Edgar Filing: HELMERICH & PAYNE INC

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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: March 31, 2013

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

For the transition period from to

Commission File Number: 1-4221

HELMERICH & PAYNE, INC.

(Exact name of registrant as specified in its charter)

Delaware		73-0679879
(State or other jurisdiction of		(I.R.S. Employer I.D. Number)
incorporation or organization)

1437 South Boulder Avenue, Tulsa, Oklahoma,74119

(Address of principal executive office)(Zip Code)

(918) 742-5531

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year,
if changed since last report)

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

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

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

Large accelerated filer x		Accelerated filer o

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

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

CLASS		OUTSTANDING AT April 30, 2013
Common Stock, $0.10 par value		106,414,352

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HELMERICH & PAYNE, INC. AND SUBSIDIARIES

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		Page No.

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Condensed Balance Sheets as of March 31, 2013 and September 30, 2012	3

	Consolidated Condensed Statements of Income for the Three and Six Months Ended March 31, 2013 and 2012	4

	Consolidated Condensed Statements of Comprehensive Income for the Three and Six Months Ended March 31, 2013 and 2012	5

	Consolidated Condensed Statements of Cash Flows for the Six Months Ended March 31, 2013 and 2012	6

	Consolidated Condensed Statement of Shareholders’ Equity for the Six Months Ended March 31, 2013	7

	Notes to Consolidated Condensed Financial Statements	8-18

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19-25

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	26

Item 4.	Controls and Procedures	26

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	26

Item 1A.	Risk Factors	27

Item 6.	Exhibits	28

Signatures		29

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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,
	2013			2012
ASSETS
Current assets:
Cash and cash equivalents	$	172,993		$	96,095
Accounts receivable, less reserve of $4,715 at March 31, 2013 and $942 at September 30, 2012	603,238			620,489
Inventories	82,725			78,777
Deferred income taxes	18,497			17,555
Prepaid expenses and other	50,450			74,693
Current assets of discontinued operations	4,073			7,619
Total current assets	931,976			895,228

Investments	501,383			451,144
Property, plant and equipment, net	4,560,562			4,351,571
Other assets	18,531			23,142

Total assets	$	6,012,452		$	5,721,085

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	94,653		$	159,420
Accrued liabilities	166,237			176,615
Long-term debt due within one year	40,000			40,000
Current liabilities of discontinued operations	3,647			5,129
Total current liabilities	304,537			381,164

Noncurrent liabilities:
Long-term debt	195,000			195,000
Deferred income taxes	1,252,297			1,209,040
Other	85,560			98,393
Noncurrent liabilities of discontinued operations	426			2,490
Total noncurrent liabilities	1,533,283			1,504,923

Shareholders’ equity:
Common stock, $.10 par value, 160,000,000 shares authorized, 108,425,884 shares and 107,598,889 shares issued as of March 31, 2013 and September 30, 2012, respectively and 106,404,277 and 105,697,693 shares outstanding as of March 31, 2013 and September 30, 2012, respectively	10,843			10,760
Preferred stock, no par value, 1,000,000 shares authorized, no shares issued	—			—
Additional paid-in capital	265,943			236,240
Retained earnings	3,783,890			3,505,295
Accumulated other comprehensive income	205,054			166,807
Treasury stock, at cost	(91,098		)	(84,104		)
Total shareholders’ equity	4,174,632			3,834,998

Total liabilities and shareholders’ equity	$	6,012,452		$	5,721,085

The accompanying notes are an integral part of these statements.

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HELMERICH & PAYNE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Unaudited)

(in thousands, except per share data)

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2013			2012			2013			2012
Operating revenues:
Drilling — U.S. Land	$	685,710		$	658,804		$	1,381,740		$	1,276,583
Drilling — Offshore	55,605			43,421			113,323			94,213
Drilling — International Land	94,092			64,088			181,359			124,823
Other	2,902			3,669			6,459			6,951
	838,309			769,982			1,682,881			1,502,570

Operating costs and other:
Operating costs, excluding depreciation	461,737			448,208			928,608			839,240
Depreciation	112,433			90,934			219,032			177,222
General and administrative	32,836			27,805			65,257			53,968
Research and development	3,696			3,830			7,049			7,079
Income from asset sales	(5,313		)	(7,820		)	(10,532		)	(12,503		)
	605,389			562,957			1,209,414			1,065,006

Operating income from continuing operations	232,920			207,025			473,467			437,564

Other income (expense):
Interest and dividend income	315			356			741			692
Interest expense	(1,186		)	(2,421		)	(2,494		)	(4,882		)
Gain from sale of investment securities	—			—			8,752			—
Other	103			(42		)	(1,981		)	(21		)
	(768		)	(2,107		)	5,018			(4,211		)

Income from continuing operations before income taxes	232,152			204,918			478,485			433,353
Income tax provision	81,085			75,155			167,807			159,293
Income from continuing operations	151,067			129,763			310,678			274,060

Loss from discontinued operations before income taxes	(472		)	(125		)	(480		)	(136		)
Income tax provision	(485		)	(81		)	(485		)	(81		)

Income (loss) from discontinued operations	13			(44		)	5			(55		)

NET INCOME	$	151,080		$	129,719		$	310,683		$	274,005

Basic earnings per common share:
Income from continuing operations	$	1.41		$	1.20		$	2.91		$	2.54
Income from discontinued operations	$	—		$	—		$	—		$	—
Net income	$	1.41		$	1.20		$	2.91		$	2.54

Diluted earnings per common share:
Income from continuing operations	$	1.39		$	1.18		$	2.87		$	2.51
Income from discontinued operations	$	—		$	—		$	—		$	—
Net income	$	1.39		$	1.18		$	2.87		$	2.51

Weighted average shares outstanding:
Basic	106,326			107,385			106,094			107,285
Diluted	107,786			109,042			107,640			108,925

Dividends declared per common share	$	0.15		$	0.07		$	0.30		$	0.14

The accompanying notes are an integral part of these statements.

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HELMERICH & PAYNE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands, except per share data)

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2013		2012		2013		2012

Net income	$	151,080	$	129,719	$	310,683	$	274,005
Other comprehensive income, net of income taxes:
Unrealized appreciation on securities, net of income taxes of $21.9 million and $21.8 million at March 31, 2013 and $15.9 million and $35.3 million at March 31, 2012	37,516		26,479		37,382		58,817
Minimum pension liability adjustments, net of income taxes of $0.3 million and $0.5 million at March 31, 2013 and $0.3 million and $0.6 million at March 31, 2012	432		540		865		1,079
Other comprehensive income	37,948		27,019		38,247		59,896
Comprehensive income	$	189,028	$	156,738	$	348,930	$	333,901

The accompanying notes are an integral part of these statements.

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HELMERICH & PAYNE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Six Months Ended
	March 31,
	2013			2012
OPERATING ACTIVITIES:
Net income	$	310,683		$	274,005
Adjustment for (income) loss from discontinued operations	(5		)	55
Income from continuing operations	310,678			274,060
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	219,032			177,222
Provision for bad debt	3,792			2
Stock-based compensation	11,726			8,758
Other	772			2
Gain on sale of investment securities	(8,752		)	—
Income from asset sales	(10,532		)	(12,503		)
Deferred income tax expense	20,127			100,143
Change in assets and liabilities:
Accounts receivable	13,459			(50,665		)
Inventories	(6,148		)	(7,003		)
Prepaid expenses and other	31,046			(22,719		)
Accounts payable	(70,000		)	(12,253		)
Accrued liabilities	(7,826		)	(14,083		)
Deferred income taxes	(1,211		)	205
Other noncurrent liabilities	(11,855		)	(2,289		)
Net cash provided by operating activities from continuing operations	494,308			438,877
Net cash provided by (used in) operating activities from discontinued operations	5			(55		)
Net cash provided by operating activities	494,313			438,822

INVESTING ACTIVITIES:
Capital expenditures	(438,473		)	(492,701		)
Proceeds from sale of investment securities	18,102			—
Proceeds from asset sales	16,151			25,543
Net cash used in investing activities	(404,220		)	(467,158		)

FINANCING ACTIVITIES:
Dividends paid	(23,469		)	(15,070		)
Exercise of stock options	4,906			1,895
Tax withholdings related to net share settlements of restricted stock	(1,677		)	(1,514		)
Excess tax benefit from stock-based compensation	7,045			3,164
Net cash used in financing activities	(13,195		)	(11,525		)

Net increase (decrease) in cash and cash equivalents	76,898			(39,861		)
Cash and cash equivalents, beginning of period	96,095			364,246
Cash and cash equivalents, end of period	$	172,993		$	324,385

The accompanying notes are an integral part of these statements.

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HELMERICH & PAYNE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS’ EQUITY

SIX MONTHS ENDED MARCH 31, 2013

(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, 2012	107,599	$	10,760	$	236,240		$	3,505,295		$	166,807	1,901		$	(84,104	)	$	3,834,998

Comprehensive Income:
Net income							310,683										310,683
Other comprehensive income:
Change in value on available-for-sale securities, net of income taxes										37,382							37,382
Amortization of net periodic benefit costs-net of actuarial gain, net of income taxes										865							865
Total comprehensive income																	348,930

Cash dividends ($0.30 per share)							(32,088		)								(32,088		)
Exercise of stock options	744	75		13,366								162		(8,535		)	4,906
Tax benefit of stock-based awards, including excess tax benefits of $10.2 million				7,837													7,837
Stock issued for vested restricted stock, net of shares withheld for employee taxes	83	8		(3,226		)						(41	)	1,541			(1,677		)
Stock-based compensation				11,726													11,726

Balance, March 31, 2013	108,426	$	10,843	$	265,943		$	3,783,890		$	205,054	2,022		$	(91,098	)	$	4,174,632

The accompanying notes are an integral part of these statements.

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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 2012 Annual Report on Form 10-K and other current filings with the Commission. In the opinion of management, all adjustments, consisting of those of a normal recurring nature, necessary to present fairly the results of the periods presented have been included. The results of operations for the interim periods presented may not necessarily be indicative of the results to be expected for the full year.

As more fully described in our 2012 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.

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 11 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 met the criteria established for recognition as discontinued operations under accounting standards for presentation of financial statements. Therefore, operations from the Venezuelan subsidiary, an operating segment previously within the International Land segment, have been classified as discontinued operations in our Consolidated Condensed Financial Statements.

Current assets of discontinued operations consist of restricted cash to meet remaining in-country current obligations. Current and noncurrent liabilities of discontinued operations consist of municipal and income taxes payable and social obligations due within the country of Venezuela.

3. Earnings per Share

Accounting Standards Codification (“ASC”) 260, Earnings per Share, 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 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.

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The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2013			2012			2013			2012
Numerator:
Income from continuing operations	$	151,067		$	129,763		$	310,678		$	274,060
Income (loss) from discontinued operations	13			(44		)	5			(55		)
Net income	151,080			129,719			310,683			274,005
Adjustment for basic earnings per share:
Earnings allocated to unvested shareholders	(820		)	(530		)	(1,553		)	(1,009		)
Numerator for basic earnings per share:
From continuing operations	150,247			129,233			309,125			273,051
From discontinued operations	13			(44		)	5			(55		)
	150,260			129,189			309,130			272,996
Adjustment for diluted earnings per share:
Effect of reallocating undistributed earnings of unvested shareholders	10			7			19			14
Numerator for diluted earnings per share:
From continuing operations	150,257			129,240			309,144			273,065
From discontinued operations	13			(44		)	5			(55		)
	$	150,270		$	129,196		$	309,149		$	273,010
Denominator:
Denominator for basic earnings per share — weighted-average shares	106,326			107,385			106,094			107,285
Effect of dilutive shares from stock options and restricted stock	1,460			1,657			1,546			1,640
Denominator for diluted earnings per share — adjusted weighted-average shares	107,786			109,042			107,640			108,925
Basic earnings per common share:
Income from continuing operations	$	1.41		$	1.20		$	2.91		$	2.54
Loss from discontinued operations	—			—			—			—
Net income	$	1.41		$	1.20		$	2.91		$	2.54
Diluted earnings per common share:
Income from continuing operations	$	1.39		$	1.18		$	2.87		$	2.51
Loss from discontinued operations	—			—			—			—
Net income	$	1.39		$	1.18		$	2.87		$	2.51

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

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2013		2012		2013		2012

Shares excluded from calculation of diluted earnings per share	752		435		365		453
Weighted-average price per share	$	57.30	$	59.76	$	54.18	$	59.76

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4. Financial Instruments and Fair Value Measurement

The estimated fair value of our available-for-sale securities, reflected on our Consolidated Condensed Balance Sheets as Investments, is based on market quotes. The following is a summary of available-for-sale securities, which excludes assets held in a Non-qualified Supplemental Savings Plan:

			Gross		Gross		Estimated
			Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(in thousands)

Equity securities March 31, 2013	$	129,183	$	363,593	$	—	$	492,776
Equity securities September 30, 2012	$	129,183	$	304,396	$	—	$	433,579

On an ongoing basis, we evaluate the marketable equity securities to determine if a decline in fair value below cost is other-than-temporary. If a decline in fair value below cost 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 six months of fiscal 2013 and 2012.

During the first quarter ended December 31, 2012, we sold our shares in three limited partnerships that were primarily invested in international equities, realizing a gain of $8.8 million that is included in gain from sale of investment securities in the Consolidated Condensed Statements of Income.

Assets held in the Non-qualified Supplemental Savings Plan are carried at fair market value which totaled $8.6 million at March 31, 2013 and $8.2 million at September 30, 2012.

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.

Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. We use the fair value hierarchy established in ASC 820-10 to measure fair value to prioritize the inputs:

· Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.

· Level 2 — Observable inputs, other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

· Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

At March 31, 2013, 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 that we have elected to classify as restricted, which 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 March 31, 2013, financial instruments utilizing level 2 inputs include a bank certificate of deposit included in other current assets.

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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 March 31, 2013:

			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	$	172,993	$	172,993	$	—	$	—
Equity securities	492,776		492,776		—		—
Other current assets	7,606		7,356		250		—
Other assets	2,000		2,000		—		—
Total assets measured at fair value	$	675,375	$	675,125	$	250	$	—

The following information presents the supplemental fair value information about fixed-rate debt at March 31, 2013 and September 30, 2012:

	March 31,		September 30,
	2013		2012
	(in thousands)

Carrying value of fixed-rate debt	$	235.0	$	235.0
Fair value of fixed-rate debt	$	248.8	$	252.7

The fair value for fixed-rate debt was estimated using cash flows discounted at rates reflecting current interest rates at similar maturities plus a credit spread which was estimated using market information on debt instruments with a similar credit profile to us. The debt was valued using a Level 2 input.

5. Cash Dividends

The $0.15 cash dividend declared December 4, 2012, was paid March 1, 2013. On March 6, 2013, a cash dividend of $0.15 per share was declared for shareholders of record on May 15, 2013, payable May 31, 2013. The dividend payable is included in accounts payable in the Consolidated Condensed Balance Sheet.

6. Stock-Based Compensation

On March 2, 2011, the 2010 Long-Term Incentive Plan (the “2010 Plan”) was approved by our stockholders. The 2010 Plan, among other things, authorizes the Board of Directors to grant non-qualified stock options, restricted stock awards and stock appreciation rights to selected employees and to non-employee Directors. Restricted stock may be granted for no consideration other than prior and future services. The purchase price per share for stock options may not be less than market price of the underlying stock on the date of grant. Stock options expire ten years after the grant date. There were 364,624 non-qualified stock options and 307,100 shares of restricted stock awards granted in the six months ended March 31, 2013. Awards outstanding in the 2005 Long-Term Incentive Plan (the “2005 Plan”) and one prior equity plan remain subject to the terms and conditions of those plans.

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

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2013		2012		2013		2012

Compensation expense
Stock options	$	2,649	$	2,543	$	6,132	$	5,031
Restricted stock	3,049		2,293		5,594		3,727
	$	5,698	$	4,836	$	11,726	$	8,758

STOCK OPTIONS

The following summarizes the weighted-average assumptions utilized in determining the fair value of options granted during the six months ended March 31, 2013 and 2012:

	2013		2012

Risk-free interest rate	0.7	%	1.0	%
Expected stock volatility	53.87	%	53.3	%
Dividend yield	1.1	%	0.4	%
Expected term (in years)	5.5		5.5

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 six months ended March 31, 2013 is presented in the following tables:

	Three Months Ended March 31, 2013
					Weighted-
			Weighted-		Average	Aggregate
			Average		Remaining	Intrinsic
	Shares		Exercise		Contractual Term	Value
Options	(in thousands)		Price		(in years)	(in millions)

Outstanding at January 1, 2013	4,472		$	33.38
Granted	—		—
Exercised	(164	)	27.14
Forfeited/Expired	(2	)	51.86
Outstanding at March 31, 2013	4,306		$	33.61	5.3	$	116.7
Vested and expected to vest at March 31, 2013	4,286		$	33.55	5.2	$	116.4

Exercisable at March 31, 2013	3,376		$	28.33	4.3	$	109.3

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	Six Months Ended March 31, 2013
			Weighted-
			Average
	Shares		Exercise
Options	(in thousands)		Price

Outstanding at October 1, 2012	4,690		$	29.56
Granted	365		54.18
Exercised	(745	)	18.06
Forfeited/Expired	(4	)	52.82
Outstanding at March 31, 2013	4,306		$	33.61

The weighted-average fair value of options granted in the first quarter of fiscal 2013 was $23.80. No options were granted in the second quarter of fiscal 2013.

The total intrinsic value of options exercised during the three and six months ended March 31, 2013 was $4.4 million and $13.4 million, respectively.

As of March 31, 2013 the unrecognized compensation cost related to stock options was $14.7 million which is expected to be recognized over a weighted-average period of 2.8 years.

RESTRICTED STOCK

Restricted stock awards consist of our common stock and are time-vested over three to six years. We recognize compensation expense on a straight-line basis over the vesting period. The fair value of restricted stock awards under the 2010 Plan is determined based on the closing price of our shares on the grant date. As of March 31, 2013, there was $23.8 million of total unrecognized compensation cost related to unvested restricted stock awards which is expected to be recognized over a weighted-average period of 3.2 years.

A summary of the status of our restricted stock awards as of March 31, 2013 and changes in restricted stock outstanding during the six months then ended is presented below:

	Six Months Ended
	March 31, 2013
			Weighted-
			Average
	Shares		Grant-Date
Restricted Stock Awards	(in thousands)		Fair Value

Unvested at October 1, 2012	430		$	52.52
Granted	307		54.18
Vested (1)	(155	)	45.88
Forfeited	(2	)	55.38
Unvested at March 31, 2013	580		$	55.17

(1) The number of restricted stock awards vested includes shares that we withheld on behalf of our employees to satisfy the statutory tax withholding requirements.

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7. Debt

At March 31, 2013 and September 30, 2012, we had the following unsecured long-term debt outstanding (in thousands):

	March 31,		September 30,
	2013		2012
Unsecured intermediate debt issued August 15, 2002:
Series D, due August 15, 2014, 6.56%	$	75,000	$	75,000
Unsecured senior notes issued July 21, 2009:
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
	$	235,000	$	235,000
Less long-term debt due within one year	40,000		40,000
Long-term debt	$	195,000	$	195,000

The intermediate unsecured debt outstanding at March 31, 2013 matures August 15, 2014 and carries an interest rate of 6.56 percent, which is paid semi-annually. The terms require that we maintain a ratio of debt to total capitalization of less than 55 percent. The debt is held by various entities.

We have $160 million in senior unsecured fixed-rate notes outstanding at March 31, 2013 that mature over a period from July 2013 to July 2016. Interest on the notes is paid semi-annually based on an annual rate of 6.10 percent. Annual principal repayments of $40 million are due July 2013 through July 2016. We have complied with our financial covenants which 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.

We have a $300 million unsecured revolving credit facility that will mature May 25, 2017. We anticipate that the majority of any borrowings under the facility will accrue interest at a spread over the London Interbank Offered Rate (LIBOR). We will also pay a commitment fee based on the unused balance of the facility. Borrowing spreads as well as commitment fees are determined according to a scale based on a ratio of our total debt to total capitalization. The LIBOR spread ranges from 1.125 percent to 1.75 percent per annum and commitment fees range from .15 percent to .35 percent per annum. Based on our debt to total capitalization on March 31, 2013, the LIBOR spread and commitment fees would be 1.125 percent and .15 percent, respectively. Financial covenants in the facility require us to maintain a funded leverage ratio (as defined) of less than 50 percent and an interest coverage ratio (as defined) of not less than 3.00 to 1.00. The credit facility contains additional terms, conditions, restrictions, and covenants that we believe are usual and customary in unsecured debt arrangements for companies of similar size and credit quality. As of March 31, 2013, there were no borrowings, but there were three letters of credit outstanding in the amount of $30.7 million. Two of the outstanding letters of credit replaced two collateral trusts that were terminated during the first quarter of fiscal 2013. Upon termination, an amount totaling $26.1 million was returned to us. At March 31, 2013, we had $269.3 million available to borrow under our $300 million unsecured credit facility.

At March 31, 2013, we had two letters of credit outstanding, totaling $12 million, that were issued to support international operations. These letters of credit were issued separately from the $300 million credit facility so they do not reduce the available borrowing capacity discussed in the previous paragraph.

8. Income Taxes

Our effective tax rate for the first six months of fiscal 2013 and 2012 was 35.1 percent and 36.8 percent, respectively. Our effective tax rate for the three months ended March 31, 2013 and 2012 was 34.9 percent and 36.7 percent, respectively. Effective tax rates differ from the U.S. federal statutory rate of 35.0 percent primarily due to an increase in Internal Revenue Code Section 199 deduction for domestic production activities.

For the next 12 months, we cannot predict with certainty whether we will achieve ultimate resolution of any uncertain tax positions associated with our U.S. and international operations that could result in increases or decreases of our unrecognized tax benefits. However, we believe it is reasonably possible that the reserve for uncertain tax positions may increase by approximately $7.0 million to $10.2 million during the next 12 months due to an international matter.

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9. Commitments and Contingencies

In conjunction with our current drilling rig construction program, purchase commitments for equipment, parts and supplies of approximately $118.4 million are outstanding at March 31, 2013.

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

We are contingently liable to sureties in respect of bonds issued by the sureties in connection with certain commitments entered into by us in the normal course of business. We have agreed to indemnify the sureties for any payments made by them in respect of such bonds.

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. Our wholly-owned subsidiaries, Helmerich & Payne International Drilling Co. and Helmerich & Payne de Venezuela, C.A., filed a lawsuit in the United States District Court for the District of Columbia on September 23, 2011 against the Bolivarian Republic of Venezuela, Petroleos de Venezuela, S.A. (“Petroleo”) and PDVSA Petroleo, S.A. (“PDVSA”). Our subsidiaries seek damages for the taking of their Venezuelan drilling business in violation of international law and for breach of contract. Additionally, we are participating in arbitration against a third party not affiliated with the Venezuelan government, Petroleo or PDVSA in an attempt to collect an aggregate $50 million relating to the seizure of our property in Venezuela. The arbitration hearing is presently scheduled for late May 2013.

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 Financial Statements.

10. 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. To provide information about the different types of business activities in which we operate, we have included Offshore and International Land, along with our U.S. Land reportable operating segment, as separate reportable operating segments. Additionally, each reportable operating segment is a strategic business unit which is managed separately. Our primary international areas of operation include Colombia, Ecuador, Argentina, Tunisia, Bahrain, U.A.E. and other South American countries. Other includes additional non-reportable operating segments. Revenues included in Other consist primarily of rental income. Consolidated revenues and expenses reflect the elimination of all material intercompany transactions.

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 certain 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. 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

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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 six months ended March 31, 2013, and 2012, is shown in the following tables:

									Segment
	External		Inter-			Total			Operating
(in thousands)	Sales		Segment			Sales			Income (Loss)
March 31, 2013
Contract Drilling:
U.S. Land	$	1,381,740	$	—		$	1,381,740		$	460,386
Offshore	113,323		—			113,323			28,656
International Land	181,359		—			181,359			22,280
	1,676,422		—			1,676,422			511,322
Other	6,459		429			6,888			(4,174		)
	1,682,881		429			1,683,310			507,148
Eliminations	—		(429		)	(429		)	—
Total	$	1,682,881	$	—		$	1,682,881		$	507,148

									Segment
	External		Inter-			Total			Operating
(in thousands)	Sales		Segment			Sales			Income (Loss)
March 31, 2012
Contract Drilling:
U.S. Land	$	1,276,583	$	—		$	1,276,583		$	434,665
Offshore	94,213		—			94,213			22,022
International Land	124,823		—			124,823			6,965
	1,495,619		—			1,495,619			463,652
Other	6,951		420			7,371			(3,621		)
	1,502,570		420			1,502,990			460,031
Eliminations	—		(420		)	(420		)	—
Total	$	1,502,570	$	—		$	1,502,570		$	460,031

Summarized financial information of our reportable segments for the three months ended March 31, 2013, and 2012, is shown in the following tables:

									Segment
	External		Inter-			Total			Operating
(in thousands)	Sales		Segment			Sales			Income (Loss)
March 31, 2013
Contract Drilling:
U.S. Land	$	685,710	$	—		$	685,710		$	225,998
Offshore	55,605		—			55,605			13,650
International Land	94,092		—			94,092			13,169
	835,407		—			835,407			252,817
Other	2,902		214			3,116			(2,539		)
	838,309		214			838,523			250,278
Eliminations	—		(214		)	(214		)	—
Total	$	838,309	$	—		$	838,309		$	250,278

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									Segment
	External		Inter-			Total			Operating
(in thousands)	Sales		Segment			Sales			Income (Loss)
March 31, 2012
Contract Drilling:
U.S. Land	$	658,804	$	—		$	658,804		$	209,959
Offshore	43,421		—			43,421			9,818
International Land	64,088		—			64,088			(974		)
	766,313		—			766,313			218,803
Other	3,669		210			3,879			(1,833		)
	769,982		210			770,192			216,970
Eliminations	—		(210		)	(210		)	—
Total	$	769,982	$	—		$	769,982		$	216,970

The following table reconciles segment operating income per the table above to income from continuing operations before income taxes as reported on the Consolidated Condensed Statements of Income.

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2013			2012			2013			2012
	(in thousands)						(in thousands)

Segment operating income	$	250,278		$	216,970		$	507,148		$	460,031
Income from asset sales	5,313			7,820			10,532			12,503
Corporate general and administrative costs and corporate depreciation	(22,671		)	(17,765		)	(44,213		)	(34,970		)
Operating income	232,920			207,025			473,467			437,564

Other income (expense):
Interest and dividend income	315			356			741			692
Interest expense	(1,186		)	(2,421		)	(2,494		)	(4,882		)
Gain on sale of investment securities	—			—			8,752			—
Other	103			(42		)	(1,981		)	(21		)
Total other income (expense)	(768		)	(2,107		)	5,018			(4,211		)

Income from continuing operations before income taxes	$	232,152		$	204,918		$	478,485		$	433,353

The following table presents total assets by reportable segment.

	March 31,		September 30,
	2013		2012
	(in thousands)
Total assets
U.S. Land	$	4,627,120	$	4,422,297
Offshore	146,570		160,135
International Land	470,054		467,538
Other	32,244		33,539
	5,275,988		5,083,509
Investments and corporate operations	732,391		629,957
Total assets from continued operations	6,008,379		5,713,466
Discontinued operations	4,073		7,619
	$	6,012,452	$	5,721,085

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

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2013		2012		2013		2012
	(in thousands)				(in thousands)

Operating revenues
United States	$	742,635	$	699,741	$	1,499,120	$	1,362,092
Colombia	24,069		19,660		51,474		39,325
Ecuador	15,611		13,939		32,241		26,575
Argentina	17,572		11,701		31,168		24,108
Other foreign	38,422		24,941		68,878		50,470
Total	$	838,309	$	769,982	$	1,682,881	$	1,502,570

11. Pensions and Other Post-retirement Benefits

The following provides information at March 31, 2013 and 2012 related to the Company-sponsored domestic defined benefit pension plan.

Components of Net Periodic Benefit Cost

Three Months Ended

Six Months Ended

March 31,

2013

2012

2013

2012

(in thousands)

Interest cost

1,105

1,103

2,210