1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 30549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended: JUNE 30, 2001
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
(State or other jurisdiction of incorporation or organization)
73-0679879
(I.R.S. Employer I.D. Number)
UTICA AT TWENTY-FIRST STREET, TULSA, OKLAHOMA 74114
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (918) 742-5531
Former name, former address and former fiscal year,
if changed since last report:
NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
CLASS OUTSTANDING AT JUNE 30, 2001
Common Stock, $0.10 par value 50,563,599
TOTAL NUMBER OF PAGES 20
2
HELMERICH & PAYNE, INC.
INDEX
<Table>
PART I. FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets -
June 30, 2001 and September 30, 2000 ........................... 3
Consolidated Condensed Statements of Income -
Three Months and Nine Months Ended
June 30, 2001 and 2000 ......................................... 4
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended June 30, 2001 and 2000 ....................... 5
Consolidated Condensed Statement of Shareholders' Equity
Nine Months Ended June 30, 2001 ............................... 6
Notes to Consolidated Condensed Financial Statements ........... 7 - 14
Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................ 15 - 20
PART II. OTHER INFORMATION ........................................... 20
Signature Page ................................................. 20
</Table>
-2-
3
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
<Table>
<Caption>
(Unaudited)
June 30, September 30,
2001 2000
------------- -------------
ASSETS
Current Assets
Cash and cash equivalents $ 167,874 $ 108,087
Accounts receivable, net 134,742 106,630
Inventories 30,600 25,598
Prepaid expenses and other 15,236 24,829
------------- -------------
Total Current Assets 348,452 265,144
------------- -------------
Investments 234,708 304,326
Property, plant and equipment, net 761,838 673,605
Other assets 14,772 16,417
------------- -------------
Total Assets $ 1,359,770 $ 1,259,492
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 47,711 $ 32,279
Accrued liabilities 62,904 46,615
------------- -------------
Total Current Liabilities 110,615 78,894
------------- -------------
Noncurrent Liabilities
Long-term notes payable 50,000 50,000
Deferred income taxes 134,869 156,650
Other 19,670 18,245
------------- -------------
Total Noncurrent Liabilities 204,539 224,895
------------- -------------
SHAREHOLDERS' EQUITY
Common stock, par value, $.10 per
share 5,353 5,353
Preferred stock, no shares issued -- --
Additional paid-in capital 80,225 66,090
Retained earnings 918,559 813,885
Unearned compensation (2,178) (3,277)
Accumulated other comprehensive income 71,271 106,064
------------- -------------
1,073,230 988,115
Less treasury stock, at cost 28,614 32,412
------------- -------------
Total Shareholders' Equity 1,044,616 955,703
------------- -------------
Total Liabilities and Shareholders' Equity $ 1,359,770 $ 1,259,492
============= =============
</Table>
The accompanying notes are an integral part of these statements.
-3-
4
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(in thousands except per share data)
<Table>
<Caption>
Quarter Ended Nine Months Ended
June 30, June 30,
2001 2000 2001 2000
------------ ------------ ------------ ------------
REVENUES:
Sales and other operating revenues $ 212,573 $ 149,760 $ 621,138 $ 425,195
Income from investments 4,649 2,208 10,203 28,202
------------ ------------ ------------ ------------
217,222 151,968 631,341 453,397
------------ ------------ ------------ ------------
COST AND EXPENSES:
Operating costs 111,120 77,124 312,242 229,536
Depreciation, depletion and
amortization 21,341 26,712 62,103 80,552
Dry holes and abandonments 6,878 7,811 25,626 14,638
Taxes, other than income taxes 10,276 7,716 31,210 21,958
General and administrative 3,449 2,466 11,662 8,621
Interest (1,626) 767 (951) 2,389
------------ ------------ ------------ ------------
151,438 122,596 441,892 357,694
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES AND
EQUITY IN INCOME OF AFFILIATE 65,784 29,372 189,449 95,703
INCOME TAX EXPENSE 25,679 11,648 74,832 39,790
EQUITY IN INCOME OF AFFILIATE,
net of income taxes 332 833 1,409 2,378
------------ ------------ ------------ ------------
NET INCOME $ 40,437 $ 18,557 $ 116,026 $ 58,291
============ ============ ============ ============
EARNINGS PER COMMON SHARE:
Basic $ 0.80 $ 0.37 $ 2.31 $ 1.18
Diluted $ 0.79 $ 0.37 $ 2.28 $ 1.17
CASH DIVIDENDS (Note 3) $ 0.075 $ 0.075 $ 0.225 $ 0.215
AVERAGE COMMON SHARES OUTSTANDING:
Basic 50,467 49,571 50,159 49,480
Diluted 51,256 50,227 50,941 49,940
</Table>
The accompanying notes are an integral part of these statements.
-4-
5
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<Table>
<Caption>
Nine Months Ended
06/30/01 06/30/00
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 116,026 $ 58,291
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 62,103 80,552
Dry holes and abandonments 25,626 14,638
Equity in income of affiliate before income taxes (2,898) (3,836)
Amortization of deferred compensation 1,112 1,148
Gain on sale of securities and non-monetary
investment income (2,634) (22,804)
Gain on sale of property, plant & equipment (3,759) (1,368)
Other, net 22 588
Change in assets and liabilities-
Accounts receivable (28,112) (92)
Inventories (5,274) 181
Prepaid expenses and other 11,200 (3,318)
Account payable 15,432 1,461
Accrued liabilities 22,451 (2,645)
Deferred income taxes (1,417) 17,243
Other noncurrent liabilities 1,425 (75)
------------ ------------
95,277 81,673
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 211,303 139,964
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, including dry hole costs (186,664) (76,676)
Proceeds from sales of property, plant and equipment 10,476 3,639
Proceeds from sale of investments 24,438 12,569
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (151,750) (60,468)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments made on notes payable -- (5,000)
Dividends paid (11,366) (10,699)
Purchases of stock for treasury (1,921) (450)
Proceeds from exercise of stock options 13,521 3,594
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 234 (12,555)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 59,787 66,941
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 108,087 21,758
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 167,874 $ 88,699
============ ============
</Table>
-5-
6
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands - except per share data)
<Table>
<Caption>
Accumulated
Common Stock Additional Treasury Stock Other
------------- Paid-In Unearned Retained ------------------ Comprehensive
Shares Amount Capital Compensation Earnings Shares Amount Income Total
------ ------ ---------- ------------ -------- -------- -------- ------------- ----------
Balance, September 30, 2000 53,529 $5,353 $ 66,090 $ (3,277) $813,885 3,548 $(32,412) $106,064 $ 955,703
Comprehensive Income:
Net Income 116,026 116,026
Other comprehensive income,
Unrealized losses on
available-for-sale
securities, net (34,771) (34,771)
Derivatives instruments
losses, net (22) (22)
-------- ----------
Total other comprehensive
income (34,793) (34,793)
-------- ----------
Comprehensive income 81,233
----------
Cash dividends ($0.225 per share) (11,365) (11,365)
Exercise of stock options 7,974 (643) 5,719 13,693
Tax benefit of stock-based awards 6,161 6,161
Purchase of stock for treasury 60 (1,921) (1,921)
Amortization of deferred
compensation 1,099 13 1,112
------ ------ -------- -------- -------- -------- -------- -------- ----------
Balance, June 30, 2001 53,529 $5,353 $ 80,225 $ (2,178) $918,559 2,965 $(28,614) $ 71,271 $1,044,616
====== ====== ======== ======== ======== ======== ======== ======== ==========
</Table>
-6-
7
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, which
consists only of those of a normal recurring nature, necessary to
present fairly the results of the periods presented. The results of
operations for the three and nine months ended June 30, 2001, and June
30, 2000, are not necessarily indicative of the results to be expected
for the full year. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto in the Company's 2000 Annual Report on
Form 10-K and the Company's 2001 First and Second Quarter Reports on
Form 10-Q.
2. Effective October 1, 2000, the Company adopted Statement of Financial
Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities", as amended, which establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
and for hedging activities. SFAS 133, as amended, requires that all
derivatives be recorded on the balance sheet at fair value. Upon
adoption at October 1, 2000, the effect of complying with SFAS 133, as
amended, resulted in a cumulative transition adjustment to accumulated
other comprehensive income of approximately $1.4 million.
3. The $.075 cash dividend declared in March, 2001, was paid June 1, 2001.
On June 6, 2001, a cash dividend of $.075 per share was declared for
shareholders of record on August 15, 2001, payable September 4, 2001.
4. Inventories consist of materials and supplies.
5. Income from investments includes $1,423,000 and $1,578,000 after-tax
gains from sales of available-for-sale securities during the third
quarter and first nine months of fiscal 2001, respectively. After-tax
gains from security sales were $ -0- and $7,750,000 for the same
periods in fiscal 2000.
Also included in income from investments for the first nine months of
fiscal 2000 were gains related to a non-monetary dividend ($9,509,000)
and non-monetary gain ($719,000) on the conversion of shares of common
stock of a Company investee pursuant to that investee being acquired.
Net income from these two transactions was approximately $6.3 million
($0.13 per diluted share).
6. The following is a summary of available-for-sale securities, which
excludes those accounted for under the equity method of accounting. The
Company's investment in securities accounted for under the equity
method is $54,461,000.
<Table>
<Caption>
Gross Gross Est.
Unrealized Unrealized Fair
Cost Gains Losses Value
(in thousands)
---------- ---------- ---------- ----------
Equity Securities 06/30/01 $ 65,257 $ 115,889 $ 899 $ 180,247
Equity Securities 09/30/00 $ 86,901 $ 173,137 $ 2,065 $ 257,973
</Table>
-7-
8
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
7. Comprehensive Income -
Comprehensive income, net of related tax, is as follows:
<Table>
<Caption>
Three Months Ended Nine Months Ended
June 30, June 30,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net Income $ 40,437 $ 18,557 $ 116,026 $ 58,291
Other comprehensive income:
Net unrealized gain(loss)
on securities 939 (9,936) (34,771) 15,011
Net unrealized gain(loss) on
derivative instruments 6 -- (22) --
------------ ------------ ------------ ------------
Other comprehensive income 945 (9,936) (34,793) 15,011
------------ ------------ ------------ ------------
Comprehensive income $ 41,382 $ 8,621 $ 81,233 $ 73,302
============ ============ ============ ============
</Table>
The components of accumulated other comprehensive income, net of
related taxes, are as follows (in thousands):
<Table>
<Caption>
06/30/01 09/30/00
---------- ----------
Unrealized gains on securities, net $ 71,293 $ 106,064
Unrealized loss on derivative instruments (22) --
---------- ----------
Accumulated other comprehensive income $ 71,271 $ 106,064
========== ==========
</Table>
8. At June 30, 2001, the Company had committed bank lines of credit
totaling $85 million; $35 million may be borrowed through May 2002, and
$50 million may be borrowed through October 2003. The Company had $50
million in variable-rate borrowings under its committed bank line of
credit that expires in October 2003. The Company also had outstanding
letters of credit totaling $8.2 million against these lines at June 30,
2001. The average rate on the borrowings at June 30, 2001 was 4.26%.
However, concurrent with a $50 million borrowing under one of its
committed facilities, the Company entered into a 5-year, $50 million
interest rate swap. The swap effectively fixed the interest rate on
this facility at 5.38% for the entire term of the note.
-8-
9
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
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
include 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:
<Table>
<Caption>
Three Months Ended Nine Months Ended
June 30, June 30,
(in thousands) 2001 2000 2001 2000
-------------- ----------- ----------- ----------- -----------
Basic weighted-average shares 50,467 49,571 50,159 49,480
Effect of dilutive shares:
Stock options 735 644 743 452
Restricted stock 54 12 39 8
----------- ----------- ----------- -----------
789 656 782 460
----------- ----------- ----------- -----------
Diluted weighted-average
shares 51,256 50,227 50,941 49,940
=========== =========== =========== ===========
</Table>
10. Change in Depreciable Lives -
As a result of an economic evaluation of the useful lives of its
drilling equipment, the Company has extended the depreciable life of
its rig equipment from 10 to 15 years. This change will provide a
better matching of revenues and depreciation expense over the useful
life of the equipment. This change, effective October 1, 2000, reduced
depreciation expense during the three months and nine months ended June
30, 2001, by approximately $7.5 million and $22.5 million,
respectively.
11. Impairment -
Included in depreciation, depletion and amortization for the three
months and nine months ended June 30, 2001, were impairment charges of
$0.6 million and $4.5 million, respectively, for proved Exploration &
Production properties. After-tax, the impairment charges reduced the
third quarter and nine months net income by approximately $0.4 million
and $2.8 million ($0.05 per share), respectively.
12. Litigation Settlement -
As previously discussed in the Company's filings on Forms 8-K dated
March 16, 2001, and June 13, 2001, the Company is a defendant in Verdin
v. R&B Falcon Drilling USA, Inc., et al., a civil action in the United
States District Court, Galveston Texas. The lawsuit alleges, among
other things, that the Company and many other defendant companies whose
collective operations represent a substantial majority of the U.S.
offshore drilling industry, conspired to fix wages and benefits paid to
drilling employees. Plaintiff contends that this alleged conduct
violates federal and state antitrust laws. Plaintiff sought treble
damages, attorneys' fees and costs on behalf of himself and an alleged
class of offshore workers.
-9-
10
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
In May 2001, the Company reached an agreement in principle with
Plaintiff's counsel to settle all claims pending court approval of the
settlement. Court approval of the settlement is expected in the fourth
quarter of 2001; however, the Company can give no assurance that this
approval will be obtained. In the third quarter of fiscal 2001, the
Company accrued $3.25 million to contract drilling expense based on the
pending settlement. The Company does not believe that the settlement
will have a material adverse affect on its business or financial
position.
13. Kansas Ad Valorem Settlement -
In fiscal 1997, the Company was assessed with approximately $6.7
million of Kansas ad valorem taxes which had been reimbursed to the
Company for the period from October 1983 through June 1988 by
interstate pipelines transporting natural gas to end users. In fiscal
1997, based on the assessment, natural gas revenues were reduced by
$2.7 million and interest expense was increased by $4.0 million. In
March 1998, approximately $6.1 million of the unpaid assessment was
placed in an escrow account pending resolution of this matter. Since
March 1998, the escrow account and the related liability continued to
accrue interest income and interest expense of approximately $1.0
million.
The Federal Energy Regulatory Commission approved settlements between
the Company and three of the pipelines. The last of these settlements
was final in May 2001. The Company paid approximately $3.9 million out
of its escrow account for the settlement of all three pipeline
proceedings. The three settlements were approximately $3.1 million less
than the amount the Company accrued for this liability. The impact of
these settlements in the third quarter of fiscal 2001 was to increase
natural gas revenues by approximately $1.1 million, reduce interest
expense by approximately $2.0 million and reduce the liability by $3.1
million. At June 30, 2001, the Company continues to escrow
approximately $300,000 to cover reimbursement liability in the
remaining two pipeline proceedings. The Company believes this amount
will be adequate to cover future reimbursement liability.
14. Stock Option Plan -
In March 2001, the Company adopted the Helmerich & Payne, Inc. 2000
Stock Incentive Plan (the "Stock Incentive Plan"). Options will not be
awarded nor restricted stock granted after December 6, 2000, under any
of the previously adopted plans.
The Stock Incentive Plan authorizes the Company to grant non-qualified
stock options, incentive stock options and restricted stock awards to
key employees and non-employee Directors subject to conditions set
forth in the Stock Incentive Plan. The Company has reserved 3,000,000
shares of common stock for grant to participants under the Stock
Incentive Plan. Subject to the adjustment provisions of the Stock
Incentive Plan, in no event shall more than 450,000 shares of common
stock be awarded to participants as restricted stock awards.
-10-
11
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
15. Interest Rate Risk Management -
The Company uses derivatives as part of an overall operating strategy
to moderate certain financial market risks and is exposed to interest
rate risk from long-term debt. To manage this risk, the Company has
entered into an interest rate swap to exchange floating rate for fixed
rate interest payments over the remaining life of the debt. As of June
30, 2001, the Company had an interest rate swap outstanding with a
notional principal amount of $50 million. (See Note 8)
The Company's accounting policy for these instruments is based on its
designation of such instruments as hedging transactions. An instrument
is designated as a hedge based in part on its effectiveness in risk
reduction and one-to-one matching of derivative instruments to
underlying transactions. The Company records all derivatives on the
balance sheet at fair value.
For derivative instruments that are designated and qualify as a cash
flow hedge (i.e., hedging the exposure of variability in expected
future cash flows that is attributable to a particular risk), the
effective portion of the gain or loss on the derivative instrument is
reported as a component of other comprehensive income in stockholders'
equity and reclassified into earnings in the same period or periods
during which the hedged transaction affects earnings. The change in
value of the derivative instrument in excess of the cumulative change
in the present value of the future cash flows of the risk being hedged,
if any, is recognized in the current earnings during the period of
change.
The Company's interest rate swap has been designated as a cash flow
hedge and is expected to be 100% effective in hedging the exposure of
variability in the future interest payments attributable to the debt
because the terms of the interest swap correlate with the terms of the
debt.
16. Segment Information -
The Company evaluates performance of its segments based upon operating
profit or loss from operations before income taxes, which includes
revenues from external and internal customers; operating costs;
depreciation, depletion and amortization; dry holes and abandonments
and taxes other than income taxes. Intersegment sales are accounted for
in the same manner as sales to unaffiliated customers. Other includes
investments in available-for-sale securities, equity owned investments,
as well as corporate operations.
-11-
12
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
Summarized financial information of the Company's reportable segments
for the nine months ended June 30, 2001, and 2000, is shown in the
following table:
<Table>
<Caption>
External Inter- Total Operating
(in thousands) Sales Segment Sales Profit
- -------------- ------------ ------------ ------------ ------------
JUNE 30, 2001
Contract Drilling
Domestic $ 228,769 $ 2,331 $ 231,100 $ 67,995
International 114,346 -- 114,346 19,311
------------ ------------ ------------ ------------
343,115 2,331 345,446 87,306
------------ ------------ ------------ ------------
Oil & Gas Operations
Exploration & Prod. 184,900 -- 184,900 95,047
Natural Gas Marketing 83,661 -- 83,661 4,817
------------ ------------ ------------ ------------
268,561 -- 268,561 99,864
------------ ------------ ------------ ------------
Real Estate 8,826 1,159 9,985 5,312
Other 10,839 -- 10,839 --
Eliminations -- (3,490) (3,490) --
------------ ------------ ------------ ------------
Total $ 631,341 $ -- $ 631,341 $ 192,482
============ ============ ============ ============
</Table>
<Table>
<Caption>
External Inter- Total Operating
(in thousands) Sales Segment Sales Profit
- -------------- ------------ ------------ ------------ ------------
JUNE 30, 2000
Contract Drilling
Domestic $ 156,686 $ 2,213 $ 158,899 $ 24,719
International 99,345 -- 99,345 5,632
------------ ------------ ------------ ------------
256,031 2,213 258,244 30,351
------------ ------------ ------------ ------------
Oil & Gas Operations
Exploration & Prod. 105,716 -- 105,716 42,054
Natural Gas Marketing 56,159 -- 56,159 3,987
------------ ------------ ------------ ------------
161,875 -- 161,875 46,041
------------ ------------ ------------ ------------
Real Estate 6,684 1,157 7,841 4,017
Other 28,807 -- 28,807 --
Eliminations -- (3,370) (3,370) --
------------ ------------ ------------ ------------
Total $ 453,397 $ -- $ 453,397 $ 80,409
============ ============ ============ ============
</Table>
-12-
13
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
Summarized financial information of the Company's reportable segments
for the quarters ended June 30, 2001, and 2000, is shown in the
following table:
<Table>
<Caption>
External Inter- Total Operating
(in thousands) Sales Segment Sales Profit
- -------------- ------------ ------------ ------------ ------------
JUNE 30, 2001
Contract Drilling
Domestic $ 93,316 $ 719 $ 94,035 $ 30,305
International 40,527 -- 40,527 7,958
------------ ------------ ------------ ------------
133,843 719 134,562 38,263
------------ ------------ ------------ ------------
Oil & Gas Operations
Exploration & Prod. 52,337 -- 52,337 23,932
Natural Gas Marketing 23,508 -- 23,508 151
------------ ------------ ------------ ------------
75,845 -- 75,845 24,083
------------ ------------ ------------ ------------
Real Estate 2,250 383 2,633 1,008
Other 5,284 -- 5,284 --
Eliminations -- (1,102) (1,102) --
------------ ------------ ------------ ------------
Total $ 217,222 $ -- $ 217,222 $ 63,354
============ ============ ============ ============
</Table>
<Table>
<Caption>
External Inter- Total Operating
(in thousands) Sales Segment Sales Profit
- -------------- ------------ ------------ ------------ ------------
JUNE 30, 2000
Contract Drilling
Domestic $ 53,050 $ 1,012 $ 54,062 $ 10,047
International 32,977 -- 32,977 1,819
------------ ------------ ------------ ------------
86,027 1,012 87,039 11,866
------------ ------------ ------------ ------------
Oil & Gas Operations
Exploration & Prod. 41,458 -- 41,458 16,915
Natural Gas Marketing 20,010 -- 20,010 1,203
------------ ------------ ------------ ------------
61,468 -- 61,468 18,118
------------ ------------ ------------ ------------
Real Estate 2,204 382 2,586 1,289
Other 2,269 -- 2,269 --
Eliminations -- (1,394) (1,394) --
------------ ------------ ------------ ------------
Total $ 151,968 $ -- $ 151,968 $ 31,273
============ ============ ============ ============
</Table>
-13-
14
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
The following table reconciles segment operating profit per the table above to
income before income taxes and equity in income of affiliate as reported on the
Consolidated Condensed Statements of Income.
<Table>
<Caption>
Quarter Ended Nine Months Ended
June 30, June 30,
(in thousands) 2001 2000 2001 2000
-------------- ------------ ------------ ------------ ------------
Segment operating profit $ 63,354 $ 31,273 $ 192,482 $ 80,409
Unallocated amounts:
Income from investments 4,649 2,208 10,203 28,202
General corporate expense (3,449) (2,466) (11,662) (8,621)
Interest expense 1,626 (767) 951 (2,389)
Corporate depreciation (550) (430) (1,526) (1,234)
Other corporate expense 154 (446) (999) (664)
------------ ------------ ------------ ------------
Total unallocated amounts 2,430 (1,901) (3,033) 15,294
------------ ------------ ------------ ------------
Income before income taxes
and equity in income of
affiliate $ 65,784 $ 29,372 $ 189,449 $ 95,703
============ ============ ============ ============
</Table>
The following table presents revenues from external customers by country based
on the location of service provided.
<Table>
<Caption>
Quarter Ended Nine Months Ended
June 30, June 30,
(in thousands) 2001 2000 2001 2000
-------------- ------------ ------------ ------------ ------------
Revenues
United States $ 176,695 $ 118,991 $ 516,995 $ 354,052
Venezuela 11,987 8,098 29,818 25,980
Colombia 6,089 9,736 20,155 33,184
Other Foreign 22,451 15,143 64,373 40,181
------------ ------------ ------------ ------------
Total $ 217,222 $ 151,968 $ 631,341 $ 453,397
============ ============ ============ ============
</Table>
-14-
15
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
JUNE 30, 2001
RISK FACTORS AND FORWARD-LOOKING STATEMENTS
The following discussion should be read in conjunction with the consolidated
financial statements, notes and management's narrative analysis contained in the
Company's 2000 Annual Report on Form 10-K and the condensed consolidated
financial statements included in the Company's 2001 First and Second Quarter
Reports on Form 10-Q and related notes included elsewhere herein. 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
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 Results of Operations and Financial
Condition 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
THIRD QUARTER 2001 VS THIRD QUARTER 2000
The Company reported net income of $40,437,000 ($0.79 per share) from revenues
of $217,222,000 for the third quarter ended June 30, 2001, compared with net
income of $18,557,000 ($0.37 per share) from revenues of $151,968,000 for the
third quarter of the prior fiscal year. Net income in the third quarter of
fiscal 2001 included $1,423,000 ($0.03 per share) from the sale of investment
securities. There were no sales of investment securities in the third quarter of
fiscal 2000.
EXPLORATION AND PRODUCTION
Exploration and Production reported operating profit of $23.9 million for the
third quarter of fiscal 2001 compared with $16.9 million for the same period of
fiscal 2000. Oil & gas revenues increased to $52.3 million compared with $41.5
million in 2000.
Natural gas revenues increased to $46.5 million from $34.5 million, or 35
percent, due primarily to a 46 percent increase in the average gas price.
Included in natural gas revenues for the third quarter of 2001 was $1.0 million
related to a Kansas ad valorem tax settlement (see note 13). Natural gas volumes
were down 6 percent. Oil revenues decreased to $5.4 million from $6.5 million as
the result of lower oil prices and volumes. Natural gas prices
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PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
JUNE 30, 2001
(Continued)
averaged $4.33 per mcf and $2.97 per mcf for the third quarter of fiscal 2001
and 2000, respectively. Natural gas volumes averaged 119.5 mmcf/d and 127.6
mmcf/d, respectively. Crude oil prices averaged $25.83 per bbl and $27.98 per
bbl for the third quarter of fiscal 2001 and 2000, respectively. Crude oil
volumes averaged 2,255 bbls/d and 2,439 bbls/d, respectively.
Exploration expenses were approximately $10.0 million in the third quarter of
both fiscal 2001 and fiscal 2000. Dry hole costs were $2.6 million for the
quarter compared with $4.6 in 2000, geophysical expense was $2.7 million
compared with $1.6 million and impairment of undeveloped leases was $4.2 million
compared with $3.0 million in 2000. Operating expenses increased $2.7 million as
production taxes and ad valorem taxes increased with higher natural gas
revenues.
The Company participated in an additional 33 wells during the third quarter, of
which 28 were producing, waiting on pipeline connections or completing. Of the
33 wells drilled, 13 were wildcat wells, of which 8 were successful and 5 were
dry holes. For the first nine months of fiscal 2001, the Company participated in
98 wells, of which 78 were completed or are completing, and 20 were dry holes.
The Company expects to participate in 135 wells for the year, of which 60 are
expected to be drilled to develop proved reserves. The Company plans to drill a
number of promising wildcat wells during the fourth quarter.
DOMESTIC DRILLING
Domestic contract drilling revenues for the third quarter of 2001 and 2000 were
$93.3 million and $53.0 million, respectively. Operating profit for the third
quarter of fiscal 2001 was $30.3 million, compared with $10.0 million in last
year's third quarter. The significant increase in operating profit is primarily
the result of improved performance in the Company's land operations. Dayrates
averaged approximately $15,000 per day in the current quarter, compared to
$8,500 per day in the third quarter of fiscal 2000. Land rig utilization was 98
percent and 89 percent for the third quarter of 2001 and 2000, respectively.
Operating profit from offshore operations improved (20 percent) in the current
quarter compared to the third quarter of fiscal 2000, as rig utilization was 100
percent and 90 percent for the third quarter of 2001 and 2000, respectively.
Also impacting the operating profit increase for domestic contract drilling was
a reduction in depreciation expense of approximately $3.8 million due to the
change in the Company's estimated useful life for drilling equipment, effective
October 1, 2000 (see note 10). Contract drilling expense in the third quarter of
fiscal 2001 included $3.25 million related to a litigation settlement (see note
12).
On March 15, 2001, the Company announced that it would construct 15 new
FlexRigs(TM), a highly mobile 8,000-18,000' land rig. The Company is increasing
the March 15th commitment from 15 to 25 new FlexRigs. The Company expects all 25
rigs will be delivered by March 2003 at an estimated cost of $10 million each.
The Company also intends to complete its current 12 FlexRig construction program
by January 2002. Eight of the current order of 12 FlexRigs are committed,
including seven rigs with two-year or three-year firm term contracts. The
Company also announced in the third quarter that it will spend approximately $45
million to purchase 30 new Varco top drives to upgrade a significant portion of
its existing U.S. land rig fleet in fiscal years 2002 and 2003. In July 2001,
the Company also announced that it received commitments for two new self-moving
platform rigs. Shell Exploration and Production Co. awarded
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PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
JUNE 30, 2001
(Continued)
a contract to build and operate new rig 205 for use on both fixed and tension
leg platforms in the Gulf of Mexico. In addition, BP signed a letter of intent
to contract with the Company to build and operate a new rig 206 for use on its
Horn Mountain Spar in the Gulf of Mexico. The cost of the two rigs will be
approximately $50 million, and the rigs should commence operations in the spring
of 2002.
INTERNATIONAL DRILLING
International Drilling's operating profit increased to $8.0 million from $1.8
million. Revenues increased to $40.5 million from $33.0 million. The operating
profit increase is due primarily to an increase in average dayrates and
profitability in Ecuador, Colombia and Venezuela. Also impacting the current
quarter operating profit were several one-time contract settlement items that
had a positive impact of approximately $2.0 million. Utilization for the
Company's international rigs was 60 percent and 47 percent for the third quarter
of fiscal 2001 and 2000, respectively. The improvement in the third quarter
utilization resulted from the reduction in the number of rigs available in the
international fleet, due to the transfer of five rigs to the U.S. for
refurbishment and modification. Also impacting the operating profit increase for
international drilling was a reduction in depreciation expense of approximately
$3.7 million due to the change in the Company's estimated useful life for
drilling equipment (see note 10).
OTHER
Other revenues increased approximately $3.0 million over last year, including a
$2.4 million increase in gains from the sale of available-for-sale securities.
Interest expense was a credit of $1.6 million for the current quarter, compared
with an expense of $.8 million in the third quarter of last year. The decrease
in interest expense was primarily the result of a settlement of a 1997
assessment by the Federal Energy Regulatory Commission relating to Kansas ad
valorem taxes. The settlement resulted in a credit to interest expense of
approximately $2.0 million in the third quarter of fiscal 2001 (see note 13).
Corporate general and administrative costs increased to $3.4 million from $2.5
million, due primarily to increased professional services relating to possible
merger activity with our Exploration and Production Division, pension expense
and administrative labor and benefits.
NINE MONTHS ENDED JUNE 30, 2001 VS NINE MONTHS ENDED JUNE 30, 2000
The Company reported net income of $116,026,000 ($2.28 per share) from revenues
of $631,341,000 for the nine months ended June 30, 2001, compared with net
income of $58,291,000 ($1.17 per share) from revenues of $453,397,000 for the
first nine months of the prior fiscal year. Net income in the first nine months
of fiscal 2001 included $1,578,000 ($0.03 per share) from the sale of investment
securities compared with $7,750,000 ($0.16 per share) for the same period of
fiscal 2000. Revenues for the first nine months of fiscal 2000 also included
gains related to a non-monetary dividend ($9.5 million) and a non-monetary gain
($.7 million) on the conversion of shares of common stock of a Company investee
pursuant to that investee being acquired. Net income from these two transactions
was approximately $6.3 million ($0.13 per diluted share).
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PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
JUNE 30, 2001
(Continued)
EXPLORATION AND PRODUCTION
Exploration and Production reported an operating profit of $95.0 million for the
first nine months of fiscal 2001, compared with an operating profit of $42.1
million for the same period of fiscal 2000. Oil & gas revenues increased to
$184.9 million from $105.7 million for the same periods.
Natural gas revenues increased $77.5 million, or 87 percent, due primarily to
higher gas prices (106 percent), partially offset by lower natural gas volumes
(8.5 percent). Oil revenues increased $1.5 million, or 9 percent, as both oil
prices (7 percent) and volumes (2 percent) increased, compared with the first
nine months of fiscal 2000. Natural gas prices averaged $5.17 per mcf and $2.51
per mcf for the first nine months of fiscal 2001 and 2000, respectively. Natural
gas volumes averaged 118.1 mmcf/d and 129.0 mmcf/d, respectively. Crude oil
prices averaged $28.54 per bbl and $26.67 per bbl for the first nine months of
fiscal 2001 and 2000, respectively. Crude oil volumes averaged 2,314 bbls/d and
2,268 bbls/d, respectively.
Increased exploration activity in the first nine months of fiscal 2001 resulted
in an increase in exploration expenses. Geophysical, dry hole, exploration
overhead and abandonment expenses were $35.0 million for the first nine months
of fiscal 2001, $13.7 million higher than in the same period of fiscal 2000.
Also in fiscal 2001 were impairment charges of $4.5 million for proved
Exploration and Production properties in the first nine months of fiscal 2001.
After tax, the impairment charges reduced net income by approximately $2.8
million, $0.05 per share, on a diluted basis.
Production expenses were $28.8 million for the first nine months of fiscal 2001,
compared with $18.9 million in fiscal 2000 as production taxes and ad valorem
taxes increased because of higher natural gas prices.
DOMESTIC DRILLING
Domestic Drilling's operating profit was $68.0 million and $24.7 million for the
first nine months of fiscal 2001 and fiscal 2000, respectively. Revenues for the
same periods were $228.8 million and $156.7 million, respectively. The increase
is due primarily to improved land operations, with dayrates averaging
approximately $13,000 per day in the first nine months of fiscal 2001, compared
with $8,400 in the same period of fiscal 2000. Land rig utilization was 95
percent and 82 percent for the first nine months of fiscal 2001 and 2000,
respectively. Operating profit from offshore operations increased 6 percent for
the first nine months of fiscal 2001, compared to the same period in fiscal
2000. Offshore rig utilization was 97 percent and 94 percent for the same
periods, respectively. Also impacting the operating profit increase for domestic
drilling for the nine months was a reduction in depreciation expense of
approximately $11.4 million due to the change in the Company's estimated useful
life for drilling equipment (see note 10). Contract drilling expense for the
nine months ended June 30, 2001, included $3.25 million related to a litigation
settlement (see note 12).
Although there appears to be a softening in dayrates, as the result of lower
commodity prices, average dayrates in the fourth quarter are expected to be in
line with third quarter rates of $15,000 per day. Rig utilization for land and
offshore are expected to be 98 percent to 100 percent.
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PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
JUNE 30, 2001
(Continued)
INTERNATIONAL DRILLING
International Drilling's operating profit increased to $19.3 million from $5.6
million. Revenues increased to $114.3 million from $99.3 million. The increase
in operating profit is due primarily to a reduction in depreciation expense of
approximately $11.1 million due to a change in the Company's estimated useful
life for drilling equipment (see note 10). There were also several one-time
contract settlement items that had a positive impact of approximately $2.0
million in the first nine months of fiscal 2001. International rig utilization
averaged 54 percent and 46 percent for the first nine months of fiscal 2001 and
2000, respectively. Revenue days were 5,455 and 5,185 for the same periods,
respectively.
OTHER
Other revenues decreased approximately $18 million over last year, with $10.0
million due to decreased gains from the sale of available-for-sale securities,
partially offset by a $1.9 million increase in interest income due to increased
cash balances. Revenues for the first nine months of fiscal 2000 also included
gains related to a non-monetary dividend ($9.5 million) and a non-monetary gain
($.7 million) on the conversion of shares of common stock of a Company investee
pursuant to that investee being acquired.
Interest expense for the first nine months of fiscal 2001 was a credit of $1.0
million compared with an expense of $2.4 million in fiscal 2000. The decrease of
$3.4 million is the result of an increase in capitalized interest of $.7 million
and the reversal of $2.7 million of interest expense related to a lawsuit (see
note 13).
Corporate general and administrative expense increased from $8.6 million in the
first nine months of fiscal 2000 to $11.7 million in the same period of fiscal
2001. The increase is related to labor and employee benefits, advertising costs,
and professional services related to establishing the Company's Exploration &
Production Division as a separate public entity and pension expense.
The Company's effective income tax rate decreased to 39.5 percent for the nine
months compared to 41.4 percent for the first nine months of fiscal 2000. The
decrease is due primarily to a larger proportionate income in the Company's U.S.
operations instead of international drilling operations.
As previously announced, an investment banker is currently assisting the Company
in its effort to establish its Exploration and Production Division as a separate
public entity, while expanding that operation through some sort of combination.
The Company is currently discussing the potential combination with certain
candidates.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $211.3 million for the first nine
months of fiscal 2001, compared with $140.0 million for the same period in 2000.
Capital expenditures were $186.7 million and $76.7 million for the first nine
months of fiscal 2001 and 2000, respectively.
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PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
JUNE 30, 2001
(Continued)
The Company anticipates capital expenditures to be approximately $295.0 million
for fiscal 2001, which is less than projected internally generated cash flows.
The Company's indebtedness totaled $50.0 million as of June 30, 2001, as
described in note 8 to the Consolidated Condensed Financial Statements.
During the third quarter of fiscal 2001, the Company purchased 60,000 shares of
the Company's common stock under the previously approved stock repurchase
program that authorizes the purchase of up to an additional 1,000,000 shares of
the Company's common stock.
There were no other significant changes in the Company's financial position
since September 30, 2000.
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
JUNE 30, 2001
For a description of the Company's market risks, see "Item 7(a). Quantitative
and Qualitative Disclosures About Market Risk" in the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 2000, and Note 15 to the
Consolidated Condensed Financial Statements contained in Part I hereof.
PART II. OTHER INFORMATION
HELMERICH & PAYNE, INC.
Item 1 Legal Proceedings
The discussion of legal proceedings disclosed in Note 12 to the Consolidated
Condensed Financial Statements contained in Part I hereof is hereby incorporated
by reference.
Item 6(b) Reports on Form 8-K
For the three months ended June 30, 2001, there was one Form 8-K filed on June
13, 2001, which reported events under Item 5 of the Form 8-K regarding certain
litigation and a press release dated June 13, 2001.
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.
Date: AUGUST 13, 2001 /s/ DOUGLAS E. FEARS
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Douglas E. Fears, Chief Financial Officer
Date: AUGUST 13, 2001 /s/ HANS C. HELMERICH
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Hans C. Helmerich, President
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