106

 

152,497

 

International Land

 

457,062

 

368,659

 

Other

 

32,006

 

35,285

 

 

 

3,614,445

 

3,216,673

 

Investments and Corporate Operations

 

465,409

 

371,372

 

Total

 

$

4,079,854

 

$

3,588,045

 

 

The following table presents revenues from external customers by country based on the location of service provided.

 

 

 

Three Months Ended