Table of Contents

 
 
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: June 30, 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
(State or other jurisdiction of
incorporation or organization) 		  73-0679879
(I.R.S. Employer I.D. Number)
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 þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o
     
CLASS
Common Stock, $0.10 par value 		  OUTSTANDING AT July 31, 2005
51,458,534
Total Number of Pages — 23
 
 

 

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HELMERICH & PAYNE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
         
    Page No.
       
 
       
       
 
       
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    23  
  Certification of CEO Pursuant to Section 302
  Certification of CFO Pursuant to Section 302
  Certification of CEO & CFO Pursuant to Section 906

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PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except per share amounts)
ITEM 1. FINANCIAL STATEMENTS
                 
    Unaudited    
    June 30,   September 30,
    2005   2004
ASSETS
               
Current assets:
               
Cash and cash equivalents
  $ 236,285     $ 65,296  
Accounts receivable, less reserve of $1,436 at June 30, 2005 and $1,265 at September 30, 2004
    150,861       133,262  
Inventories
    20,108       20,826  
Deferred income tax
    5,344       4,346  
Prepaid expenses and other
    22,685       22,156  
 
               
Total current assets
    435,283       245,886  
 
               
 
               
Investments
    165,500       161,532  
Property, plant and equipment, net
    967,153       998,674  
Other assets
    2,652       752  
 
               
 
               
Total assets
  $ 1,570,588     $ 1,406,844  
 
               
 
               
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current liabilities:
               
Notes payable
  $ 379     $ —  
Accounts payable
    29,249       28,012  
Accrued liabilities
    35,956       31,891  
 
               
Total current liabilities
    65,584       59,903  
 
               
 
               
Long-term notes payable
    200,000       200,000  
Deferred income taxes
    233,319       194,573  
Other
    45,405       38,258  
 
               
Total noncurrent liabilities
    478,724       432,831  
 
               
 
               
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
    100,033       85,466  
Retained earnings
    907,563       828,763  
Unearned compensation
    (141 )     —  
Accumulated other comprehensive income
    43,724       36,252  
Treasury stock, at cost
    (30,252 )     (41,724 )
 
               
Total shareholders’ equity
    1,026,280       914,110  
 
               
 
               
Total liabilities and shareholders’ equity
  $ 1,570,588     $ 1,406,844  
 
               
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   Nine Months Ended
    June 30,   June 30,
    2005   2004   2005   2004
         
Operating revenues:
                               
Drilling — U.S. Land
  $ 138,720     $ 88,550     $ 370,302     $ 245,960  
Drilling — U.S. Offshore
    19,905       21,260       58,910       60,637  
Drilling — International
    46,030       35,487       130,300       110,759  
Real Estate
    2,732       2,394       8,004       7,632  
         
 
    207,387       147,691       567,516       424,988  
         
Operating costs and expenses:
                               
Operating costs
    121,470       105,562       347,043       304,293  
Depreciation
    23,419       23,934       70,631       69,604  
General and administrative
    11,680       9,516       30,519       28,407  
         
 
    156,569       139,012       448,193       402,304  
         
 
                               
Operating income
    50,818       8,679       119,323       22,684  
 
                               
Other income (expense):
                               
Interest and dividend income
    1,671       328       3,825       1,489  
Interest expense
    (3,127 )     (3,114 )     (9,682 )     (9,448 )
Gain on sale of investment securities
    —       —       26,313       11,976  
Income from asset sales
    603       102       12,390       1,738  
Other
    29       13       375       131  
         
 
    (824 )     (2,671 )     33,221       5,886  
         
 
                               
Income before income taxes and equity in income of affiliate
    49,994       6,008       152,544       28,570  
 
                               
Income tax provision
    20,627       2,522       62,910       12,137  
 
                               
Equity in income of affiliate net of income taxes
    458       861       1,851       550  
         
NET INCOME
  $ 29,825     $ 4,347     $ 91,485     $ 16,983  
         
 
                               
Earnings per common share:
                               
Basic
  $ 0.58     $ 0.09     $ 1.80     $ 0.34  
Diluted
  $ 0.57     $ 0.09     $ 1.77     $ 0.33  
 
                               
Weighted average shares outstanding:
                               
Basic
    51,233       50,404       50,909       50,273  
Diluted
    52,236       50,880       51,793       50,816  
 
Dividends declared per common share
  $ 0.0825     $ 0.0825     $ 0.2475     $ 0.2425  
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)
                 
    Nine Months Ended
    June 30,
    2005   2004
OPERATING ACTIVITIES:
               
Net income
  $ 91,485     $ 16,983  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation
    70,631       69,604  
Equity in income of affiliate before income taxes
    (2,985 )     (887 )
Amortization of deferred compensation
    19       10  
Gain on sale of investment securities
    (26,313 )     (10,030 )
Non-monetary investment gain
    —       (1,946 )
Gain on sale of assets
    (12,390 )     (1,738 )
Other-net
    (350 )     34  
Deferred income tax expense
    30,417       31,004  
Change in assets and liabilities-
               
Accounts receivables
    (34,438 )     (11,170 )
Inventories
    718       1,771  
Prepaid expenses and other
    (2,429 )     (1,213 )
Income tax receivable
    —       (22,772 )
Accounts payable
    1,159       (4,689 )
Accrued liabilities
    4,065       (2,028 )
Deferred income taxes
    7,887       1,929  
Other noncurrent liabilities
    6,199       9,378  
 
               
 
               
Net cash provided by operating activities
    133,675       74,240  
 
               
 
               
INVESTING ACTIVITIES:
               
Capital expenditures
    (54,082 )     (70,536 )
Purchase of investments
    (5,000 )     —  
Proceeds from sale of investments
    64,843       14,033  
Proceeds from asset sales
    27,364       3,280  
 
               
Net cash provided by (used in) investing activities
    33,125       (53,223 )
 
               
 
               
FINANCING ACTIVITIES:
               
Increase (decrease) in short-term notes
    379       (27,000 )
Dividends paid
    (12,607 )     (12,083 )
Proceeds from exercise of stock options
    16,417       4,324  
 
               
Net cash provided by (used in) financing activities
    4,189       (34,759 )
 
               
 
               
Net increase (decrease) in cash and cash equivalents
    170,989       (13,742 )
Cash and cash equivalents, beginning of period
    65,296       38,189  
 
               
Cash and cash equivalents, end of period
  $ 236,285     $ 24,447  
 
               
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
(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, 2004
    53,529     $ 5,353     $ 85,466     $ 828,763     $ —     $ 36,252       3,084     $ (41,724 )   $ 914,110  
Comprehensive Income:
                                                                       
 
                                                                       
Net Income
                          91,485                                       91,485  
Other comprehensive income, Unrealized gains on available- for-sale securities, net
                                            7,472                       7,472  
 
                                                                       
Comprehensive income
                                                                    98,957  
 
                                                                       
 
                                                                       
Capital adjustment of equity investee
                    2,682                                               2,682  
Cash dividends ($0.2475 per share)
                            (12,685 )                                     (12,685 )
Exercise of stock options
                    5,012                               (949 )     11,405       16,417  
Stock issued under Restricted Stock Award Plan
                    93               (160 )             (5 )     67       —  
Tax benefit of stock-based awards
                    6,780                                               6,780  
Amortization of deferred compensation
                                    19                               19  
     
 
                                                                       
Balance, June 30, 2005
    53,529     $ 5,353     $ 100,033     $ 907,563     $ (141 )   $ 43,724       2,130     $ (30,252 )   $ 1,026,280  
     
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
 
    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 and nine months ended June 30, 2005, and June 30, 2004, 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 Company’s 2004 Annual Report on Form 10-K and 10-K/A.
 
    Certain reclassifications have been made to the prior period amounts to conform to the current period presentation.
 
2.   Employee Stock-Based Awards
 
    Employee stock-based awards are accounted for under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations. Fixed plan common stock options generally do not result in compensation expense because the exercise price of the options issued by the Company equals the market price of the underlying stock on the date of grant. The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation”.
                                 
    Three Months Ended   Nine Months Ended
    June 30,   June 30,
    2005   2004   2005   2004
    (in thousands, except per share amounts)
Net income, as reported
  $ 29,825     $ 4,347     $ 91,485     $ 16,983  
Add: Stock-based employee compensation expense included in the Consolidated Statements of Income, net of related tax effects
    5       —       12       6  
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects
    (903 )     (1,009 )     (2,729 )     (3,131 )
 
                               
Pro forma net income
  $ 28,927     $ 3,338     $ 88,768     $ 13,858  
 
                               
 
                               
Earnings per share:
                               
Basic-as reported
  $ 0.58     $ 0.09     $ 1.80     $ 0.34  
 
                               
Basic-pro forma
  $ 0.56     $ 0.07     $ 1.74     $ 0.28  
 
                               
 
                               
Diluted-as reported
  $ 0.57     $ 0.09     $ 1.77     $ 0.33  
 
                               
Diluted-pro forma
  $ 0.55     $ 0.07     $ 1.71     $ 0.27  
 
                               
3.   Cash Dividends
    The $.0825 cash dividend declared March 2, 2005, was paid June 1, 2005. On June 1, 2005, a cash dividend of $.0825 per share was declared for shareholders of record on August 15, 2005, payable September 1, 2005.
4.   Inventories
    Inventories consist primarily of replacement parts and supplies held for use in the Company’s drilling operations.

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HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
5.   Sale of Investment Securities
 
    Net income includes after-tax gains and losses from the sale of available-for-sale securities and non-monetary investment gains as follows (in thousands, except per share amounts):
                                 
    Three Months Ended   Nine Months Ended
    June 30,   June 30,
    2005   2004   2005   2004
After-tax gain (loss)
  $ —     $ —     $ 16,042     $ 6,201  
Earnings per diluted share
  $ —     $ —     $ 0.31     $ 0.13  
 
Non-monetary investment gain
  $ —     $ —     $ —     $ 1,193  
Earnings per diluted share
  $ —     $ —     $ —     $ 0.02  
6.   Summary of Available-for-Sale Securities
 
    The following is a summary of available-for-sale securities, which excludes those accounted for under the equity method of accounting and assets held in a Non-qualified Supplemental Savings Plan. The assets held in the Non-qualified Supplemental Savings Plan are valued at fair market which totaled $6.6 million at June 30, 2005 and $5.6 million at September 30, 2004. The recorded amounts for investments accounted for under the equity method are $45.6 million and $57.8 million at June 30, 2005 and September 30, 2004, respectively.
                                 
            Gross   Gross   Est.
            Unrealized   Unrealized   Fair
    Cost   Gains   Losses   Value
            (in thousands)        
Equity Securities 06/30/05
  $ 30,976     $ 82,330     $ —     $ 113,306  
Equity Securities 09/30/04
  $ 27,811     $ 70,448     $ 170     $ 98,089  
7.   Comprehensive Income
    Comprehensive income, net of related tax, is as follows (in thousands):
                                 
    Three Months Ended   Nine Months Ended
    June 30,   June 30,
    2005   2004   2005   2004
Net Income
  $ 29,825     $ 4,347     $ 91,485     $ 16,983  
Other comprehensive income:
                               
Net unrealized gain (loss) on securities
    4,615       (1,198 )     7,472       8,805  
Amortization of unrealized loss on derivative instruments
    —       —       —       72  
 
                               
Other comprehensive income
    4,615       (1,198 )     7,472       8,877  
 
                               
Comprehensive income
  $ 34,440     $ 3,149     $ 98,957     $ 25,860  
 
                               
    The components of accumulated other comprehensive income, net of related taxes, are as follows (in thousands):
                 
    June 30,   September 30,
    2005   2004
Unrealized gain on securities, net
  $ 51,044     $ 43,572  
Minimum pension liability
    (7,320 )     (7,320 )
 
               
Accumulated other comprehensive income
  $ 43,724     $ 36,252  
 
               

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HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
8.   Notes Payable and Long-term Debt
 
    At June 30, 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 June 30, 2005, the Company had a committed unsecured line of credit totaling $50 million. A short-term loan totaling $0.4 million and letters of credit totaling $13.8 million were outstanding against the line at June 30, 2005, leaving $35.8 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 maintain a minimum 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. The line of credit matured in July, 2005 and the Company renewed the facility with the same terms as the existing line of credit. The renewed facility matures in July, 2006.
 
9.   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:
                                 
    Three Months Ended   Nine Months Ended
    June 30,   June 30,
    2005   2004   2005   2004
            (in thousands)        
Basic weighted-average shares
    51,233       50,404       50,909       50,273  
Effect of dilutive shares:
                               
Stock options and restricted stock
    1,003       476       884       543  
 
                               
Diluted weighted-average shares
    52,236       50,880       51,793       50,816  
 
                               
10.   Income Taxes
 
    The Company’s effective tax rate was 41.2 percent in the first nine months of fiscal 2005, compared to 42.5 percent in the first nine months of fiscal 2004. The effective tax rate for the three months ended June 30, 2005 and 2004 was 41.3 percent and 42.0 percent, respectively. The effective rate differs from the U.S. federal statutory rate of 35.0 percent primarily due to state and foreign taxes.
 
11.   Commitments
 
    The Company, on a regular basis, makes commitments for the purchase of contract drilling equipment. At June 30, 2005, the Company had commitments outstanding of approximately $64.7 million for the purchase of drilling equipment.

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HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
12.   Segment Information
 
    The Company operates principally in the contract drilling industry. The Company’s 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 Company’s primary international areas of operation include Venezuela, Colombia, Ecuador, Argentina and Bolivia. 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 major 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 Company’s reportable segments for the nine months ended June 30, 2005, and 2004, is shown in the following tables:
                                 
    External   Inter-   Total   Operating
(in thousands)   Sales   Segment   Sales   Income
 
June 30, 2005
                               
Contract Drilling:
                               
U.S. Land
  $ 370,302     $ —     $ 370,302     $ 108,629  
U.S. Offshore
    58,910       —       58,910       12,988  
International
    130,300       —       130,300       15,063  
 
                               
 
    559,512       —       559,512       136,680  
 
                               
 
                               
Real Estate
    8,004       592       8,596       3,202  
Other
    —       —       —       (22,177 )
Eliminations
    —       (592 )     (592 )     1,618  
 
                               
Total
  $ 567,516     $ —     $ 567,516     $ 119,323  
 
                               
                                 
    External   Inter-   Total   Operating
(in thousands)   Sales   Segment   Sales   Income
 
June 30, 2004
                               
Contract Drilling:
                               
U.S. Land
  $ 245,960     $ —     $ 245,960     $ 21,689  
U.S. Offshore
    60,637       —       60,637       11,912  
International
    110,759       —       110,759       6,941  
 
                               
 
    417,356       —       417,356       40,542  
 
                               
 
                               
Real Estate
    7,632       706       8,338       3,164  
Other
    —       —       —       (21,022 )
Eliminations
    —       (706 )     (706 )     —  
 
                               
Total
  $ 424,988     $ —     $ 424,988     $ 22,684  
 
                               

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Table of Contents

HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Summarized financial information of the Company’s reportable segments for the three months ended June 30, 2005, and 2004, is shown in the following tables:
                                 
    External   Inter-   Total   Operating
(in thousands)   Sales   Segment   Sales   Income
 
June 30, 2005
                               
Contract Drilling:
                               
U.S. Land
  $ 138,720     $ —     $ 138,720     $ 47,244  
U.S. Offshore
    19,905       —       19,905       4,648  
International
    46,030       —       46,030       5,284  
 
                               
 
    204,655       —       204,655       57,176  
 
                               
 
                               
Real Estate
    2,732       199       2,931       1,266  
Other
    —       —       —       (8,327 )
Eliminations
    —       (199 )     (199 )     703  
 
                               
Total
  $ 207,387     $ —     $ 207,387     $ 50,818  
 
                               
                                 
    External   Inter-   Total   Operating
(in thousands)   Sales   Segment   Sales   Income
 
June 30, 2004
                               
Contract Drilling:
                               
U.S. Land
  $ 88,550     $ —     $ 88,550     $ 9,487  
U.S. Offshore
    21,260       —       21,260       3,820  
International
    35,487       —       35,487       1,746  
 
                               
 
    145,297       —       145,297       15,053  
 
                               
 
                               
Real Estate
    2,394       189       2,583       862  
Other
    —       —       —       (7,236 )
Eliminations
    —       (189 )     (189 )     —  
 
                               
Total
  $ 147,691     $ —     $ 147,691     $ 8,679  
 
                               

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Table of Contents

HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The following table reconciles segment operating income per the table above to income before income taxes and equity in income of affiliate as reported on the Consolidated Condensed Statements of Income.
                                 
    Three Months Ended   Nine Months Ended
    June 30,   June 30,
    2005   2004   2005   2004
            (in thousands)        
Segment operating income
  $ 50,818     $ 8,679     $ 119,323     $ 22,684  
 
                               
Other income (expense):
                               
Interest and dividend income
    1,671       328       3,825       1,489  
Interest expense
    (3,127 )     (3,114 )     (9,682 )     (9,448 )
Gain on sale of investment securities
    —       —       26,313       11,976  
Income from asset sales
    603       102       12,390       1,738  
Other
    29       13       375       131  
 
                               
Total other income (expense)
    (824 )     (2,671 )     33,221       5,886  
 
                               
 
                               
Income before income taxes and equity in income of affiliate
  $ 49,994     $ 6,008     $ 152,544     $ 28,570  
 
                               
                 
    June 30,   September 30,
    2005   2004
    (in thousands)
Total Assets
               
U.S. Land
  $ 774,803     $ 742,642  
U.S. Offshore
    93,292       102,557  
International
    243,110       261,893  
 
               
 
    1,111,205       1,107,092  
 
               
Real Estate
    32,269       33,044  
Other
    427,114       266,708  
 
               
 
  $ 1,570,588     $ 1,406,844  
 
               
The following table presents revenues from external customers by country based on the location of service provided.
                                 
    Three Months Ended   Nine Months Ended
    June 30,   June 30,
    2005   2004   2005   2004
            (in thousands)        
Operating revenues
                               
United States
  $ 161,357     $ 112,204     $ 437,216     $ 314,229  
Venezuela
    16,263       14,149       49,484       40,535  
Ecuador
    16,348       9,621       44,315       32,006  
Other Foreign
    13,419       11,717       36,501       38,218  
 
                               
Total
  $ 207,387     $ 147,691     $ 567,516     $ 424,988  
 
                               

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Table of Contents

HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
13.   Pensions and Other Post-retirement Benefits
 
    The following provides information at June 30, 2005 and 2004 as to the Company’s sponsored domestic defined benefit pension plan.
 
    Components of Net Periodic Benefit Cost
                                 
    Three Months Ended   Nine Months Ended
    June 30,   June 30,
    2005   2004   2005   2004
            (in thousands)        
Service Cost
  $ 1,137     $ 1,006     $ 3,410     $ 3,018  
Interest Cost
    1,154       1,101       3,462       3,303  
Expected return on plan assets
    (1,094 )     (1,058 )     (3,283 )     (3,175 )
Amortization-prior service cost
    —       5       —       15  
Recognized net actuarial loss
    239       190       717       568  
 
                               
 
                               
Net pension expense
  $ 1,436     $ 1,244     $ 4,306     $ 3,729  
 
                               
    Plan Assets
 
    The weighted-average asset allocations for the pension plan by asset category follow:
                 
At June 30,   2005   2004
Asset Category Equity Securities
    73.1 %     71.5 %
Debt Securities
    24.8 %     26.8 %
Real Estate and Other
    2.1 %     1.7 %
 
               
Total
    100.0 %     100.0 %
    Employer Contributions
 
    The Company made a discretionary $1 million contribution to the pension plan during the third quarter of fiscal 2005. The Company plans to make an additional contribution to the pension plan in the fourth quarter of fiscal 2005.
 
14.   Recently Issued Accounting Standards
 
    In December, 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123 (revised 2004), “Share-Based Payment”, which is a revision of FASB Statement No. 123, “Accounting for Stock-Based Compensation”. Statement 123(R) supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees” and amends FASB Statement No. 95, “Statement of Cash Flows”. The statement requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair value. The statement is effective at the beginning of the first interim or annual period beginning after June 15, 2005 with the SEC allowing for implementation at the beginning of the first fiscal year beginning after June 15, 2005. The Company plans to adopt the new standard the first quarter of fiscal 2006, beginning October 1, 2005, under the modified-prospective-transition method. The Company will recognize compensation cost for share-based payments to employees based on their grant-date fair value from the beginning of the fiscal period in which the recognition provisions are first applied. Measurement and attribution of compensation cost for awards that were granted but not vested prior to the date the Company adopts the new standard will be based on the same estimate of the grant-date fair value and the same attribution method used previously under Statement 123 for pro forma disclosure. For those awards that are granted, modified or settled after the Company adopts the Statement, compensation cost will be measured and recognized in the financial statements in accordance with the provisions of Statement 123(R). The Company expects to incur additional compensation expense of approximately $1 million related to options currently outstanding in the first quarter of fiscal 2006 as a result of adopting Statement 123(R).

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Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
June 30, 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 Company’s 2004 Annual Report on Form 10-K. The Company’s future operating results may be affected by various trends and factors, which are beyond the Company’s control. These include, among other factors, fluctuations in natural gas and crude oil prices, expiration or termination of drilling contracts, currency exchange losses, changes in general economic and political conditions, rapid or unexpected changes in technologies and uncertain business conditions that affect the Company’s 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 Management’s 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, assumed facts almost always vary from actual results. The differences between assumed facts 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 June 30, 2005 vs. Three Months Ended June 30, 2004
The Company reported net income of $29.8 million ($0.57 per diluted share) from operating revenues of $207.4 million for the third quarter ended June 30, 2005, compared with net income of $4.3 million ($0.09 per diluted share) from revenues of $147.7 million for the third quarter of fiscal year 2004.
The following tables summarize operations by business segment for the three months ended June 30, 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 June 30,
    2005   2004
U.S. LAND OPERATIONS   (in thousands, except days and per day amounts)
Revenues
  $ 138,720     $ 88,550  
Direct operating expenses
    74,639       62,784  
General and administrative expense
    2,346       1,831  
Depreciation
    14,491       14,448  
 
               
Operating income
  $ 47,244     $ 9,487  
 
               
Activity days
    7,797       7,071  
Average rig revenue per day
  $ 16,658     $ 11,537  
Average rig expense per day
  $ 8,439     $ 7,893  
Average rig margin per day
  $ 8,219     $ 3,644  
Rig utilization
    94 %     89 %

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Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
June 30, 2005
U.S. LAND operating income increased to $47.2 million for the third quarter of fiscal 2005 compared to $9.5 million in the same period of fiscal 2004. Revenues were $138.7 million and $88.6 million in the third quarter of fiscal 2005 and 2004, respectively. Included in land revenues for the three months ended June 30, 2005 and 2004 are reimbursements for “out-of-pocket” expenses of $8.8 million and $7.0 million, respectively. The $37.7 million increase in operating income was primarily the result of increased activity days and higher dayrates.
Average land rig margin per day was $8,219 and $3,644 for the third quarter of fiscal 2005 and 2004, respectively. The significant increase in margins was due to higher dayrates. Land rig utilization was 94 percent and 89 percent for the third quarter of fiscal 2005 and 2004, respectively. Land rig activity days for the third quarter of fiscal 2005 were 7,797 compared with 7,071 for the same period of fiscal 2004, with an average of 85.7 and 77.7 rigs working during the third quarter of fiscal 2005 and 2004, respectively.
During the third quarter of fiscal 2005, one rig was transferred from our International rig fleet to our U.S. Land rig fleet and is currently under contract. The Company has received a letter of intent for a two-year term contract in Argentina and a rig from our U.S. Land rig fleet is scheduled to be transferred to the International rig fleet in the first quarter of fiscal 2006.
In the third quarter of fiscal 2005, the Company announced three contracts to operate seven new FlexRig4s and one new FlexRig3. Subsequent to June 30, 2005, the Company announced two additional agreements had been reached to operate four new FlexRig4s. With the addition of these new contracts and the agreement to operate 10 new FlexRig4s that was announced in the second quarter, the total rig construction commitment for the FlexRigs is 22. The first rig is scheduled for completion in November, 2005, with the remaining rigs expected to be delivered to the field at the rate of two per month. The total capital cost of the construction is estimated at $236 million with approximately $50 million spent in fiscal 2005 and $186 million in fiscal 2006. All of the signed contracts contain a minimum term of three years and the construction will be financed primarily by internally generated cash flow.
                 
    Three months ended June 30,
    2005   2004
U.S. OFFSHORE OPERATIONS   (in thousands, except days and per day amounts)
Revenues
  $ 19,905     $ 21,260  
Direct operating expenses
    11,504       13,615  
General and administrative expense
    1,071       792  
Depreciation
    2,682       3,033  
 
               
Operating income
  $ 4,648     $ 3,820  
 
               
Activity days
    455       572  
Average rig revenue per day
  $ 32,614     $ 27,955  
Average rig expense per day
  $ 16,426     $ 16,347  
Average rig margin per day
  $ 16,188     $ 11,608  
Rig utilization
    45 %     52 %
U.S. OFFSHORE revenues include reimbursements for “out-of-pocket” expenses of $2.4 million and $1.2 million for the three months ended June 30, 2005 and 2004, respectively.
Operating income increased to $4.6 million for the third quarter of fiscal 2005 compared to $3.8 million in the same period of fiscal 2004. The increase is the result of a reduction in depreciation expense due to an asset impairment charge recorded in the fourth quarter of fiscal 2004. Additionally, operating income was improved in the third quarter of fiscal 2005 compared to the third quarter of fiscal 2004, due to a rig working the entire third quarter of fiscal 2005 and only working the latter part of the third quarter of fiscal 2004.

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Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
June 30, 2005
Five of the Company’s eleven platform rigs are currently contracted. A sixth rig commenced operations in July and a seventh rig has been contracted to start operations late in the fourth quarter of fiscal 2005. Four rigs are presently idle without contracts. However, the Company expects to contract one of these idle rigs to start late in the fourth quarter of fiscal 2005.
                 
    Three months ended June 30,
    2005   2004
INTERNATIONAL OPERATIONS   (in thousands, except days and per day amounts)
Revenues
  $ 46,030     $ 35,487  
Direct operating expenses
    35,192       28,210  
General and administrative expense
    619       428  
Depreciation
    4,935       5,103  
 
               
Operating income
  $ 5,284     $ 1,746  
 
               
Activity days
    1,916       1,567  
Average rig revenue per day
  $ 19,536     $ 18,827  
Average rig expense per day
  $ 14,633     $ 14,577  
Average rig margin per day
  $ 4,903     $ 4,250  
Rig utilization
    80 %     53 %
INTERNATIONAL DRILLING operating income for the third quarter of fiscal 2005 was $5.3 million, compared to $1.7 million in the same period of fiscal 2004. Included in operating income is an exchange gain in Venezuela of $0.9 million in the third quarter of fiscal 2005. Venezuela incurred no significant exchange fluctuation during the third quarter of fiscal 2004. Rig utilization for international operations averaged 80 percent for this year’s third quarter, compared with 53 percent for the third quarter of fiscal 2004. An average of 20.8 rigs worked during the current quarter, compared to 17.0 rigs in the third quarter of fiscal 2004. International revenues were $46.0 million in the third quarter of fiscal 2005, compared with $35.5 million in the third quarter of fiscal 2004. The increase in revenue is attributable to increased activity days and increased dayrates. Included in International Drilling revenues for the three months ended June 30, 2005 and 2004 are reimbursements for “out-of-pocket” expenses of $4.1 million and $2.5 million, respectively.
Currently in Venezuela, the Company has nine deep rigs operating for PDVSA. The Company is bidding on other contracts that offer possibilities for one 3,000 HP deep land rig and two 2,000 HP deep land rigs.
Ecuador’s rig utilization was 100 percent and 64 percent for the third quarter of fiscal 2005 and 2004, respectively. In those same comparative quarters, an average of 8.0 rigs and 5.1 rigs worked.
Two deep rigs worked at 100 percent activity in Colombia during the third quarter of fiscal 2005, compared to no activity in the third quarter of fiscal 2004.
During the third quarter of fiscal 2005, Argentina had one rig operating. Argentina has a second rig that is under contract while moving from Bolivia to Argentina. Argentina had one rig working during the third quarter of fiscal 2004. A third rig has a letter of intent for a two-year term contract starting in December 2005. This rig will be relocating from the U.S. Land Operations.
Bolivia had one rig contracted during the third quarter of fiscal 2005 compared to one rig working during the third quarter of fiscal 2004. The rig under contract is expected to begin work during the first quarter of fiscal 2006. The remaining two rigs in Bolivia are moving to Chile and Argentina to begin work in the first and second quarters of fiscal 2006, respectively.

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Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
June 30, 2005
Chad had no activity in the third quarter of fiscal 2005, as those operations ceased at the end of fiscal 2004. The rig was moved to the U.S. Land fleet in the first quarter of fiscal 2005. In the third quarter of fiscal 2004, Chad had one rig working.
The contract in Hungary was completed early in the second quarter of fiscal 2005, and was transferred to the U.S. Land fleet in the third quarter of fiscal 2005. In the third quarter of fiscal 2004, there was one rig working in Hungary.
OTHER
General and administrative expenses increased to $11.7 million in the third quarter of fiscal 2005 from $9.5 million in the third quarter of fiscal 2004. The $2.2 million increase is primarily due to the Company recording estimated bonuses projected to be earned during fiscal 2005. The Company determined that performance criteria will be met in fiscal 2005 that will activate pre-determined bonus levels. The bonuses will be paid in December 2005. The Company anticipates an expense of approximately $0.8 million for general and administrative related bonuses in the fourth quarter of fiscal 2005.
Interest and dividend income increased to $1.7 million in the third quarter of fiscal 2005 compared to $0.3 million in the third quarter of fiscal 2004. The increase is due to higher earnings from increased cash and cash equivalent balances.
Interest expense was $3.1 million in both the third quarter of fiscal 2005 and 2004. Interest expense is primarily attributable to the $200 million long-term debt for both comparable quarters. Capitalized interest was $0.1 million in both the third quarter of fiscal 2005 and the third quarter of fiscal 2004.
Nine Months Ended June 30, 2005 vs. Nine Months Ended June 30, 2004
The Company reported net income of $91.5 million ($1.77 per diluted share) from operating revenues of $567.5 million for the nine months ended June 30, 2005, compared with net income of $17.0 million ($0.33 per diluted share) from operating revenues of $425.0 million for the first nine months of fiscal year 2004. Net income for the first nine months of fiscal 2005 includes $16.0 million ($0.31 per diluted share) of after-tax gains from the sale of available-for-sale securities. Net income for the first nine months of fiscal 2004 includes $6.2 million ($0.13 per diluted share) of after-tax gains from the sale of available-for-sale securities and a non-monetary investment gain of $1.2 million ($0.02 per diluted share).
The following tables summarize operations by business segment for the nine months ended June 30, 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.

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Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
June 30, 2005
                 
    Nine months ended June 30,
    2005   2004
U.S. LAND OPERATIONS   (in thousands, except days and per day amounts)
Revenues
  $ 370,302     $ 245,960  
Direct operating expenses
    211,312       177,217  
General and administrative expense
    6,051       5,623  
Depreciation
    44,310       41,431  
 
               
Operating income
  $ 108,629     $ 21,689  
 
               
Activity days
    22,974       20,109  
Average rig revenue per day
  $ 15,028     $ 11,342  
Average rig expense per day
  $ 8,108     $ 7,924  
Average rig margin per day
  $ 6,920     $ 3,418  
Rig utilization
    93 %     85 %
U.S. LAND operating income increased to $108.6 million for the first nine months of fiscal 2005 from $21.7 million in the first nine months of fiscal 2004.
Revenues were $370.3 million in the first nine months of fiscal 2005, compared with $246.0 million in the same period of fiscal 2004. Included in land revenues for the nine months ended June 30, 2005 and June 30, 2004 are reimbursements for “out-of-pocket” expenses of $25.0 million and $17.9 million, respectively. Operating income increased to $108.6 million from $21.7 million when comparing the nine months ended June 30, 2005 to the same period in 2004. These increases in revenue and operating income were primarily the result of increased activity days and higher dayrates, partially offset by increased depreciation.
The 102 percent increase in margins per day was due to higher dayrates in fiscal 2005. Land rig utilization was 93 percent and 85 percent for the nine months of fiscal 2005 and 2004, respectively. Land rig activity days for the first nine months of fiscal 2005 were 22,974 compared with 20,109 for the same period of fiscal 2004, with an average of 84.2 and 73.4 rigs working during the first nine months of fiscal 2005 and 2004, respectively. The increase in rig activity days and average rigs working is attributable to increased activity for the same rigs working in fiscal 2005 and 2004 and four of the six rigs transferred from the international rig fleet are working. The 7 percent increase in depreciation is the result of the six additional rigs transferred from the international rig fleet during fiscal 2005 and a full year of depreciation on FlexRig3s in fiscal 2005.
                 
    Nine months ended June 30,
    2005   2004
U.S. OFFSHORE OPERATIONS   (in thousands, except days and per day amounts)
Revenues
  $ 58,910     $ 60,637  
Direct operating expenses
    35,343       37,334  
General and administrative expense
    2,722       2,288  
Depreciation
    7,857       9,103  
 
               
Operating income
  $ 12,988     $ 11,912  
 
               
Activity days
    1,468       1,487  
Average rig revenue per day
  $ 28,981     $ 29,593  
Average rig expense per day
  $ 15,133     $ 16,158  
Average rig margin per day
  $ 13,848     $ 13,435  
Rig utilization
    49 %     45 %

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
June 30, 2005
U.S. OFFSHORE operating revenues and income remained steady. Included in offshore revenues for the nine months ended June 30, 2005 and June 30, 2004 are reimbursements for “out-of-pocket” expenses of $5.3 million and $4.3 million, respectively. Operating income increased to $13.0 million in the first nine months of fiscal 2005 from $11.9 million in the first nine months of fiscal 2004. The increase is primarily the result of a lower depreciation expense due to an asset impairment charge recorded in the fourth quarter of fiscal 2004. Activity days were 1,468 and 1,487 for the first nine months of fiscal 2005 and 2004, respectively. Rig utilization for the same periods was 49 percent and 45 percent, respectively.
Five of the Company’s eleven platform rigs are currently contracted. A sixth rig has commenced operations in July and a seventh rig has been contracted to start operations late in the fourth quarter of fiscal 2005. Four rigs are presently idle without contracts. However, the Company expects to contract one of these idle rigs to start late in the fourth quarter of fiscal 2005.
                 
    Nine months ended June 30,
    2005   2004
INTERNATIONAL OPERATIONS   (in thousands, except days and per day amounts)
Revenues
  $ 130,300     $ 110,759  
Direct operating expenses
    98,967       86,938  
General and administrative expense
    1,769       1,617  
Depreciation
    14,501       15,263  
 
               
Operating income
  $ 15,063     $ 6,941  
 
               
Activity days
    5,467       4,574  
Average rig revenue per day
  $ 19,393     $ 19,888  
Average rig expense per day
  $ 13,900     $ 14,846  
Average rig margin per day
  $ 5,493     $ 5,042  
Rig utilization
    74 %     52 %
INTERNATIONAL DRILLING operating income in the first nine months of fiscal 2005 was $15.1 million, compared to $6.9 million in the same period of fiscal 2004. The increase in operating income is primarily the result of increased rig activity. Rig utilization for international operations averaged 74 percent for the first nine months of fiscal 2005, compared with 52 percent for the first nine months of fiscal 2004. An average of 20.0 rigs worked during the first nine months of fiscal 2005, compared to 16.7 rigs in the first nine months of fiscal 2004. International revenues were $130.3 million and $110.8 million in the first nine months of fiscal 2005 and 2004, respectively. The increase in revenues is a result of increased activity days and increased dayrates. Included in International Drilling revenues for the nine months ended June 30, 2005 and 2004, are reimbursements for “out-of-pocket” expenses of $11.0 million and $9.3 million, respectively. The overall increase in margin per day was primarily the result of an increase in activity days in Venezuela, Colombia and Ecuador in fiscal 2005 and a decrease in expense due to the closure of the Chad operation at the end of fiscal 2004.
Effective March 3, 2005, the Central Bank of Venezuela authorized the devaluation of the bolivar from 1920 to 2150. Included in direct operating expenses for the nine months ended June 30, 2005 is a $0.6 million exchange loss related to the Venezuelan currency devaluation, compared to a $1.5 million currency devaluation loss for the same period in 2004.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
June 30, 2005
OTHER
General and administrative expenses increased to $30.5 million in the first nine months of fiscal 2005 compared to $28.4 million in the same period of fiscal 2004. The $2.1 million increase in primarily due to the Company recording estimated bonuses projected to be earned during fiscal year 2005. The Company determined that performance criteria will be met in fiscal 2005 that will activate pre-determined bonus levels. The bonuses will be paid in December 2005.
Interest and dividend income increased to $3.8 million in the first nine months of fiscal 2005, compared to $1.5 million in the same period of fiscal 2004. The increase is attributable to higher earnings from increased cash and cash equivalent balances.
The first nine 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 first nine months of fiscal 2004 includes gains from the sale of available-for-sale securities of $10.0 million, $6.2 million after-tax ($0.13 per diluted share) and a non-monetary investment gain of $1.9 million, $1.2 million after-tax ($0.02 per diluted share).
The value of the Company’s remaining portfolio was approximately $236.4 million at June 30, 2005. The after-tax value was approximately $157.6 million.
Income from asset sales increased to $12.4 million in the first nine months of fiscal 2005, compared to $1.7 million in the same period of fiscal 2004. The increase of $10.7 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 $236.3 million at June 30, 2005 from $65.3 million at September 30, 2004. The increase in cash and cash equivalents is the result of proceeds from the sale of investments of $64.8 million, proceeds from asset sales of $27.4 million and net cash provided by operating activities of $133.7 million. In the first nine months of fiscal 2004, net cash provided by operating activities was $74.2 million.
Capital expenditures were $54.1 million and $70.5 million for the first nine months of fiscal 2005 and 2004, respectively. Capital expenditures decreased from 2004 due to the completion of the Company’s FlexRig3 construction project. The Company began construction of FlexRig4s in the third quarter of fiscal 2005 with the first of 22 FlexRigs to be completed in November, 2005. During the first nine months of fiscal 2004, five new FlexRig3s were completed.
The Company anticipates capital expenditures to be approximately $115 million for fiscal 2005. Included in the $115 million is approximately $50 million of the total estimated $236 million construction costs related to the 22 new FlexRigs. The remaining estimated FlexRig construction costs of $186 million will be incurred 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 Company’s estimated capital expenditures and other expected cash requirements for fiscal 2005. The Company’s indebtedness totaled $200.4 million at June 30, 2005, as described in Note 8 to the Consolidated Condensed Financial Statements.
There were no other significant changes in the Company’s financial position since September 30, 2004.

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PART I. FINANCIAL INFORMATION
June 30, 2005
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a description of the Company’s market risks, see
  •   “Item 7 (a). Quantitative and Qualitative Disclosures About Market Risk” in the Company’s 2004 Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 13, 2004,
 
  •   Note 8 to the Consolidated Condensed Financial Statements contained in Part I Item 1 hereof with regard to interest rate risk,
 
  •   Page 17 of Results of Operations contained in Item 2 hereof with regard to foreign currency exchange rate risk with operations ceasing in Hungary, and
 
  •   Page 19 of Results of Operations contained in Item 2 hereof with regard to foreign currency exchange rate risk due to the currency devaluation in Venezuela.
ITEM 4. CONTROLS AND PROCEDURES
  a)   Evaluation of disclosure controls and procedures. As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer believe that:
  •   the Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and
 
  •   the Company’s disclosure controls and procedures operate such that important information flows to appropriate collection and disclosure points in a timely manner and are effective to ensure that such information is accumulated and communicated to the Company’s management, and made known to the Company’s Chief Executive Officer and Chief Financial Officer, particularly during the period when this Quarterly Report on Form 10-Q was prepared, as appropriate to allow timely decisions regarding the required disclosure.
  b)   Changes in internal control over financial reporting. There have been no changes in the Company’s internal control over financial reporting during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
  c)   Section 404 of the Sarbanes-Oxley Act of 2002 will require the Company to include an internal control report of management with the annual report on Form 10-K for the fiscal year ending September 30, 2005. The internal control report must contain (1) a statement of management’s responsibility for establishing and maintaining effective internal control over financial reporting for the Company, (2) a statement identifying the framework used by management to conduct the required evaluation of the effectiveness of the Company’s internal control over financial reporting, (3) management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of the end of the most recent fiscal year, including a statement as to whether or not the Company’s internal control over financial reporting is effective, and (4) a statement that the Company’s independent auditors have issued an attestation report on management’s assessment of the Company’s internal control over financial reporting and the effectiveness of the Company’s internal control.

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PART I. FINANCIAL INFORMATION
June 30, 2005
ITEM 4. CONTROLS AND PROCEDURES (continued)
The Company is currently undergoing a comprehensive effort in preparation for compliance with Section 404 of the Sarbanes-Oxley Act of 2002. This effort includes the documentation, testing and review of the Company’s internal controls under the direction of senior management. During the course of these activities, the Company has identified certain internal control issues which senior management believes need to be improved. As a result, the Company is evaluating and implementing improvements to internal controls over financial reporting and will continue to do so. These improvements include further formalization of policies and procedures, improved segregation of duties, and improved information technology system controls. To date, the Company has not identified any material internal control weaknesses.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
(a) Exhibits
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.

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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: August 5, 2005  By:   /s/ HANS C. HELMERICH    
    Hans C. Helmerich, President   
       
         
Date: August 5, 2005  By:   /s/ DOUGLAS E. FEARS    
    Douglas E. Fears, Chief Financial Officer   
    (Principal Financial Officer)   
 
Exhibit Index –
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.

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EXHIBIT 31.1
CERTIFICATION
     I, Hans Helmerich, certify that:
     1. I have reviewed this quarterly report on Form 10-Q of Helmerich & Payne, Inc.;
     2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
     3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report;
     4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:
  a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
 
  b)   evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and
 
  c)   disclosed in this quarterly report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
     5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
  a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
 
  b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
     
Date: August 5, 2005
  /s/ Hans Helmerich
 
   
 
  Hans Helmerich, Chief Executive Officer

 

 

EXHIBIT 31.2
CERTIFICATION
     I, Douglas E. Fears, certify that:
     1. I have reviewed this quarterly report on Form 10-Q of Helmerich & Payne, Inc.;
     2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
     3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report;
     4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:
  a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
 
  b)   evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and
 
  c)   disclosed in this quarterly report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
     5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
  a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
 
  b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
     
Date: August 5, 2005
  /s/ Douglas E. Fears
 
   
 
  Douglas E. Fears, Chief Financial Officer

 

 

EXHIBIT 32
Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
     In connection with the Quarterly Report of Helmerich & Payne, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Hans Helmerich, as Chief Executive Officer of the Company, and Douglas E. Fears, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge, that:
     (1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
     
/s/ Hans Helmerich
  /s/ Douglas E. Fears
 
   
Hans Helmerich
  Douglas E. Fears
Chief Executive Officer
  Chief Financial Officer
August 5, 2005
  August 5, 2005