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EX-31.1 - EX-31.1 - Helmerich & Payne, Inc.hp-20170630ex3112240b4.htm
EX-2.1 - EX-2.1 - Helmerich & Payne, Inc.hp-20170630ex2147b6ff8.htm

Icmai

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For quarterly period ended:  June 30, 2017

 

OR

 

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 ☒ No ☐

 

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 ☒ No ☐

 

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

 

 

 

 

Large accelerated filer ☒

 

Accelerated filer ☐

 

 

 

Non-accelerated filer ☐

 

Smaller reporting company ☐

(Do not check if a smaller reporting company)

 

 

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

 

 

 

 

CLASS

 

OUTSTANDING AT July 31, 2017

Common Stock, $0.10 par value

 

108,581,547

 

 

 

 

 

 


 

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

 

TABLE OF CONTENTS

 

 

 

 

 

 

Page No.

 

 

 

PART  I. 

FINANCIAL INFORMATION

 

 

 

 

Item 1. 

Financial Statements

 

 

 

 

 

Consolidated Condensed Balance Sheets as of June 30, 2017 and September 30, 2016

3

 

 

 

 

Consolidated Condensed Statements of Operations for the Three and Nine Months Ended June 30, 2017 and 2016

4

 

 

 

 

Consolidated Condensed Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended June 30, 2017 and 2016

5

 

 

 

 

Consolidated Condensed Statements of Cash Flows for the Nine Months Ended June 30, 2017 and 2016

6

 

 

 

 

Consolidated Condensed Statement of Shareholders’ Equity for the Nine Months Ended June 30, 2017

7

 

 

 

 

Notes to Consolidated Condensed Financial Statements

8-36

 

 

 

Item 2. 

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

37-47

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

47-48

 

 

 

Item 4. 

Controls and Procedures

48

 

 

 

PART II. 

OTHER INFORMATION

48

 

 

 

Item 1. 

Legal Proceedings

48

 

 

 

Item 1A. 

Risk Factors

48-50

 

 

 

Item 6. 

Exhibits

51

 

 

 

Signatures 

52

 

 

2


 

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

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

September 30, 

 

 

    

2017

    

2016

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

572,787

 

$

905,561

 

Short-term investments

 

 

39,894

 

 

44,148

 

Accounts receivable, less reserve of $6,352 in June 30, 2017 and $2,696 in September 30, 2016

 

 

440,872

 

 

375,169

 

Inventories

 

 

138,403

 

 

124,325

 

Prepaid expenses and other

 

 

58,425

 

 

78,067

 

Assets held for sale

 

 

 —

 

 

45,352

 

Current assets of discontinued operations

 

 

 7

 

 

64

 

Total current assets

 

 

1,250,388

 

 

1,572,686

 

NONCURRENT ASSETS:

 

 

 

 

 

 

 

Investments

 

 

76,986

 

 

84,955

 

Property, plant and equipment, at cost:

 

 

5,062,914

 

 

5,144,733

 

Goodwill

 

 

51,967

 

 

4,718

 

Intangible assets, net of amortization

 

 

51,569

 

 

919

 

Other assets

 

 

20,067

 

 

24,008

 

Total noncurrent assets

 

 

5,263,503

 

 

5,259,333

 

TOTAL ASSETS

 

$

6,513,891

 

$

6,832,019

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

Accounts payable

 

$

137,206

 

$

95,422

 

Accrued liabilities

 

 

196,643

 

 

234,639

 

Current liabilities of discontinued operations

 

 

80

 

 

59

 

Total current liabilities

 

 

333,929

 

 

330,120

 

NONCURRENT LIABILITIES:

 

 

 

 

 

 

 

Long-term debt less unamortized discount and debt issuance costs

 

 

492,637

 

 

491,847

 

Deferred income taxes

 

 

1,325,250

 

 

1,342,456

 

Other

 

 

108,946

 

 

102,781

 

Noncurrent liabilities of discontinued operations

 

 

3,225

 

 

3,890

 

Total noncurrent liabilities

 

 

1,930,058

 

 

1,940,974

 

SHAREHOLDERS’ EQUITY:

 

 

 

 

 

 

 

Common stock, $.10 par value, 160,000,000 shares authorized, 111,897,106 shares and 111,400,339 shares issued as of June 30, 2017 and September 30, 2016 respectively and 108,581,547 shares and 108,077,916 shares outstanding as of June 30, 2017 and September 30, 2016 respectively

 

 

11,190

 

 

11,140

 

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

 

 

 —

 

 

 —

 

Additional paid-in capital

 

 

478,231

 

 

448,452

 

Retained earnings

 

 

3,954,705

 

 

4,289,807

 

Accumulated other comprehensive income (loss)

 

 

(4,101)

 

 

(204)

 

 

 

 

4,440,025

 

 

4,749,195

 

Treasury stock, at cost

 

 

(190,121)

 

 

(188,270)

 

Total shareholders’ equity

 

 

4,249,904

 

 

4,560,925

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

6,513,891

 

$

6,832,019

 

 

The accompanying notes are an integral part of these statements.

 

 

3


 

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

    

2017

    

2016

    

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Drilling - U.S. Land

 

$

405,516

 

$

285,028

 

$

1,000,119

 

$

1,004,116

 

Drilling - Offshore

 

 

33,711

 

 

30,492

 

 

103,758

 

 

106,697

 

Drilling - International Land

 

 

55,075

 

 

47,983

 

 

157,863

 

 

171,529

 

Other

 

 

4,262

 

 

2,983

 

 

10,697

 

 

10,182

 

 

 

 

498,564

 

 

366,486

 

 

1,272,437

 

 

1,292,524

 

Operating costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating costs, excluding depreciation

 

 

337,463

 

 

186,146

 

 

881,971

 

 

684,401

 

Depreciation

 

 

145,043

 

 

138,690

 

 

431,667

 

 

422,336

 

Asset impairment charge

 

 

 —

 

 

6,250

 

 

 —

 

 

6,250

 

Research and development

 

 

3,058

 

 

2,707

 

 

8,585

 

 

7,941

 

General and administrative

 

 

42,890

 

 

46,496

 

 

110,671

 

 

112,381

 

Income from asset sales

 

 

(1,862)

 

 

(547)

 

 

(17,593)

 

 

(7,820)

 

 

 

 

526,592

 

 

379,742

 

 

1,415,301

 

 

1,225,489

 

Operating income (loss) from continuing operations

 

 

(28,028)

 

 

(13,256)

 

 

(142,864)

 

 

67,035

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and dividend income

 

 

1,700

 

 

778

 

 

4,028

 

 

2,310

 

Interest expense

 

 

(6,364)

 

 

(6,407)

 

 

(17,503)

 

 

(16,652)

 

Other

 

 

(911)

 

 

534

 

 

(350)

 

 

926

 

 

 

 

(5,575)

 

 

(5,095)

 

 

(13,825)

 

 

(13,416)

 

Income (loss) from continuing operations before income taxes

 

 

(33,603)

 

 

(18,351)

 

 

(156,689)

 

 

53,619

 

Income tax provision

 

 

(10,478)

 

 

2,842

 

 

(50,537)

 

 

33,740

 

Income (loss) from continuing operations

 

 

(23,125)

 

 

(21,193)

 

 

(106,152)

 

 

19,879

 

Income (loss) from discontinued operations before income taxes

 

 

3,223

 

 

2,193

 

 

2,705

 

 

2,241

 

Income tax provision

 

 

1,897

 

 

2,200

 

 

2,233

 

 

6,113

 

Income (loss) from discontinued operations

 

 

1,326

 

 

(7)

 

 

472

 

 

(3,872)

 

NET INCOME (LOSS)

 

$

(21,799)

 

$

(21,200)

 

$

(105,680)

 

$

16,007

 

Basic earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

(0.22)

 

$

(0.20)

 

$

(0.99)

 

$

0.18

 

Income (loss) from discontinued operations

 

$

0.01

 

$

 —

 

$

 —

 

$

(0.04)

 

Net income (loss)

 

$

(0.21)

 

$

(0.20)

 

$

(0.99)

 

$

0.14

 

Diluted earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

(0.22)

 

$

(0.20)

 

$

(0.99)

 

$

0.17

 

Income (loss) from discontinued operations

 

$

0.01

 

$

 —

 

$

 —

 

$

(0.04)

 

Net income (loss)

 

$

(0.21)

 

$

(0.20)

 

$

(0.99)

 

$

0.13

 

Weighted average shares outstanding (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

108,572

 

 

108,047

 

 

108,470

 

 

107,970

 

Diluted

 

 

108,572

 

 

108,047

 

 

108,470

 

 

108,523

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.7000

 

$

0.7000

 

$

2.1000

 

$

2.0750

 

 

The accompanying notes are an integral part of these statements.

4


 

 

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

    

2017

    

2016

    

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(21,799)

 

$

(21,200)

 

$

(105,680)

 

$

16,007

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized appreciation (depreciation) on securities, net of income taxes of ($4.4) million and ($3.2) million at June 30, 2017, and $6.1 million and ($1.7) million at June 30, 2016 

 

 

(6,899)

 

 

9,744

 

 

(4,994)

 

 

(2,719)

 

Minimum pension liability adjustments, net of income taxes of $0.2 million and $0.6 million at June 30, 2017, and $0.1 million and $0.5 million at June 30, 2016

 

 

365

 

 

314

 

 

1,097

 

 

940

 

Other comprehensive income (loss)

 

 

(6,534)

 

 

10,058

 

 

(3,897)

 

 

(1,779)

 

Comprehensive income (loss)

 

$

(28,333)

 

$

(11,142)

 

$

(109,577)

 

$

14,228

 

 

The accompanying notes are an integral part of these statements.

 

5


 

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

June 30, 

 

 

    

2017

    

2016

 

 

 

 

 

 

 

 

 

OPERATING ACTIVITIES:

 

 

    

 

 

    

 

Net income (loss)

 

$

(105,680)

 

$

16,007

 

Adjustment for (income) loss from discontinued operations

 

 

(472)

 

 

3,872

 

Income (loss) from continuing operations

 

 

(106,152)

 

 

19,879

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation

 

 

431,667

 

 

422,336

 

Asset impairment charge

 

 

 —

 

 

6,250

 

Amortization of debt discount and debt issuance costs

 

 

789

 

 

879

 

Provision (recovery) for bad debt

 

 

3,858

 

 

(3,067)

 

Stock-based compensation

 

 

19,247

 

 

19,661

 

Pension settlement charge

 

 

1,411

 

 

3,343

 

Income from asset sales

 

 

(17,593)

 

 

(7,820)

 

Deferred income tax expense

 

 

(27,798)

 

 

77,886

 

Other

 

 

62

 

 

255

 

Change in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(62,942)

 

 

97,698

 

Inventories

 

 

(11,806)

 

 

(344)

 

Prepaid expenses and other

 

 

26,820

 

 

(6,537)

 

Accounts payable

 

 

41,398

 

 

(13,643)

 

Accrued liabilities

 

 

(53,456)

 

 

14,632

 

Deferred income taxes

 

 

(1,051)

 

 

2,673

 

Other noncurrent liabilities

 

 

(8,205)

 

 

(18,741)

 

Net cash provided by operating activities from continuing operations

 

 

236,249

 

 

615,340

 

Net cash provided by (used in) operating activities from discontinued operations

 

 

(115)

 

 

70

 

Net cash provided by operating activities

 

 

236,134

 

 

615,410

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Capital expenditures

 

 

(300,275)

 

 

(219,549)

 

Purchase of short-term investments

 

 

(48,958)

 

 

(36,958)

 

Payment for acquisition of business, net of cash acquired

 

 

(70,416)

 

 

 —

 

Proceeds from sale of short-term investments

 

 

53,150

 

 

32,681

 

Proceeds from asset sales

 

 

17,921

 

 

12,804

 

Net cash used in investing activities

 

 

(348,578)

 

 

(211,022)

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Debt issuance costs

 

 

 —

 

 

(32)

 

Dividends paid

 

 

(229,061)

 

 

(224,040)

 

Exercise of stock options, net of tax withholding

 

 

10,458

 

 

483

 

Tax withholdings related to net share settlements of restricted stock

 

 

(5,848)

 

 

(3,912)

 

Excess tax benefit from stock-based compensation

 

 

4,121

 

 

761

 

Net cash used in financing activities

 

 

(220,330)

 

 

(226,740)

 

Net increase (decrease) in cash and cash equivalents

 

 

(332,774)

 

 

177,648

 

Cash and cash equivalents, beginning of period

 

 

905,561

 

 

729,384

 

Cash and cash equivalents, end of period

 

$

572,787

 

$

907,032

 

 

The accompanying notes are an integral part of these statements.

6


 

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS’ EQUITY

NINE MONTHS ENDED JUNE 30, 2017

(Unaudited)

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Paid-In

 

Retained

 

Comprehensive

 

Treasury Stock

 

 

 

 

 

    

Shares

    

Amount

    

Capital

    

Earnings

    

Loss

    

 Shares

    

Amount

    

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2016

 

111,400

 

$

11,140

 

$

448,452

 

$

4,289,807

 

$

(204)

 

3,322

 

$

(188,270)

 

$

4,560,925

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

(105,680)

 

 

 

 

 

 

 

 

 

 

(105,680)

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,897)

 

 

 

 

 

 

 

(3,897)

 

Dividends declared ($2.10 per share)

 

 

 

 

 

 

 

 

 

 

(229,422)

 

 

 

 

 

 

 

 

 

 

(229,422)

 

Exercise of stock options

 

355

 

 

36

 

 

13,950

 

 

 

 

 

 

 

51

 

 

(3,528)

 

 

10,458

 

Tax benefit of stock-based awards

 

 

 

 

 

 

 

4,121

 

 

 

 

 

 

 

 

 

 

 

 

 

4,121

 

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

 

142

 

 

14

 

 

(7,539)

 

 

 

 

 

 

 

(57)

 

 

1,677

 

 

(5,848)

 

Stock-based compensation

 

 

 

 

 

 

 

19,247

 

 

 

 

 

 

 

 

 

 

 

 

 

19,247

 

Balance, June 30, 2017

 

111,897

 

$

11,190

 

$

478,231

 

$

3,954,705

 

$

(4,101)

 

3,316

 

$

(190,121)

 

$

4,249,904

 

 

The accompanying notes are an integral part of these statements.

7


 

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 2016 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 January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, Intangibles-Goodwill and Other (Topic 350).  The objective of this ASU is to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Instead, under this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The ASU is applicable for public entities for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The amendments should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We early adopted this guidance effective June 30, 2017 with no impact on our consolidated financial statements.  Goodwill will be evaluated for impairment each year in our fourth fiscal quarter.

 

As more fully described in our 2016 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 nine months ended June 30, 2017, early termination revenue was approximately $5.1 million and $24.8 million, respectively.  We had $80.7 million and $189.2 million of early termination revenue for the three and nine months ended June 30, 2016. 

 

Depreciation in the Consolidated Condensed Statements of Operations includes abandonments of $7.7 million and $27.2 million for the three and nine months ended June 30, 2017 and $0.9 million for the nine months ended June 30, 2016.  During fiscal 2017, upgrades to our rig fleet to meet customer demands for additional capabilities resulted in the abandonment of older rig components. 

 

During the second quarter of fiscal 2017, we determined rig equipment in our U.S. Land segment previously classified as held for sale no longer met the criteria for held for sale and was reclassified to property, plant and equipment.  The equipment is from rigs that were decommissioned from service in prior fiscal years and is recorded at its carrying value which is lower than its estimated fair value.

 

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During the third quarter of fiscal 2017, we determined rig equipment in our International Land segment previously classified as held for sale no longer met the criteria for held for sale and was reclassified to property, plant and equipment.  The equipment is recorded at its carrying value which is lower than its estimated fair value.

 

During the second quarter of fiscal 2017, we sold one of our offshore rigs.  The gain from the sale is included in Income from asset sales in our Consolidated Condensed Statements of Operations.

 

The functional currency for all our foreign operations is the U.S. dollar.  Nonmonetary assets and liabilities are translated at historical rates and monetary assets and liabilities are translated at exchange rates in effect at the end of the period.  Income statement accounts are translated at average rates for the period presented.  Foreign currency gains and losses from remeasurement of foreign currency financial statements and foreign currency translations into U.S. dollars are included in direct operating costs.  Included in direct operating costs are aggregate foreign currency losses of $1.3 million and $3.3 million for the three and nine months ended June 30, 2017, respectively.  For the three and nine months ended June 30, 2016, we had aggregate foreign currency losses of $1.1 million and $9.4 million, respectively, primarily due to the sharp devaluation of the Argentine peso in December 2015.

 

 

2.Business Combinations

 

On June 2, 2017, we completed a merger transaction (“MOTIVE Merger”) pursuant to which an unaffiliated drilling technology company, MOTIVE Drilling Technologies, Inc., a Delaware corporation (“MOTIVE”), was merged with and into our wholly owned subsidiary Spring Merger Sub, Inc., a Delaware corporation.  MOTIVE survived the transaction and is now a wholly owned subsidiary of the Company.  At the effective time of the MOTIVE Merger, MOTIVE shareholders received aggregate cash consideration of $74.3 million, net of customary closing adjustments, and may receive up to an additional $25.0 million in potential earnout payments based on future performance.  Transaction costs related to the MOTIVE Merger incurred during the nine months ended June 30, 2017, were $2.8 million and are recorded in the Consolidated Statement of Operations within the general and administrative expense line item.  We recorded revenue of $1.1 million and a net loss of $0.7 million related to the MOTIVE Merger during the three and nine months ended June 30, 2017.

 

MOTIVE has a proprietary Bit Guidance System that is an algorithm-driven system that considers the total economic consequences of directional drilling decisions and has proven to consistently lower drilling costs through more efficient drilling and increase hydrocarbon production through smoother wellbores and more accurate well placement.  Given our strong and longstanding technology and innovation focus, we believe the technology will continue to advance and provide further benefits for the industry.

 

The MOTIVE Merger is accounted for as a business combination in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations, which requires the assets acquired and liabilities assumed to be recorded at their acquisition date fair values. The estimated fair values are based upon preliminary calculations and valuations, and those estimates and assumptions are subject to changes as we obtain additional information for those estimates during the measurement period.  The following table summarizes the purchase price and the preliminary allocation of the fair values of assets acquired and liabilities assumed and separately identifiable intangible assets at the acquisition date (in thousands):

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Purchase Price

 

 

 

Consideration given

 

 

 

 

 

 

 

Cash consideration

 

$

74,275

Long-term contingent earnout liability (Other noncurrent liabilities)

 

 

14,509

Total consideration given

 

$

88,784

 

 

 

 

Allocation of Purchase Price

 

 

 

Fair value of assets acquired

 

 

 

Current assets

 

$

4,425

Property, plant and equipment

 

 

300

Intangible asset - developed technology (Intangible assets, net of amortization)

 

 

51,000

Goodwill

 

 

47,249

 

 

 

 

Total assets acquired

 

$

102,974

 

 

 

 

Fair value of liabilities assumed

 

 

 

Current liabilities

 

$

25

Deferred income taxes

 

 

14,165

 

 

 

 

Total liabilities acquired

 

$

14,190

 

 

 

 

Fair value of total assets and liabilities acquired

 

$

88,784

 

The fair value of the contingent consideration of $14.5 million, calculated using a Monte Carlo simulation which evaluates numerous potential earnings and pay out scenarios, is considered a level 3 measurement under the fair value hierarchy.  The developed technology is an intangible asset that will be amortized on a straight-line basis over an estimated 15-year life.  We expect annual amortization to be approximately $3.4 million.  The goodwill consists largely of the synergies and economies of scale expected from the drilling technology providing more efficient drilling and directional drilling services, the first mover advantage obtained through the acquisition and expected future developments resulting from the assembled workforce.  The goodwill is reported in the Other segment and will not be allocated to any other reporting unit.  The goodwill is not subject to amortization but will be evaluated at least annually for impairment or more frequently if impairment indicators are present.  The developed technology and goodwill are not deductible for income tax purposes.  An associated deferred tax liability has been recorded in regards to the developed technology.

 

The following unaudited pro forma combined financial information is provided for the nine months ended June 30, 2017 and 2016, as though the MOTIVE Merger had been completed as of October 1, 2015.  These pro forma combined results of operations have been prepared by adjusting our historical results to include the historical results of MOTIVE and reflect pro forma adjustments based on available information and certain assumptions that we believe are reasonable, including application of an appropriate income tax to MOTIVE pre-tax loss.  Additionally, pro forma earnings for the nine months ended June 30, 2017 were adjusted to exclude $1.0 million of after-tax transaction costs.  The unaudited pro forma combined financial information is provided for illustrative purposes only and is not necessarily indicative of the actual results that would have been achieved by the combined company for

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the periods presented or that may be achieved by the combined company in the future.  Future results may vary significantly from the results reflected in this pro forma financial information.

 

 

 

 

 

 

 

 

 

 

Pro Forma

 

 

Nine Months Ended June 30,

 

    

2017

    

2016

 

 

(unaudited)

 

 

(in thousands)

 

 

 

 

 

 

 

Revenues

 

$

1,275,646

 

$

1,294,146

Net loss

 

$

(105,482)

 

$

(18,292)

 

 

3.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. 

 

4.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.

 

Under the two-class method of calculating earnings per share, dividends paid and a portion of undistributed net income, but not losses, are allocated to unvested restricted stock grants that receive dividends, which are considered participating securities.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

    

2017

    

2016

    

2017

    

2016

 

 

 

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

(23,125)

 

$

(21,193)

 

$

(106,152)

 

$

19,879

 

Income (loss) from discontinued operations

 

 

1,326

 

 

(7)

 

 

472

 

 

(3,872)

 

Net income (loss)

 

 

(21,799)

 

 

(21,200)

 

 

(105,680)

 

 

16,007

 

Adjustment for basic earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings allocated to unvested shareholders

 

 

(458)

 

 

(451)

 

 

(1,349)

 

 

(1,410)

 

Numerator for basic earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

From continuing operations

 

 

(23,583)

 

 

(21,644)

 

 

(107,501)

 

 

18,469

 

From discontinued operations

 

 

1,326

 

 

(7)

 

 

472

 

 

(3,872)

 

 

 

 

(22,257)

 

 

(21,651)

 

 

(107,029)

 

 

14,597

 

Adjustment for diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of reallocating undistributed earnings of unvested shareholders

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Numerator for diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

From continuing operations

 

 

(23,583)

 

 

(21,644)

 

 

(107,501)

 

 

18,469

 

From discontinued operations

 

 

1,326

 

 

(7)

 

 

472

 

 

(3,872)

 

 

 

$

(22,257)

 

$

(21,651)

 

$

(107,029)

 

$

14,597

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic earnings per share - weighted-average shares

 

 

108,572

 

 

108,047

 

 

108,470

 

 

107,970

 

Effect of dilutive shares from stock options and restricted stock

 

 

 —

 

 

 —

 

 

 —

 

 

553

 

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

 

 

108,572

 

 

108,047

 

 

108,470

 

 

108,523

 

Basic earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

(0.22)

 

$

(0.20)

 

$

(0.99)

 

$

0.18

 

Income (loss) from discontinued operations

 

 

0.01

 

 

 —

 

 

 —

 

 

(0.04)

 

Net income (loss)

 

$

(0.21)

 

$

(0.20)

 

$

(0.99)

 

$

0.14

 

Diluted earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

(0.22)

 

$

(0.20)

 

$

(0.99)

 

$

0.17

 

Income (loss) from discontinued operations

 

 

0.01

 

 

 —

 

 

 —

 

 

(0.04)

 

Net income (loss)

 

$

(0.21)

 

$

(0.20)

 

$

(0.99)

 

$

0.13

 

 

We had a net loss for the three and nine months ended June 30, 2017.  Accordingly, our diluted earnings per share calculation for the three and nine months ended June 30, 2017 was equivalent to our basic earnings per share calculation since diluted earnings per share excluded any assumed exercise of equity awards.  These were excluded because they were deemed to be anti-dilutive, meaning their inclusion would have reduced the reported net loss per share in the applicable period.

 

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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

 

Nine Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

    

2017

    

2016

    

2017

    

2016

 

 

 

(in thousands, except per share amounts)

 

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares excluded from calculation of diluted earnings per share

 

 

1,332

 

 

3,409

 

 

1,034

 

 

1,861

 

Weighted-average price per share

 

$

70.82

 

$

51.94