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: DECEMBER 31, 1997
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 DECEMBER 31, 1997
Common Stock, .10 par value 50,267,218
AUTHORIZED AT DECEMBER 31, 1997
53,528,952
Total Number of Pages 15
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HELMERICH & PAYNE, INC.
INDEX
PART I FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets -
December 31, 1997 and September 30, 1997 3
Consolidated Condensed Statements of Income -
Three Months Ended December 31, 1997 and 1996 4
Consolidated Condensed Statements of Cash Flows -
Three Months Ended December 31, 1997 and 1996 5
Consolidated Condensed Statement of Shareholders' Equity -
Three Months Ended December 31, 1997 6
Notes to Consolidated Condensed Financial Statements 7,8 & 9
Revenues and Income by Business Segments 10
Management's Discussion and Analysis of Financial 11 thru 14
Condition and Results of Operations
PART II. OTHER INFORMATION 14
Signature Page 15
3
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
(Unaudited)
December 31 September 30
1997 1997
----------- -----------
ASSETS
Current Assets
Cash and cash equivalents $ 50,414 $ 27,963
Short-term investments 1,286 1,318
Accounts receivable, net 112,479 98,697
Inventories 20,955 19,639
Prepaid expenses and other 16,412 10,387
----------- -----------
Total Current Assets 201,546 158,004
----------- -----------
Investments 300,590 323,510
Property, Plant and Equipment, Net 554,047 539,025
Other Assets 13,670 13,056
----------- -----------
Total Assets $ 1,069,853 $ 1,033,595
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 42,013 $ 42,642
Accrued liabilities 55,033 47,525
Notes payable 15,000 5,000
----------- -----------
Total Current Liabilities 112,046 95,167
----------- -----------
Noncurrent Liabilities
Deferred income taxes 138,636 141,331
Other 17,933 16,517
----------- -----------
Total Noncurrent Liabilities 156,569 157,848
----------- -----------
Shareholders' Equity
Common stock, par value
$.10 per share 5,353 5,353
Preferred stock, no shares issued -- --
Additional paid-in capital 57,654 51,316
Retained earnings 655,244 629,562
Unearned compensation (6,623) --
Net unrealized holding gains 108,390 114,454
----------- -----------
820,018 800,685
Less treasury stock, at cost 18,780 20,105
----------- -----------
Total Shareholders' Equity 801,238 780,580
----------- -----------
$ 1,069,853 $ 1,033,595
=========== ===========
See accompanying notes to financial statements.
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PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(in thousands except per share data)
Three Months Ended
December 31
1997 1996
-------- ---------
REVENUES:
Sales and other operating revenues $144,112 $116,726
Income from investments 7,711 1,536
-------- --------
151,823 118,262
-------- --------
COST AND EXPENSES:
Operating costs 76,490 63,900
Depreciation, depletion and amortization 18,651 15,472
Dry holes and abandonments 4,137 560
Taxes, other than income taxes 5,194 4,687
General and administrative 2,556 2,259
Interest 25 3
-------- --------
107,053 86,881
-------- --------
INCOME BEFORE INCOME TAXES AND EQUITY
IN INCOME OF AFFILIATE 44,770 31,381
INCOME TAX EXPENSE 16,822 11,756
EQUITY IN INCOME OF AFFILIATE,
net of income taxes 1,217 500
-------- --------
NET INCOME $ 29,165 $ 20,125
======== ========
EARNINGS PER COMMON SHARE:
Basic $ 0.58 $ 0.41
======== ========
Diluted $ 0.57 $ 0.40
======== ========
CASH DIVIDENDS (Note 2) $ 0.07 $ 0.065
Average common shares outstanding:
Basic 50,006 49,651
Diluted 51,066 50,484
Certain amounts have been restated to reflect the effect of the two-for-one
common stock split and distribution as discussed in Note 7. The accompanying
notes are an integral part of these statements.
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PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
December 31
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 29,165 $ 20,125
Adjustments to reconcile net income to net
cash provided by operating activities--
Depreciation, depletion, and amortization 18,651 15,472
Dry holes and abandonments 4,137 560
Equity in income of affiliate before
income taxes (1,963) (806)
Amortization of deferred compensation 209 368
Gain on sale of investments (6,015) --
Gain on sale of fixed assets (526) (485)
Other 348 47
Change in assets and liabilities--
Accounts receivable (13,782) (10,159)
Inventories (1,316) 76
Prepaid expenses and other (6,639) (3,384)
Accounts payable (32) 6,119
Accrued liabilities 7,508 7,353
Deferred income taxes 1,023 238
Other noncurrent liabilities 1,416 2,837
-------- --------
Total adjustments 3,019 18,236
-------- --------
Net cash provided by operating activities 32,184 38,361
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, including dry hole costs (48,633) (36,319)
Proceeds from sales of property, plant, and
equipment 10,756 1,283
Purchase of investments (103) --
Proceeds from sale of investments 21,070 --
Purchase of short-term investments -- (276)
Proceeds from sale of short-term investments 32 --
-------- --------
Net cash used in investing activities (16,878) (35,312)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 33,000 15,000
Payments made on notes payable (23,000) (5,000)
Dividends paid (3,524) (3,243)
Proceeds from exercise of stock options 669 796
-------- --------
Net cash provided by financing activities 7,145 7,553
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 22,451 10,602
CASH AND CASH EQUIVALENTS, beginning of period 27,963 16,892
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 50,414 $ 27,494
======== ========
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PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands - except per share data)
Net
Common Stock Unrealized
----------------------- Paid-In Holding Unearned
Shares Amount Capital Gains Compensation
------ --------- --------- --------- ------------
Balance, September 30, 1997 53,529 $ 5,353 $ 51,316 $ 114,454 $ --
Change in net unrealized
holding gains, net of
income taxes of ($3,718) -- -- -- (6,064) --
Cash dividends
($0.07 per share) -- -- -- -- --
Exercise of stock options -- -- 581 -- --
Stock, issued under
Restricted Stock Award Plan -- -- 5,757 -- (6,791)
Amortization of deferred
compensation -- -- -- -- 168
Net income -- -- -- -- --
---------------------------------------------------------------------------
Balance, December 31, 1997 53,529 $ 5,353 $ 57,654 $ 108,390 $ (6,623)
===========================================================================
Treasury Stock
Retained -----------------------
Earnings Shares Amount
--------- ------ --------
Balance, September 30, 1997 $ 629,562 3,501 $ (20,105)
Change in net unrealized
holding gains, net of
income taxes of ($3,718) -- -- --
Cash dividends
($0.07 per share) (3,524) -- --
Exercise of stock options -- (59) 291
Stock, issued under
Restricted Stock Award Plan -- (180) 1,034
Amortization of deferred
compensation 41 -- --
Net income 29,165 -- --
---------------------------------------------
Balance, December 31, 1997 $ 655,244 3,262 $ (18,780)
==============================================
See accompanying notes to financial statements.
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I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the results of
the periods presented. The results of operations for the three months
ended December 31, 1997, and December 31, 1996, are not necessarily
indicative of the results to be expected for the full year.
2. The $.065 cash dividend declared in September was paid December 1,
1997. On December 3, 1997, a cash dividend of $0.07 per share was
declared for shareholders of record on February 13, 1998, payable
March 2, 1998.
3. Inventories consist of materials and supplies.
4. Income from investments includes a $6,015,000 gain from sales of
available-for-sale securities during the first quarter of fiscal year
1998. The gain was $3,675,000 net of tax ($0.07 per share). There
were no sales of securities in the first quarter of fiscal year 1997.
5. The following is a summary of available-for-sale securities, which
excludes those accounted for under the equity method of accounting.
The recorded investment in securities accounted for under the equity
method is $30,857,998.
Gross Gross Est.
Unrealized Unrealized Fair
Cost Gains Losses Value
(in thousands)
------------------------------------------
Equity Securities 12/31/97 $ 94,909 $175,388 $565 $269,732
Equity Securities 09/30/97 $110,011 $184,708 $104 $294,615
6. The Company maintains a line of credit agreement with certain banks
which provides for maximum borrowing of $40,000,000 at adjustable
interest rates. Under the agreement, $40,000,000 may be borrowed
through May 1998, and $10,000,000 may be borrowed through May 1999.
As of December 31, 1997, the Company had borrowed $15,000,000 at a
rate of 6.32% and had letters of credit outstanding in the amount of
$8,l7l,000, leaving $16,829,000 available. Under the line of credit
agreement the Company must meet certain requirements regarding levels
of debt, net worth and earnings.
The Company has an additional $14.5 million line of credit with a bank
to be used primarily for letters of credit. As of December 31, 1997,
the Company had letters of credit outstanding in the amount of
$1,347,222 leaving $13,152,778 available.
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PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
7. Stock Split and Earnings per Share -
On December 3, 1997, the Board of Directors of the Company declared a
two-for-one stock split and distribution; approximately 26.8 million
shares were issued on December 31, 1997 to stockholders of record on
December 15, 1997. All references in the financial statements and
notes to the number of common shares outstanding and per share amounts
reflect the impact of the split.
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share",
effective for financial statement reporting periods ending after
December 15, 1997. This statement establishes standards for computing
and presenting earnings per share (EPS). It replaces the presentation
of primary and fully diluted EPS with a presentation of basic and
diluted EPS. The Company's primary EPS, as reported in prior periods,
will not change when applying the method required in computing the new
basic EPS.
Basic net income (or earnings) per common share is calculated based on
the weighted average shares outstanding during the period. Diluted
net income (or earnings) per common share includes in average common
shares outstanding employee stock options which are dilutive (984,188
shares and 762,296 shares for the first quarter of fiscal 1998 and
1997, respectively) and non-vested restricted stock (75,517 shares and
70,526 shares for the first quarter of fiscal 1998 and 1997,
respectively).
8. New Accounting Pronouncements -
The Financial Accounting Standards Board has issued two new accounting
standards, SFAS NO. 130, "Reporting Comprehensive Income", (SFAS 130)
and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information", (SFAS 131), both effective for fiscal years
beginning after December 15, 1997. SFAS 130 establishes standards for
the reporting and display of comprehensive income. While the Company
does have certain comprehensive income items, management does not
believe that adopting SFAS 130 will materially change the Company's
financial reporting and disclosures. SFAS 131 establishes standards
for reporting financial and descriptive information about a company's
operating segments. Management is currently analyzing the impact of
SFAS 131, but does not expect the standard to materially change its
current segment reporting disclosures.
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PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
9. Restricted Stock Awards -
In the first quarter of fiscal year 1998, the Company has issued
180,000 shares of treasury stock as restricted stock awards under the
1996 Stock Incentive Plan. The Company recognized unearned
compensation of $6,791,000, which was the fair market value of the
stock at the time of issuance. Treasury stock was reduced by the book
value of the shares issued ($1,034,000) with the difference recognized
as an increase in paid-in-capital. The unearned compensation is being
amortized over a five-year period as compensation expense.
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I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
REVENUES AND INCOME BY BUSINESS SEGMENTS
(in thousands)
FY 1998 FY 1997
1ST QUARTER 1ST QUARTER
----------- -----------
SALES AND OTHER REVENUES:
Contract Drilling-Domestic $ 41,736 $ 29,596
Contract Drilling-International 51,994 35,630
--------- ---------
Total Contract Drilling Division 93,730 65,226
--------- ---------
Exploration and Production 32,171 30,014
Natural Gas Marketing 16,056 18,991
--------- ---------
Total Oil & Gas Division 48,227 49,005
--------- ---------
Real Estate Division 2,091 2,412
Investment and Other 7,775 1,619
--------- ---------
Total Revenues $ 151,823 $ 118,262
========= =========
OPERATING PROFIT (LOSS):
Contract Drilling-Domestic $ 9,371 $ 4,210
Contract Drilling-International 14,055 6,907
--------- ---------
Total Contract Drilling Division 23,426 11,117
--------- ---------
Exploration and Production 14,859 18,274
Natural Gas Marketing 587 1,381
--------- ---------
Total Oil & Gas Division 15,446 19,655
--------- ---------
Real Estate Division 1,308 1,779
--------- ---------
Total Operating Profit 40,180 32,551
--------- ---------
OTHER 4,590 (1,170)
INCOME BEFORE INCOME TAXES AND
--------- ---------
EQUITY IN INCOME OF AFFILIATE $ 44,770 $ 31,381
========= =========
See accompanying notes to financial statements.
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I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
DECEMBER 31, 1997
Business Environment and Risk Factor
The following discussion should be read in conjunction with the
consolidated financial statements 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, 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
below under the headings "Results of Operations" and "Liquidity and Capital
Resources" may include forward-looking statements that involve risks and
uncertainties. The Company wishes to caution readers that a number of
important factors discussed in this report and in the Company's other reports
filed with the Securities and Exchange Commission, could affect the Company's
actual results and cause actual results to differ materially from those in the
forward-looking statements.
Results of Operations
The Company reported net income of $29,165,000 ($0.58 per share) from
revenues of $151,823,000 for the first quarter of fiscal year 1998, compared
with $20,125,000 ($0.41 per share) net income from revenues of $118,262,000
during the first quarter of 1997. Net income for the first quarter of 1998
included $3,675,000 ($0.07 per share) from the sale of securities. There were
no sales of securities in the first quarter of fiscal year 1997.
The Company's Exploration and Production Division reported an
operating profit of $14,859,000 for the first quarter of fiscal 1998, compared
with an operating profit of $18,274,000 for the same period last year. The
Division's lower operating profit was the result of increased dry hole and
lease amortization expenses. Dry hole and abandonment expenses for the quarter
were $4.0 million, compared with $0.5 million in the first quarter of 1997.
Two significant dry holes were drilled during the current quarter as the
Company stepped up its exploratory effort. In addition, lease amortization
increased appreciably over last year as the result of significant acreage
purchases during the last quarter of fiscal 1997.
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I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
DECEMBER 31, 1997
(Continued)
Two additional exploratory wells should be completed in the second
quarter of fiscal 1998. One of the wells is in a Pinnacle Reef prospect in
east Texas that has encountered significant gas shows and pressure, but has
experienced some mechanical difficulties. It is uncertain at this time whether
the well will be completed. The other well is in southern Louisiana and is
expected to be drilled to 18,000' by late February.
Oil and gas revenues for the first quarter of 1998 increased to
$32,171,000 from $30,014,000, in the first quarter of 1997. Average natural
gas prices improved to $2.61 per mcf over last year's first quarter average of
$2.46 per mcf, but oil prices were down to an average of $18.50 per barrel this
year from $23.37 per barrel last year. First quarter natural gas production
rose to 117.1 mmcf a day, compared with 108.2 mmcf a day during last year's
first quarter. Oil production dropped to an average of 2,220 barrels per day,
from 2,853 barrels per day during the first quarter of last year. Both oil and
gas prices have softened going into the second quarter, especially compared to
the same period of 1997.
After participating in the Louisiana Austin Chalk play since the early
1990's, the Company sold its production and acreage in that play during the
first quarter of this fiscal year. Although the Company did experience some
successes in its exploration and development efforts there, the profitability
of the play was hampered by high finding costs that resulted in high
depreciation and depletion costs. The $10.6 million in sale proceeds, which
was slightly higher than book value, will be redeployed in other exploratory
regions.
The Contract Drilling Division reported an operating profit of
$23,426,000 in the first quarter of fiscal year 1998, more than double the
$11,117,000 for the same period of 1997. Operating profit from the domestic
drilling operations increased to $9,371,000 for the quarter, compared with
$4,210,000 for the first quarter of fiscal 1997. Rig utilization remained at
100% for land rigs (revenue days increased 11% from the first quarter of 1997)
and dayrates increased approximately 20% over last year. In the second
quarter, the Company plans to place into service a newly built 3,000 horsepower
land rig and also plans to construct six additional 1,500 horsepower land rigs
and place into service at various times over the next three quarters. The six
new rigs will be marketed to both domestic and international customers.
Domestic earnings were also helped by the addition of two platform
rigs which commenced operations in May, 1997 for Shell Offshore Inc. in the
Gulf of Mexico. A third platform rig is scheduled to be placed in service by
the fourth quarter of this fiscal year.
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I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
DECEMBER 31, 1997
(Continued)
Operating profit from international drilling operations increased to
$14,055,000 in the first quarter of fiscal 1998 from $6,907,000 in the first
quarter of 1997. Results from operations in Venezuela, Colombia and Ecuador
improved significantly over the first quarter of 1997 due to increased
revenues, improved margins and slightly higher rig utilization (91% versus
86%). In the second quarter, offshore platform Rig 91 commenced operations in
Venezuela. Rig 91, upgraded in the fourth quarter of 1997, will be working for
B.P. Exploration de Venezuela, S.A. and is expected to have a positive impact
on future earnings.
Impact of Year 2000 -
Some of the Company's older computer programs were written using two
digits rather than four to define the applicable year. As a result, those
computer programs have time-sensitive software that recognize a date using "00"
as the year 1900 rather than the year 2000. This could cause a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company has completed an assessment and will have to modify or
replace portions of its software so that its computer systems will function
properly with respect to dates in the Year 2000 and thereafter. To date, the
Year 2000 Project cost has been less than $400,000 and the Company estimates
that the total cost associated with the Year 2000 Project will be less than
$500,000.
The project is estimated to be completed not later than December 31,
1998, which is prior to any anticipated impact on its operating systems. The
Company believes that with modifications to existing software and conversions
to new software, the Year 2000 Issue will not pose significant operational
problems for its computer systems. However, if such modifications and
conversions are not made, or are not completed timely, the Year 2000 Issue
could have an impact on the operations of the Company.
The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
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I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
DECEMBER 31, 1997
(Continued)
Liquidity and Capital Resources
Net cash provided by continuing operations was $32,184,000 for the
first quarter of fiscal 1998, compared with $38,361,000 for the same period in
1997. Capital expenditures were $48,633,000 and $36,319,000 for the first
quarter of fiscal 1998 and 1997, respectively.
It is anticipated for fiscal 1998 that capital expenditures will
approach $240 million, exceeding internally generated cash flows, and that the
Company will borrow under its line of credit agreement or sell a portion of its
investment portfolio to fund capital expenditures.
There were no significant changes in the Company's financial position
since September 30, 1997.
PART II. OTHER INFORMATION
HELMERICH & PAYNE, INC.
Item 1. Legal Proceedings
NONE
Item 6(b) Reports on Form 8-K
Registrant filed with the Securities and Exchange Commission a report
on Form 8-K on December 5, 1997.
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PART II. OTHER INFORMATION
HELMERICH & PAYNE, INC.
(Continued)
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: FEBRUARY 13 1998 /S/ DOUGLAS E. FEARS
---------------------- -----------------------------------------
Douglas E. Fears, Chief Financial Officer
Date: FEBRUARY 13 1998 /S/ HANS C. HELMERICH
---------------------- -----------------------------------------
Hans C. Helmerich, President
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
Exhibit 27 Financial Data Schedule