Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - Helmerich & Payne, Inc.Financial_Report.xls
EX-10.6 - EX-10.6 - Helmerich & Payne, Inc.a15-6174_1ex10d6.htm
EX-10.7 - EX-10.7 - Helmerich & Payne, Inc.a15-6174_1ex10d7.htm
EX-31.1 - EX-31.1 - Helmerich & Payne, Inc.a15-6174_1ex31d1.htm
EX-31.2 - EX-31.2 - Helmerich & Payne, Inc.a15-6174_1ex31d2.htm
EX-32 - EX-32 - Helmerich & Payne, Inc.a15-6174_1ex32.htm

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For quarterly period ended:  March 31, 2015

 

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

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year,

if changed since last report)

 

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

 

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

 

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

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

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

 

CLASS

 

OUTSTANDING AT April 30, 2015

 

Common Stock, $0.10 par value

 

107,654,499

 

 

 

 



Table of Contents

 

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

 

TABLE OF CONTENTS

 

 

 

Page No.

 

 

 

PART  I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Condensed Balance Sheets as of March 31, 2015 and September 30, 2014

3

 

 

 

 

Consolidated Condensed Statements of Income for the Three and Six Months Ended March 31, 2015 and 2014

4

 

 

 

 

Consolidated Condensed Statements of Comprehensive Income for the Three and Six Months Ended March 31, 2015 and 2014

5

 

 

 

 

Consolidated Condensed Statements of Cash Flows for the Six Months Ended March 31, 2015 and 2014

6

 

 

 

 

Consolidated Condensed Statement of Shareholders’ Equity for the Six Months Ended March 31, 2015

7

 

 

 

 

Notes to Consolidated Condensed Financial Statements

8-22

 

 

 

Item 2.

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

23-30

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

31

 

 

 

Item 4.

Controls and Procedures

31

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

31

 

 

 

Item 1A.

Risk Factors

31-33

 

 

 

Item 6.

Exhibits

34

 

 

 

Signatures

 

35

 

2



Table of Contents

 

PART I. FINANCIAL INFORMATION

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)

(in thousands, except share and per share amounts)

 

ITEM 1. FINANCIAL STATEMENTS

 

 

 

 

 

September 30,

 

 

 

March 31,

 

2014

 

 

 

2015

 

(as adjusted)

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

719,127

 

$

360,909

 

Accounts receivable, less reserve of $4,592 at March 31, 2015 and $4,597 at September 30, 2014

 

623,706

 

705,214

 

Inventories

 

124,269

 

106,241

 

Deferred income taxes

 

14,649

 

16,519

 

Prepaid expenses and other

 

79,132

 

80,912

 

Current assets of discontinued operations

 

7,486

 

7,206

 

Total current assets

 

1,568,369

 

1,277,001

 

 

 

 

 

 

 

Investments

 

164,648

 

236,644

 

Property, plant and equipment, net

 

5,572,818

 

5,188,544

 

Other assets

 

38,315

 

18,809

 

 

 

 

 

 

 

Total assets

 

$

7,344,150

 

$

6,720,998

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Long-term debt due within one year less unamortized debt issuance costs

 

$

39,207

 

$

39,635

 

Accounts payable

 

172,373

 

182,031

 

Accrued liabilities

 

176,256

 

282,278

 

Current liabilities of discontinued operations

 

3,309

 

3,217

 

Total current liabilities

 

391,145

 

507,161

 

 

 

 

 

 

 

Noncurrent liabilities:

 

 

 

 

 

Long-term debt less unamortized discount and debt issuance costs

 

532,908

 

39,502

 

Deferred income taxes

 

1,320,364

 

1,215,259

 

Other

 

93,180

 

64,110

 

Noncurrent liabilities of discontinued operations

 

4,177

 

3,989

 

Total noncurrent liabilities

 

1,950,629

 

1,322,860

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Common stock, $.10 par value, 160,000,000 shares authorized, 110,846,112 shares and 110,508,605 shares issued as of March 31, 2015 and September 30, 2014, respectively and 107,654,499 shares and 108,232,284 shares outstanding as of March 31, 2015 and September 30, 2014, respectively

 

11,085

 

11,051

 

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

 

 

 

Additional paid-in capital

 

402,442

 

383,972

 

Retained earnings

 

4,729,390

 

4,525,797

 

Accumulated other comprehensive income

 

40,072

 

83,126

 

Treasury stock, at cost

 

(180,613

)

(112,969

)

Total shareholders’ equity

 

5,002,376

 

4,890,977

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

7,344,150

 

$

6,720,998

 

 

The accompanying notes are an integral part of these statements.

 

3



Table of Contents

 

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Unaudited)

(in thousands, except per share data)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

March 31,

 

March 31,

 

 

 

2015

 

2014

 

2015

 

2014

 

Operating revenues:

 

 

 

 

 

 

 

 

 

Drilling — U.S. Land

 

$

718,463

 

$

741,791

 

$

1,608,510

 

$

1,473,465

 

Drilling — Offshore

 

62,626

 

63,276

 

132,099

 

122,330

 

Drilling — International Land

 

98,222

 

85,533

 

191,107

 

180,874

 

Other

 

3,741

 

2,830

 

7,921

 

5,913

 

 

 

883,052

 

893,430

 

1,939,637

 

1,782,582

 

 

 

 

 

 

 

 

 

 

 

Operating costs and other:

 

 

 

 

 

 

 

 

 

Operating costs, excluding depreciation

 

469,328

 

480,167

 

1,023,571

 

954,215

 

Depreciation

 

149,708

 

123,963

 

287,321

 

244,200

 

General and administrative

 

34,902

 

34,431

 

67,809

 

66,674

 

Research and development

 

4,857

 

3,625

 

9,015

 

7,882

 

Income from asset sales

 

(2,915

)

(4,098

)

(7,070

)

(9,762

)

 

 

655,880

 

638,088

 

1,380,646

 

1,263,209

 

 

 

 

 

 

 

 

 

 

 

Operating income from continuing operations

 

227,172

 

255,342

 

558,991

 

519,373

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest and dividend income

 

2,549

 

490

 

2,834

 

943

 

Interest expense

 

(2,471

)

(1,725

)

(3,032

)

(2,919

)

Gain from sale of investment securities

 

 

21,352

 

 

21,352

 

Other

 

55

 

(32

)

369

 

(377

)

 

 

133

 

20,085

 

171

 

18,999

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations before income taxes

 

227,305

 

275,427

 

559,162

 

538,372

 

Income tax provision

 

77,769

 

100,838

 

206,569

 

190,601

 

Income from continuing operations

 

149,536

 

174,589

 

352,593

 

347,771

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations before income taxes

 

(76

)

2,786

 

(91

)

2,786

 

Income tax provision

 

(77

)

2,805

 

(77

)

2,805

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations

 

1

 

(19

)

(14

)

(19

)

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

149,537

 

$

174,570

 

$

352,579

 

$

347,752

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

1.38

 

$

1.61

 

$

3.25

 

$

3.22

 

Income from discontinued operations

 

 

 

 

 

Net income

 

$

1.38

 

$

1.61

 

$

3.25

 

$

3.22

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

1.37

 

$

1.59

 

$

3.23

 

$

3.17

 

Income from discontinued operations

 

 

 

 

 

Net income

 

$

1.37

 

$

1.59

 

$

3.23

 

$

3.17

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

107,646

 

107,692

 

107,812

 

107,417

 

Diluted

 

108,370

 

109,081

 

108,620

 

108,945

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.6875

 

$

0.6250

 

$

1.3750

 

$

1.2500

 

 

The accompanying notes are an integral part of these statements.

 

4



Table of Contents

 

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands, except per share data)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

March 31,

 

March 31,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

149,537

 

$

174,570

 

$

352,579

 

$

347,752

 

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

 

 

 

 

 

 

 

 

 

Unrealized depreciation on securities, net of income taxes of ($0.8) million and ($27.4) million at March 31, 2015 and ($2.3) million and ($4.3) million at March 31, 2014

 

(1,203

)

(3,552

)

(43,447

)

(6,513

)

Reclassification of realized gains in net income, net of income taxes of ($8.5) million at March 31, 2014

 

 

(12,884

)

 

(12,884

)

Minimum pension liability adjustments, net of income taxes of $0.1 million and $0.2 million at March 31, 2015 and $0.1 million and $0.2 million at March 31, 2014

 

197

 

145

 

393

 

292

 

Other comprehensive loss

 

(1,006

)

(16,291

)

(43,054

)

(19,105

)

Comprehensive income

 

$

148,531

 

$

158,279

 

$

309,525

 

$

328,647

 

 

The accompanying notes are an integral part of these statements.

 

5



Table of Contents

 

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

 

Six Months Ended

 

 

 

March 31,

 

 

 

2015

 

2014

 

OPERATING ACTIVITIES:

 

 

 

 

 

Net income

 

$

352,579

 

$

347,752

 

Adjustment for loss from discontinued operations

 

14

 

19

 

Income from continuing operations

 

352,593

 

347,771

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation

 

287,321

 

244,200

 

Amortization of debt discount and debt issuance costs

 

187

 

186

 

Provision for bad debt

 

 

(194

)

Stock-based compensation

 

13,079

 

12,804

 

Other

 

32

 

 

Gain on sale of investment securities

 

 

(21,352

)

Income from asset sales

 

(7,070

)

(9,762

)

Deferred income tax expense

 

134,185

 

13,751

 

Change in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

81,508

 

(2,494

)

Inventories

 

(18,028

)

(10,963

)

Prepaid expenses and other

 

(17,726

)

21,629

 

Accounts payable

 

1,120

 

(25,337

)

Accrued liabilities

 

(45,405

)

(19,017

)

Deferred income taxes

 

(30

)

(1,109

)

Other noncurrent liabilities

 

30,832

 

(10,083

)

Net cash provided by operating activities from continuing operations

 

812,598

 

540,030

 

Net cash used in operating activities from discontinued operations

 

(14

)

(19

)

Net cash provided by operating activities

 

812,584

 

540,011

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

Capital expenditures

 

(763,365

)

(356,753

)

Proceeds from sale of investment securities

 

 

23,338

 

Proceeds from asset sales

 

15,214

 

13,321

 

Net cash used in investing activities

 

(748,151

)

(320,094

)

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

Dividends paid

 

(149,347

)

(121,545

)

Repurchase of common stock

 

(59,654

)

 

Proceeds from senior notes, net of discount and debt issuance costs

 

492,791

 

 

Proceeds on short-term debt

 

1,002

 

 

Payments on short-term debt

 

(1,002

)

 

Net increase in bank overdraft

 

12,560

 

 

Exercise of stock options, net of tax withholding

 

(1,078

)

19,701

 

Tax withholdings related to net share settlements of restricted stock

 

(4,248

)

(3,049

)

Excess tax benefit from stock-based compensation

 

2,761

 

22,087

 

Net cash provided by (used in) financing activities

 

293,785

 

(82,806

)

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

358,218

 

137,111

 

Cash and cash equivalents, beginning of period

 

360,909

 

447,868

 

Cash and cash equivalents, end of period

 

$

719,127

 

$

584,979

 

 

The accompanying notes are an integral part of these statements.

 

6



Table of Contents

 

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS’ EQUITY

SIX MONTHS ENDED MARCH 31, 2015

(Unaudited)

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

 

 

 

 

Total

 

 

 

Common Stock

 

Paid-In

 

Retained

 

Comprehensive

 

Treasury Stock

 

Shareholders’

 

 

 

Shares

 

Amount

 

Capital

 

Earnings

 

Income

 

Shares

 

Amount

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2014

 

110,509

 

$

11,051

 

$

383,972

 

$

4,525,797

 

$

83,126

 

2,276

 

$

(112,969

)

$

4,890,977

 

Net income

 

 

 

 

 

 

 

352,579

 

 

 

 

 

 

 

352,579

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

(43,054

)

 

 

 

 

(43,054

)

Dividends declared ($1.375 per share)

 

 

 

 

 

 

 

(148,986

)

 

 

 

 

 

 

(148,986

)

Exercise of stock options, net of tax withholding

 

123

 

13

 

2,651

 

 

 

 

 

47

 

(3,742

)

(1,078

)

Tax benefit of stock-based awards

 

 

 

 

 

2,761

 

 

 

 

 

 

 

 

 

2,761

 

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

 

214

 

21

 

(21

)

 

 

 

 

59

 

(4,248

)

(4,248

)

Repurchase of common stock

 

 

 

 

 

 

 

 

 

 

 

810

 

(59,654

)

(59,654

)

Stock-based compensation

 

 

 

 

 

13,079

 

 

 

 

 

 

 

 

 

13,079

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2015

 

110,846

 

$

11,085

 

$

402,442

 

$

4,729,390

 

$

40,072

 

3,192

 

$

(180,613

)

$

5,002,376

 

 

The accompanying notes are an integral part of these statements.

 

7



Table of Contents

 

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

1.              Basis of Presentation

 

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

 

The accompanying unaudited Consolidated Condensed Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “Commission”) pertaining to interim financial information.  Accordingly, these interim financial statements do not include all information or footnote disclosures required by GAAP for complete financial statements and, therefore, should be read in conjunction with the Consolidated Financial Statements and notes thereto in our 2014 Annual Report on Form 10-K and other current filings with the Commission.  In the opinion of management all adjustments, consisting of those of a normal recurring nature, necessary to present fairly the results of the periods presented have been included.  The results of operations for the interim periods presented may not necessarily be indicative of the results to be expected for the full year.

 

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03 “Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs”.  ASU No. 2015-03 amends the FASB Accounting Standards Codification (“ASC”) to require that debt issuance cost be presented in the balance sheet as a direct deduction from the carrying amount of the related liability.  Prior to the amendment, debt issuance costs were reported in the balance sheet as an asset.  The amended guidance is effective for financial statements issued for fiscal years beginning after December 15, 2015, however, we have elected to early adopt effective January 1, 2015.  The election requires retrospective application and represents a change in accounting principle. The ASU provides that debt issuance costs are similar to debt discounts and in effect reduce the proceeds of borrowing, thereby increasing the effective interest rate.  As a result of the adoption, the September 30, 2014 Consolidated Condensed Balance Sheet is restated as follows:

 

 

 

 

 

Effect of

 

 

 

 

 

Previously

 

Accounting

 

 

 

 

 

Reported

 

Principle Adoption

 

Adjusted

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

Consolidated Condensed Balance Sheet

 

 

 

 

 

 

 

Prepaid expenses and other

 

$

81,277

 

$

(365

)

$

80,912

 

Total current assets

 

1,277,366

 

(365

)

1,277,001

 

Other assets

 

19,307

 

(498

)

18,809

 

Total assets

 

6,721,861

 

(863

)

6,720,998

 

Long-term debt due within one year less unamortized discount and debt issuance costs

 

40,000

 

(365

)

39,635

 

Total current liabilities

 

507,526

 

(365

)

507,161

 

Long-term debt less unamortized discount and debt issuance costs

 

40,000

 

(498

)

39,502

 

Total noncurrent liabilities

 

1,323,358

 

(498

)

1,322,860

 

Total liabilities and shareholders’ equity

 

6,721,861

 

(863

)

6,720,998

 

 

Amortization of debt discount and debt issuance costs has been reclassified in the accompanying Consolidated Condensed Statements of Cash Flow for the three months ended March 31, 2014 to conform to current year presentation.  The amortization was previously included as a change in assets.

 

As more fully described in our 2014 Annual Report on Form 10-K, our contract drilling revenues are comprised of daywork drilling contracts for which the related revenues and expenses are recognized as services are performed.  For contracts that are terminated by customers prior to the expirations of their fixed terms, contractual provisions customarily require early termination amounts to be paid to us. Revenues from early terminated contracts are recognized when all contractual requirements have been met.  During the three and six months ended March 31, 2015, early termination revenue was approximately $71.7 million and $95.1 million, respectively.  We had no early termination revenue for the three months ended March 31, 2014 and had $9.9 million for the six months ended March 31, 2014.

 

8



Table of Contents

 

Depreciation in the Consolidated Condensed Statements of Income includes abandonments of $10.2 million and $12.2 million for the three and six months ended March 31, 2015 compared to $1.8 million and $3.7 million for the three and six months ended March 31, 2014.  Effective March 31, 2015, we decommissioned all 17 of our SCR powered FlexRigs including 6 idle FlexRig1 rigs and 11 idle FlexRig2 rigs.

 

2.              Discontinued Operations

 

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

 

3.              Earnings per Share

 

ASC 260, Earnings per Share, requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividends or dividend equivalents as a separate class of securities in calculating earnings per share.  We have granted and expect to continue to grant to employees restricted stock grants that contain non-forfeitable rights to dividends.  Such grants are considered participating securities under ASC 260.  As such, we are required to include these grants in the calculation of our basic earnings per share and calculate basic earnings per share using the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings.

 

Basic earnings per share is computed utilizing the two-class method and is calculated based on the weighted-average number of common shares outstanding during the periods presented.

 

Diluted earnings per share is computed using the weighted-average number of common and common equivalent shares outstanding during the periods utilizing the two-class method for stock options and nonvested restricted stock.

 

9



Table of Contents

 

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

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

March 31,

 

March 31,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

149,536

 

$

174,589

 

$

352,593

 

$

347,771

 

Loss from discontinued operations

 

1

 

(19

)

(14

)

(19

)

Net income

 

149,537

 

174,570

 

352,579

 

347,752

 

Adjustment for basic earnings per share:

 

 

 

 

 

 

 

 

 

Earnings allocated to unvested shareholders

 

(948

)

(1,035

)

(2,212

)

(2,027

)

Numerator for basic earnings per share:

 

 

 

 

 

 

 

 

 

From continuing operations

 

148,588

 

173,554

 

350,381

 

345,744

 

From discontinued operations

 

1

 

(19

)

(14

)

(19

)

 

 

148,589

 

173,535

 

350,367

 

345,725

 

Adjustment for diluted earnings per share:

 

 

 

 

 

 

 

 

 

Effect of reallocating undistributed earnings of unvested shareholders

 

3

 

8

 

9

 

17

 

Numerator for diluted earnings per share:

 

 

 

 

 

 

 

 

 

From continuing operations

 

148,591

 

173,562

 

350,390

 

345,761

 

From discontinued operations

 

1

 

(19

)

(14

)

(19

)

 

 

$

148,592

 

$

173,543

 

$

350,376

 

$

345,742

 

Denominator:

 

 

 

 

 

 

 

 

 

Denominator for basic earnings per share — weighted-average shares

 

107,646

 

107,692

 

107,812

 

107,417

 

Effect of dilutive shares from stock options and restricted stock

 

724

 

1,389

 

808

 

1,528

 

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

 

108,370

 

109,081

 

108,620

 

108,945

 

Basic earnings per common share:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

1.38

 

$

1.61

 

$

3.25

 

$

3.22

 

Income from discontinued operations

 

 

 

 

 

Net income

 

$

1.38

 

$

1.61

 

$

3.25

 

$

3.22

 

Diluted earnings per common share:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

1.37

 

$

1.59

 

$

3.23

 

$

3.17

 

Income from discontinued operations

 

 

 

 

 

Net income

 

$

1.37

 

$

1.59

 

$

3.23

 

$

3.17

 

 

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

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

March 31,

 

March 31,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

Shares excluded from calculation of diluted earnings per share

 

667

 

215

 

667

 

256

 

Weighted-average price per share

 

$

72.85

 

$

79.67

 

$

72.85

 

$

79.67

 

 

10



Table of Contents

 

4.              Financial Instruments and Fair Value Measurement

 

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

 

 

 

 

 

Gross

 

Gross

 

Estimated

 

 

 

 

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Equity securities March 31, 2015

 

$

64,462

 

$

86,986

 

$

 

$

151,448

 

Equity securities September 30, 2014

 

$

64,462

 

$

157,838

 

$

 

$

222,300

 

 

On an ongoing basis we evaluate the marketable equity securities to determine if any decline in fair value below cost is other-than-temporary.  If a decline in fair value below cost is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis established.  We review several factors to determine whether a loss is other-than-temporary.  These factors include, but are not limited to, (i) the length of time a security is in an unrealized loss position, (ii) the extent to which fair value is less than cost, (iii) the financial condition and near-term prospects of the issuer and (iv) our intent and ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value. The cost of securities used in determining realized gains and losses is based on the average cost basis of the security sold.

 

During the three months ended March 31, 2014, marketable equity available-for-sale securities with a fair value at the date of sale of $23.3 million were sold.  The gross realized gain on such sales of available-for-sale securities totaled $21.4 million.  We had no sales of marketable equity available-for-sale securities during the six months ended March 31, 2015.

 

The assets held in the Non-qualified Supplemental Savings Plan are carried at fair value which totaled $13.2 million at March 31, 2015 and $14.3 million at September 30, 2014.  The assets are comprised of mutual funds that are measured using Level 1 inputs.

 

The majority of cash equivalents are invested in highly liquid money-market mutual funds invested primarily in direct or indirect obligations of the U.S. Government.  The carrying amount of cash and cash equivalents approximates fair value due to the short maturity of those investments.

 

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

 

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

 

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

 

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

 

At March 31, 2015, our financial instruments utilizing Level 1 inputs include cash equivalents, equity securities with active markets, money market funds we have elected to classify as restricted assets that are included in other current assets and other assets.  Also included is cash denominated in a foreign currency that we have elected to classify as restricted to be used to settle the remaining liabilities of discontinued operations.  For these items, quoted current market prices are readily available.

 

At March 31, 2015, financial instruments utilizing level 2 inputs include a bank certificate of deposit included in other current assets.

 

Currently, we do not have any financial instruments utilizing Level 3 inputs.

 

The following table summarizes our assets measured at fair value on a recurring basis presented in our Consolidated Condensed Balance Sheet as of March 31, 2015:

 

11



Table of Contents

 

 

 

 

 

Quoted Prices

 

 

 

 

 

 

 

Total

 

in Active

 

Significant

 

 

 

 

 

Measure

 

Markets for

 

Other

 

Significant

 

 

 

at

 

Identical

 

Observable

 

Unobservable

 

 

 

Fair

 

Assets

 

Inputs

 

Inputs

 

 

 

Value

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

719,127

 

$

719,127

 

$

 

$

 

Equity securities

 

151,448

 

151,448

 

 

 

Other current assets

 

36,340

 

36,090

 

250

 

 

Other assets

 

2,000

 

2,000

 

 

 

Total assets measured at fair value

 

$

908,915

 

$

908,665

 

$

250

 

$

 

 

The following information presents the supplemental fair value information about long-term fixed-rate debt at March 31, 2015 and September 30, 2014:

 

 

 

March 31,

 

September 30,

 

 

 

2015

 

2014

 

 

 

(in millions)

 

 

 

 

 

 

 

Carrying value of long-term fixed-rate debt

 

$

572.1

 

$

79.0

 

Fair value of long-term fixed-rate debt

 

$

597.2

 

$

84.3

 

 

The fair value for the $80 million fixed-rate debt was estimated using discounted cash flows at rates reflecting current interest rates at similar maturities plus a credit spread which was estimated using the outstanding market information on debt instruments with a similar credit profile to us.  The debt was valued using a Level 2 input.

 

The fair value for the $500 million fixed-rate debt was based on broker quotes at March 31, 2015.  The notes are classified within Level 2 as they are not actively traded in markets.

 

5.              Shareholders’ Equity

 

The Company has authorization from the Board of Directors for the repurchase of up to four million shares per calendar year.  The repurchases may be made using our cash and cash equivalents or other available sources.  During the six months ended March 31, 2015, we purchased 810,097 common shares at an aggregate cost of $59.7 million, which are held as treasury shares.  We had no purchases of common shares in fiscal 2014.

 

Components of accumulated other comprehensive income (loss) were as follows:

 

 

 

March 31,

 

September 30,

 

 

 

2015

 

2014

 

 

 

(in thousands)

 

Pre-tax amounts:

 

 

 

 

 

Unrealized appreciation on securities

 

$

86,986

 

$

157,838

 

Unrecognized actuarial loss

 

(22,787

)

(23,405

)

 

 

$

64,199

 

$

134,433

 

After-tax amounts:

 

 

 

 

 

Unrealized appreciation on securities

 

$

53,971

 

$

97,418

 

Unrecognized actuarial loss

 

(13,899

)

(14,292

)

 

 

$

40,072

 

$

83,126

 

 

12



Table of Contents

 

The following is a summary of the changes in accumulated other comprehensive income (loss), net of tax, by component for the three and six months ended March 31, 2015:

 

 

 

Three Months Ended March 31, 2015

 

 

 

Unrealized

 

 

 

 

 

 

 

Appreciation
(Depreciation) on

 

Defined

 

 

 

 

 

Available-for-sale

 

Benefit

 

 

 

 

 

Securities

 

Pension Plan

 

Total

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

Balances at January 1, 2015

 

$

55,174

 

$

(14,096

)

$

41,078

 

Other comprehensive loss before reclassifications

 

(1,203

)

 

(1,203

)

Amounts reclassified from accumulated other comprehensive income (loss)

 

 

197

 

197

 

Net current-period other comprehensive income (loss)

 

(1,203

)

197

 

(1,006

)

Balances at March 31, 2015

 

$

53,971

 

$

(13,899

)

$

40,072

 

 

 

 

Six Months Ended March 31, 2015

 

 

 

Unrealized

 

 

 

 

 

 

 

Appreciation
(Depreciation) on

 

Defined

 

 

 

 

 

Available-for-sale

 

Benefit

 

 

 

 

 

Securities

 

Pension Plan

 

Total

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

Balances at October 1, 2014

 

$

97,418

 

$

(14,292

)

$

83,126

 

Other comprehensive loss before reclassifications

 

(43,447

)

 

(43,447

)

Amounts reclassified from accumulated other comprehensive income (loss)

 

 

393

 

393

 

Net current-period other comprehensive income (loss)

 

(43,447

)

393

 

(43,054

)

Balances at March 31, 2015

 

$

53,971

 

$

(13,899

)

$

40,072

 

 

The following provides detail about accumulated other comprehensive income (loss) components which were reclassified to the Condensed Consolidated Statement of Income during the three and six months ended March 31, 2015:

 

 

 

Amount Reclassified from Accumulated
Other Comprehensive Income (Loss)

 

 

 

Details About Accumulated Other
Comprehensive Income

 

Three Months Ended
March 31,

 

Six Months Ended
March 31,

 

Affected Line Item in the
Condensed Consolidated

 

(Loss) Components

 

2015

 

2014

 

2015

 

2014

 

Statement of Income

 

 

 

(in thousands)

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains on available-for-sale securities

 

$

 

$

(21,352

)

$

 

$

(21,352

)

Gain on sale of investment securities

 

 

 

 

8,468

 

 

8,468

 

Income tax provision

 

 

 

$

 

$

(12,884

)

$

 

$

(12,884

)

Net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Defined Benefit Pension Items Amortization of net actuarial loss

 

$

309

 

$

229

 

$

618

 

$

458

 

General and administrative

 

 

 

(112

)

(84

)

(225

)

(166

)

Income tax provision

 

 

 

$

197

 

$

145

 

$

393

 

$

292

 

Net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

Total reclassifications for the period

 

$

197

 

$

(12,739

)

$

393

 

$

(12,592

)

 

 

 

6.              Cash Dividends

 

The $0.6875 per share cash dividend declared December 2, 2014, was paid March 2, 2015.  On March 4, 2015, a cash dividend of $0.6875 per share was declared for shareholders of record on May 15, 2015, payable June 1, 2015. The dividend payable is included in accounts payable in the Consolidated Condensed Balance Sheet.

 

13



Table of Contents

 

7.              Stock-Based Compensation

 

On March 2, 2011, the 2010 Long-Term Incentive Plan (the “2010 Plan”) was approved by our stockholders.  The 2010 Plan, among other things, authorizes the Human Resources Committee of the Board to grant non-qualified stock options, restricted stock awards and stock appreciation rights to selected employees and to non-employee Directors.  Restricted stock may be granted for no consideration other than prior and future services.  The purchase price per share for stock options may not be less than market price of the underlying stock on the date of grant.  Stock options expire 10 years after the grant date.  There were 419,585 non-qualified stock options and 275,250 shares of restricted stock awards granted in the six months ended March 31, 2015.  Awards outstanding in the 2005 Long-Term Incentive Plan (the “2005 Plan”) and one prior equity plan remain subject to the terms and conditions of those plans.

 

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

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

March 31,

 

March 31,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

(in thousands)

 

(in thousands)

 

Compensation expense

 

 

 

 

 

 

 

 

 

Stock options

 

$

1,908

 

$

1,989

 

$

4,970

 

$

5,642

 

Restricted stock

 

4,189

 

3,805

 

8,109

 

7,162

 

 

 

$

6,097

 

$

5,794

 

$

13,079

 

$

12,804

 

 

STOCK OPTIONS

 

The following summarizes the weighted-average assumptions utilized in determining the fair value of options granted during the six months ended March 31, 2015 and 2014:

 

 

 

2015

 

2014

 

 

 

 

 

 

 

Risk-free interest rate

 

1.7

%

1.6

%

Expected stock volatility

 

36.9

%

52.6

%

Dividend yield

 

3.9

%

3.1

%

Expected term (in years)

 

5.5

 

5.5

 

 

Risk-Free Interest Rate.  The risk-free interest rate is based on U.S. Treasury securities for the expected term of the option.

 

Expected Volatility Rate.  Expected volatility is based on the daily closing price of our stock based upon historical experience over a period which approximates the expected term of the option.

 

Expected Dividend Yield.  The expected dividend yield is based on our current dividend yield.

 

Expected Term.  The expected term of the options granted represents the period of time that they are expected to be outstanding.  We estimate the expected term of options granted based on historical experience with grants and exercises.

 

14



Table of Contents

 

A summary of stock option activity under all existing long-term incentive plans for the three and six months ended March 31, 2015 is presented in the following tables:

 

 

 

Three Months Ended March 31, 2015

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

Weighted-

 

Average

 

Aggregate

 

 

 

 

 

Average

 

Remaining

 

Intrinsic

 

 

 

Shares

 

Exercise

 

Contractual Term

 

Value

 

Options

 

(in thousands)

 

Price

 

(in years)

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

Outstanding at January 1, 2015

 

2,931

 

$

47.96

 

 

 

 

 

Granted

 

 

 

 

 

 

 

Exercised

 

(20

)

51.38

 

 

 

 

 

Forfeited/Expired

 

(2

)

76.68

 

 

 

 

 

Outstanding at March 31, 2015

 

2,909

 

$

47.91

 

5.6

 

$

61.8

 

Vested and expected to vest at March 31, 2015

 

2,902

 

$

47.86

 

5.6

 

$

61.8

 

 

 

 

 

 

 

 

 

 

 

Exercisable at March 31, 2015

 

2,147

 

$

41.22

 

4.6

 

$

58.7

 

 

 

 

Six Months Ended
March 31, 2015

 

 

 

 

 

Weighted-

 

 

 

 

 

Average

 

 

 

Shares

 

Exercise

 

Options

 

(in thousands)

 

Price

 

 

 

 

 

 

 

Outstanding at October 1, 2014

 

2,629

 

$

43.46

 

Granted

 

420

 

68.83

 

Exercised

 

(124

)

21.56

 

Forfeited/Expired

 

(16

)

68.59

 

Outstanding at March 31, 2015

 

2,909

 

$

47.91

 

 

The weighted-average fair value of options granted in the first quarter of fiscal 2015 was $16.39.  No options were granted in the second quarter of fiscal 2015.

 

The total intrinsic value of options exercised during the three and six months ended March 31, 2015 was $0.3 million and $7.2 million, respectively.

 

As of March 31, 2015, the unrecognized compensation cost related to stock options was $9.2 million which is expected to be recognized over a weighted-average period of 2.8 years.

 

RESTRICTED STOCK

 

Restricted stock awards consist of our common stock and are time-vested over three to six years.  We recognize compensation expense on a straight-line basis over the vesting period.  The fair value of restricted stock awards under the 2010 Plan is determined based on the closing price of our shares on the grant date.  As of March 31, 2015, there was $29.9 million of total unrecognized compensation cost related to unvested restricted stock awards which is expected to be recognized over a weighted-average period of 2.7 years.

 

15



Table of Contents

 

A summary of the status of our restricted stock awards as of March 31, 2015 and changes in restricted stock outstanding during the six months then ended is presented below:

 

 

 

Six Months Ended

 

 

 

March 31, 2015

 

 

 

 

 

Weighted-

 

 

 

 

 

Average

 

 

 

Shares

 

Grant-Date

 

Restricted Stock Awards

 

(in thousands)

 

Fair Value

 

 

 

 

 

 

 

Unvested at October 1, 2014

 

634

 

$

64.03

 

Granted

 

275

 

68.83

 

Vested (1)

 

(214

)

54.18

 

Forfeited

 

(8

)

66.51

 

Unvested at March 31, 2015

 

687

 

$

66.93

 

 


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

 

8.              Debt

 

At March 31, 2015 and September 30, 2014, we had the following unsecured long-term debt outstanding:

 

 

 

 

 

 

 

Unamortized Discount and

 

 

 

Principal

 

Debt Issuance Costs

 

 

 

March 31,

 

September 30,

 

March 31,

 

September 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Unsecured senior notes issued July 21, 2009:

 

 

 

 

 

 

 

 

 

Due July 21, 2015

 

$

40,000

 

$

40,000

 

$

112

 

$

141

 

Due July 21, 2016

 

40,000

 

40,000

 

113

 

141

 

 

 

 

 

 

 

 

 

 

 

Unsecured revolving credit facility issued May 25, 2012

 

 

 

471

 

581

 

 

 

 

 

 

 

 

 

 

 

Unsecured senior notes issued March 19, 2015:

 

 

 

 

 

 

 

 

 

Due March 19, 2025

 

500,000

 

 

7,189

 

 

 

 

580,000

 

80,000

 

7,885

 

863

 

Less long-term debt due within one year

 

(40,000

)

(40,000

)

(793

)

(365

)

Long-term debt

 

$

540,000

 

$

40,000

 

$

7,092

 

$

498

 

 

We have $80 million senior unsecured fixed-rate notes outstanding at March 31, 2015 that mature over a period from July 2015 to July 2016.  Interest on the notes is paid semi-annually based on an annual rate of 6.10 percent.  Annual principal repayments of $40 million are due July 2015 and July 2016.  We have complied with our financial covenants which require us to maintain a funded leverage ratio of less than 55 percent and an interest coverage ratio (as defined) of not less than 2.50 to 1.00.

 

On March 19, 2015, we issued $500 million of 4.65 percent 10-year unsecured senior notes.  The net proceeds, after discount and issuance cost, of approximately $492.8 million will be used for general corporate purposes, including capital expenditures associated with our rig construction program.  Interest is payable semi-annually on March 15 and September 15 each year, commencing on September 15, 2015.  The debt discount is being amortized to interest expense using the effective interest method.  The debt issuance costs are amortized straight-line over the stated life of the obligation, which approximates the effective yield method.

 

We have a $300 million unsecured revolving credit facility that will mature May 25, 2017.  The credit facility has $100 million available to use for letters of credit.  The majority of borrowings under the facility would accrue interest at a spread over the London Interbank Offered Rate (LIBOR).  We also pay a commitment fee based on the unused balance of the facility.  Borrowing spreads as well as commitment fees are determined according to a scale based on a ratio of our total debt to total capitalization.  The spread over LIBOR ranges from 1.125 percent to 1.75 percent per annum and commitment fees range from .15 percent to .35 percent per annum.  Based on our debt to total capitalization on March 31, 2015, the spread over LIBOR and commitment fees would be 1.125 percent and .15 percent, respectively.  Financial covenants in the facility require us to maintain a funded leverage

 

16



Table of Contents

 

ratio (as defined) of less than 50 percent and an interest coverage ratio (as defined) of not less than 3.00 to 1.00.  The credit facility contains additional terms, conditions, restrictions, and covenants that we believe are usual and customary in unsecured debt arrangements for companies of similar size and credit quality.  At March 31, 2015, we were in compliance with all debt covenants.  As of March 31, 2015, there were no borrowings, but there were three letters of credit outstanding in the amount of $48.2 million.  One of the three outstanding letters of credit is a $21 million letter that supports an overdraft facility with a bank in an international location.  The short-term borrowing is in local currency with an interest rate that adjusts monthly based on local market rates.  Given local currency considerations, the annual interest rates approach 30 percent.  At March 31, 2015, we had $251.8 million available to borrow under our $300 million unsecured credit facility.

 

At March 31, 2015, we had two letters of credit outstanding, totaling $12 million that were issued to support international operations.  These letters of credit were issued separately from the $300 million credit facility so they do not reduce the available borrowing capacity discussed in the previous paragraph.

 

We have a $9.5 million unsecured line of credit with a bank in an international location that will mature on June 12, 2015.  A total of $7 million may be borrowed for working capital needs and $2.5 million is reserved for bank guaranties.  The interest rate for borrowings would be at seven percent.  At March 31, 2015, there were no borrowings or bank guarantees outstanding against the line.

 

9.              Income Taxes

 

Our effective tax rate for the first six months of fiscal 2015 and 2014 was 36.9 percent and 35.4 percent, respectively.  Our effective tax rate for the three months ended March 31, 2015 and 2014 was 34.2 percent and 36.6 percent, respectively.  Effective tax rates differ from the U.S. federal statutory rate of 35.0 percent primarily due to state and foreign income taxes and the tax benefit from the Internal Revenue Code Section 199 deduction for domestic production activities.  The effective tax rate for the six months ended March 31, 2015 was also impacted by a December 2014 tax law change which resulted in a reduction of the fiscal 2014 Internal Revenue Code Section 199 deduction for domestic production activities.

 

For the next 12 months, we cannot predict with certainty whether we will achieve ultimate resolution of any uncertain tax positions associated with our U.S. and international operations that could result in increases or decreases of our unrecognized tax benefits.  However, we do not expect the increases or decreases to have a material effect on results of operations or financial position.  We provided for uncertain tax positions of $7.0 million, including interest and penalties, during the six months ended March 31, 2015 related to the previous disclosure of a possible increase in the reserve for uncertain tax positions of approximately $8.4 million to $11.0 million due to international tax matters.

 

10.       Commitments and Contingencies

 

In conjunction with our current drilling rig construction program, purchase commitments for equipment, parts and supplies of approximately $205.2 million are outstanding at March 31, 2015.

 

Other than the matters described below, the Company is a party to various pending legal actions arising in the ordinary course of its business.  We maintain insurance against certain business risks subject to certain deductibles.  None of these legal actions are expected to have a material adverse effect on our financial condition, cash flows or results of operations.

 

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

 

During the ordinary course of our business, contingencies arise resulting from an existing condition, situation or set of circumstances involving an uncertainty as to the realization of a possible gain contingency.  We account for gain contingencies in accordance with the provisions of ASC 450, Contingencies, and, therefore, we do not record gain contingencies or recognize income until realized.  The property and equipment of our Venezuelan subsidiary was seized by the Venezuelan government on June 30, 2010.  Our wholly-owned subsidiaries, Helmerich & Payne International Drilling Co. and Helmerich & Payne de Venezuela, C.A., filed a lawsuit in the United States District Court for the District of Columbia on September 23, 2011 against the Bolivarian Republic of Venezuela, Petroleos de Venezuela, S.A. (“PDVSA”) and PDVSA Petroleo, S.A. (“Petroleo”).  Our subsidiaries seek damages for the taking of their Venezuelan drilling business in violation of international law and for breach of contract.  While there exists the possibility of realizing a recovery, we are currently unable to determine the timing or amounts we may receive, if any, or the likelihood of recovery.  No gain contingencies are recognized in our Consolidated Financial Statements.

 

17



Table of Contents

 

On November 8, 2013, the United States District Court for the Eastern District of Louisiana approved the previously disclosed October 30, 2013 plea agreement between our wholly owned subsidiary, Helmerich & Payne International Drilling Co., and the United States Department of Justice, United States Attorney’s Office for the Eastern District of Louisiana (“DOJ”).  The court’s approval of the plea agreement resolved the DOJ’s investigation into certain choke manifold testing irregularities that occurred in 2010 at one of Helmerich & Payne International Drilling Co.’s offshore platform rigs in the Gulf of Mexico.  We have been engaged in discussions with the Inspector General’s office of the Department of Interior regarding the same events that were the subject of the DOJ’s investigation.  We can provide no assurances as to the timing or eventual outcome of these discussions and are unable to determine the amount of penalty, if any, that may be assessed.  However, we presently believe that the outcome of our discussions will not have a material adverse effect on the Company.

 

11.       Segment Information

 

We operate principally in the contract drilling industry. Our contract drilling business includes the following reportable operating segments: U.S. Land, Offshore and International Land.  The contract drilling operations consist mainly of contracting Company-owned drilling equipment primarily to large oil and gas exploration companies.  To provide information about the different types of business activities in which we operate, we have included Offshore and International Land, along with our U.S. Land reportable operating segment, as separate reportable operating segments.  Additionally, each reportable operating segment is a strategic business unit that is managed separately.  Our primary international areas of operation include Colombia, Ecuador, Argentina, Tunisia, Bahrain, U.A.E. and other South American and Middle Eastern countries.  Other includes additional non-reportable operating segments.  Revenues included in Other consist primarily of rental income.  Consolidated revenues and expenses reflect the elimination of all material intercompany transactions.

 

We evaluate segment performance based on income or loss from continuing operations (segment operating income) before income taxes which includes:

 

·                  revenues from external and internal customers

·                  direct operating costs

·                  depreciation and

·                  allocated general and administrative costs

 

but excludes corporate costs for other depreciation, income from asset sales and other corporate income and expense.

 

General and administrative costs are allocated to the segments based primarily on specific identification and, to the extent that such identification is not practical, on other methods which we believe to be a reasonable reflection of the utilization of services provided.

 

Segment operating income for all segments is a non-GAAP financial measure of our performance, as it excludes certain general and administrative expenses, corporate depreciation, income from asset sales and other corporate income and expense.  We consider segment operating income to be an important supplemental measure of operating performance by presenting trends in our core businesses.  We use this measure to facilitate period-to-period comparisons in operating performance of our reportable segments in the aggregate by eliminating items that affect comparability between periods.  We believe that segment operating income is useful to investors because it provides a means to evaluate the operating performance of the segments on an ongoing basis using criteria that are used by our internal decision makers.  Additionally, it highlights operating trends and aids analytical comparisons.  However, segment operating income has limitations and should not be used as an alternative to operating income or loss, a performance measure determined in accordance with GAAP, as it excludes certain costs that may affect our operating performance in future periods.

 

18



Table of Contents

 

Summarized financial information of our reportable segments for the six months ended March 31, 2015 and 2014 is shown in the following tables:

 

 

 

 

 

 

 

 

 

Segment

 

 

 

External

 

Inter-

 

Total

 

Operating

 

(in thousands)

 

Sales

 

Segment

 

Sales

 

Income (Loss)

 

March 31, 2015

 

 

 

 

 

 

 

 

 

Contract Drilling:

 

 

 

 

 

 

 

 

 

U.S. Land

 

$

1,608,510

 

$

 

$

1,608,510

 

$

542,988

 

Offshore

 

132,099

 

 

132,099

 

40,553

 

International Land

 

191,107

 

 

191,107

 

18,542

 

 

 

1,931,716

 

 

1,931,716

 

602,083

 

Other

 

7,921

 

442

 

8,363

 

(5,116

)

 

 

1,939,637

 

442

 

1,940,079

 

596,967

 

Eliminations

 

 

(442

)

(442

)

 

Total

 

$

1,939,637

 

$

 

$

1,939,637

 

$

596,967

 

 

 

 

 

 

 

 

 

 

Segment

 

 

 

External

 

Inter-

 

Total

 

Operating

 

(in thousands)

 

Sales

 

Segment

 

Sales

 

Income (Loss)

 

March 31, 2014

 

 

 

 

 

 

 

 

 

Contract Drilling:

 

 

 

 

 

 

 

 

 

U.S. Land

 

$

1,473,465

 

$

 

$

1,473,465

 

$

496,014

 

Offshore

 

122,330

 

 

122,330