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, 2010
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-4221
HELMERICH & PAYNE, INC.
(Exact name of registrant as specified in its charter)
Delaware |
|
73-0679879 |
(State or other jurisdiction of |
|
(I.R.S. Employer I.D. Number) |
incorporation or organization) |
|
|
1437 South Boulder Avenue, Tulsa, Oklahoma,74119
(Address of principal executive office)(Zip Code)
(918) 742-5531
(Registrants telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of large accelerated filer, accelerated filer and small reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer x |
|
Accelerated filer o |
|
|
|
Non-accelerated filer o |
|
Smaller reporting company o |
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
CLASS |
|
OUTSTANDING AT July 31, 2010 |
Common Stock, $0.10 par value |
|
105,813,661 |
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(in thousands, except share and per share amounts)
|
|
June 30, |
|
September 30, |
|
||
|
|
2010 |
|
2009 |
|
||
ASSETS |
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
77,717 |
|
$ |
96,142 |
|
Short-term investments |
|
|
|
12,500 |
|
||
Accounts receivable, less reserve of $629 at June 30, 2010 and $659 at September 30, 2009 |
|
335,000 |
|
233,949 |
|
||
Inventories |
|
43,505 |
|
39,544 |
|
||
Deferred income taxes |
|
17,480 |
|
6,373 |
|
||
Assets held for sale |
|
|
|
1,023 |
|
||
Prepaid expenses and other |
|
66,041 |
|
52,495 |
|
||
Current assets of discontinued operations |
|
9,507 |
|
80,906 |
|
||
Total current assets |
|
549,250 |
|
522,932 |
|
||
|
|
|
|
|
|
||
Investments |
|
274,620 |
|
356,404 |
|
||
Property, plant and equipment, net |
|
3,235,863 |
|
3,194,273 |
|
||
Non-current assets of discontinued operations |
|
|
|
71,634 |
|
||
Other assets |
|
13,921 |
|
15,781 |
|
||
|
|
|
|
|
|
||
Total assets |
|
$ |
4,073,654 |
|
$ |
4,161,024 |
|
|
|
|
|
|
|
||
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
||
Accounts payable |
|
$ |
54,137 |
|
$ |
68,173 |
|
Accrued liabilities |
|
149,153 |
|
111,750 |
|
||
Short-term debt |
|
|
|
105,000 |
|
||
Current liabilities of discontinued operations |
|
7,688 |
|
16,983 |
|
||
Total current liabilities |
|
210,978 |
|
301,906 |
|
||
|
|
|
|
|
|
||
Noncurrent liabilities: |
|
|
|
|
|
||
Long-term debt |
|
390,000 |
|
420,000 |
|
||
Deferred income taxes |
|
692,103 |
|
672,358 |
|
||
Other |
|
73,227 |
|
73,546 |
|
||
Non-current liabilities of discontinued operations |
|
1,819 |
|
10,205 |
|
||
Total noncurrent liabilities |
|
1,157,149 |
|
1,176,109 |
|
||
|
|
|
|
|
|
||
Shareholders equity: |
|
|
|
|
|
||
Common stock, $.10 par value, 160,000,000 shares authorized,107,057,904 shares issued as of June 30, 2010 and September 30, 2009 and 105,811,476 and 105,486,218 shares outstanding as of June 30, 2010 and September 30, 2009, respectively |
|
10,706 |
|
10,706 |
|
||
Preferred stock, no par value, 1,000,000 shares authorized, no shares issued |
|
|
|
|
|
||
Additional paid-in capital |
|
188,786 |
|
176,039 |
|
||
Retained earnings |
|
2,471,238 |
|
2,414,942 |
|
||
Accumulated other comprehensive income |
|
62,130 |
|
112,451 |
|
||
Treasury stock, at cost |
|
(27,333 |
) |
(31,129 |
) |
||
Total shareholders equity |
|
2,705,527 |
|
2,683,009 |
|
||
|
|
|
|
|
|
||
Total liabilities and shareholders equity |
|
$ |
4,073,654 |
|
$ |
4,161,024 |
|
The accompanying notes are an integral part of these statements.
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
June 30, |
|
June 30, |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Operating revenues: |
|
|
|
|
|
|
|
|
|
||||
Drilling U.S. Land |
|
$ |
366,989 |
|
$ |
282,358 |
|
$ |
976,497 |
|
$ |
1,172,076 |
|
Drilling Offshore |
|
53,131 |
|
55,605 |
|
153,186 |
|
157,424 |
|
||||
Drilling International Land |
|
60,045 |
|
43,882 |
|
177,377 |
|
147,940 |
|
||||
Other |
|
3,219 |
|
2,514 |
|
9,145 |
|
8,024 |
|
||||
|
|
483,384 |
|
384,359 |
|
1,316,205 |
|
1,485,464 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Operating costs and other: |
|
|
|
|
|
|
|
|
|
||||
Operating costs, excluding depreciation |
|
285,583 |
|
204,523 |
|
742,761 |
|
754,098 |
|
||||
Depreciation |
|
65,208 |
|
58,737 |
|
189,418 |
|
166,082 |
|
||||
General and administrative |
|
20,114 |
|
14,172 |
|
61,296 |
|
45,481 |
|
||||
Research and development |
|
3,254 |
|
2,777 |
|
8,411 |
|
6,630 |
|
||||
Gain from involuntary conversion of long-lived assets |
|
|
|
(264 |
) |
|
|
(541 |
) |
||||
Income from asset sales |
|
(2,249 |
) |
(1,741 |
) |
(4,245 |
) |
(4,706 |
) |
||||
|
|
371,910 |
|
278,204 |
|
997,641 |
|
967,044 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Operating income from continuing operations |
|
111,474 |
|
106,155 |
|
318,564 |
|
518,420 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
||||
Interest and dividend income |
|
940 |
|
199 |
|
1,536 |
|
2,362 |
|
||||
Interest expense |
|
(3,961 |
) |
(2,893 |
) |
(12,693 |
) |
(9,147 |
) |
||||
Other |
|
215 |
|
(49 |
) |
253 |
|
51 |
|
||||
|
|
(2,806 |
) |
(2,743 |
) |
(10,904 |
) |
(6,734 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
Income from continuing operations before income taxes and equity in income of affiliate |
|
108,668 |
|
103,412 |
|
307,660 |
|
511,686 |
|
||||
Income tax provision |
|
43,785 |
|
35,391 |
|
104,870 |
|
196,227 |
|
||||
Equity in income of affiliate net of income taxes |
|
|
|
|
|
|
|
10,111 |
|
||||
Income from continuing operations |
|
64,883 |
|
68,021 |
|
202,790 |
|
325,570 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Loss from discontinued operations before income taxes |
|
(101,548 |
) |
(13,717 |
) |
(127,160 |
) |
(18,451 |
) |
||||
Income tax provision |
|
50 |
|
1,260 |
|
2,363 |
|
5,062 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Loss from discontinued operations |
|
(101,598 |
) |
(14,977 |
) |
(129,523 |
) |
(23,513 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
NET INCOME (LOSS) |
|
$ |
(36,715 |
) |
$ |
53,044 |
|
$ |
73,267 |
|
$ |
302,057 |
|
|
|
|
|
|
|
|
|
|
|
||||
Basic earnings per common share: |
|
|
|
|
|
|
|
|
|
||||
Income from continuing operations |
|
$ |
0.61 |
|
$ |
0.64 |
|
$ |
1.92 |
|
$ |
3.08 |
|
Loss from discontinued operations |
|
$ |
(0.96 |
) |
$ |
(0.14 |
) |
$ |
(1.23 |
) |
$ |
(0.22 |
) |
Net income (loss) |
|
$ |
(0.35 |
) |
$ |
0.50 |
|
$ |
0.69 |
|
$ |
2.86 |
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted earnings per common share: |
|
|
|
|
|
|
|
|
|
||||
Income from continuing operations |
|
$ |
0.61 |
|
$ |
0.64 |
|
$ |
1.89 |
|
$ |
3.05 |
|
Loss from discontinued operations |
|
$ |
(0.95 |
) |
$ |
(0.14 |
) |
$ |
(1.21 |
) |
$ |
(0.22 |
) |
Net income (loss) |
|
$ |
(0.34 |
) |
$ |
0.50 |
|
$ |
0.68 |
|
$ |
2.83 |
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
||||
Basic |
|
105,743 |
|
105,425 |
|
105,676 |
|
105,330 |
|
||||
Diluted |
|
107,444 |
|
106,695 |
|
107,400 |
|
106,381 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Dividends declared per common share |
|
$ |
0.060 |
|
$ |
0.050 |
|
$ |
0.160 |
|
$ |
0.150 |
|
The accompanying notes are an integral part of these statements.
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
|
|
Nine Months Ended |
|
||||
|
|
June 30, |
|
||||
|
|
2010 |
|
2009 |
|
||
OPERATING ACTIVITIES: |
|
|
|
|
|
||
Net income |
|
$ |
73,267 |
|
$ |
302,057 |
|
Adjustment for loss from discontinued operations |
|
129,523 |
|
23,513 |
|
||
Income from continuing operations |
|
202,790 |
|
325,570 |
|
||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
||
Depreciation |
|
189,418 |
|
166,082 |
|
||
Provision for bad debt |
|
4 |
|
580 |
|
||
Equity in income of affiliate before income taxes |
|
|
|
(16,308 |
) |
||
Stock-based compensation |
|
12,874 |
|
6,292 |
|
||
Other |
|
79 |
|
394 |
|
||
Gain from involuntary conversion of long-lived assets |
|
|
|
(541 |
) |
||
Income from asset sales |
|
(4,245 |
) |
(4,706 |
) |
||
Deferred income tax expense |
|
36,714 |
|
153,997 |
|
||
Change in assets and liabilities- |
|
|
|
|
|
||
Accounts receivable |
|
(101,055 |
) |
144,804 |
|
||
Inventories |
|
(3,961 |
) |
(11,882 |
) |
||
Prepaid expenses and other |
|
(11,739 |
) |
(11,675 |
) |
||
Accounts payable |
|
(6,785 |
) |
(14,948 |
) |
||
Accrued liabilities |
|
20,025 |
|
(8,311 |
) |
||
Deferred income taxes |
|
(527 |
) |
8,245 |
|
||
Other noncurrent liabilities |
|
952 |
|
(3,540 |
) |
||
Net cash provided by operating activities from continuing operations |
|
334,544 |
|
734,053 |
|
||
Net cash provided by (used in) operating activities from discontinued operations |
|
(1,507 |
) |
402 |
|
||
Net cash provided by operating activities |
|
333,037 |
|
734,455 |
|
||
|
|
|
|
|
|
||
INVESTING ACTIVITIES: |
|
|
|
|
|
||
Capital expenditures |
|
(220,200 |
) |
(734,506 |
) |
||
Insurance proceeds from involuntary conversion |
|
|
|
541 |
|
||
Proceeds from sale of short-term investments |
|
12,516 |
|
|
|
||
Proceeds from asset sales |
|
6,297 |
|
6,658 |
|
||
Purchase of short-term investments |
|
(16 |
) |
(12,500 |
) |
||
Other |
|
|
|
(16 |
) |
||
Net cash used in investing activities from continuing operations |
|
(201,403 |
) |
(739,823 |
) |
||
Net cash used in investing activities from discontinued operations |
|
(55 |
) |
(3,857 |
) |
||
Net cash used in investing activities |
|
(201,458 |
) |
(743,680 |
) |
||
|
|
|
|
|
|
||
FINANCING ACTIVITIES: |
|
|
|
|
|
||
Decrease in notes payable |
|
|
|
(1,733 |
) |
||
Proceeds from line of credit |
|
835,000 |
|
3,185,000 |
|
||
Payments on line of credit |
|
(970,000 |
) |
(3,125,000 |
) |
||
Increase (decrease) in bank overdraft |
|
(2,038 |
) |
8,992 |
|
||
Dividends paid |
|
(15,891 |
) |
(15,829 |
) |
||
Exercise of stock options |
|
(391 |
) |
710 |
|
||
Excess tax benefit from stock-based compensation |
|
3,316 |
|
1,189 |
|
||
Net cash provided by (used in) financing activities |
|
(150,004 |
) |
53,329 |
|
||
|
|
|
|
|
|
||
Net increase (decrease) in cash and cash equivalents |
|
(18,425 |
) |
44,104 |
|
||
Cash and cash equivalents, beginning of period |
|
96,142 |
|
77,549 |
|
||
Cash and cash equivalents, end of period |
|
$ |
77,717 |
|
$ |
121,653 |
|
The accompanying notes are an integral part of these statements.
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS EQUITY
NINE MONTHS ENDED JUNE 30, 2010
(Unaudited)
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
Additional |
|
|
|
Other |
|
|
|
|
|
Total |
|
||||||
|
|
Common Stock |
|
Paid-In |
|
Retained |
|
Comprehensive |
|
Treasury Stock |
|
Shareholders |
|
||||||||||
|
|
Shares |
|
Amount |
|
Capital |
|
Earnings |
|
Income |
|
Shares |
|
Amount |
|
Equity |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance, September 30, 2009 |
|
107,058 |
|
$ |
10,706 |
|
$ |
176,039 |
|
$ |
2,414,942 |
|
$ |
112,451 |
|
1,572 |
|
$ |
(31,129 |
) |
$ |
2,683,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income |
|
|
|
|
|
|
|
73,267 |
|
|
|
|
|
|
|
73,267 |
|
||||||
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Change in value on available-for-sale securities |
|
|
|
|
|
|
|
|
|
(51,326 |
) |
|
|
|
|
(51,326 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Amortization of net periodic benefit costs-net of actuarial gain |
|
|
|
|
|
|
|
|
|
1,005 |
|
|
|
|
|
1,005 |
|
||||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,946 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cash dividends ($.16 per share) |
|
|
|
|
|
|
|
(16,971 |
) |
|
|
|
|
|
|
(16,971 |
) |
||||||
Exercise of stock options |
|
|
|
|
|
(2,742 |
) |
|
|
|
|
(256 |
) |
2,351 |
|
(391 |
) |
||||||
Tax benefit of stock-based awards, including excess tax benefits of $3.3 million |
|
|
|
|
|
4,060 |
|
|
|
|
|
|
|
|
|
4,060 |
|
||||||
Treasury stock issued for vested restricted stock |
|
|
|
|
|
(1,445 |
) |
|
|
|
|
(70 |
) |
1,445 |
|
|
|
||||||
Stock-based compensation |
|
|
|
|
|
12,874 |
|
|
|
|
|
|
|
|
|
12,874 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance, June 30, 2010 |
|
107,058 |
|
$ |
10,706 |
|
$ |
188,786 |
|
$ |
2,471,238 |
|
$ |
62,130 |
|
1,246 |
|
$ |
(27,333 |
) |
$ |
2,705,527 |
|
The accompanying notes are an integral part of these statements.
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 2009 Annual Report on Form 10-K and other current filings with the Commission. In the opinion of management, all adjustments, consisting of those of a normal recurring nature, necessary to present fairly the results of the periods presented have been included. The results of operations for the interim periods presented may not necessarily be indicative of the results to be expected for the full year.
We classified the Venezuelan operation, an operating segment within the International Land Segment, as a discontinued operation in the third quarter of fiscal 2010, as more fully described in Note 2. Accordingly, the assets and liabilities of this business, along with its results of operations, have been reclassified for all periods presented. Unless indicated otherwise, the information in the Notes to the Consolidated Condensed Financial Statements relates only to our continuing operations.
The adoption of the guidance contained in Accounting Standards Codification (ASC) 260-10-45, Earnings per Share, discussed below in Note 2 changed the calculation of basic earnings per share requiring restricted stock grants that have previously been included in our diluted weighted-average shares to be included in basic weighted-average shares. Earnings per share for the three and nine months ended June 30, 2009 has been recalculated to conform to the current year presentation.
As more fully described in our 2009 Annual Report on Form 10-K, our contract drilling revenues are comprised of daywork drilling contracts for which the related revenues and expenses are recognized as services are performed. For contracts that are terminated by customers prior to the expirations of their fixed term, contractual provisions customarily require early termination amounts to be paid to us. Revenues from early terminated contracts are recognized when all contractual requirements have been met.
2. Discontinued Operations
On June 30, 2010, the Official Gazette of Venezuela published the Decree of Venezuelan President Hugo Chavez, which authorized the forceful acquisition of eleven rigs owned by our Venezuelan subsidiary. The Decree also authorized the seizure of all the personal and real property and other improvements used by our Venezuelan subsidiary in its drilling operations. The seizing of our assets became effective June 30, 2010 and meets the criteria established for recognition as discontinued operations under accounting standards for presentation of financial statements. Therefore, as of June 30, 2010, operations from the Venezuelan subsidiary, an operating segment within the International Land Segment, have been classified as discontinued operations in our Consolidated Condensed Financial Statements. All historical statements have been reclassified to conform to this presentation.
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Our revenue in Venezuela was from providing drilling services to Petroleos de Venezuela, S.A. (PDVSA), the Venezuelan state-owned petroleum company. We determined, as of the beginning of the second quarter of fiscal 2009 and forward, that the revenue recognition criteria in Venezuela was no longer met as collectability of revenue was not reasonably assured, primarily due to the uncertainty of the timing of collectability. However, up until the time of the seizing of our assets, we continued to receive payments from PDVSA and were in discussions with PDVSA officials regarding payments and the possibility of contract negotiations to put our rigs back to work.
As a result of the seizing of our assets in the third quarter of fiscal 2010, we have derecognized our Venezuela property and equipment, $65.0 million, and warehouse inventory, $5.1 million, resulting in a loss of approximately $70.1 million. Accounts receivable, payables and other deferred charges and credits, netting to approximately $10.7 million, were also written off because the related future cash inflows and outflows associated with them are no longer expected to occur. At June 30, 2010, we had approximately $31.3 million (U.S. currency equivalent) cash balances in Venezuela. We have, since July 22, 2008, had an outstanding application with the Venezuelan government requesting approval to convert bolivar fuerte (Bsf) cash balances to U.S. dollars. If approval is ever received, our Venezuelan subsidiary would remit approximately $14.2 million as a dividend to its U.S. based parent. Because of the seizure of our assets by the Venezuelan government and our inability to obtain approval of the dividend, we also impaired approximately $21.8 million cash as of June 30, 2010. The remaining cash was classified as restricted cash, a current asset from discontinued operations, to meet remaining current obligations.
Summarized operating results from discontinued operations are as follows:
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
June 30, |
|
June 30, |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
6,787 |
|
$ |
3,408 |
|
$ |
13,534 |
|
$ |
46,357 |
|
Loss before income taxes |
|
(101,548 |
) |
(13,717 |
) |
(127,160 |
) |
(18,451 |
) |
||||
Income tax expense |
|
(50 |
) |
(1,260 |
) |
(2,363 |
) |
(5,062 |
) |
||||
Loss from discontinued operations |
|
$ |
(101,598 |
) |
$ |
(14,977 |
) |
$ |
(129,523 |
) |
$ |
(23,513 |
) |
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Significant categories of assets and liabilities from discontinued operations are as follows:
|
|
June 30, |
|
September 30, |
|
||
|
|
2010 |
|
2009 |
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
45,344 |
|
Accounts receivable |
|
|
|
12,841 |
|
||
Other current assets |
|
9,507 |
|
22,721 |
|
||
Total current assets |
|
9,507 |
|
80,906 |
|
||
Property, plant and equipment, net |
|
|
|
71,634 |
|
||
Total assets |
|
$ |
9,507 |
|
$ |
152,540 |
|
|
|
|
|
|
|
||
Total current liabilities |
|
$ |
7,688 |
|
$ |
16,983 |
|
Total noncurrent liabilities |
|
1,819 |
|
10,205 |
|
||
Total liabilities |
|
$ |
9,507 |
|
$ |
27,188 |
|
Liabilities consist of municipal and income taxes payable and social obligations due within the country of Venezuela.
On January 8, 2010, the Venezuelan government devalued its currency. The official exchange rate was devalued from 2.15 Bsf to each U.S. dollar to 4.30 Bsf. As a result of the devaluation, we recorded an exchange loss of approximately $19.7 million during the second quarter of fiscal 2010. The devaluation is included in discontinued operations.
Effective January 1, 2010, Venezuela was designated hyper-inflationary, which is defined as cumulative inflation rates exceeding 100 percent in the most recent three-year period. All of our foreign subsidiaries use the U.S. dollar as the functional currency and local currency monetary assets are remeasured into U.S. dollars with gains and losses resulting from foreign currency transactions included in current results of operations. As such, the designation of Venezuela as hyper-inflationary had no impact on our Consolidated Financial Statements.
3. Earnings per Share
Effective October 1, 2009, we adopted the guidance contained in ASC 260-10-45, Earnings per Share. ASC 260-10-45 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and therefore need to be included in the earnings allocation in calculating earnings per share under the two-class method described in ASC 260-10-45. ASC 260-10-45 requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividend or dividend equivalents as a separate class of securities in calculating earnings per share. We have granted and expect to continue to grant restricted stock grants to employees and non-employee directors that contain non-forfeitable rights to dividend. Such grants are considered participating securities under ASC 260-10-45. As such, we are required to include these grants in the calculation of our basic earnings per share and will need to calculate basic earnings per share using the two-class method. Restricted stock grants have previously been included in our dilutive earnings per share calculation using the treasury stock method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Since the adoption of ASC 260-10-45 is to be applied retrospectively, the earnings per share have been recalculated for prior periods to conform to the current year presentation. As a result, the number of shares used to compute earnings per share changed. For the nine months ended June 30, 2009, basic and diluted earnings per share decreased $0.01 due to the adoption.
Basic net income per share is computed utilizing the two-class method and is calculated based on weighted-average number of common shares outstanding during the periods presented.
Diluted net income per share is computed using the weighted-average number of common and common equivalent shares outstanding during the periods utilizing the two-class method for stock options and nonvested restricted stock.
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
June 30, |
|
June 30, |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
||||
Income from continuing operations |
|
$ |
64,883 |
|
$ |
68,021 |
|
$ |
202,790 |
|
$ |
325,570 |
|
Loss from discontinued operations |
|
(101,598 |
) |
(14,977 |
) |
(129,523 |
) |
(23,513 |
) |
||||
Net income (loss) |
|
(36,715 |
) |
53,044 |
|
73,267 |
|
302,057 |
|
||||
Adjustment for basic earnings per share: |
|
|
|
|
|
|
|
|
|
||||
Earnings allocated to unvested shareholders |
|
99 |
|
(89 |
) |
(188 |
) |
(492 |
) |
||||
Numerator for basic earnings per share: |
|
|
|
|
|
|
|
|
|
||||
From continuing operations |
|
64,982 |
|
67,932 |
|
202,602 |
|
325,078 |
|
||||
From discontinued operations |
|
(101,598 |
) |
(14,977 |
) |
(129,523 |
) |
(23,513 |
) |
||||
|
|
(36,616 |
) |
52,955 |
|
73,079 |
|
301,565 |
|
||||
Adjustment for diluted earnings per share: |
|
|
|
|
|
|
|
|
|
||||
Effect of reallocating undistributed earnings of unvested shareholders |
|
(2 |
) |
1 |
|
2 |
|
4 |
|
||||
Numerator for diluted earnings per share: |
|
|
|
|
|
|
|
|
|
||||
From continuing operations |
|
64,980 |
|
67,933 |
|
202,604 |
|
325,082 |
|
||||
From discontinued operations |
|
(101,598 |
) |
(14,977 |
) |
(129,523 |
) |
(23,513 |
) |
||||
|
|
$ |
(36,618 |
) |
$ |
52,956 |
|
$ |
73,081 |
|
$ |
301,569 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
||||
Denominator for basic earnings per share - weighted-average shares |
|
105,743 |
|
105,425 |
|
105,676 |
|
105,330 |
|
||||
Effect of dilutive shares from stock options and restricted stock |
|
1,701 |
|
1,270 |
|
1,724 |
|
1,051 |
|
||||
Denominator for diluted earnings per share - adjusted weighted-average shares |
|
107,444 |
|
106,695 |
|
107,400 |
|
106,381 |
|
||||
Basic earnings per common shares: |
|
|
|
|
|
|
|
|
|
||||
Income from continuing operations |
|
$ |
0.61 |
|
$ |
0.64 |
|
$ |
1.92 |
|
$ |
3.08 |
|
Loss from discontinued operations |
|
(0.96 |
) |
(0.14 |
) |
(1.23 |
) |
(0.22 |
) |
||||
Net income (loss) |
|
$ |
(0.35 |
) |
$ |
0.50 |
|
$ |
0.69 |
|
$ |
2.86 |
|
Diluted earnings per common shares: |
|
|
|
|
|
|
|
|
|
||||
Income from continuing operations |
|
$ |
0.61 |
|
$ |
0.64 |
|
$ |
1.89 |
|
$ |
3.05 |
|
Loss from discontinued operations |
|
(0.95 |
) |
(0.14 |
) |
(1.21 |
) |
(0.22 |
) |
||||
Net income (loss) |
|
$ |
(0.34 |
) |
$ |
0.50 |
|
$ |
0.68 |
|
$ |
2.83 |
|
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 shares because their inclusion would have been anti-dilutive (in thousands, except per share amounts):
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
June 30, |
|
June 30, |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Shares excluded from calculation of diluted earnings per share |
|
554 |
|
718 |
|
568 |
|
1,215 |
|
||||
Weighted-average price per share |
|
$ |
38.015 |
|
$ |
35.105 |
|
$ |
38.015 |
|
$ |
33.110 |
|
4. Inventories
Inventories consist primarily of replacement parts and supplies held for use in our drilling operations.
5. Financial Instruments and Fair Value Measurement
The estimated fair value of our available-for-sale securities is primarily based on market quotes. The following is a summary of available-for-sale securities, which excludes investments in limited partnerships carried at cost and assets held in a Non-qualified Supplemental Savings Plan:
|
|
|
|
Gross |
|
Gross |
|
Estimated |
|
||||
|
|
|
|
Unrealized |
|
Unrealized |
|
Fair |
|
||||
|
|
Cost |
|
Gains |
|
Losses |
|
Value |
|
||||
|
|
(in thousands) |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||
Equity securities 06/30/10 |
|
$ |
129,183 |
|
$ |
128,518 |
|
$ |
|
|
$ |
257,701 |
|
Equity securities 09/30/09 |
|
$ |
129,183 |
|
$ |
210,640 |
|
$ |
|
|
$ |
339,823 |
|
On an on-going basis, we evaluate the marketable equity securities to determine if any decline in fair market below original cost is other-than-temporary. If a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis established. We review several factors to determine whether a loss is other-than-temporary. These factors include, but are not limited to, (i) the length of time a security is in an unrealized loss position, (ii) the extent to which fair value is less than cost, (iii) the financial condition and near term prospects of the issuer, and (iv) our intent and ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value. The cost of securities used in determining realized gains and losses is based on the average cost basis of the security sold. We had no sales of marketable equity available-for-sale securities during the first nine months of fiscal 2010 and 2009.
Investments in limited partnerships carried at cost were approximately $12.4 million at June 30, 2010 and September 30, 2009. The estimated fair value of the limited partnerships was $19.8 million and $19.7 million at June 30, 2010 and September 30, 2009, respectively. The estimated fair value exceeded the cost of investments at June 30, 2010 and September 30, 2009 and, as such, the investments were not impaired.
Assets held in the Non-qualified Supplemental Savings Plan are carried at fair market value which totaled $4.5 million at June 30, 2010 and $4.2 million at September 30, 2009, respectively.
The majority of cash equivalents are invested in taxable and non-taxable money-market mutual funds. The carrying amount of cash and cash equivalents approximates fair value due to the short maturity of those investments.
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
During the second quarter of fiscal 2010, a $12.5 million bank certificate of deposit with an original maturity greater than three months matured. Interest earned is included in interest and dividend income on the Consolidated Condensed Statements of Operations.
On October 1, 2009, we implemented the previously deferred provisions of ASC 820, Fair Value Measurements and Disclosures, for nonfinancial assets and liabilities recorded at fair value, as required. Additionally, we adopted Accounting Standards Update No. 2009-05, Measuring Liabilities at Fair Value (ASU 2009-05), which provided amendments to ASC 820 for the fair value measurements of liabilities when a quoted price in an active market is not available. On December 15, 2009, we adopted the disclosure requirements in ASU 2009-06, Fair Value Measurements and Disclosures (Topic 820)-Improving Disclosures about Fair Value Measurements, requiring that information be provided about movements of assets among Levels 1 and 2 of the three-tier fair value hierarchy discussed below. The adoption of these pronouncements had no impact on these Consolidated Condensed Financial Statements.
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We use the fair value hierarchy established in ASC 820-10 to measure fair value to prioritize the inputs:
· Level 1 Observable inputs that reflect quoted prices in active markets for identical assets or liabilities in active markets.
· Level 2 Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
· Level 3 Valuations based on inputs that are unobservable and not corroborated by market data.
At June 30, 2010, our financial instruments utilizing Level 1 inputs include cash equivalents, equity securities with active markets, and money market funds we have elected to classify as restricted assets that are included in other current assets and other assets. Also included is cash denominated in a foreign currency we have elected to classify as restricted that is included in current assets of discontinued operations and limited to remaining liabilities of discontinued operations. For these items, quoted current market prices are readily available.
At June 30, 2010, financial instruments utilizing level 2 inputs include bank certificates of deposit included in other current assets.
Currently, we do not have any financial instruments utilizing Level 3 inputs.
The following table summarizes our assets measured at fair value on a recurring basis presented in our Consolidated Condensed Balance Sheet as of June 30, 2010:
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
Quoted Prices |
|
|
|
|
|
||||
|
|
Total |
|
in Active |
|
Significant |
|
|
|
||||
|
|
Measure |
|
Markets for |
|
Other |
|
Significant |
|
||||
|
|
at |
|
Identical |
|
Observable |
|
Unobservable |
|
||||
|
|
Fair |
|
Assets |
|
Inputs |
|
Inputs |
|
||||
|
|
Value |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
||||
|
|
(in thousands) |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
|
$ |
77,717 |
|
$ |
77,717 |
|
$ |
|
|
$ |
|
|
Equity securities |
|
257,701 |
|
257,701 |
|
|
|
|
|
||||
Other current assets |
|
20,986 |
|
20,736 |
|
250 |
|
|
|
||||
Other assets |
|
2,000 |
|
2,000 |
|
|
|
|
|
||||
Total assets measured at fair value |
|
$ |
358,404 |
|
$ |
358,154 |
|
$ |
250 |
|
$ |
|
|
The following information presents the supplemental fair value information about long-term fixed-rate debt at June 30, 2010 and September 30, 2009:
|
|
June 30, |
|
September 30, |
|
||
|
|
2010 |
|
2009 |
|
||
|
|
(in thousands) |
|
||||
|
|
|
|
|
|
||
Carrying value of long-term fixed-rate debt |
|
$ |
350.0 |
|
$ |
350.0 |
|
Fair value of long-term fixed-rate debt |
|
$ |
371.9 |
|
$ |
380.9 |
|
The fair value for fixed-rate debt was estimated using discounted cash flows and interest rates currently being offered on credits with similar maturities and credit profiles. The outstanding line of credit and short-term debt bear interest at market rates and the cost of borrowings, if any, would approximate fair value. The debt was valued using a level 2 input.
6. Comprehensive Income
Comprehensive income (loss), net of related income taxes, is as follows (in thousands):
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
June 30, |
|
June 30, |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Net Income (loss) |
|
$ |
(36,715 |
) |
$ |
53,044 |
|
$ |
73,267 |
|
$ |
302,057 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
||||
Unrealized depreciation on securities |
|
(80,736 |
) |
90,833 |
|
(82,121 |
) |
54,581 |
|
||||
Income taxes |
|
30,276 |
|
(34,516 |
) |
30,795 |
|
(20,741 |
) |
||||
|
|
(50,460 |
) |
56,317 |
|
(51,326 |
) |
33,840 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Minimum pension liability adjustments |
|
536 |
|
|
|
1,608 |
|
|
|
||||
Income taxes |
|
(201 |
) |
|
|
(603 |
) |
|
|
||||
|
|
335 |
|
|
|
1,005 |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) |
|
$ |
(86,840 |
) |
$ |
109,361 |
|
$ |
22,946 |
|
$ |
335,897 |
|
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The components of accumulated other comprehensive income, net of related income taxes, are as follows (in thousands):
|
|
June 30, |
|
September 30, |
|
||
|
|
2010 |
|
2009 |
|
||
Unrealized appreciation on securities |
|
$ |
79,271 |
|
$ |
130,597 |
|
Unrecognized actuarial loss and prior service cost |
|
(17,141 |
) |
(18,146 |
) |
||
Accumulated other comprehensive income |
|
$ |
62,130 |
|
$ |
112,451 |
|
7. Derivative Financial Instruments
We are exposed to market risk in the normal course of business operations due to ongoing investing and financing activities. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings. ASC 815, Derivatives and Hedging, requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. We have not historically entered into derivative financial instruments for trading purposes or for speculation. For further information regarding our disclosures of an interest rate swap that expired in January 2010, refer to Note 10, Debt, of these Consolidated Condensed Financial Statements.
8. Cash Dividends
The $0.05 cash dividend declared March 3, 2010, was paid June 1, 2010. On June 2, 2010, a cash dividend of $0.06 per share was declared for shareholders of record on August 13, 2010, payable September 1, 2010. The dividend payable is included in accounts payable in the Consolidated Condensed Balance Sheet.
9. Stock-Based Compensation
We have one plan providing for common-stock based awards to employees and to non-employee Directors. The plan permits the granting of various types of awards including stock options and restricted stock. Restricted stock may be granted for no consideration other than prior and future services. The purchase price per share for stock options may not be less than the market price of the underlying stock on the date of grant. Stock options expire ten years after the grant date.
Vesting requirements are determined by the Human Resources Committee of our Board of Directors. Readers should refer to Note 5 of the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2009 for additional information related to stock-based compensation.
We use the Black-Scholes formula to estimate the value of stock options granted. The fair value of the options is amortized to compensation expense on a straight-line basis over the requisite service periods of the stock awards, which are generally the vesting periods. We have the right to satisfy option exercises from treasury shares and from authorized but unissued shares.
On December 1, 2009, the plan was amended to provide for continued vesting (and accelerated vesting upon death) of restricted stock and stock options effective upon a participant becoming retirement eligible. A participant meets the definition of retirement eligible if the participant attains age 55 and has 15 or more years of continuous service as a full-time employee. The plan amendments apply retroactively. As a result of the continued vesting provisions, we incurred additional compensation cost of approximately $4.7 million for the nine months ended June 30, 2010.
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
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, |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Compensation expense |
|
|
|
|
|
|
|
|
|
||||
Stock options |
|
$ |
1,933 |
|
$ |
1,691 |
|
$ |
9,521 |
|
$ |
5,205 |
|
Restricted stock |
|
1,016 |
|
363 |
|
3,353 |
|
1,087 |
|
||||
|
|
$ |
2,949 |
|
$ |
2,054 |
|
$ |
12,874 |
|
$ |
6,292 |
|
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, 2010 and 2009:
|
|
2010 |
|
2009 |
|
|
|
|
|
|
|
Risk-free interest rate |
|
2.3 |
% |
1.7 |
% |
Expected stock volatility |
|
49.9 |
% |
43.4 |
% |
Dividend yield |
|
.5 |
% |
.9 |
% |
Expected term (in years) |
|
5.8 |
|
5.8 |
|
Risk-Free Interest Rate. The risk-free interest rate is based on U.S. Treasury securities for the expected term of the option.
Expected Volatility Rate. Expected volatility is based on the daily closing price of our stock based upon historical experience over a period which approximates the expected term of the option.
Dividend Yield. The expected dividend yield is based on our current dividend yield.
Expected Term. The expected term of the options granted represents the period of time that they are expected to be outstanding. We estimate the expected term of options granted based on historical experience with grants and exercises.
A summary of stock option activity under the Plan for the three and nine months ended June 30, 2010 is presented in the following tables:
|
|
Three Months Ended June 30, 2010 |
|
||||||||
|
|
|
|
|
|
Weighted- |
|
|
|
||
|
|
|
|
Weighted- |
|
Average |
|
Aggregate |
|
||
|
|
|
|
Average |
|
Remaining |
|
Intrinsic |
|
||
|
|
Shares |
|
Exercise |
|
Contractual |
|
Value |
|
||
Options |
|
(in thousands) |
|
Price |
|
Term |
|
(in millions) |
|
||
|
|
|
|
|
|
|
|
|
|
||
Outstanding at April 1, 2010 |
|
5,745 |
|
$ |
22.56 |
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
||
Exercised |
|
(163 |
) |
13.40 |
|
|
|
|
|
||
Forfeited/Expired |
|
(2 |
) |
38.02 |
|
|
|
|
|
||
Outstanding at June 30, 2010 |
|
5,580 |
|
$ |
22.83 |
|
5.6 |
|
$ |
76.4 |
|
Vested and expected to vest at June 30, 2010 |
|
5,503 |
|
$ |
22.74 |
|
5.5 |
|
$ |
75.8 |
|
|
|
|
|
|
|
|
|
|
|
||
Exercisable at June 30, 2010 |
|
3,896 |
|
$ |
19.69 |
|
4.4 |
|
$ |
65.6 |
|
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
|
|
Nine Months Ended |
|
|||
|
|
June 30, 2010 |
|
|||
|
|
|
|
Weighted- |
|
|
|
|
|
|
Average |
|
|
|
|
Shares |
|
Exercise |
|
|
Options |
|
(in thousands) |
|
Price |
|
|
|
|
|
|
|
|
|
Outstanding at October 1, 2009 |
|
5,401 |
|
$ |
20.55 |
|
Granted |
|
570 |
|
38.02 |
|
|
Exercised |
|
(389 |
) |
13.41 |
|
|
Forfeited/Expired |
|
(2 |
) |
38.02 |
|
|
Outstanding at June 30, 2010 |
|
5,580 |
|
$ |
22.83 |
|
The weighted-average fair value of options granted in the first quarter of fiscal 2010 was $17.64. No options were granted in the second and third quarters of fiscal 2010.
The total intrinsic value of options exercised during the three and nine months ended June 30, 2010 was $4.7 million and $11.2 million, respectively.
As of June 30, 2010, the unrecognized compensation cost related to the stock options was $11.9 million. That cost is expected to be recognized over a weighted-average period of 2.8 years.
RESTRICTED STOCK
Restricted stock grants consist of our common stock and are time vested over three to five years. Compensation expense is recognized on a straight-line basis over the vesting period. The fair value of restricted stock awards is determined based on the closing trading price of our shares on the grant date.
A summary of the status of the Companys restricted stock awards as of June 30, 2010 and changes during the nine months then ended is presented below:
|
|
Nine Months Ended |
|
|||
|
|
June 30, 2010 |
|
|||
|
|
|
|
Weighted- |
|
|
|
|
|
|
Average |
|
|
|
|
Shares |
|
Grant-Date |
|
|
Restricted Stock Awards |
|
(in thousands) |
|
Fair Value |
|
|
|
|
|
|
|
|
|
Unvested at October 1, |
|
177 |
|
$ |
30.06 |
|
Granted |
|
182 |
|
38.02 |
|
|
Vested |
|
(70 |
) |
29.36 |
|
|
Forfeited |
|
|
|
|
|
|
Unvested at June 30, |
|
289 |
|
$ |
35.23 |
|
As of June 30, 2010, there was $5.8 million of total unrecognized compensation cost related to restricted stock granted under the Plan. That cost is expected to be recognized over a weighted-average period of 2.0 years.
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
10. Debt
At June 30, 2010 and September 30, 2009, we had the following unsecured long-term debt outstanding (in thousands):
|
|
June 30, |
|
September 30, |
|
||
|
|
2010 |
|
2009 |
|
||
|
|
|
|
|
|
||
Unsecured intermediate debt issued August 15, 2002: |
|
|
|
|
|
||
Series C, due August 15, 2012, 6.46% |
|
$ |
75,000 |
|
$ |
75,000 |
|
Series D, due August 15, 2014, 6.56% |
|
75,000 |
|
75,000 |
|
||
Unsecured senior notes issued July 21, 2009: |
|
|
|
|
|
||
Due July 21, 2012, 6.10% |
|
40,000 |
|
40,000 |
|
||
Due July 21, 2013, 6.10% |
|
40,000 |
|
40,000 |
|
||
Due July 21, 2014, 6.10% |
|
40,000 |
|
40,000 |
|
||
Due July 21, 2015, 6.10% |
|
40,000 |
|
40,000 |
|
||
Due July 21, 2016, 6.10% |
|
40,000 |
|
40,000 |
|
||
Unsecured senior credit facility due December 18, 2011, .70%-.71% |
|
40,000 |
|
70,000 |
|
||
|
|
$ |
390,000 |
|
$ |
420,000 |
|
Less long-term debt due within one year |
|
|
|
|
|
||
Long-term debt |
|
$ |
390,000 |
|
$ |
420,000 |
|
The terms of the fixed rate debt obligations require that we maintain a minimum ratio of debt to total capitalization.
We have $200 million senior unsecured fixed-rate notes that mature over a period from July 2012 to July 2016. Interest on the notes will be paid semi-annually based on an annual rate of 6.10 percent. We will make five equal annual principal repayments of $40 million starting on July 21, 2012. Financial covenants require us to maintain a funded leverage ratio of less than 55 percent and an interest coverage ratio (as defined) of not less than 2.50 to 1.00. The note purchase agreement also contains additional terms, conditions, and restrictions that we believe are usual and customary in unsecured debt arrangements for companies that are similar in size and credit quality.
We have an agreement with a multi-bank syndicate for a $400 million senior unsecured credit facility maturing December 2011. While we have the option to borrow at the prime rate for maturities of less than 30 days, we anticipate that
the majority of all of the borrowings over the life of the facility will accrue interest at a spread over the London Interbank Bank Offered Rate (LIBOR). We pay a commitment fee based on the unused balance of the facility. The spread over LIBOR as well as the commitment fee is determined according to a scale based on a ratio of our total debt to total capitalization. The LIBOR spread ranges from .30 percent to .45 percent over LIBOR depending on the ratios. At June 30, 2010, the LIBOR spread on borrowings was .35 percent and the commitment fee was .075 percent per annum. At June 30, 2010, we had two letters of credit totaling $21.9 million under the facility and had $40 million borrowed against the facility with $338.1 million available to borrow. The advances bore interest at an average rate of .70 percent at June 30, 2010. Subsequent to June 30, 2010, we reduced the debt by a net $10 million and currently have $348.1 million available to borrow.
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Financial covenants in the facility require we maintain a funded leverage ratio (as defined) of less than 50 percent and an interest coverage ratio (as defined) of not less than 3.00 to 1.00. The facility contains additional terms, conditions, and restrictions that we believe are usual and customary in unsecured debt arrangements for companies that are similar in size and credit quality. At June 30, 2010, we were in compliance with all debt covenants.
In January 2010, a $105 million unsecured line of credit that matured was paid in full using operating cash flow and borrowings under the $400 million facility. At the same time, an interest rate swap with the same maturity and a notional amount of $105 million expired.
11. Income Taxes
Our effective tax rate from continuing operations for the first nine months of fiscal 2010 and 2009 was 34.1 percent and 38.3 percent, respectively. The Companys effective tax rate from continuing operations for the three months ended June 30, 2010 and 2009 was 40.3 percent and 34.2 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, we do not expect the change to have a material effect on results of operations or financial position.
12. Commitments and Contingencies
In conjunction with our current drilling rig construction program, purchase commitments for equipment, parts and supplies of approximately $46.9 million are outstanding at June 30, 2010.
A lawsuit has been filed against us by a former customer for whom we performed drilling services with five rigs under term drilling contracts. The suit alleges, among other things, that we failed to perform drilling operations in accordance with good oilfield practice, breached express performance warranties, and made certain fraudulent representations regarding drilling performance. As a consequence, Plaintiff has prayed for actual and punitive damages. We have and will continue to vigorously defend this lawsuit. The outcome of this case remains uncertain and a loss estimate cannot be made. If we are unsuccessful in this litigation, then the amount of damages awarded could have a material adverse effect on our financial condition and results of operations. This case has been set for trial in late August 2010.
Various other legal actions, the majority of which arise in the ordinary course of business, are pending. We maintain insurance against certain business risks subject to certain deductibles. None of these legal actions are expected to have a material adverse effect on our financial condition, cash flows or results of operations.
We are contingently liable to sureties in respect of bonds issued by the sureties in connection with certain commitments entered into by us in the normal course of business. We have agreed to indemnify the sureties for any payments made by them in respect of such bonds.
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
During the ordinary course of our business, contingencies arise resulting from an existing condition, situation, or set of circumstances involving an uncertainty as to the realization of a possible gain contingency. We account for gain contingencies in accordance with the provisions of ASC 450, Contingencies, and, therefore, we do not record gain contingencies and recognize income until realized. As discussed in Note 2, Discontinued Operations, property and equipment of our Venezuelan subsidiary was seized by the Venezuelan government on June 30, 2010. We are currently evaluating various remedies, including any recourse we may have against PDVSA or related parties, any remuneration or reimbursement that we might collect from PDVSA or related parties, and any other sources of recovery for our losses. While there exists the possibility of realizing a recovery, we are currently unable to determine the timing or amounts we may receive, if any, or the likelihood of recovery. No gain contingencies are recognized in our Consolidated Condensed Financial Statements.
13. Segment Information
We operate principally in the contract drilling industry. Our contract drilling business includes the following reportable operating segments: U.S. Land, Offshore, and International Land. The contract drilling operations consist mainly of contracting Company-owned drilling equipment primarily to large oil and gas exploration companies. Our primary international areas of operation include Colombia, Ecuador, Argentina, Mexico, Tunisia and other South American countries. The International Land operations have similar services, have similar types of customers, operate in a consistent manner and have similar economic and regulatory characteristics. Therefore, we have aggregated our International Land operations into one reportable segment. Our Venezuelan operation, which was historically an operating segment within the International Land Segment, was discontinued in the third quarter of fiscal 2010. Consequently, its operating results are excluded from the segment data tables below for all periods presented. Each reportable segment is a strategic business unit which is managed separately. Other includes non-reportable operating segments.
We evaluate segment performance based on income or loss from operations (segment operating income) before income taxes which includes:
· revenues from external and internal customers
· direct operating costs
· depreciation and
· allocated general and administrative costs
but excludes corporate costs for other depreciation, income from asset sales and other corporate income and expense.
General and administrative costs are allocated to the segments based primarily on specific identification and, to the extent that such identification is not practical, on other methods which we believe to be a reasonable reflection of the utilization of services provided.
Segment operating income is a non-GAAP financial measure of our performance, as it excludes general and administrative expenses, corporate depreciation, income from asset sales and other corporate income and expense. We consider segment operating income to be an important supplemental measure of operating performance by presenting trends in our core businesses. We use this measure to facilitate period-to-period comparisons in operating performance of our reportable segments in the aggregate by eliminating items that affect comparability between periods.
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
We believe that segment operating income is useful to investors because it provides a means to evaluate the operating performance of the segments on an ongoing basis using criteria that are used by our internal decision makers. Additionally, it highlights operating trends and aids analytical comparisons. However, segment operating income has limitations and should not be used as an alternative to operating income or loss, a performance measure determined in accordance with GAAP, as it excludes certain costs that may affect our operating performance in future periods.
Summarized financial information of our reportable segments for the nine months ended June 30, 2010, and 2009, is shown in the following tables:
|
|
|
|
|
|
|
|
Segment |
|
||||
|
|
External |
|
Inter- |
|
Total |
|
Operating |
|
||||
(in thousands) |
|
Sales |
|
Segment |
|
Sales |
|
Income (Loss) |
|
||||
June 30, 2010 |
|
|
|
|
|
|
|
|
|
||||
Contract Drilling: |
|
|
|
|
|
|
|
|
|
||||
U.S. Land |
|
$ |
976,497 |
|
$ |
|
|
$ |
976,497 |
|
$ |
285,384 |
|
Offshore |
|
153,186 |
|
|
|
153,186 |
|
39,962 |
|
||||
International Land |
|
177,377 |
|
|
|
177,377 |
|
32,786 |
|
||||
|
|
1,307,060 |
|
|
|
1,307,060 |
|
358,132 |
|
||||
Other |
|
9,145 |
|
(612 |
) |
8,533 |
|
(5,020 |
) |
||||
|
|
1,316,205 |
|
(612 |
) |
1,315,593 |
|
353,112 |
|
||||
Eliminations |
|
|
|
612 |
|
612 |
|
|
|
||||
Total |
|
$ |
1,316,205 |
|
$ |
|
|
$ |
1,316,205 |
|
$ |
353,112 |
|
|
|
|
|
|
|
|
|
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 |
|
147,940 |
|
|
|
147,940 |
|
20,466 |
|
||||
|
|
1,477,440 |
|
|
|
1,477,440 |
|
547,307 |
|
||||
Other |
|
8,024 |
|
630 |
|
8,654 |
|
(4,656 |
) |
||||
|
|
1,485,464 |
|
630 |
|
1,486,094 |
|
542,651 |
|
||||
Eliminations |
|
|
|
(630 |
) |
(630 |
) |
|
|
||||
Total |
|
$ |
1,485,464 |
|
$ |
|
|
$ |
1,485,464 |
|
$ |
542,651 |
|
Summarized financial information of our reportable segments for the three months ended June 30, 2010, and 2009, is shown in the following tables:
|
|
|
|
|
|
|
|
Segment |
|
||||
|
|
External |
|
Inter- |
|
Total |
|
Operating |
|
||||
(in thousands) |
|
Sales |
|
Segment |
|
Sales |
|
Income(Loss) |
|
||||
June 30, 2010 |
|
|
|
|
|
|
|
|
|
||||
Contract Drilling: |
|
|
|
|
|
|
|
|
|
||||
U.S. Land |
|
$ |
366,989 |
|
$ |
|
|
$ |
366,989 |
|
$ |
103,138 |
|
Offshore |
|
53,131 |
|
|
|
53,131 |
|
11,231 |
|
||||
International Land |
|
60,045 |
|
|
|
60,045 |
|
9,893 |
|
||||
|
|
480,165 |
|
|
|
480,165 |
|
124,262 |
|
||||
Other |
|
3,219 |
|
(202 |
) |
3,017 |
|
(1,803 |
) |
||||
|
|
483,384 |
|
(202 |
) |
483,182 |
|
122,459 |
|
||||
Eliminations |
|
|
|
202 |
|
202 |
|
|
|
||||
Total |
|
$ |
483,384 |
|
$ |
|
|
$ |
483,384 |
|
$ |
122,459 |
|
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
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 |