Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For quarterly period ended:March 31, 2005 | ||
| OR |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:1-4221
HELMERICH & PAYNE, INC.
| 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.Yesþ Noo
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).Yesþ Noo
| CLASS | OUTSTANDING AT APRIL 30, 2005 | |
| Common Stock, $0.10 par value | 51,185,792 |
Total Number of Pages — 23
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
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| Certification of CEO Pursuant to Section 302 | ||||||||
| Certification of CFO Pursuant to Section 302 | ||||||||
| Certification of CEO and CFO Pursuant to Section 906 | ||||||||
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
| Unaudited | ||||||||
| March 31, | September 30, | |||||||
| 2005 | 2004 | |||||||
ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 208,453 | $ | 65,296 | ||||
| Accounts receivable, less reserve of $1,429 at March 31, 2005 and $1,265 at September 30, 2004 | 133,184 | 133,262 | ||||||
| Inventories | 20,759 | 20,826 | ||||||
| Deferred income tax | 4,751 | 4,346 | ||||||
| Prepaid expenses and other | 25,785 | 22,156 | ||||||
| Total current assets | 392,932 | 245,886 | ||||||
| Investments | 157,076 | 161,532 | ||||||
| Property, plant and equipment, net | 959,487 | 998,674 | ||||||
| Other assets | 662 | 752 | ||||||
| Total assets | $ | 1,510,157 | $ | 1,406,844 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 24,500 | $ | 28,012 | ||||
| Accrued liabilities | 31,221 | 31,891 | ||||||
| Total current liabilities | 55,721 | 59,903 | ||||||
| Noncurrent liabilities: | ||||||||
| Long-term notes payable | 200,000 | 200,000 | ||||||
| Deferred income taxes | 221,148 | 194,573 | ||||||
| Other | 43,588 | 38,258 | ||||||
| Total noncurrent liabilities | 464,736 | 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 | 97,016 | 85,466 | ||||||
| Retained earnings | 881,984 | 828,763 | ||||||
| Unearned compensation | (149 | ) | — | |||||
| Accumulated other comprehensive income | 39,109 | 36,252 | ||||||
| Treasury stock, at cost | (33,613 | ) | (41,724 | ) | ||||
| Total shareholders’ equity | 989,700 | 914,110 | ||||||
| Total liabilities and shareholders’ equity | $ | 1,510,157 | $ | 1,406,844 | ||||
The accompanying notes are an integral part of these statements.
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HELMERICH & PAYNE, INC. AND SUBSIDIARIES
| Three Months Ended | Six Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
| Operating revenues: | ||||||||||||||||
| Drilling — U.S. Land | $ | 122,394 | $ | 82,477 | $ | 231,582 | $ | 157,410 | ||||||||
| Drilling — U.S. Offshore | 18,649 | 18,675 | 39,005 | 39,377 | ||||||||||||
| Drilling — International | 41,799 | 39,311 | 84,270 | 75,272 | ||||||||||||
| Real Estate | 2,608 | 2,561 | 5,272 | 5,238 | ||||||||||||
| 185,450 | 143,024 | 360,129 | 277,297 | |||||||||||||
| Operating costs and expenses: | ||||||||||||||||
| Operating costs | 114,321 | 104,950 | 225,573 | 198,731 | ||||||||||||
| Depreciation | 23,950 | 23,402 | 47,212 | 45,670 | ||||||||||||
| General and administrative | 9,593 | 9,789 | 18,839 | 18,891 | ||||||||||||
| 147,864 | 138,141 | 291,624 | 263,292 | |||||||||||||
Operating income | 37,586 | 4,883 | 68,505 | 14,005 | ||||||||||||
| Other income (expense): | ||||||||||||||||
| Interest and dividend income | 1,193 | 516 | 2,154 | 1,161 | ||||||||||||
| Interest expense | (3,246 | ) | (3,112 | ) | (6,555 | ) | (6,334 | ) | ||||||||
| Gain (loss) on sale of investment securities | (36 | ) | 7,072 | 26,313 | 11,976 | |||||||||||
| Income from asset sales | 971 | 755 | 11,787 | 1,636 | ||||||||||||
| Other | 348 | 109 | 346 | 118 | ||||||||||||
| (770 | ) | 5,340 | 34,045 | 8,557 | ||||||||||||
| Income before income taxes and equity in income (loss) of affiliate | 36,816 | 10,223 | 102,550 | 22,562 | ||||||||||||
| Income tax provision | 15,153 | 4,484 | 42,283 | 9,615 | ||||||||||||
| Equity in income (loss) of affiliate net of income taxes | 687 | 309 | 1,393 | (311 | ) | |||||||||||
NET INCOME | $ | 22,350 | $ | 6,048 | $ | 61,660 | $ | 12,636 | ||||||||
| Earnings per common share: | ||||||||||||||||
| Basic | $ | 0.44 | $ | 0.12 | $ | 1.22 | $ | 0.25 | ||||||||
| Diluted | $ | 0.43 | $ | 0.12 | $ | 1.20 | $ | 0.25 | ||||||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic | 50,955 | 50,263 | 50,747 | 50,209 | ||||||||||||
| Diluted | 51,891 | 50,903 | 51,571 | 50,784 | ||||||||||||
| Dividends declared per common share | $ | 0.0825 | $ | 0.0800 | $ | 0.1650 | $ | 0.1600 | ||||||||
The accompanying notes are an integral part of these statements.
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HELMERICH & PAYNE, INC. AND SUBSIDIARIES
| Six Months Ended | ||||||||
| March 31, | ||||||||
| 2005 | 2004 | |||||||
OPERATING ACTIVITIES: | ||||||||
| Net income | $ | 61,660 | $ | 12,636 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation | 47,212 | 45,670 | ||||||
| Equity in (income) loss of affiliate before income taxes | (2,247 | ) | 502 | |||||
| Amortization of deferred compensation | 11 | 10 | ||||||
| Gain on sale of investment securities | (26,313 | ) | (10,030 | ) | ||||
| Non-monetary investment gain | — | (1,946 | ) | |||||
| Gain on sale of assets | (11,787 | ) | (1,636 | ) | ||||
| Other-net | (348 | ) | 34 | |||||
| Deferred income tax expense | 21,947 | 18,652 | ||||||
| Change in assets and liabilities- | ||||||||
| Accounts receivables | (16,761 | ) | (10,894 | ) | ||||
| Inventories | 67 | 821 | ||||||
| Prepaid expenses and other | (1,539 | ) | (1,039 | ) | ||||
| Income tax receivable | — | (11,541 | ) | |||||
| Accounts payable | (3,571 | ) | (6,800 | ) | ||||
| Accrued liabilities | (670 | ) | (668 | ) | ||||
| Deferred income taxes | 5,805 | 973 | ||||||
| Other noncurrent liabilities | 4,623 | 2,429 | ||||||
| Net cash provided by operating activities | 78,089 | 37,173 | ||||||
INVESTING ACTIVITIES: | ||||||||
| Capital expenditures | (22,693 | ) | (52,657 | ) | ||||
| Purchase of investments | (5,000 | ) | — | |||||
| Proceeds from sale of investment securities | 62,843 | 14,033 | ||||||
| Proceeds from asset sales | 26,455 | 2,907 | ||||||
| Net cash provided by (used in) investing activities | 61,605 | (35,717 | ) | |||||
FINANCING ACTIVITIES: | ||||||||
| Payment of short-term notes | — | (5,000 | ) | |||||
| Dividends paid | (8,380 | ) | (8,050 | ) | ||||
| Proceeds from exercise of stock options | 11,843 | 3,963 | ||||||
| Net cash provided by (used in) financing activities | 3,463 | (9,087 | ) | |||||
| Net increase (decrease) in cash and cash equivalents | 143,157 | (7,631 | ) | |||||
| Cash and cash equivalents, beginning of period | 65,296 | 38,189 | ||||||
| Cash and cash equivalents, end of period | $ | 208,453 | $ | 30,558 | ||||
The accompanying notes are an integral part of these statements.
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HELMERICH & PAYNE, INC. AND SUBSIDIARIES
| Accumulated | ||||||||||||||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||||||||||||||
| Common Stock | Paid-In | Unearned | Retained | Treasury Stock | Comprehensive | Shareholders’ | ||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Compensation | Earnings | Shares | Amount | Income | Equity | ||||||||||||||||||||||||||||
| Balance, September 30, 2004 | 53,529 | $ | 5,353 | $ | 85,466 | $ | — | $ | 828,763 | 3,084 | $ | (41,724 | ) | $ | 36,252 | $ | 914,110 | |||||||||||||||||||
| Comprehensive Income: | ||||||||||||||||||||||||||||||||||||
| Net Income | 61,660 | 61,660 | ||||||||||||||||||||||||||||||||||
| Other comprehensive income, Unrealized gains on available- for-sale securities, net | 2,857 | 2,857 | ||||||||||||||||||||||||||||||||||
| Comprehensive income | 64,517 | |||||||||||||||||||||||||||||||||||
| Capital adjustment of equity investee | 2,682 | 2,682 | ||||||||||||||||||||||||||||||||||
| Cash dividends $(0.165 per share) | (8,439 | ) | (8,439 | ) | ||||||||||||||||||||||||||||||||
| Exercise of stock options | 3,799 | (713 | ) | 8,044 | 11,843 | |||||||||||||||||||||||||||||||
| Stock issued under | ||||||||||||||||||||||||||||||||||||
| Restricted Stock Award Plan | 93 | (160 | ) | (5 | ) | 67 | — | |||||||||||||||||||||||||||||
| Tax benefit of stock-based awards | 4,976 | 4,976 | ||||||||||||||||||||||||||||||||||
| Amortization of deferred compensation | 11 | 11 | ||||||||||||||||||||||||||||||||||
| Balance, March 31, 2005 | 53,529 | $ | 5,353 | $ | 97,016 | $ | (149 | ) | $ | 881,984 | 2,366 | $ | (33,613 | ) | $ | 39,109 | $ | 989,700 | ||||||||||||||||||
The accompanying notes are an integral part of these statements.
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HELMERICH & PAYNE, INC. AND SUBSIDIARIES
| 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 six months ended March 31, 2005, and March 31, 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 | Six Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
| (in thousands except per share amounts) | ||||||||||||||||
| Net income, as reported | $ | 22,350 | $ | 6,048 | $ | 61,660 | $ | 12,636 | ||||||||
| Add: Stock-based employee compensation expense included in the Consolidated Statements of Income, net of related tax effects | 5 | — | 7 | 6 | ||||||||||||
| Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | (833 | ) | (1,013 | ) | (1,826 | ) | (2,122 | ) | ||||||||
| Pro forma net income | $ | 21,522 | $ | 5,035 | $ | 59,841 | $ | 10,520 | ||||||||
| Earnings per share: | ||||||||||||||||
| Basic-as reported | $ | 0.44 | $ | 0.12 | $ | 1.22 | $ | 0.25 | ||||||||
| Basic-pro forma | $ | 0.42 | $ | 0.10 | $ | 1.18 | $ | 0.21 | ||||||||
| Diluted-as reported | $ | 0.43 | $ | 0.12 | $ | 1.20 | $ | 0.25 | ||||||||
| Diluted-pro forma | $ | 0.41 | $ | 0.10 | $ | 1.16 | $ | 0.21 | ||||||||
| 3. | Cash Dividends | |||
| The $.0825 cash dividend declared December 1, 2004, was paid March 1, 2005. On March 2, 2005, a cash dividend of $.0825 per share was declared for shareholders of record on May 13, 2005, payable June 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 | Six Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
| After-tax gain (loss) | $ | (18 | ) | $ | 4,337 | $ | 16,042 | $ | 6,201 | |||||||
| Earnings per diluted share | $ | — | $ | 0.09 | $ | 0.31 | $ | 0.12 | ||||||||
| 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 $6.3 million at March 31, 2005 and $5.6 million at September 30, 2004. The recorded amounts for investments accounted for under the equity method are $44.9 million and $57.8 million at March 31, 2005 and September 30, 2004, respectively. | ||||
| Gross | Gross | Est. | ||||||||||||||
| Unrealized | Unrealized | Fair | ||||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
| (in thousands) | ||||||||||||||||
| Equity Securities 03/31/05 | $ | 30,976 | $ | 74,959 | $ | 74 | $ | 105,861 | ||||||||
| 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 | Six Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
| Net Income | $ | 22,350 | $ | 6,048 | $ | 61,660 | $ | 12,636 | ||||||||
| Other comprehensive income: | ||||||||||||||||
| Net unrealized gain on securities | 1,827 | 4,691 | 2,857 | 10,003 | ||||||||||||
| Amortization of unrealized loss on derivative instruments | — | — | — | 72 | ||||||||||||
| Other comprehensive income | 1,827 | 4,691 | 2,857 | 10,075 | ||||||||||||
| Comprehensive income | $ | 24,177 | $ | 10,739 | $ | 64,517 | $ | 22,711 | ||||||||
| The components of accumulated other comprehensive income, net of related taxes, are as follows (in thousands): |
| March 31, | September 30, | |||||||
| 2005 | 2004 | |||||||
| Unrealized gain on securities, net | $ | 46,429 | $ | 43,572 | ||||
| Minimum pension liability | (7,320 | ) | (7,320 | ) | ||||
| Accumulated other comprehensive income | $ | 39,109 | $ | 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 March 31, 2005, the Company had $200 million in long-term debt outstanding at fixed rates and maturities as summarized in the following table. | ||||
| Issue Amount | Maturity Date | Interest Rate | ||||||
| $25,000,000 | August 15, 2007 | 5.51 | % | |||||
| $25,000,000 | August 15, 2009 | 5.91 | % | |||||
| $75,000,000 | August 15, 2012 | 6.46 | % | |||||
| $75,000,000 | August 15, 2014 | 6.56 | % | |||||
| The terms of the debt obligations require the Company to maintain a minimum ratio of debt to total capitalization. | ||||
| At March 31, 2005, the Company had a committed unsecured line of credit totaling $50 million. Letters of credit totaling $14.4 million were outstanding against the line, leaving $35.6 million available to borrow. Under terms of the line of credit, the Company must maintain certain financial ratios including debt to total capitalization and debt to earnings before interest, taxes, depreciation, and amortization, and 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 matures in July, 2005. The Company intends to renew the existing line of credit or obtain a similar facility at the expiration date. | ||||
| 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 | Six Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Basic weighted-average shares | 50,955 | 50,263 | 50,747 | 50,209 | ||||||||||||
| Effect of dilutive shares: | ||||||||||||||||
| Stock options and restricted stock | 936 | 640 | 824 | 575 | ||||||||||||
| Diluted weighted-average shares | 51,891 | 50,903 | 51,571 | 50,784 | ||||||||||||
| 10. | Income Taxes | |||
| The Company’s effective tax rate was 41.2% in the first six months of fiscal 2005, compared to 42.6% in the first six months of fiscal 2004. The effective rate differs from the U.S. federal statutory rate of 35% 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 March 31, 2005, the Company had commitments outstanding of approximately $37.7 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 Platform, and International. The contract drilling operations consist primarily 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 primary areas of operations 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; and 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 six months ended March 31, 2005, and 2004, is shown in the following tables: | ||||
| External | Inter- | Total | Operating | |||||||||||||
| (in thousands) | Sales | Segment | Sales | Income | ||||||||||||
March 31, 2005 | ||||||||||||||||
| Contract Drilling: | ||||||||||||||||
| U.S. Land | $ | 231,582 | $ | — | $ | 231,582 | $ | 61,385 | ||||||||
| U.S. Offshore | 39,005 | — | 39,005 | 8,340 | ||||||||||||
| International | 84,270 | — | 84,270 | 9,779 | ||||||||||||
| 354,857 | — | 354,857 | 79,504 | |||||||||||||
| Real Estate | 5,272 | 393 | 5,665 | 1,936 | ||||||||||||
| Other | — | — | — | (13,850 | ) | |||||||||||
| Eliminations | — | (393 | ) | (393 | ) | 915 | ||||||||||
Total | $ | 360,129 | $ | — | $ | 360,129 | $ | 68,505 | ||||||||
| External | Inter- | Total | Operating | |||||||||||||
| (in thousands) | Sales | Segment | Sales | Income | ||||||||||||
March 31, 2004 | ||||||||||||||||
| Contract Drilling: | ||||||||||||||||
| U.S. Land | $ | 157,410 | $ | — | $ | 157,410 | $ | 12,202 | ||||||||
| U.S. Offshore | 39,377 | — | 39,377 | 8,092 | ||||||||||||
| International | 75,272 | — | 75,272 | 5,195 | ||||||||||||
| 272,059 | — | 272,059 | 25,489 | |||||||||||||
| Real Estate | 5,238 | 517 | 5,755 | 2,302 | ||||||||||||
| Other | — | — | — | (13,786 | ) | |||||||||||
| Eliminations | — | (517 | ) | (517 | ) | — | ||||||||||
Total | $ | 277,297 | $ | — | $ | 277,297 | $ | 14,005 | ||||||||
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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 March 31, 2005, and 2004, is shown in the following tables:
| External | Inter- | Total | Operating | |||||||||||||
| (in thousands) | Sales | Segment | Sales | Income | ||||||||||||
March 31, 2005 | ||||||||||||||||
| Contract Drilling: | ||||||||||||||||
| U.S. Land | $ | 122,394 | $ | — | $ | 122,394 | $ | 35,797 | ||||||||
| U.S. Offshore | 18,649 | — | 18,649 | 4,172 | ||||||||||||
| International | 41,799 | — | 41,799 | 3,582 | ||||||||||||
| 182,842 | — | 182,842 | 43,551 | |||||||||||||
| Real Estate | 2,608 | 202 | 2,810 | 861 | ||||||||||||
| Other | — | — | — | (7,286 | ) | |||||||||||
| Eliminations | — | (202 | ) | (202 | ) | 460 | ||||||||||
Total | $ | 185,450 | $ | — | $ | 185,450 | $ | 37,586 | ||||||||
| External | Inter- | Total | Operating | |||||||||||||
| (in thousands) | Sales | Segment | Sales | Income | ||||||||||||
March 31, 2004 | ||||||||||||||||
| Contract Drilling: | ||||||||||||||||
| U.S. Land | $ | 82,477 | $ | — | $ | 82,477 | $ | 5,747 | ||||||||
| U.S. Offshore | 18,675 | — | 18,675 | 3,880 | ||||||||||||
| International | 39,311 | — | 39,311 | 1,555 | ||||||||||||
| 140,463 | — | 140,463 | 11,182 | |||||||||||||
| Real Estate | 2,561 | 197 | 2,758 | 1,046 | ||||||||||||
| Other | — | — | — | (7,345 | ) | |||||||||||
| Eliminations | — | (197 | ) | (197 | ) | — | ||||||||||
Total | $ | 143,024 | $ | — | $ | 143,024 | $ | 4,883 | ||||||||
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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 (loss) of affiliate as reported on the Consolidated Condensed Statements of Income.
| Three Months Ended | Six Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Segment operating income | $ | 37,586 | $ | 4,883 | $ | 68,505 | $ | 14,005 | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest and dividend income | 1,193 | 516 | 2,154 | 1,161 | ||||||||||||
| Interest expense | (3,246 | ) | (3,112 | ) | (6,555 | ) | (6,334 | ) | ||||||||
| Gain (loss) on sale of investment securities | (36 | ) | 7,072 | 26,313 | 11,976 | |||||||||||
| Income from asset sales | 971 | 755 | 11,787 | 1,636 | ||||||||||||
| Other | 348 | 109 | 346 | 118 | ||||||||||||
| Total other income | (770 | ) | 5,340 | 34,045 | 8,557 | |||||||||||
| Income before income taxes and equity in income (loss) of affiliate | $ | 36,816 | $ | 10,223 | $ | 102,550 | $ | 22,562 | ||||||||
| March 31, | September 30, | |||||||
| 2005 | 2004 | |||||||
| (in thousands) | ||||||||
| Total Assets | ||||||||
| U.S. Land | $ | 752,390 | $ | 742,642 | ||||
| U.S. Offshore | 94,034 | 102,557 | ||||||
| International | 239,272 | 261,893 | ||||||
| 1,085,696 | 1,107,092 | |||||||
| Real Estate | 32,652 | 33,044 | ||||||
| Other | 391,809 | 266,708 | ||||||
| $ | 1,510,157 | $ | 1,406,844 | |||||
The following table presents revenues from external customers by country based on the location of service provided.
| Three Months Ended | Six Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Operating revenues | ||||||||||||||||
| United States | $ | 143,651 | $ | 103,713 | $ | 275,859 | $ | 202,025 | ||||||||
| Venezuela | 15,889 | 12,637 | 33,221 | 26,386 | ||||||||||||
| Ecuador | 14,602 | 9,961 | 27,967 | 22,385 | ||||||||||||
| Other Foreign | 11,308 | 16,713 | 23,082 | 26,501 | ||||||||||||
| Total | $ | 185,450 | $ | 143,024 | $ | 360,129 | $ | 277,297 | ||||||||
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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 March 31, 2005 and 2004 as to the Company’s sponsored domestic defined benefit pension plan. | ||||
| Components of Net Periodic Benefit Cost | ||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Service Cost | $ | 1,136 | $ | 1,006 | $ | 2,273 | $ | 2,012 | ||||||||
| Interest Cost | 1,154 | 1,101 | 2,308 | 2,202 | ||||||||||||
| Expected return on plan assets | (1,094 | ) | (1,058 | ) | (2,189 | ) | (2,117 | ) | ||||||||
| Amortization-prior service cost | — | 5 | — | 10 | ||||||||||||
| Recognized net actuarial loss | 239 | 189 | 478 | 378 | ||||||||||||
| Net pension expense | $ | 1,435 | $ | 1,243 | $ | 2,870 | $ | 2,485 | ||||||||
Plan Assets
The weighted-average asset allocations for the pension plan by asset category follow:
| At March 31, | 2005 | 2004 | ||||||
| Asset Category | ||||||||
| Equity Securities | 73.8 | % | 70.8 | % | ||||
| Debt Securities | 25.1 | % | 27.9 | % | ||||
| Real Estate and Other | 1.1 | % | 1.3 | % | ||||
| Total | 100.0 | % | 100.0 | % | ||||
Employer Contributions
The Company anticipates that no funding of the pension plan will be required in 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 October 1, 2005, its fiscal 2006 first quarter ending December 31, 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 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 in the fiscal 2006 first quarter ending December 31, 2005. | ||||
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Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 includes 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 March 31, 2005 vs. Three Months Ended March 31, 2004
The Company reported net income of $22.4 million ($0.43 per diluted share) from operating revenues of $185.5 million for the second quarter ended March 31, 2005, compared with net income of $6.0 million ($0.12 per diluted share) from revenues of $143.0 million for the second quarter of fiscal year 2004. Net income for the second quarter of fiscal 2004 includes $4.3 million ($0.09 per diluted share) of gains from the sale of available-for-sale securities. There were no material security transactions in the second quarter of fiscal 2005.
The following tables summarize operations by business segment for the three months ended March 31, 2005 and 2004. Operating statistics in the tables exclude the effects of offshore platform and international management contracts, and do not include reimbursements of “out-of-pocket” expenses in revenue, expense and margin per day calculations. Per day calculations for international operations also exclude gains and losses from translation of foreign currency transactions.
| 2005 | 2004 | |||||||
| (in 000’s, except days and per day amounts) | ||||||||
U.S. LAND OPERATIONS | ||||||||
| Revenues | $ | 122,394 | $ | 82,477 | ||||
| Direct operating expenses | 69,695 | 60,943 | ||||||
| General and administrative expense | 1,839 | 1,867 | ||||||
| Depreciation | 15,063 | 13,920 | ||||||
| Operating income | $ | 35,797 | $ | 5,747 | ||||
| Activity days | 7,589 | 6,758 | ||||||
| Average rig revenue per day | $ | 15,018 | $ | 11,218 | ||||
| Average rig expense per day | $ | 8,074 | $ | 8,032 | ||||
| Average rig margin per day | $ | 6,944 | $ | 3,186 | ||||
| Rig utilization | 94 | % | 86 | % | ||||
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31, 2005
U.S. LAND operating income increased to $35.8 million for the second quarter of fiscal 2005 compared to $5.7 million in the same period of fiscal 2004. Revenues were $122.4 million and $82.5 million in the second quarter of fiscal 2005 and 2004, respectively. Included in land revenues for the three months ended March 31, 2005 and 2004 are reimbursements for “out-of-pocket” expenses of $8.4 million and $6.7 million, respectively. The $30.1 million increase in operating income was primarily the result of increased rig days and higher dayrates.
Average land rig margin per day was $6,944 and $3,186 for the second quarter of fiscal 2005 and 2004, respectively. The significant increase in margins was due to higher dayrates. Land rig utilization was 94% and 86% for the second quarter of fiscal 2005 and 2004, respectively. Land rig revenue days for the second quarter of 2005 were 7,589 compared with 6,758 for the same period of 2004, with an average of 84.3 and 74.3 rigs working during the second quarter of fiscal 2005 and 2004, respectively. Land depreciation expense increased to $15.1 million in the second quarter of fiscal 2005, compared to $13.9 million in the same period of fiscal 2004. The increase is the result of having three additional rigs in the United States during the second quarter of 2005 compared to the second quarter of 2004. The additional rigs are the result of one transferred from Venezuela and one transferred from Chad, both in the first quarter of 2005 and the third rig is the result of a flex rig constructed and placed in service in the third quarter of 2004.
The Company will begin construction of 13 new drilling rigs in the third quarter of 2005. Under terms of an agreement with an operator, the Company will operate 10 new rigs, each under a three-year term contract at a fixed dayrate plus certain conditional incentive payments based upon savings realized by the operator. The first rig is scheduled for completion by November, 2005, with the remaining nine expected to be delivered to the field at the rate of one per month thereafter. The Company currently has a letter of intent with another operator to operate three rigs on three-year term contracts. The Company expects to deliver one new rig per month starting November, 2005. The total capital cost of the construction is estimated at $125 million with approximately $50 million spent in fiscal 2005 and $75 million in fiscal 2006. The construction will be financed primarily by internally generated cash flows.
| 2005 | 2004 | |||||||
| (in 000’s, except days and per day amounts) | ||||||||
U.S. OFFSHORE OPERATIONS | ||||||||
| Revenues | $ | 18,649 | $ | 18,675 | ||||
| Direct operating expenses | 10,992 | 10,997 | ||||||
| General and administrative expense | 817 | 767 | ||||||
| Depreciation | 2,668 | 3,031 | ||||||
| Operating income | $ | 4,172 | $ | 3,880 | ||||
| Activity days | 450 | 455 | ||||||
| Average rig revenue per day | $ | 29,297 | $ | 28,644 | ||||
| Average rig expense per day | $ | 14,928 | $ | 14,481 | ||||
| Average rig margin per day | $ | 14,369 | $ | 14,163 | ||||
| Rig utilization | 45 | % | 42 | % | ||||
U.S. OFFSHORE operating income for the second quarter of fiscal 2005 increased 7.5% compared to the second quarter 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. Additionally, average rig revenue per day increased while activity days remained constant. Included in offshore revenues for the three months ended March 31, 2005 and 2004 are reimbursements for “out-of-pocket” expenses of $1.4 million and $1.6 million, respectively.
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Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31, 2005
Five of the Company’s eleven platform rigs are currently contracted and a sixth rig has been contracted to start operations late in the third quarter of 2005. The Company continues to forecast a slow recovery in its offshore segment, but some inquiries for future work are being pursued and the Company is optimistic that one additional rig will be contracted by September, 2005.
| 2005 | 2004 | |||||||
| (in 000’s, except days and per day amounts) | ||||||||
INTERNATIONAL OPERATIONS | ||||||||
| Revenues | $ | 41,799 | $ | 39,311 | ||||
| Direct operating expenses | 32,920 | 32,056 | ||||||
| General and administrative expense | 497 | 561 | ||||||
| Depreciation | 4,800 | 5,139 | ||||||
| Operating income | $ | 3,582 | $ | 1,555 | ||||
| Activity days | 1,728 | 1,473 | ||||||
| Average rig revenue per day | $ | 19,430 | $ | 21,849 | ||||
| Average rig expense per day | $ | 13,672 | $ | 16,645 | ||||
| Average rig margin per day | $ | 5,758 | $ | 5,204 | ||||
| Rig utilization | 71 | % | 51 | % | ||||
INTERNATIONAL DRILLING operating income for the second quarter of fiscal 2005 was $3.6 million, compared to $1.6 million in the same period of 2004. Included in operating income is an exchange loss in Venezuela of $1.6 million in the second quarter of 2005, compared to an exchange loss of $1.4 million for the same period in 2004. Rig utilization for international operations averaged 71% for this year’s second quarter, compared with 51% for the second quarter of fiscal 2004. An average of 19.2 rigs worked during the current quarter, compared to 16.2 rigs in the second quarter of fiscal 2004. International revenues were $41.8 million in the second quarter of fiscal 2005, compared with $39.3 million in the second quarter of fiscal 2004. The increase in revenue is attributable to increased activity days offset by a decrease in average rig revenue per day. Included in International Drilling revenues for the three months ended March 31, 2005 and 2004, respectively, are reimbursements for “out-of-pocket” expenses of $3.8 million and $3.5 million, respectively. Depreciation decreased as compared to the second quarter of 2004 due to transferring five rigs to U.S. Land operations.
Currently in Venezuela, the Company has eight deep rigs operating for PDVSA with a ninth deep rig scheduled to go to work in the third quarter 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% and 67% for the second quarter of fiscal 2005 and 2004, respectively. In those same comparative quarters, an average of 8.0 rigs and 5.4 rigs worked.
Two deep rigs worked at 96% activity in Colombia during the second quarter of 2005, compared to no activity in the second quarter 2004. The Company anticipates the two working rigs to remain active through the end of the fiscal year. During both second quarters of 2005 and 2004, Argentina had one rig working. Bolivia had no activity during the second quarter 2005 compared to one rig working during the second quarter 2004. Two of the three idle rigs in Bolivia are contracted to begin work in the third quarter 2005. The third rig will be moved to Argentina and is expected to begin work in the fourth quarter 2005. In the second quarter 2004, Chad had one rig working. Chad had no activity in the second quarter 2005, as those operations ceased at the end of fiscal 2004. The rig has been moved to the U.S. Land Operations and is currently under contract.
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Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31, 2005
In the second quarter of 2005 and 2004, there was one rig working in Hungary. The contract in Hungary was completed early in the second quarter of 2005, and the rig arrived in Houston in April, 2005.
OTHER
Interest and dividend income increased to $1.2 million in the second quarter of 2005 compared to $.5 million in the second quarter of 2004. The increase is due to higher earnings from increased cash and cash equivalent balances.
Income from the sale of investment securities in the second quarter of 2004 was $7.1 million. Gains net of tax were $4.3 million ($0.09 per diluted share). The Company sold its entire position of 140,000 shares in ConocoPhillips during the second quarter of 2004. In the second quarter of 2005, the Company had no income from the sale of securities.
Interest expense was $3.2 million in the second quarter of fiscal 2005, compared to $3.1 million in the same period of fiscal 2004. Interest expense is primarily attributable to the $200 million long-term debt for both comparable quarters and short-term borrowings along with capitalized interest of $.2 million in fiscal 2004.
Six Months Ended March 31, 2005 vs. Six Months Ended March 31, 2004
The Company reported net income of $61.7 million ($1.20 per diluted share) from operating revenues of $360.1 million for the six months ended March 31, 2005, compared with net income of $12.6 million ($0.25 per diluted share) from operating revenues of $277.3 million for the first six months of fiscal year 2004. Net income for the first six 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 six months of fiscal 2004 includes $6.2 million ($0.12 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 six months ended March 31, 2005 and 2004. Operating statistics in the tables exclude the effects of offshore platform and international management contracts, and do not include reimbursements of “out-of-pocket” expenses in revenue, expense and margin per day calculations. Per day calculations for international operations also exclude gains and losses from translation of foreign currency transactions.
| 2005 | 2004 | |||||||
| (in 000’s, except days and per day amounts) | ||||||||
U.S. LAND OPERATIONS | ||||||||
| Revenues | $ | 231,582 | $ | 157,410 | ||||
| Direct operating expenses | 136,673 | 114,433 | ||||||
| General and administrative expense | 3,705 | 3,792 | ||||||
| Depreciation | 29,819 | 26,983 | ||||||
| Operating income | $ | 61,385 | $ | 12,202 | ||||
| Activity days | 15,177 | 13,038 | ||||||
| Average rig revenue per day | $ | 14,191 | $ | 11,236 | ||||
| Average rig expense per day | $ | 7,938 | $ | 7,940 | ||||
| Average rig margin per day | $ | 6,253 | $ | 3,296 | ||||
| Rig utilization | 93 | % | 83 | % | ||||
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Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31, 2005
U.S. LAND operating results in the first six months of fiscal 2005 increased significantly from the same period in fiscal 2004. Operating income was $61.4 million and $12.2 million in the first six months of fiscal 2005 and 2004, respectively.
Revenues were $231.6 million in the first six months of fiscal 2005, compared with $157.4 million in the same period of fiscal 2004. Included in land revenues for the six months ended March 31, 2005 and March 31, 2004 are reimbursements for “out-of-pocket” expenses of $16.2 million and $10.9 million, respectively. The $49.2 million increase in operating income was primarily the result of higher land rig margins and increased rig days, partially offset by increased depreciation.
The 90% increase in margins was due to higher dayrates in fiscal 2005. Land rig utilization was 93% and 83% for the six months of fiscal 2005 and 2004, respectively. Land rig revenue days for the first six months of 2005 were 15,177 compared with 13,038 for the same period of 2004, with an average of 83.4 and 71.2 rigs working during the first six months of fiscal 2005 and 2004, respectively. The increase in rig days and average rigs working is attributable to increased activity days for the same rigs working in 2005 and 2004 and two of the five rigs transferred from the international fleet working. The 11% increase in depreciation is the result of the five additional rigs transferred from the international operations during fiscal 2005.
| 2005 | 2004 | |||||||
| (in 000’s, except days and per day amounts) | ||||||||
U.S. OFFSHORE OPERATIONS | ||||||||
| Revenues | $ | 39,005 | $ | 39,377 | ||||
| Direct operating expenses | 23,839 | 23,719 | ||||||
| General and administrative expense | 1,651 | 1,496 | ||||||
| Depreciation | 5,175 | 6,070 | ||||||
| Operating income | $ | 8,340 | $ | 8,092 | ||||
| Activity days | 1,013 | 915 | ||||||
| Average rig revenue per day | $ | 27,350 | $ | 30,617 | ||||
| Average rig expense per day | $ | 14,552 | $ | 16,041 | ||||
| Average rig margin per day | $ | 12,798 | $ | 14,576 | ||||
| Rig utilization | 51 | % | 42 | % | ||||
U.S. OFFSHORE operating revenues and income remained steady. Included in offshore revenues for the six months ended March 31, 2005 and March 31, 2004 are reimbursements for “out-of-pocket” expenses of $2.9 million and $3.2 million, respectively. Operating income increased to $8.3 million in the first six months of fiscal 2005 from $8.1 million in the first six months of 2004. Rig days were 1,013 and 915 for the first six months of fiscal 2005 and 2004, respectively. Rig utilization for the same periods was 51% and 42%, respectively.
Five of the Company’s eleven platform rigs are currently contracted and a sixth rig has been contracted to start operations late in the third quarter of 2005. The Company continues to forecast a slow recovery in its offshore segment, but some inquiries for future work are being pursued and the Company is optimistic that one additional contract will be secured by September, 2005.
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Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31, 2005
| 2005 | 2004 | |||||||
| (in 000’s, except days and per day amounts) | ||||||||
INTERNATIONAL OPERATIONS | ||||||||
| Revenues | $ | 84,270 | $ | 75,272 | ||||
| Direct operating expenses | 63,775 | 58,728 | ||||||
| General and administrative expense | 1,150 | 1,189 | ||||||
| Depreciation | 9,566 | 10,160 | ||||||
| Operating income | $ | 9,779 | $ | 5,195 | ||||
| Activity days | 3,551 | 3,007 | ||||||
| Average rig revenue per day | $ | 19,316 | $ | 20,441 | ||||
| Average rig expense per day | $ | 13,504 | $ | 14,988 | ||||
| Average rig margin per day | $ | 5,812 | $ | 5,453 | ||||
| Rig utilization | 71 | % | 52 | % | ||||
INTERNATIONAL DRILLING operating income in the first six months of fiscal 2005 was $9.8 million, compared to $5.2 million in the same period of 2004. The increase in operating income is primarily the result of increased rig activity. Rig utilization for international operations averaged 71% for the first six months of fiscal 2005, compared with 52% for the first six months of fiscal 2004. An average of 19.6 rigs worked during the first six months of fiscal 2005, compared to 16.5 rigs in the first six months of fiscal 2004. International revenues were $84.3 million and $75.3 million in the first six months of fiscal 2005 and 2004, respectively. Included in International Drilling revenues for the six months ended March 31, 2005 and 2004, respectively, are reimbursements for “out-of-pocket” expenses of $6.9 million and $6.8 million, respectively. The overall increase in margin per day was primarily the result of the increase in revenue days in Venezuela at attractive margins and increased rig activity in Venezuela, Colombia and Ecuador.
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 six months ended March 31, 2005 is a $1.6 million exchange loss related to the Venezuelan currency devaluation, compared to a $1.4 million currency devaluation loss for the same period in 2004.
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Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31, 2005
OTHER
Interest and dividend income increased to $2.2 million in the first six months of 2005, compared to $1.2 million in the same period of fiscal 2004. The increase is attributable to higher earnings from increased cash and cash equivalent balances.
Income from the sale of investment securities increased to $26.3 million in the first six months of fiscal 2005, compared to $12.0 million in the same period of fiscal 2004. The first six months of 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 six months of 2004 includes gains from the sale of available-for-sale securities of $10.1 million, $6.2 million after-tax ($0.12 per diluted share) and a non-monetary investment gain of $1.9 million, $1.2 after-tax ($0.02 per diluted share).
The value of the Company’s remaining portfolio was approximately $238.9 million at March 31, 2005. The after-tax value was approximately $159.2 million.
Income from asset sales increased to $11.8 million in the first six months of 2005, compared to $1.6 million in the same period of fiscal 2004. The increase of $10.2 million is primarily due to the sale of two deep domestic land rigs.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalent balances increased to $208.5 million at March 31, 2005 from $65.3 million at September 30, 2004. The increase in cash and cash equivalents is the result of proceeds from sales of securities of $62.8 million, proceeds from asset sales of $26.5 million and net cash provided by operating activities of $78.1 million. In the first six months of 2004, net cash provided by operating activities was $37.2 million.
Capital expenditures were $22.7 million and $52.7 million for the first six 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 will begin construction of FlexRig4 in the third quarter of 2005 with the first two of thirteen rigs to be completed in November, 2005.
The Company anticipates capital expenditures to be approximately $125 million for fiscal 2005. Included in the $125 million is approximately $50 million for part of the estimated construction of 13 new drilling rigs. Capital expenditures will be financed primarily by internally generated cash flows. A total of five new rigs were completed during the six months ended March 31, 2004.
Current cash, investments in short-term money market securities and cash generated from projected operating activities are expected to meet our estimated capital expenditures and other expected cash requirements for fiscal 2005. The Company’s indebtedness totaled $200 million at March 31, 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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Table of Contents
PART I. FINANCIAL INFORMATION
March 31, 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, | |||
| • | On 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 | |||
| • | On 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 our 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 adequate 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 our 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 our 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 our independent auditors have issued an attestation report on management’s assessment of the Company’s internal control over financial reporting. | |||
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Table of Contents
PART I. FINANCIAL INFORMATION
March 31, 2005
Item 4. CONTROLS AND PROCEDURES (continued)
We are 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 our internal controls under the direction of senior management. During the course of these activities, we have identified certain internal control issues which senior management believes need to be improved. As a result, we are evaluating and implementing improvements to our 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, we have not identified any material internal control weaknesses.
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of Helmerich & Payne, Inc. was held on March 2, 2005, for the purpose of electing three members of the Board of Directors. No other matters were submitted for vote to the stockholders. Proxies for the meeting were solicited by and on behalf of the Board of Directors of Helmerich & Payne, Inc., and there was no solicitation in opposition to such solicitation. Each of the nominees for directorship were elected by the affirmative vote of a plurality of the shares of voted common stock. The number of votes for and withheld from each Director, respectively, were as follows: John D. Zeglis, 47,086,919 for and 276,887 shares withheld; L. F. Rooney, III, 32,470,121 for and 14,893,685 shares withheld; and William L. Armstrong, 47,084,515 for and 279,291 shares withheld. There were no broker non-votes or other abstentions. The other Directors whose term of office as Director continued after the meeting are Hans Helmerich, George S. Dotson, Paula Marshall-Chapman, W. H. Helmerich, III, Glenn A. Cox, and Edward B. Rust, Jr.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(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:May 6, 2005 | By: | /S/ HANS C. HELMERICH | ||
| Hans C. Helmerich, President | ||||
| Date: May 6, 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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