UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
|
|
þ
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
For quarterly period ended:
December 31, 2005
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
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer
þ
Accelerated filer
o
Non-accelerated filer
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes
o
No
þ
|
|
|
|
|
CLASS
|
|
OUTSTANDING AT January 31, 2006
|
Common Stock, $0.10 par value
|
|
|
52,233,337
|
|
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
-2-
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except per share amounts)
ITEM 1. FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
Unaudited
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2005
|
|
|
2005
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
301,578
|
|
|
$
|
288,752
|
|
Accounts receivable, less reserve of
$1,792 at December 31, 2005 and $1,791
at September 30, 2005
|
|
|
186,571
|
|
|
|
162,646
|
|
Inventories
|
|
|
21,658
|
|
|
|
21,313
|
|
Deferred income tax
|
|
|
7,038
|
|
|
|
8,765
|
|
Prepaid expenses and other
|
|
|
30,406
|
|
|
|
18,321
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
547,251
|
|
|
|
499,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
192,166
|
|
|
|
178,452
|
|
Property, plant and equipment, net
|
|
|
1,018,971
|
|
|
|
981,965
|
|
Other assets
|
|
|
3,387
|
|
|
|
3,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,761,775
|
|
|
$
|
1,663,350
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
45,310
|
|
|
$
|
44,854
|
|
Accrued liabilities
|
|
|
70,917
|
|
|
|
44,627
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
116,227
|
|
|
|
89,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term notes payable
|
|
|
200,000
|
|
|
|
200,000
|
|
Deferred income taxes
|
|
|
253,388
|
|
|
|
246,975
|
|
Other
|
|
|
49,688
|
|
|
|
47,656
|
|
|
|
|
|
|
|
|
Total noncurrent liabilities
|
|
|
503,076
|
|
|
|
494,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Common stock, par value $.10 per share:
|
|
|
|
|
|
|
|
|
authorized common 80,000; issued 53,529
|
|
|
5,353
|
|
|
|
5,353
|
|
Preferred stock, no shares issued
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
118,202
|
|
|
|
112,297
|
|
Retained earnings
|
|
|
985,881
|
|
|
|
939,380
|
|
Unearned compensation
|
|
|
|
|
|
|
(134
|
)
|
Accumulated other comprehensive income
|
|
|
55,788
|
|
|
|
47,544
|
|
Treasury stock, at cost
|
|
|
(22,752
|
)
|
|
|
(25,202
|
)
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
1,142,472
|
|
|
|
1,079,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
1,761,775
|
|
|
$
|
1,663,350
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
-3-
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
Drilling U.S. Land
|
|
$
|
172,754
|
|
|
$
|
109,188
|
|
Drilling U.S. Offshore
|
|
|
29,520
|
|
|
|
20,356
|
|
Drilling International
|
|
|
50,257
|
|
|
|
42,471
|
|
Real Estate
|
|
|
2,857
|
|
|
|
2,664
|
|
|
|
|
|
|
|
|
|
|
|
255,388
|
|
|
|
174,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
Operating costs
|
|
|
140,596
|
|
|
|
111,252
|
|
Depreciation
|
|
|
22,923
|
|
|
|
23,262
|
|
General and administrative
|
|
|
11,938
|
|
|
|
9,246
|
|
|
|
|
|
|
|
|
|
|
|
175,457
|
|
|
|
143,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
79,931
|
|
|
|
30,919
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest and dividend income
|
|
|
2,530
|
|
|
|
961
|
|
Interest expense
|
|
|
(2,580
|
)
|
|
|
(3,309
|
)
|
Gain on sale of investment
securities
|
|
|
2,720
|
|
|
|
26,349
|
|
Income from asset sales
|
|
|
973
|
|
|
|
10,816
|
|
Other
|
|
|
(513
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
3,130
|
|
|
|
34,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and equity
in income of affiliate
|
|
|
83,061
|
|
|
|
65,734
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
|
32,802
|
|
|
|
27,130
|
|
Equity in income of affiliate
net of income taxes
|
|
|
555
|
|
|
|
706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
50,814
|
|
|
$
|
39,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.98
|
|
|
$
|
0.78
|
|
Diluted
|
|
$
|
0.96
|
|
|
$
|
0.77
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
51,993
|
|
|
|
50,543
|
|
Diluted
|
|
|
53,087
|
|
|
|
51,256
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
|
$
|
0.0825
|
|
|
$
|
0.0825
|
|
The accompanying notes are an integral part of these statements.
-4-
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
50,814
|
|
|
$
|
39,310
|
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
22,923
|
|
|
|
23,262
|
|
Equity in income of affiliate before
income taxes
|
|
|
(895
|
)
|
|
|
(1,139
|
)
|
Stock-based compensation
|
|
|
2,720
|
|
|
|
3
|
|
Gain on sale of investment securities
|
|
|
(2,584
|
)
|
|
|
(26,349
|
)
|
Gain on sale of assets
|
|
|
(973
|
)
|
|
|
(10,816
|
)
|
Other-net
|
|
|
(2
|
)
|
|
|
(4
|
)
|
Deferred income tax expense
|
|
|
2,712
|
|
|
|
17,349
|
|
Change in assets and liabilities-
|
|
|
|
|
|
|
|
|
Accounts receivables
|
|
|
(23,925
|
)
|
|
|
(7,238
|
)
|
Inventories
|
|
|
(345
|
)
|
|
|
915
|
|
Prepaid expenses and other
|
|
|
(12,336
|
)
|
|
|
(4,238
|
)
|
Accounts payable
|
|
|
(6,333
|
)
|
|
|
(5,206
|
)
|
Accrued liabilities
|
|
|
26,290
|
|
|
|
4,762
|
|
Deferred income taxes
|
|
|
376
|
|
|
|
1,434
|
|
Other noncurrent liabilities
|
|
|
2,032
|
|
|
|
2,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
60,474
|
|
|
|
34,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(53,654
|
)
|
|
|
(10,507
|
)
|
Proceeds from sale of investments
|
|
|
3,060
|
|
|
|
62,397
|
|
Proceeds from asset sales
|
|
|
1,468
|
|
|
|
25,156
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(49,126
|
)
|
|
|
77,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
(4,291
|
)
|
|
|
(4,166
|
)
|
Proceeds from exercise of stock options
|
|
|
3,718
|
|
|
|
4,535
|
|
Excess tax benefit from stock-based compensation
|
|
|
2,051
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
1,478
|
|
|
|
369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
12,826
|
|
|
|
112,228
|
|
Cash and cash equivalents, beginning of period
|
|
|
288,752
|
|
|
|
65,296
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
301,578
|
|
|
$
|
177,524
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
-5-
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED
STATEMENT OF SHAREHOLDERS EQUITY
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Unearned
|
|
|
Comprehensive
|
|
|
Treasury Stock
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Compensation
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Equity
|
|
|
Balance, September 30, 2005
|
|
|
53,529
|
|
|
$
|
5,353
|
|
|
$
|
112,297
|
|
|
$
|
939,380
|
|
|
$
|
(134
|
)
|
|
$
|
47,544
|
|
|
|
1,594
|
|
|
$
|
(25,202
|
)
|
|
$
|
1,079,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,814
|
|
Other comprehensive income,
Unrealized gains on available-for-sale securities, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,244
|
|
|
|
|
|
|
|
|
|
|
|
8,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends ($0.0825 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,313
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,313
|
)
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
1,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(159
|
)
|
|
|
2,518
|
|
|
|
3,718
|
|
Reversal of
unearned compensation upon adoption of SFAS 123(R)
|
|
|
|
|
|
|
|
|
|
|
(66
|
)
|
|
|
|
|
|
|
134
|
|
|
|
|
|
|
|
5
|
|
|
|
(68
|
)
|
|
|
|
|
Tax benefit of stock-based awards
|
|
|
|
|
|
|
|
|
|
|
2,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,051
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
2,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
|
53,529
|
|
|
$
|
5,353
|
|
|
$
|
118,202
|
|
|
$
|
985,881
|
|
|
$
|
|
|
|
$
|
55,788
|
|
|
|
1,440
|
|
|
$
|
(22,752
|
)
|
|
$
|
1,142,472
|
|
|
|
|
The accompanying notes are an integral part of these statements.
-6-
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1.
|
|
Basis of Presentation
|
|
|
|
In the opinion of the Company, the accompanying unaudited consolidated condensed
financial statements contain all adjustments, consisting only of those of a normal
recurring nature, necessary to present fairly the results of the periods presented. The
results of operations for the three months ended December 31, 2005, are not necessarily
indicative of the results to be expected for the full year. These consolidated condensed
financial statements should be read in conjunction with the consolidated financial
statements and notes thereto in the Companys 2005 Annual Report on Form 10-K.
|
|
|
|
Certain reclassifications have been made to the prior period amounts to conform to the
current period presentation.
|
|
2.
|
|
Earnings per Share
|
|
|
|
Basic earnings per share is based on the weighted-average number of common shares
outstanding during the period. Diluted earnings per share includes the dilutive effect
of stock options and restricted stock.
|
|
|
|
A reconciliation of the weighted-average common shares outstanding on a basic and diluted
basis is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
Basic weighted-average shares
|
|
|
51,993
|
|
|
|
50,543
|
|
Effect of dilutive shares:
|
|
|
|
|
|
|
|
|
Stock options and
restricted stock
|
|
|
1,094
|
|
|
|
713
|
|
|
|
|
|
|
|
|
Diluted weighted-average shares
|
|
|
53,087
|
|
|
|
51,256
|
|
|
|
|
|
|
|
|
3.
|
|
Inventories
|
|
|
|
Inventories consist primarily of replacement parts and supplies held for use in the
Companys drilling operations.
|
|
4.
|
|
Investments
|
|
|
|
The following is a summary of available-for-sale securities, which excludes those
accounted for under the equity method of accounting, an investment in a limited
partnership carried at cost and assets held in a Non-qualified Supplemental Savings
Plan. The investment in the limited partnership carried at cost was $3.0 million at
December 31, 2005. The assets held in the Non-qualified Supplemental Savings Plan are
valued at fair market which totaled $7.0 million at December 31, 2005 and September 30,
2005. The recorded amounts for investments accounted for under the equity method are
$47.4 million and $46.5 million at December 31, 2005 and September 30, 2005,
respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
Gross
|
|
Est.
|
|
|
|
|
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
|
(in thousands)
|
Equity Securities 12/31/05
|
|
$
|
27,440
|
|
|
$
|
107,297
|
|
|
$
|
|
|
|
$
|
134,737
|
|
Equity Securities 09/30/05
|
|
$
|
30,937
|
|
|
$
|
94,000
|
|
|
$
|
|
|
|
$
|
124,937
|
|
-7-
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
5.
|
|
Sale of Investment Securities
|
|
|
|
Net income includes after-tax gains from the sale of available-for-sale securities as
follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
December 31,
|
|
|
2005
|
|
2004
|
After-tax gain
|
|
$
|
1,721
|
|
|
$
|
16,060
|
|
Earnings per diluted share
|
|
$
|
0.03
|
|
|
$
|
0.31
|
|
|
|
The activity in the first quarter of fiscal 2005 was comprised primarily of the sale of shares in our equity investee, Atwood Oceanics (Atwood), in conjunction with an equity
offering by Atwood.
|
6.
|
|
Comprehensive Income
|
|
|
|
Comprehensive income, net of related tax, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
Net Income
|
|
$
|
50,814
|
|
|
$
|
39,310
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
Net unrealized gain on
securities
|
|
|
8,244
|
|
|
|
1,030
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
8,244
|
|
|
|
1,030
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
59,058
|
|
|
$
|
40,340
|
|
|
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive income, net of related taxes, are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2005
|
|
|
2005
|
|
Unrealized gain on securities, net
|
|
$
|
66,524
|
|
|
$
|
58,280
|
|
Minimum pension liability
|
|
|
(10,736
|
)
|
|
|
(10,736
|
)
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
$
|
55,788
|
|
|
$
|
47,544
|
|
|
|
|
|
|
|
|
7.
|
|
Cash Dividends
|
|
|
|
The $0.0825 cash dividend declared September 7, 2005, was paid December 1, 2005. On
December 6, 2005, a cash dividend of $0.0825 per share was declared for shareholders of
record on February 15, 2006, payable March 1, 2006.
|
|
8.
|
|
Stockholders Equity
|
|
|
|
On December 31, 2005, the Company had 26,097,684 outstanding stock purchase rights
(Rights) pursuant to terms of the Rights Agreement dated January 8, 1996 as amended by
Amendment No. 1 dated December 8, 2005. As adjusted for the two-for-one stock split in
fiscal 1998 and as long as the Rights are not separately transferable, one-half right
attaches to each share of the Companys common stock. Under the terms of the Rights
Agreement each Right entitles the holder thereof to purchase from the Company one full
unit consisting of one one-thousandth of a share of Series A Junior Participating
Preferred Stock (Preferred Stock), without par value, at a price of $250 per unit. The
exercise price and the number of units of Preferred Stock issuable on exercise of the
Rights are subject to adjustment in certain cases to prevent dilution. The Rights will
be attached to the common stock certificates and are not exercisable or transferable
apart from the common stock, until ten business days after a person acquires 15 percent
or more of the outstanding common stock or ten business days following the commencement
of a tender offer or exchange offer that
|
-8-
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
|
|
would result in a person owning 15 percent or more of the outstanding common stock.
In the event the Company is acquired in a merger or certain other business
combination transactions (including one in which the Company is the surviving
corporation), or more than 50 percent of the Companys assets or earning power is
sold or transferred, each holder of a Right shall have the right to receive, upon
exercise of the Right, common stock of the acquiring company having a value equal to
two times the exercise price of the Right. The Rights are redeemable under certain
circumstances at $0.01 per Right and will expire, unless earlier redeemed, on
January 31, 2016.
|
|
9.
|
|
Stock-Based Compensation
|
|
|
|
The Company has several plans providing for common-stock based awards to employees and to
non-employee directors. The plans permit the granting of various types of awards
including stock options and restricted stock awards. Restricted stock may be granted for
no consideration other than prior and future services. The purchase price per share for
stock options may not be less than market price of the underlying stock on the date of
grant. Stock options expire ten years after grant.
|
|
|
|
Vesting requirements are determined by the Human Resources Committee of the Companys
Board of Directors. Options granted December 6, 1995, began vesting December 6,
1998, with 20 percent of the options vesting for five consecutive years. Options
granted December 4, 1996, began vesting December 4, 1997, with 20 percent of the
options vesting for five consecutive years. Options granted since December 3, 1997,
began vesting one year after the grant date with 25 percent of the options vesting
for four consecutive years.
|
|
|
|
In March 2001, the Company adopted the 2000 Stock Incentive Plan (the Stock
Incentive Plan). The Stock Incentive Plan was effective December 6, 2000 and will
terminate December 6, 2010. Under this plan, the Company is authorized to grant
options for up to 3,000,000 shares of the Companys common stock at an exercise
price not less than the fair market value of the common stock on the date of grant.
Up to 450,000 shares of the total authorized shares may be granted to participants
as restricted stock awards. There were 101,500 shares and 5,000 shares of
restricted stock awards granted in the three months ended December 31, 2005 and
2004, respectively.
|
|
|
|
In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123
(Revised 2004),
Share Based Payment
(SFAS 123(R)). SFAS 123(R) is a revision of SFAS
No. 123, as amended,
Accounting for Stock-Based Compensation
(SFAS 123), and supersedes
Accounting Principles Board Opinion (APB) No. 25,
Accounting for Stock Issued to
Employees
(APB 25). SFAS 123(R) eliminated the alternative to use the intrinsic value
method of accounting that was provided in SFAS 123, which generally resulted in no
compensation expense recorded in the financial statements related to the issuance of
stock options. SFAS 123(R) requires that the cost resulting from all share-based payment
transactions be recognized in the financial statements. SFAS 123(R) established fair
value as the measurement objective in accounting for share-based payment arrangements and
requires all companies to apply a fair-value based measurement method in accounting for
generally all share-based payment transactions with employees.
|
-9-
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
|
|
In October 2005, the Company adopted SFAS 123(R) using a modified prospective
application, as permitted under SFAS 123(R). Accordingly, prior period amounts have
not been restated. Under this application, the Company is required to record
compensation expense for all awards granted after the date of adoption and for the
unvested portion of previously granted awards that remain outstanding at the date of
adoption. Additionally, SFAS 123(R) requires that the benefits of tax deduction in
excess of recognized compensation cost be reported as a financing cash flow, rather
than as an operating cash flow as required under previously effective accounting
principles generally accepted in the United States. Prior to the adoption of SFAS
123(R), unearned compensation related to restricted stock awards was classified as a
separate component of stockholders equity. In accordance with the provisions of
SFAS 123(R), on October 1, 2005, the balance in unearned compensation was
reclassified to additional paid-in capital on the balance sheet.
|
|
|
|
Compensation cost for stock-based payment arrangements recognized in general and
administrative expenses for the first quarter of fiscal 2006 was $2.6 million for stock
options and $.1 million for restricted stock. The total was $2.7 million, $1.7 million
after-tax ($0.03 per diluted share). Cash received from stock option exercises for the
three months ended December 31, 2005 was $3.7 million. Benefits of tax deductions in
excess of recognized compensation cost of $2.1 million are reported as a financing cash
flow in the Consolidated Condensed Statements of Cash Flow for the three months ended
December 31, 2005.
|
|
|
|
Prior to adoption of SFAS 123(R), the Company used the Black-Scholes formula to estimate
the value of stock options granted to employees. The Company continues to use this
acceptable option valuation model following the adoption of SFAS 123(R). The fair value
of the options is amortized to compensation expense on a straight-line basis over the
requisite service periods of the stock awards, which are generally the vesting periods.
The following summarizes the weighted-average assumptions in the model:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
December 31,
|
|
|
2005
|
|
2004
|
Risk-free interest rate
|
|
|
4.5
|
%
|
|
|
4.2
|
%
|
Expected stock volatility
|
|
|
36.9
|
%
|
|
|
40.3
|
%
|
Dividend yield
|
|
|
.5
|
%
|
|
|
1.0
|
%
|
Expected term (in years)
|
|
|
5.2
|
|
|
|
5.0
|
|
|
|
Risk-Free Interest Rate.
The risk-free interest rate is based on the U.S. Treasury
securities for the expected term of the option.
|
|
|
|
Expected Volatility Rate.
Expected volatilities are based on the daily closing price of
the Company stock over the expected term of the option.
|
|
|
|
Dividend Yield.
The expected dividend yield is based on the Companys current dividend
yield as the best estimate of projected dividend yield for periods within the expected
term of the option.
|
|
|
|
Expected Term.
The expected term of the options granted represents the period of time
that they are expected to be outstanding. The Company estimates the expected term of
options granted based on historical experience with grants and exercises.
|
-10-
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
A summary of stock option activity under the Plan for the three months ended
December 31, 2005 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Value
|
|
Options
|
|
(in thousands)
|
|
|
Price
|
|
|
Term
|
|
|
(in thousands)
|
|
|
Outstanding at October 1, 2005
|
|
|
3,244
|
|
|
$
|
24.57
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
320
|
|
|
|
59.35
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(159
|
)
|
|
|
23.34
|
|
|
|
|
|
|
|
|
|
Forfeited/Expired
|
|
|
(1
|
)
|
|
|
25.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
3,404
|
|
|
$
|
27.89
|
|
|
|
6.21
|
|
|
$
|
115,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest
at December 31, 2005
|
|
|
3,388
|
|
|
$
|
27.75
|
|
|
|
6.20
|
|
|
$
|
115,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2005
|
|
|
2,418
|
|
|
$
|
23.61
|
|
|
|
5.19
|
|
|
$
|
92,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average fair value of options granted during the three months ended
December 31, 2005 was $22.79. The total intrinsic value of options exercised during
the three months ended December 31, 2005 was $5.7 million.
Restricted stock awards consist of the Companys common stock and are time vested over
3-5 years. The Company recognizes compensation expense on a straight-line basis
over the vesting period. The fair value of restricted stock awards is determined
based on the closing trading price of the Companys shares on the grant date. The
weighted-average grant-date fair value of shares granted for the three months ended
December 31, 2005 was $60.475.
A summary of the status of the Companys restricted stock awards as of December
31, 2005, and changes during the three months then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
Grant-Date
|
|
Restricted Stock Awards
|
|
(in thousands)
|
|
|
Fair Value
|
|
|
Unvested at October 1, 2005
|
|
|
5
|
|
|
$
|
32.02
|
|
Granted
|
|
|
101
|
|
|
|
60.48
|
|
Vested
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2005
|
|
|
106
|
|
|
$
|
59.14
|
|
|
|
|
|
|
|
|
As of December 31, 2005, there was $6.2 million of total unrecognized compensation cost
related to unvested restricted stock options granted under the Plan. That cost is
expected to be recognized over a weighted-average period of 4.9 years.
During the three months ended December 31, 2005, the Company accelerated the vesting of
409,849 share options held by an employee. As a result of that
modification, the Company recognized additional compensation expense of $0.9 million for
the three months ended December 31, 2005.
The Company has the right to satisfy option exercises from treasury shares and from
authorized but unissued shares. The Company does not currently anticipate repurchasing shares in
the open market during the remainder of the fiscal year.
-11-
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Prior to October 1, 2005, stock-based awards were accounted for under APB 25, and related
interpretations. Fixed plan common stock options generally did not result in
compensation expense because the exercise price of the options issued by the Company was
equal to the market price of the underlying stock on the date of grant. The following
table illustrates the effect on the net income and earnings per share as if the Company
had applied the fair value recognition provisions of SFAS No. 123,
Accounting for
Stock-Based Compensation
, for the three months ended December 31, 2004 (in thousands
except per share amounts):
|
|
|
|
|
Net income, as reported
|
|
$
|
39,310
|
|
Add: Stock-based compensation expense
included in the Consolidated Statements
of Income, net of related tax effects
|
|
|
2
|
|
Deduct: Total stock-based compensation
expense determined under fair value based
method for all awards, net of related tax effects
|
|
|
(993
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$
|
38,319
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
Basic-as reported
|
|
$
|
0.78
|
|
Basic-pro forma
|
|
$
|
0.76
|
|
|
|
|
|
|
Diluted-as reported
|
|
$
|
0.77
|
|
Diluted-pro forma
|
|
$
|
0.75
|
|
10.
|
|
Notes Payable and Long-term Debt
|
At December 31, 2005, the Company had $200 million in long-term debt outstanding at fixed
rates and maturities as summarized in the following table.
|
|
|
|
|
Issue Amount
|
|
Maturity Date
|
|
Interest Rate
|
$25,000,000
|
|
August 15, 2007
|
|
5.51%
|
$25,000,000
|
|
August 15, 2009
|
|
5.91%
|
$75,000,000
|
|
August 15, 2012
|
|
6.46%
|
$75,000,000
|
|
August 15, 2014
|
|
6.56%
|
The terms of the debt obligations require the Company to maintain a minimum ratio of debt
to total capitalization.
At December 31, 2005, the Company had a committed unsecured line of credit
totaling $50 million. Letters of credit totaling $16.4 million were outstanding against
the line at December 31, 2005, leaving $33.6 million available to borrow. Under terms of
the line of credit, the Company must maintain certain financial ratios including debt to
total capitalization and debt to earnings before interest, taxes, depreciation, and
amortization, and a certain level of tangible net worth. The interest rate varies based
on LIBOR plus .875 to 1.125 percent or prime minus 1.75 percent to prime minus 1.50
percent depending on the ratios described above. At December 31, 2005, no balances were
outstanding under the line of credit. The revolving credit commitment expires July 11,
2006.
The Companys effective tax rate was 39.5 percent in the first three months of fiscal
2006, compared to 41.2 percent in the first three months of fiscal 2005. The effective
rate differs from the U.S. federal statutory rate of 35.0 percent primarily due to state
and foreign taxes.
-12-
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
In conjunction with the Companys current drilling rig construction program, purchase
commitments for equipment, parts and supplies of approximately $171.3 million are
outstanding at December 31, 2005.
The Company operates principally in the contract drilling industry. The Companys
contract drilling business includes the following operating segments: U.S. Land, U.S.
Offshore, and International. The contract drilling operations consist mainly of
contracting Company-owned drilling equipment primarily to major oil and gas exploration
companies. The Companys primary international areas of operation include Venezuela,
Colombia, Ecuador, and Argentina. The Company also has a Real Estate segment
whose operations are conducted exclusively in the metropolitan area of Tulsa, Oklahoma.
The key areas of operation include
a shopping center and several multi-tenant warehouses. Each reportable segment is a
strategic business unit which is managed separately. Other includes investments and
corporate operations.
The Company evaluates performance of its segments based upon operating income or loss
from operations before income taxes which includes:
|
|
|
revenues from external and internal customers
|
|
|
|
|
direct operating costs
|
|
|
|
|
depreciation
|
|
|
|
|
allocated general and administrative costs
|
but excludes corporate costs for other depreciation and other income and expense.
General and administrative costs are allocated to the segments based primarily on
specific identification and, to the extent that such identification is not
practical, on other methods which the Company believes to be a reasonable
reflection of the utilization of services provided.
Summarized financial information of the Companys reportable segments for the three
months ended December 31, 2005, and 2004, is shown in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
|
|
|
Inter-
|
|
|
Total
|
|
|
Operating
|
|
(in thousands)
|
|
Sales
|
|
|
Segment
|
|
|
Sales
|
|
|
Income
|
|
|
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Drilling:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Land
|
|
$
|
172,754
|
|
|
$
|
|
|
|
$
|
172,754
|
|
|
$
|
70,991
|
|
U.S. Offshore
|
|
|
29,520
|
|
|
|
|
|
|
|
29,520
|
|
|
|
5,111
|
|
International
|
|
|
50,257
|
|
|
|
|
|
|
|
50,257
|
|
|
|
9,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
252,531
|
|
|
|
|
|
|
|
252,531
|
|
|
|
85,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
2,857
|
|
|
|
192
|
|
|
|
3,049
|
|
|
|
1,453
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,347
|
)
|
Eliminations
|
|
|
|
|
|
|
(192
|
)
|
|
|
(192
|
)
|
|
|
421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
255,388
|
|
|
$
|
|
|
|
$
|
255,388
|
|
|
$
|
79,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-13-
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
|
|
|
Inter-
|
|
|
Total
|
|
|
Operating
|
|
(in thousands)
|
|
Sales
|
|
|
Segment
|
|
|
Sales
|
|
|
Income
|
|
|
December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Drilling:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Land
|
|
$
|
109,188
|
|
|
$
|
|
|
|
$
|
109,188
|
|
|
$
|
25,588
|
|
U.S. Offshore
|
|
|
20,356
|
|
|
|
|
|
|
|
20,356
|
|
|
|
4,168
|
|
International
|
|
|
42,471
|
|
|
|
|
|
|
|
42,471
|
|
|
|
6,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172,015
|
|
|
|
|
|
|
|
172,015
|
|
|
|
35,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
2,664
|
|
|
|
191
|
|
|
|
2,855
|
|
|
|
1,075
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,564
|
)
|
Eliminations
|
|
|
|
|
|
|
(191
|
)
|
|
|
(191
|
)
|
|
|
455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
174,679
|
|
|
$
|
|
|
|
$
|
174,679
|
|
|
$
|
30,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reconciles segment operating income per the table above to
income before income taxes and equity in income of affiliate as reported on the
Consolidated Condensed Statements of Income.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(in thousands)
|
|
Segment operating income
|
|
$
|
79,931
|
|
|
$
|
30,919
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest and dividend income
|
|
|
2,530
|
|
|
|
961
|
|
Interest expense
|
|
|
(2,580
|
)
|
|
|
(3,309
|
)
|
Gain on sale of investment
securities
|
|
|
2,720
|
|
|
|
26,349
|
|
Income from asset sales
|
|
|
973
|
|
|
|
10,816
|
|
Other
|
|
|
(513
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
3,130
|
|
|
|
34,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
and equity in income of
affiliate
|
|
$
|
83,061
|
|
|
$
|
65,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2005
|
|
|
2005
|
|
|
|
(in thousands)
|
|
Total Assets
|
|
|
|
|
|
|
|
|
U.S. Land
|
|
$
|
855,920
|
|
|
$
|
809,403
|
|
U.S. Offshore
|
|
|
103,834
|
|
|
|
95,108
|
|
International
|
|
|
254,748
|
|
|
|
239,087
|
|
|
|
|
|
|
|
|
|
|
|
1,214,502
|
|
|
|
1,143,598
|
|
|
Real Estate
|
|
|
32,554
|
|
|
|
32,203
|
|
Other
|
|
|
514,719
|
|
|
|
487,549
|
|
|
|
|
|
|
|
|
|
|
$
|
1,761,775
|
|
|
$
|
1,663,350
|
|
|
|
|
|
|
|
|
-14-
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The following table presents revenues from external customers by country based on the location of service provided.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(in thousands)
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
205,131
|
|
|
$
|
132,208
|
|
Venezuela
|
|
|
17,356
|
|
|
|
17,232
|
|
Ecuador
|
|
|
19,111
|
|
|
|
13,365
|
|
Other Foreign
|
|
|
13,790
|
|
|
|
11,874
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
255,388
|
|
|
$
|
174,679
|
|
|
|
|
|
|
|
|
14.
|
|
Pensions and Other Post-retirement Benefits
|
The following provides information at December 31, 2005 and 2004 as to the
Company-sponsored domestic defined benefit pension plan.
Components of Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(in thousands)
|
|
Service cost
|
|
$
|
1,021
|
|
|
$
|
1,137
|
|
Interest cost
|
|
|
1,210
|
|
|
|
1,154
|
|
Expected return on plan assets
|
|
|
(1,234
|
)
|
|
|
(1,095
|
)
|
Recognized net actuarial loss
|
|
|
219
|
|
|
|
239
|
|
|
|
|
|
|
|
|
Net pension expense
|
|
$
|
1,216
|
|
|
|
1,435
|
|
|
|
|
|
|
|
|
Plan Assets
The weighted-average asset allocations for the pension plan by asset category
follow:
|
|
|
|
|
|
|
|
|
At December 31,
|
|
2005
|
|
2004
|
|
Asset Category
|
|
|
|
|
|
|
|
|
Equity Securities
|
|
|
74.5
|
%
|
|
|
73.0
|
%
|
Debt Securities
|
|
|
23.6
|
%
|
|
|
24.8
|
%
|
Real Estate and Other
|
|
|
1.9
|
%
|
|
|
2.2
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Employer Contributions
The Company anticipates funding of its Pension Plan will be approximately $2.8
million in fiscal 2006.
Foreign
Plan
The Company maintains an unfunded pension liability in one of the international
subsidiaries. Pension expense was approximately $283,000 and $81,000 for the three months ended December 31, 2005 and 2004, respectively.
-15-
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
15.
|
|
Recently Issued Accounting Standards
|
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections-a
replacement of APB Opinion No. 20 and FASB Statement No. 3
. This standard establishes,
unless impracticable, retrospective application as the required method for reporting a
change in accounting principle in the absence of explicit transition requirements specific
to the newly adopted accounting principle. SFAS No. 154 will become effective for the
Company for accounting changes and corrections of errors beginning in fiscal 2007. Based
on historical experience, the Company does not expect the standard to have a significant
impact on the financial statements.
In August 2005, the Companys Rig 201, which operates on an operators tension-leg platform
in the Gulf of Mexico, lost its entire derrick and suffered significant damage as a result
of Hurricane Katrina. Pre-tax cash flow from the platform rig was approximately $5.4
million, $1.8 million per quarter, in fiscal 2005. The Company is still in the process of
assessing the damage to the rig and does not anticipate that it will return to service in
fiscal 2006. The rig was insured at a value that approximated replacement cost to cover
the net book value and any additional losses. Therefore, the Company expects to record a
gain resulting from the receipt of insurance proceeds. Because the damage assessment has
not been completed, the Company is unable to estimate the amount or timing of the gain.
Capital costs incurred in conjunction with any repairs will be capitalized and depreciated
in accordance with the Companys accounting policies.
-16-
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
December 31, 2005
RISK FACTORS AND FORWARD-LOOKING STATEMENTS
The following discussion should be read in conjunction with the consolidated condensed
financial statements and related notes included elsewhere herein and the consolidated
financial statements and notes thereto included in the Companys 2005 Annual Report on Form
10-K. The Companys future operating results may be affected by various trends and factors,
which are beyond the Companys control. These include, among other factors, fluctuations in
natural gas and crude oil prices, expiration or termination of
drilling contracts, forfeiture of early termination payments under
fixed term contracts due to sustained unacceptable performance, currency
exchange losses, changes in general economic and political
conditions, adverse weather conditions including hurricanes, rapid or unexpected
changes in technologies and uncertain business conditions that affect the Companys
businesses. Accordingly, past results and trends should not be used by investors to
anticipate future results or trends.
With the exception of historical information, the matters discussed in Managements Discussion
& Analysis of Financial Condition and Results of Operations include forward-looking
statements. These forward-looking statements are based on various assumptions. The Company
cautions that, while it believes such assumptions to be reasonable and makes them in good
faith, assumptions about future events and conditions almost always vary from actual results. The
differences between good faith assumptions and actual results can be material. The Company is including this cautionary statement
to take advantage of the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995 for any forward-looking statements made by, or on behalf of, the Company. The
factors identified in this cautionary statement are important factors (but not necessarily all
important factors) that could cause actual results to differ materially from those expressed
in any forward-looking statement made by, or on behalf of, the Company.
RESULTS OF OPERATIONS
Three Months Ended December 31, 2005 vs. Three Months Ended December 31, 2004
The Company reported net income of $50.8 million ($0.96 per diluted share) from operating
revenues of $255.4 million for the first quarter ended December 31, 2005, compared with net
income of $39.3 million ($0.77 per diluted share) from revenues of $174.7 million for the
first quarter of fiscal year 2005.
The following tables summarize operations by business segment for the three months ended
December 31, 2005 and 2004. Operating statistics in the tables exclude the effects of offshore platform and international management contracts, and do not include
reimbursements of out-of-pocket expenses in revenue, expense and margin per day
calculations. Per day calculations for international operations also exclude gains and losses
from translation of foreign currency transactions.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
U.S. LAND OPERATIONS
|
|
(in thousands, except days and per day amounts)
|
|
|
Revenues
|
|
$
|
172,754
|
|
|
$
|
109,188
|
|
Direct operating expenses
|
|
|
84,215
|
|
|
|
66,978
|
|
General and administrative expense
|
|
|
3,082
|
|
|
|
1,866
|
|
Depreciation
|
|
|
14,466
|
|
|
|
14,756
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
70,991
|
|
|
$
|
25,588
|
|
|
|
|
|
|
|
|
|
|
Activity days
|
|
|
8,035
|
|
|
|
7,588
|
|
Average rig revenue per day
|
|
$
|
20,198
|
|
|
$
|
13,363
|
|
Average rig expense per day
|
|
$
|
9,179
|
|
|
$
|
7,800
|
|
Average rig margin per day
|
|
$
|
11,019
|
|
|
$
|
5,563
|
|
Rig utilization
|
|
|
97
|
%
|
|
|
92
|
%
|
U.S. LAND operating income increased to $71.0 million for the first quarter of fiscal 2006
compared to $25.6 million in the same period of fiscal 2005. Revenues were $172.8 million and
$109.2 million in the first quarter of fiscal 2006 and 2005, respectively. Included in land
revenues for the three months ended December 31, 2005
-17-
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
December 31, 2005
and 2004 are reimbursements for out-of-pocket expenses of $10.5 million and $7.8 million,
respectively. The $45.4 million increase in operating income was primarily the result of
increased activity days and higher dayrates.
Average land rig margin per day was $11,019 and $5,563 for the first quarter of fiscal 2006
and 2005, respectively. The significant increase in margins was
primarily due to higher dayrates. Land
rig utilization was 97 percent and 92 percent for the first quarter of fiscal 2006 and 2005,
respectively. Land rig activity days for the first quarter of fiscal 2006 were 8,035 compared
with 7,588 for the same period of fiscal 2005, with an average of 87.3 and 82.5 rigs working
during the first quarter of fiscal 2006 and 2005, respectively.
During the first quarter of fiscal 2006, one rig was transferred from the Companys U.S. Land
rig fleet to the International rig fleet for a two-year term contract in Argentina.
As previously announced in October and November, 2005, three-year term contracts were reached
with five exploration and production companies to operate 25 new FlexRigs. In January, 2006,
the Company announced commitments for an additional four new FlexRigs. The rigs are scheduled
for delivery to the field beginning in the third quarter of fiscal 2006 through the fourth
quarter of fiscal 2007. With these contracts, along with the 25 new FlexRigs announced during
fiscal year 2005, the Company has committed to build a total of 54 new FlexRigs. All of the
signed contracts, with 14 exploration and production companies, contain a minimum term of
three years. The first rig was completed late December 2005 and commenced operations in
western Colorado in January 2006. The remaining rigs are expected to be delivered to the
field at the rate of two per month, increasing to three per month in the spring of 2006 and
four per month in the summer of 2006. The total capital cost of the construction is estimated
at $11 million to $14 million per rig, depending on
equipment requirements. The construction of approximately 30 new rigs
scheduled to be completed in fiscal 2006 will be financed primarily
by internally generated cash flow.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
U.S. OFFSHORE OPERATIONS
|
|
(in thousands, except days and per day amounts)
|
|
|
Revenues
|
|
$
|
29,520
|
|
|
$
|
20,356
|
|
Direct operating expenses
|
|
|
20,308
|
|
|
|
12,847
|
|
General and administrative expense
|
|
|
1,437
|
|
|
|
834
|
|
Depreciation
|
|
|
2,664
|
|
|
|
2,507
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
5,111
|
|
|
$
|
4,168
|
|
|
|
|
|
|
|
|
|
|
Activity days
|
|
|
644
|
|
|
|
563
|
|
Average rig revenue per day
|
|
$
|
36,339
|
|
|
$
|
25,793
|
|
Average rig expense per day
|
|
$
|
22,986
|
|
|
$
|
14,251
|
|
Average rig margin per day
|
|
$
|
13,353
|
|
|
$
|
11,542
|
|
Rig utilization
|
|
|
64
|
%
|
|
|
56
|
%
|
U.S. OFFSHORE revenues include reimbursements for out-of-pocket expenses of $3.8 million and
$1.5 million for the three months ended December 31, 2005 and 2004, respectively.
Revenues and direct operating expenses increased as a result of four rigs returning to work in
the first quarter of fiscal 2006 compared to the first quarter of fiscal 2005. The increase in
operating income in the first quarter of fiscal 2006 compared to the first quarter of fiscal
2005 was due to increased activity days and higher dayrates. The first quarter of fiscal 2006
was negatively impacted due to the loss of operating income from Rig 201, damaged by Hurricane
Katrina in the fourth quarter of fiscal 2005.
-18-
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
December 31, 2005
As of December 31, 2005, eight of the Companys eleven platform rigs are currently contracted,
including Rig 201. A ninth rig has been contracted to start operations in the second quarter
of fiscal 2006. The remaining two rigs are currently being marketed.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
INTERNATIONAL OPERATIONS
|
|
(in thousands, except days and per day amounts)
|
|
Revenues
|
|
$
|
50,257
|
|
|
$
|
42,471
|
|
Direct operating expenses
|
|
|
35,693
|
|
|
|
30,855
|
|
General and administrative expense
|
|
|
606
|
|
|
|
653
|
|
Depreciation
|
|
|
4,656
|
|
|
|
4,766
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
9,302
|
|
|
$
|
6,197
|
|
|
|
|
|
|
|
|
|
|
Activity days
|
|
|
2,028
|
|
|
|
1,823
|
|
Average rig revenue per day
|
|
$
|
20,285
|
|
|
$
|
19,208
|
|
Average rig expense per day
|
|
$
|
13,512
|
|
|
$
|
13,346
|
|
Average rig margin per day
|
|
$
|
6,773
|
|
|
$
|
5,862
|
|
Rig utilization
|
|
|
83
|
%
|
|
|
71
|
%
|
INTERNATIONAL DRILLING operating income for the first quarter of fiscal 2006 was $9.3 million,
compared to $6.2 million in the same period of fiscal 2005. Rig utilization for international
operations averaged 83 percent for this years first quarter, compared with 71 percent for the
first quarter of fiscal 2005. An average of 22.3 rigs worked during the current quarter,
compared to 20.0 rigs in the first quarter of fiscal 2005. International revenues were $50.3
million in the first quarter of fiscal 2006, compared with $42.5 million in the first quarter
of fiscal 2005. The increase in revenue is attributable to increased activity days and
increased dayrates. Included in International Drilling revenues for the three months ended
December 31, 2005 and 2004 are reimbursements for out-of-pocket expenses of $5.1 million and
$3.1 million, respectively.
Currently in Venezuela, the Company has ten deep rigs operating for PDVSA. The Company is
bidding on contracts that offer possibilities for the two remaining 2,000 HP deep land rigs.
Rig utilization in Venezuela was 75.9 percent and 75.0 percent for the first quarter of fiscal
2006 and 2005, respectively.
Ecuadors rig utilization was 100 percent and 89.1 percent for the first quarter of fiscal
2006 and 2005, respectively. In those same comparative quarters, an average of 8.0 rigs and
7.1 rigs worked.
Two deep rigs worked at 100 percent activity in Colombia during the first quarter of fiscal
2006, compared to 50 percent activity in the first quarter of fiscal 2005.
During the first quarter of fiscal 2006, Argentina had two rigs operating. Argentina has a
third rig under contract that will commence operations in the second quarter of fiscal 2006.
This rig relocated from U.S. Land Operations during the first quarter of fiscal 2006.
Bolivia had one rig contracted during the first quarter of fiscal 2006 that will commence
operations in the third quarter of fiscal 2006. A rig was moved from Bolivia to Chile and
began working during the first quarter of fiscal 2006.
-19-
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
December 31, 2005
OTHER
General and administrative expenses increased to $11.9 million in the first quarter of fiscal
2006 from $9.2 million in the first quarter of fiscal 2005. The $2.7 million increase is
primarily due to recording stock-based compensation expense as a result of the Company adopting
SFAS123(R).
Interest and dividend income increased to $2.5 million in the first quarter of fiscal 2006
compared to $1.0 million in the first quarter of fiscal 2005. The increase is due to higher
earnings from increased cash and cash equivalent balances.
Interest expense was $2.6 million in the first quarter of fiscal 2006, compared to $3.3 million
in the same period of fiscal 2005. Interest expense is primarily attributable to the $200
million long-term debt for both comparable quarters. The reduction in interest expense is due
to capitalized interest of $0.6 million in the first quarter of fiscal 2006.
The first three months of fiscal 2006 includes gains from the sale of securities of $2.7
million, $1.7 million after-tax ($0.03 per diluted share). The first three months of fiscal
2005 includes gains from the sale of securities of $26.3 million, $16.0 million after-tax
($0.31 per diluted share), primarily from the sale of 1,000,000 shares of Atwood Oceanics,
Inc.
The value of the Companys remaining portfolio was approximately $294.1 million at December
31, 2005. The after-tax value was approximately $194.5 million.
Income from asset sales was $1.0 million in the first three months of fiscal 2006, compared to
$10.8 million in the same period of fiscal 2005. The decrease of $9.8 million is primarily
due to the sale of two deep domestic land rigs in the first quarter of fiscal 2005.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalent balances increased to $301.6 million at December 31, 2005 from $288.8
million at September 30, 2005. The increase in cash and cash equivalents is primarily the
result of proceeds from the sale of investments and assets of $4.5 million and net cash
provided by operating activities of $60.5 million offset by capital expenditures of $53.7
million.
Capital expenditures were $53.7 million and $10.5 million for the first three months of fiscal
2006 and 2005, respectively. Capital expenditures increased from 2005 due to the Companys
current construction program of new FlexRigs.
The Company anticipates capital expenditures to be approximately $500 million for fiscal 2006.
Included in the $500 million is approximately $11 million to $14 million per rig for the rigs
scheduled to be built in fiscal 2006. Capital expenditures will be financed primarily by
internally generated cash flow.
Current cash, investments in short-term money market securities, and cash generated from
operating activities are expected to meet the Companys estimated capital expenditures and
other expected cash requirements for fiscal 2006. The Companys indebtedness totaled $200
million at December 31, 2005, as described in Note 10 to the Consolidated Condensed Financial
Statements.
There were no other significant changes in the Companys financial position since September
30, 2005.
-20-
PART I. FINANCIAL INFORMATION
December 31, 2005
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a description of the Companys market risks, see
|
|
|
Item 7 (a). Quantitative and Qualitative Disclosures About Market Risk in the
Companys 2005 Annual Report on Form 10-K filed with the Securities and Exchange
Commission on December 13, 2005,
|
|
|
|
|
Note 10 to the Consolidated Condensed Financial Statements contained in
Item 1 of Part I hereof with regard to interest rate risk is incorporated herein by reference.
|
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, an evaluation was performed with the
participation of the Companys management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the Companys
disclosure controls and procedures. Based on that evaluation, the Companys management,
including the Chief Executive Officer and Chief Financial Officer, concluded that the
Companys disclosure controls and procedures were effective as of December 31, 2005. There
have been no changes in the Companys internal controls over financial reporting that occurred
during the most recent fiscal quarter that have materially affected, or are reasonably likely
to materially affect, the Companys internal controls over financial reporting.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
The
following documents are included as exhibits to this Form 10-Q. Those exhibits below
incorporated by reference herein are indicated as such by the information supplied in the
parenthetical thereafter. If no parenthetical appears after an exhibit, such exhibit is filed
or furnished herewith.
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
4
|
|
Amendment No. 1 to the Rights Agreement, dated as of December 8, 2005, between
the Company and UMB Bank, N.A. (as successor rights agent to Liberty Bank & Trust
Company of Oklahoma City, N.A.), as Rights Agent (incorporated herein by reference to
Exhibit 4 of the Companys Form 8-K filed December 12, 2005).
|
|
|
|
10
|
|
Helmerich & Payne, Inc. Annual Bonus Plan for executive Officers (incorporated
herein by reference to Exhibit 10.1 of the Companys
Form 8-K filed on December 9, 2005).
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer, as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer, as Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
|
|
|
32
|
|
Certification of Chief Executive Officer and Chief Financial Officer Pursuant
to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
-21-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
|
|
|
|
|
HELMERICH & PAYNE, INC.
(Registrant)
|
|
Date: February 7, 2006
|
By:
|
/S/ HANS C HELMERICH
|
|
|
|
Hans C. Helmerich, President
|
|
|
|
|
|
|
|
|
|
Date: February 7, 2006
|
By:
|
/S/ DOUGLAS E. FEARS
|
|
|
|
Douglas E. Fears, Chief Financial Officer
|
|
|
|
(Principal Financial Officer)
|
|
|
EXHIBIT INDEX
The
following documents are included as exhibits to this Form 10-Q. Those exhibits below
incorporated by reference herein are indicated as such by the information supplied in the
parenthetical thereafter. If no parenthetical appears after an exhibit, such exhibit is filed
or furnished herewith.
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
4
|
|
Amendment No. 1 to the Rights Agreement, dated as of December 8, 2005, between
the Company and UMB Bank, N.A. (as successor rights agent to Liberty Bank & Trust
Company of Oklahoma City, N.A.), as Rights Agent (incorporated herein by reference to
Exhibit 4 of the Companys Form 8-K filed December 12, 2005).
|
|
|
|
10
|
|
Helmerich & Payne, Inc. Annual Bonus Plan for executive Officers (incorporated
herein by reference to Exhibit 10.1 of the Companys
Form 8-K filed on December 9, 2005).
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer, as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer, as Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
|
|
|
32
|
|
Certification of Chief Executive Officer and Chief Financial Officer Pursuant
to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
-22-