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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For quarterly period ended:  March 31, 2018

 

OR

 

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 ☒ No ☐

 

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 ☒ No ☐

 

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

 

 

 

 

Large accelerated filer ☒

 

Accelerated filer ☐

 

 

 

Non-accelerated filer ☐

 

Smaller reporting company ☐

(Do not check if a smaller reporting company)

 

 

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

 

 

 

 

CLASS

 

OUTSTANDING AT April 30, 2018

Common Stock, $0.10 par value

 

108,881,688

 

 

 

 

 

 


 

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 March 31, 2018 and September 30, 2017

3

 

 

 

 

Consolidated Condensed Statements of Operations for the Three and Six Months Ended March 31, 2018 and 2017

4

 

 

 

 

Consolidated Condensed Statements of Comprehensive Income (Loss) for the Three and Six Months Ended March 31, 2018 and 2017

5

 

 

 

 

Consolidated Condensed Statements of Cash Flows for the Six Months Ended March 31, 2018 and 2017

6

 

 

 

 

Consolidated Condensed Statement of Shareholders’ Equity for the Six Months Ended March 31, 2018

7

 

 

 

 

Notes to Consolidated Condensed Financial Statements

8-35

 

 

 

Item 2. 

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

36-44

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

45

 

 

 

Item 4. 

Controls and Procedures

45

 

 

 

PART II. 

OTHER INFORMATION

45

 

 

 

Item 1. 

Legal Proceedings

45

 

 

 

Item 1A. 

Risk Factors

45-47

 

 

 

Item 6. 

Exhibits

48

 

 

 

Signatures 

49

 

 

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

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

September 30, 

 

 

    

2018

    

2017

 

 

 

(in thousands)

 

Assets

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

334,764

 

$

521,375

 

Short-term investments

 

 

45,270

 

 

44,491

 

Accounts receivable, less reserve of $5,726 at March 31, 2018 and $5,721 at September 30, 2017

 

 

545,348

 

 

477,074

 

Inventories

 

 

143,177

 

 

137,204

 

Prepaid expenses and other

 

 

62,424

 

 

55,120

 

Current assets of discontinued operations

 

 

 —

 

 

 3

 

Total current assets

 

 

1,130,983

 

 

1,235,267

 

NONCURRENT ASSETS:

 

 

 

 

 

 

 

Investments

 

 

73,356

 

 

84,026

 

Net property, plant and equipment, at cost

 

 

4,898,525

 

 

5,001,051

 

Goodwill

 

 

69,496

 

 

51,705

 

Intangible assets, net of amortization

 

 

77,001

 

 

50,785

 

Other assets

 

 

12,431

 

 

17,154

 

Total noncurrent assets

 

 

5,130,809

 

 

5,204,721

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

6,261,792

 

$

6,439,988

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

Accounts payable

 

$

123,012

 

$

135,628

 

Accrued liabilities

 

 

217,095

 

 

208,683

 

Current liabilities of discontinued operations

 

 

78

 

 

74

 

Total current liabilities

 

 

340,185

 

 

344,385

 

NONCURRENT LIABILITIES:

 

 

 

 

 

 

 

Long-term debt less unamortized discount and debt issuance costs

 

 

493,433

 

 

492,902

 

Deferred income taxes

 

 

816,669

 

 

1,332,689

 

Other

 

 

93,661

 

 

101,409

 

Noncurrent liabilities of discontinued operations

 

 

14,691

 

 

4,012

 

Total noncurrent liabilities

 

 

1,418,454

 

 

1,931,012

 

SHAREHOLDERS’ EQUITY:

 

 

 

 

 

 

 

Common stock, $.10 par value, 160,000,000 shares authorized, 112,008,961 shares and 111,956,875 shares issued as of March 31, 2018 and September 30, 2017 respectively and 108,876,808 shares and 108,604,047 shares outstanding as of March 31, 2018 and September 30, 2017 respectively

 

 

11,201

 

 

11,196

 

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

 

 

 —

 

 

 —

 

Additional paid-in capital

 

 

487,135

 

 

487,248

 

Retained earnings

 

 

4,189,497

 

 

3,855,686

 

Accumulated other comprehensive income (loss)

 

 

(5,221)

 

 

2,300

 

 

 

 

4,682,612

 

 

4,356,430

 

Treasury stock, at cost

 

 

(179,459)

 

 

(191,839)

 

Total shareholders’ equity

 

 

4,503,153

 

 

4,164,591

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

6,261,792

 

$

6,439,988

 

 

The accompanying notes are an integral part of these statements.

 

 

3


 

Table of Contents

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

March 31, 

 

March 31, 

 

 

    

2018

    

2017

    

2018

    

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Drilling - U.S. Land

 

$

482,729

 

$

330,967

 

$

944,369

 

$

594,603

 

Drilling - Offshore

 

 

32,983

 

 

36,235

 

 

66,349

 

 

70,047

 

Drilling - International Land

 

 

52,459

 

 

34,757

 

 

115,673

 

 

102,788

 

Other

 

 

9,313

 

 

3,324

 

 

15,180

 

 

6,435

 

 

 

 

577,484

 

 

405,283

 

 

1,141,571

 

 

773,873

 

Operating costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating costs, excluding depreciation and amortization

 

 

385,556

 

 

296,829

 

 

758,639

 

 

544,508

 

Depreciation and amortization

 

 

145,675

 

 

152,777

 

 

288,942

 

 

286,624

 

Research and development

 

 

4,436

 

 

2,719

 

 

7,670

 

 

5,527

 

General and administrative

 

 

48,325

 

 

33,519

 

 

94,873

 

 

67,781

 

Income from asset sales

 

 

(5,255)

 

 

(14,889)

 

 

(10,820)

 

 

(15,731)

 

 

 

 

578,737

 

 

470,955

 

 

1,139,304

 

 

888,709

 

Operating income (loss) from continuing operations

 

 

(1,253)

 

 

(65,672)

 

 

2,267

 

 

(114,836)

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and dividend income

 

 

1,847

 

 

1,338

 

 

3,571

 

 

2,328

 

Interest expense

 

 

(6,028)

 

 

(6,084)

 

 

(11,801)

 

 

(11,139)

 

Other

 

 

(121)

 

 

174

 

 

409

 

 

561

 

 

 

 

(4,302)

 

 

(4,572)

 

 

(7,821)

 

 

(8,250)

 

Loss from continuing operations before income taxes

 

 

(5,555)

 

 

(70,244)

 

 

(5,554)

 

 

(123,086)

 

Income tax benefit

 

 

(3,922)

 

 

(21,771)

 

 

(504,563)

 

 

(40,059)

 

Income (loss) from continuing operations

 

 

(1,633)

 

 

(48,473)

 

 

499,009

 

 

(83,027)

 

Income (loss) from discontinued operations before income taxes

 

 

1,263

 

 

(94)

 

 

744

 

 

(518)

 

Income tax provision

 

 

11,509

 

 

251

 

 

11,526

 

 

336

 

Loss from discontinued operations

 

 

(10,246)

 

 

(345)

 

 

(10,782)

 

 

(854)

 

NET INCOME (LOSS)

 

$

(11,879)

 

$

(48,818)

 

$

488,227

 

$

(83,881)

 

Basic earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

(0.03)

 

$

(0.45)

 

$

4.55

 

$

(0.77)

 

Loss from discontinued operations

 

$

(0.09)

 

$

 —

 

$

(0.10)

 

$

(0.01)

 

Net income (loss)

 

$

(0.12)

 

$

(0.45)

 

$

4.45

 

$

(0.78)

 

Diluted earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

(0.03)

 

$

(0.45)

 

$

4.53

 

$

(0.77)

 

Loss from discontinued operations

 

$

(0.09)

 

$

 —

 

$

(0.10)

 

$

(0.01)

 

Net income (loss)

 

$

(0.12)

 

$

(0.45)

 

$

4.43

 

$

(0.78)

 

Weighted average shares outstanding (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

108,868

 

 

108,565

 

 

108,775

 

 

108,419

 

Diluted

 

 

108,868

 

 

108,565

 

 

109,212

 

 

108,419

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.70

 

$

0.70

 

$

1.40

 

$

1.40

 

 

The accompanying notes are an integral part of these statements.

4


 

Table of Contents

 

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

March 31, 

 

March 31, 

 

 

    

2018

    

2017

    

2018

    

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(11,879)

 

$

(48,818)

 

$

488,227

 

$

(83,881)

 

Other comprehensive income (loss), net of income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized appreciation (depreciation) on securities, net of income taxes of ($3.4) million and ($3.6) million at March 31, 2018 and ($6.6) million and $1.2 million at March 31, 2017 

 

 

(7,568)

 

 

(10,507)

 

 

(8,169)

 

 

1,905

 

Minimum pension liability adjustments, net of income taxes of $0.2 million and $0.3 million at March 31, 2018 and $0.2 million and $0.4 million at March 31, 2017

 

 

308

 

 

366

 

 

648

 

 

732

 

Other comprehensive income (loss)

 

 

(7,260)

 

 

(10,141)

 

 

(7,521)

 

 

2,637

 

Comprehensive income (loss)

 

$

(19,139)

 

$

(58,959)

 

$

480,706

 

$

(81,244)

 

 

The accompanying notes are an integral part of these statements.

 

5


 

Table of Contents

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

March 31, 

 

 

    

2018

    

2017

 

 

 

 

 

 

As Adjusted

 

OPERATING ACTIVITIES:

 

 

    

 

 

    

 

Net income (loss)

 

$

488,227

 

$

(83,881)

 

Adjustment for loss from discontinued operations

 

 

10,782

 

 

854

 

Income (loss) from continuing operations

 

 

499,009

 

 

(83,027)

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

288,942

 

 

286,624

 

Amortization of debt discount and debt issuance costs

 

 

531

 

 

525

 

Provision for bad debt

 

 

429

 

 

3,820

 

Stock-based compensation

 

 

15,546

 

 

12,479

 

Income from asset sales

 

 

(10,820)

 

 

(15,731)

 

Deferred income tax benefit

 

 

(506,373)

 

 

(34,038)

 

Other

 

 

5,701

 

 

32

 

Change in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(61,791)

 

 

30,278

 

Inventories

 

 

(5,973)

 

 

(7,273)

 

Prepaid expenses and other

 

 

(4,158)

 

 

17,830

 

Accounts payable

 

 

(13,119)

 

 

31,359

 

Accrued liabilities

 

 

8,418

 

 

(76,879)

 

Deferred income taxes

 

 

(5,980)

 

 

2,675

 

Other noncurrent liabilities

 

 

(13,272)

 

 

(18,316)

 

Net cash provided by operating activities from continuing operations

 

 

197,090

 

 

150,358

 

Net cash used in operating activities from discontinued operations

 

 

(96)

 

 

(80)

 

Net cash provided by operating activities

 

 

196,994

 

 

150,278

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Capital expenditures

 

 

(191,202)

 

 

(175,303)

 

Purchase of short-term investments

 

 

(36,784)

 

 

(37,899)

 

Payment for acquisition of business, net of cash acquired

 

 

(47,886)

 

 

 —

 

Proceeds from sale of short-term investments

 

 

32,020

 

 

34,000

 

Proceeds from asset sales

 

 

17,826

 

 

13,459

 

Net cash used in investing activities

 

 

(226,026)

 

 

(165,743)

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Dividends paid

 

 

(153,433)

 

 

(152,617)

 

Proceeds from stock option exercises

 

 

1,645

 

 

10,372

 

Payments for employee taxes on net settlement of equity awards

 

 

(5,791)

 

 

(6,105)

 

Net cash used in financing activities

 

 

(157,579)

 

 

(148,350)

 

Net decrease in cash and cash equivalents

 

 

(186,611)

 

 

(163,815)

 

Cash and cash equivalents, beginning of period

 

 

521,375

 

 

905,561

 

Cash and cash equivalents, end of period

 

$

334,764

 

$

741,746

 

 

The accompanying notes are an integral part of these statements.

6


 

Table of Contents

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS’ EQUITY

SIX MONTHS ENDED MARCH 31, 2018

(Unaudited)

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Paid-In

 

Retained

 

Comprehensive

 

Treasury Stock

 

 

 

 

 

    

Shares

    

Amount

    

Capital

    

Earnings

    

Income (loss)

    

 Shares

    

Amount

    

Total

 

 

 

(in thousands, except per share amounts)

 

Balance, September 30, 2017

 

111,957

 

$

11,196

 

$

487,248

 

$

3,855,686

 

$

2,300

 

3,353

 

$

(191,839)

 

$

4,164,591

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

488,227

 

 

 

 

 

 

 

 

 

 

488,227

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,521)

 

 

 

 

 

 

 

(7,521)

 

Dividends declared ($1.40 per share)

 

 

 

 

 

 

 

 

 

 

(153,861)

 

 

 

 

 

 

 

 

 

 

(153,861)

 

Exercise of stock options, net of shares withheld for employee taxes

 

 1

 

 

 —

 

 

(5,063)

 

 

 

 

 

 

 

(90)

 

 

5,005

 

 

(58)

 

Cumulative effect of adopting Accounting Standards Update 2016-09

 

 

 

 

 

 

 

872

 

 

(555)

 

 

 

 

 

 

 

 

 

 

317

 

Stock issued for vested restricted stock, net of shares withheld for employee taxes

 

51

 

 

 5

 

 

(11,468)

 

 

 

 

 

 

 

(131)

 

 

7,375

 

 

(4,088)

 

Stock-based compensation

 

 

 

 

 

 

 

15,546

 

 

 

 

 

 

 

 

 

 

 

 

 

15,546

 

Balance, March 31, 2018

 

112,009

 

$

11,201

 

$

487,135

 

$

4,189,497

 

$

(5,221)

 

3,132

 

$

(179,459)

 

$

4,503,153

 

 

The accompanying notes are an integral part of these statements.

7


 

Table of Contents

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

1.Basis of Presentation

 

Unless the context otherwise requires, the use of the terms “the Company”, “we”, “us” and “our” in these Notes to Consolidated Condensed Financial Statements refers to Helmerich & Payne, Inc. and its consolidated subsidiaries.

 

The accompanying unaudited Consolidated Condensed Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) 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 GAAP for complete financial statements and, therefore, should be read in conjunction with the Consolidated Financial Statements and notes thereto in our 2017 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.

 

On October 1, 2017, we adopted Accounting Standards Update (“ASU”) No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which changes certain aspects of accounting for share-based payments to employees. The standard requires that all excess tax benefits and deficiencies previously recorded as additional paid-in capital be prospectively recorded in income tax expense.  The adoption of this ASU could cause volatility in the effective tax rate on a quarter by quarter basis due primarily to fluctuations in the Company's stock price and the timing of stock option exercises and vesting of restricted share grants. The standard requires excess tax benefits to be presented as an operating activity on the statement of cash flows rather than as a financing activity.  Excess tax benefits and deficiencies are recorded within the provision for income taxes within the Consolidated Condensed Statements of Operations on a prospective basis as required by the standard; however, we elected to present changes to the statement of cash flows on a retrospective basis as allowed by the standard in order to maintain comparability between fiscal years. As such, prior period cash flows from operations for six months ended March  31, 2017 has been adjusted to reflect an increase of $3.9 million, with a corresponding decrease to cash flows used in financing activities, compared to amounts previously reported.    The standard also requires taxes paid for employee withholdings to be presented as a financing activity on the statement of cash flows but this requirement had no impact on our total financing activities as this has been the practice historically.  We also elected to account for forfeitures of awards as they occur, instead of estimating a forfeiture amount. We recorded a  $0.3 million cumulative-effect adjustment to retained earnings for the differential between the amount of compensation cost previously recorded and the amount that would have been recorded without assuming forfeitures.

 

In July 2015, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory.  This update simplifies the subsequent measurement of inventory.  It replaces the current lower of cost or market test with the lower of cost or net realizable value test.  Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.  We adopted ASU No. 2015-11 on October 1, 2017 with no impact on our consolidated financial statements.

 

As more fully described in our 2017 Annual Report on Form 10-K, our contract drilling revenues are comprised of daywork drilling contracts for which the related revenues and expenses are recognized as services are performed.  For contracts that are terminated by customers prior to the expirations of their fixed terms, contractual provisions customarily require early termination amounts to be paid to us. Revenues from early terminated contracts are recognized when all contractual requirements have been met.  During the three and six months ended March 31, 2018, early termination revenue was approximately $4.0 million and $8.3 million, respectively.  We had $6.2 million and $19.7 million of early termination revenue for the three and six months ended March 31, 2017. 

 

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Depreciation in the Consolidated Condensed Statements of Operations includes abandonments of $8.2 million and $15.5 million for the three and six months ended March 31, 2018 and $18.6 million and $19.4 million for the three and six months ended March 31, 2017. 

 

The functional currency for all our foreign operations is the U.S. dollar.  Nonmonetary assets and liabilities are translated at historical rates and monetary assets and liabilities are translated at exchange rates in effect at the end of the period.  Income statement accounts are translated at average rates for the period presented.  Aggregate foreign currency gains and losses from remeasurement of foreign currency financial statements and foreign currency translations into U.S. dollars are included in direct operating costs and totaled gains of $0.2 million and losses of $1.4 million for the three and six months ended March 31, 2018.  Included in direct operating costs is an aggregate foreign currency loss of $0.6 million and $2.0 million for the three and six months ended March 31, 2017.

 

Goodwill represents the excess of cost over the net amounts assigned to assets acquired and liabilities assumed in business combinations.  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 other non-reportable business segment. 

 

Intangible assets with indefinite lives are tested for impairment at least annually in the fourth fiscal quarter and if events occur or circumstances change that would indicate that the value of the assets may be impaired.  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.  The following is a summary of our finite-lived and indefinite-lived intangible assets other than goodwill at March 31, 2018 and September 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2018

 

September 30, 2017

 

 

 

Gross

 

 

 

Gross

 

 

 

 

 

Carrying

 

Accumulated

 

Carrying

 

Accumulated

 

 

    

Amount

    

Amortization

    

Amount

    

Amortization

 

 

 

(in thousands)

 

Finite-lived intangible asset:

 

 

 

 

 

 

 

 

 

 

 

 

 

Developed technology

 

$

70,000

 

$

3,256

 

$

51,000

 

$

1,134

 

Trade name

 

 

5,700

 

 

95

 

 

 —

 

 

 —

 

Customer relationships

 

 

4,000

 

 

267

 

 

 —

 

 

 —

 

 

 

$

79,700

 

$

3,618

 

$

51,000

 

$

1,134

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Indefinite-lived intangible asset:

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademark

 

$

919

 

 

 

 

$

919

 

 

 

 

 

Amortization expense was $1.7 million and $2.5 million for the three and six months ended March 31, 2018 and is estimated to be approximately $5.4 million for fiscal 2018.  Estimated intangible amortization is estimated to be approximately $5.8 million for fiscal years 2019-2022 and approximately $5.1 million for fiscal 2023.

 

2.Business Combinations

 

On December 8, 2017, we completed an acquisition (“MagVAR Acquisition”) of an unaffiliated company, Magnetic Variation Services, LLC (“MagVAR”), which is now a wholly owned subsidiary of the Company.  The operations for MagVAR are included with all other non-reportable business segments.  At the effective time of the MagVAR Acquisition, MagVAR shareholders received aggregate cash consideration of $47.9 million, net of customary closing adjustments, and certain management members received restricted stock awards covering 213,904 shares of Helmerich & Payne, Inc. common stock.  The grant date fair value of the restricted stock will be amortized to expense over the three year vesting period.  At closing, $6.0 million of the cash consideration was placed in escrow, to be released to the seller twelve months after the acquisition closing date.  The amount placed in escrow is classified as restricted cash and is included in prepaid expenses and other in the Consolidated Condensed Balance Sheet at March 31, 2018.  Transaction costs related to the MagVAR Acquisition incurred during the six months ended March 31, 2018 were approximately $1.2 million and are recorded in the Consolidated Condensed Statements 

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of Operations within general and administrative expense.  We recorded revenue of $3.9 million and a net loss of $1.1 million related to MagVAR during the six months ended March 31, 2018.

 

Through comprehensive 3D geomagnetic reference modeling, MagVAR provides measurement while drilling (“MWD”) survey corrections by identifying and quantifying MWD tool measurement errors in real-time, greatly improving directional drilling performance and wellbore placement.  MagVAR technology has been successfully deployed in both onshore and offshore fields in North America, South America, Europe, Africa, Australia and Asia.

 

The MagVAR Acquisition has been accounted for as a business combination in accordance with Accounting Standards Codifiction (“ASC”) 805, Business Combinations, which requires the assets acquired and liabilities assumed to be recorded at their acquisition date fair values. The following table summarizes the purchase price and the fair values of assets acquired and liabilities assumed and separately identifiable intangible assets at the acquisition date (in thousands):

 

 

 

 

 

Purchase Price

 

 

 

Consideration given

 

 

 

Cash consideration

 

$

48,485

 

 

 

 

Allocation of Purchase Price

 

 

 

Fair value of assets acquired

 

 

 

Current assets

 

$

2,286

Property, plant and equipment

 

 

13

Intangible assets

 

 

28,700

Goodwill

 

 

17,791

 

 

 

 

Total assets acquired

 

$

48,790

 

 

 

 

Fair value of liabilities assumed

 

 

 

Current liabilities

 

$

305

 

 

 

 

Fair value of total assets and liabilities acquired

 

$

48,485

 

Intangible assets acquired consist of developed technology, a trade name and customer relationships.  The intangible assets will be amortized under a straight-line method over their estimated useful lives ranging from 5 to 20 years.

 

The methodologies used in valuing the intangible assets include the multi-period excess earnings method for developed technology, the with and without method for customer relationships and the relief-from-royalty method for the trade name.  The excess of the purchase price over the total net identifiable assets has been recorded as goodwill.  Factors comprising goodwill includes the synergies expected from the expanded service capabilities as well as the value of the assembled workforce.  The goodwill is reported in the Other segment and will not be allocated to any other reporting unit.  The goodwill is not subject to amortization, but will be evaluated at least annually for impairment, or more frequently if impairment indicators are present.  The intangible assets and goodwill will be amortized straight line over 15 years for income tax purposes. 

 

The following unaudited pro forma combined financial information is provided for the six months ended March 31, 2018 and 2017, as though the MagVAR Acquisition had been completed as of October 1, 2016.  These pro forma combined results of operations have been prepared by adjusting our historical results to include the historical results of MagVAR and reflect pro forma adjustments based on available information and certain assumptions that we believe are reasonable, including application of an appropriate income tax to MagVAR pre-tax loss.  Additionally, pro forma earnings for the six months ended March 31, 2018 were adjusted to exclude $0.6 million of after-tax transaction costs.  The unaudited pro forma combined financial information is provided for illustrative purposes only and is not necessarily indicative of the actual results that would have been achieved by the combined company for

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the periods presented or that may be achieved by the combined company in the future.  Future results may vary significantly from the results reflected in this pro forma financial information.

 

 

 

 

 

 

 

 

 

 

Pro Forma (unaudited)

 

 

Six Months Ended March 31, 

 

    

2018

    

2017

 

 

(in thousands)

 

 

 

 

 

 

 

Revenues

 

$

1,145,258

 

$

778,628

Net income (loss)

 

$

488,439

 

$

(83,287)

 

 

3.Discontinued Operations

 

Current and noncurrent liabilities 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. 

 

4.Earnings per 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 and nonvested restricted stock.

 

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.

 

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The following table sets forth the computation of basic and diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

March 31, 

 

March 31, 

 

 

    

2018

    

2017

    

2018

    

2017

 

 

 

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

(1,633)

 

$

(48,473)

 

$

499,009

 

$

(83,027)

 

Loss from discontinued operations

 

 

(10,246)

 

 

(345)

 

 

(10,782)

 

 

(854)

 

Net income (loss)

 

 

(11,879)

 

 

(48,818)

 

 

488,227

 

 

(83,881)

 

Adjustment for basic earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings allocated to unvested shareholders

 

 

(717)

 

 

(445)

 

 

(4,106)

 

 

(891)

 

Numerator for basic earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

From continuing operations

 

 

(2,350)

 

 

(48,918)

 

 

494,903

 

 

(83,918)

 

From discontinued operations

 

 

(10,246)

 

 

(345)

 

 

(10,782)

 

 

(854)

 

 

 

 

(12,596)

 

 

(49,263)

 

 

484,121

 

 

(84,772)

 

Adjustment for diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of reallocating undistributed earnings of unvested shareholders

 

 

 —

 

 

 —

 

 

11

 

 

 —

 

Numerator for diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

From continuing operations

 

 

(2,350)

 

 

(48,918)

 

 

494,914

 

 

(83,918)

 

From discontinued operations

 

 

(10,246)

 

 

(345)

 

 

(10,782)

 

 

(854)

 

 

 

$

(12,596)

 

$

(49,263)

 

$

484,132

 

$

(84,772)

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic earnings per share - weighted-average shares

 

 

108,868

 

 

108,565

 

 

108,775

 

 

108,419

 

Effect of dilutive shares from stock options and restricted stock

 

 

 —

 

 

 —

 

 

437

 

 

 —

 

Denominator for diluted earnings per share - adjusted weighted-average shares

 

 

108,868

 

 

108,565

 

 

109,212

 

 

108,419

 

Basic earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

(0.03)

 

$

(0.45)

 

$

4.55

 

$

(0.77)

 

Loss from discontinued operations

 

 

(0.09)

 

 

 —

 

 

(0.10)

 

 

(0.01)

 

Net income (loss)

 

$

(0.12)

 

$

(0.45)

 

$

4.45

 

$

(0.78)

 

Diluted earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

(0.03)

 

$

(0.45)