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: MARCH 31, 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 MARCH 31, 2001 Common Stock, .10 par value 50,609,349 TOTAL NUMBER OF PAGES 19 -------
2 HELMERICH & PAYNE, INC. INDEX <TABLE> <S> <C> PART I. FINANCIAL INFORMATION Consolidated Condensed Balance Sheets - March 31, 2001 and September 30, 2000. . . . . . . . . . . 3 Consolidated Condensed Statements of Income - Three Months and Six Months Ended March 31, 2001 and 2000. . . . . . . . . . . . . . . . . . 4 Consolidated Condensed Statements of Cash Flows - Six Months Ended March 31, 2001 and 2000 . . . . . . . . . 5 Consolidated Condensed Statement of Shareholders' Equity Six Months Ended March 31, 2001. . . . . . . . . . . . . . 6 Notes to Consolidated Condensed Financial Statements . . . 7 - 13 Management's Discussion and Analysis of Results of Operations and Financial Condition . . . . . . . . . . . . 14 - 18 PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . 18 - 19 Signature Page . . . . . . . . . . . . . . . . . . . . . . 19 </TABLE> -2-
3 PART I. FINANCIAL INFORMATION HELMERICH & PAYNE, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands) <TABLE> <CAPTION> (Unaudited) March 31, September 30, 2001 2000 --------------- --------------- <S> <C> <C> ASSETS - ------ Current Assets Cash and cash equivalents $ 146,641 $ 108,087 Accounts receivable, net 121,429 106,630 Inventories 27,870 25,598 Prepaid expenses and other 23,964 24,829 --------------- --------------- Total Current Assets 319,904 265,144 --------------- --------------- Investments 251,883 304,326 Property, Plant and Equipment, net 717,207 673,605 Other Assets 15,761 16,417 --------------- --------------- Total Assets $ 1,304,755 $ 1,259,492 =============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current Liabilities Accounts payable $ 32,066 $ 32,279 Accrued liabilities 49,208 46,615 --------------- --------------- Total Current Liabilities 81,274 78,894 --------------- --------------- Noncurrent Liabilities Long-term notes payable 50,000 50,000 Deferred income taxes 146,181 156,650 Other 19,033 18,245 --------------- --------------- Total Noncurrent Liabilities 215,214 224,895 --------------- --------------- SHAREHOLDERS' EQUITY - -------------------- Common stock, par value $.10 per share 5,353 5,353 Preferred stock, no shares issued - - Additional paid-in capital 80,009 66,090 Retained earnings 881,915 813,885 Unearned compensation (2,545) (3,277) Accumulated other comprehensive income 70,326 106,064 --------------- --------------- 1,035,058 988,115 Less treasury stock, at cost 26,791 32,412 --------------- --------------- Total Shareholders' Equity 1,008,267 955,703 --------------- --------------- Total Liabilities and Shareholders' Equity $ 1,304,755 $ 1,259,492 =============== =============== </TABLE> See accompanying notes to financial 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 Six Months Ended March 31, March 31, 2001 2000 2001 2000 ---------------------- -------------------- <S> <C> <C> <C> <C> REVENUES: Sales and other operating revenues $ 218,817 $ 140,241 $ 408,565 $ 275,435 Income from investments 2,752 11,607 5,554 25,994 ---------- ---------- ---------- ---------- 221,569 151,848 414,119 301,429 ---------- ---------- ---------- ---------- COST AND EXPENSES: Operating costs 107,076 75,715 201,122 152,412 Depreciation, depletion and amortization 22,784 27,702 40,762 53,840 Dry holes and abandonments 6,704 4,445 18,748 6,827 Taxes, other than income taxes 12,066 7,730 20,934 14,242 General and administrative 4,646 3,334 8,213 6,155 Interest 68 801 675 1,622 ---------- ---------- ---------- ---------- 153,344 119,727 290,454 235,098 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES AND EQUITY IN INCOME OF AFFILIATE 68,225 32,121 123,665 66,331 INCOME TAX EXPENSE 27,118 13,883 49,153 28,142 EQUITY IN INCOME OF AFFILIATE, net of income taxes 642 1,035 1,077 1,545 ---------- ---------- ---------- ---------- NET INCOME $ 41,749 $ 19,273 $ $75,589 $ 39,734 ========== ========== ========== ========== EARNINGS PER COMMON SHARE: Basic $ 0.83 $ 0.39 $ 1.51 $ 0.80 Diluted 0.82 $ 0.39 $ 1.49 $ 0.80 CASH DIVIDENDS (Note 3) $ 0.075 $ 0.07 $ 0.15 $ 0.14 AVERAGE COMMON SHARES OUTSTANDING: Basic 50,197 49,442 50,005 49,434 Diluted 51,139 49,828 50,783 49,796 </TABLE> The accompanying notes are an integral part of these statements. -4-
5 PART I. FINANCIAL INFORMATION HELMERICH & PAYNE, INC. CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (Unaudited) (in thousands) <TABLE> <CAPTION> Six Months Ended 03/31/01 03/31/00 -------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: <S> <C> <C> Net Income $ 75,589 $ 39,734 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 40,762 53,840 Dry holes and abandonments 18,748 6,827 Equity in income of affiliate before income taxes (2,152) (2,494) Amortization of deferred compensation 746 763 Gain on sale of securities and non-monetary investment income (138) (22,804) Gain on sale of property, plant & equipment (3,949) (784) Other, net 327 242 Change in assets and liabilities- Accounts receivable (14,799) 8,731 Inventories (2,544) 751 Prepaid expenses and other 1,475 (3,630) Accounts payable (213) 469 Accrued liabilities 8,625 (1,142) Deferred income taxes 10,474 12,444 Other noncurrent liabilities 788 (1,148) ------------- ------------ Total adjustments 58,150 52,065 ------------- ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 133,739 91,799 ------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, including dry hole costs (110,503) (47,411) Proceeds from sales of property, plant and equipment 7,395 1,270 Proceeds from sale of investments 2,159 12,569 ------------- ------------ NET CASH USED IN INVESTING ACTIVITIES (100,949) (33,572) ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Payments made on notes payable - (5,000) Dividends paid (7,572) (6,945) Purchase of stock for treasury - (450) Proceeds from exercise of stock options 13,336 1,382 ------------- ------------ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 5,764 (11,013) ------------- ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 38,554 47,214 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 108,087 21,758 ------------- ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 146,641 $ 68,972 ============= ============ </TABLE> -5-
6 PART I. FINANCIAL INFORMATION HELMERICH & PAYNE, INC. CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY (in thousands - except per share data) <TABLE> <CAPTION> Common Stock Additional ------------ Paid-In Unearned Retained Shares Amount Capital Compensation Earnings - ---------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Balance, September 30, 2000 53,529 $5,353 $66,090 $(3,277) $813,885 Comprehensive Income: Net Income 75,589 Other comprehensive income, Unrealized losses on available- for-sale securities, net Derivatives instruments losses, net Total other comprehensive income Comprehensive income Cash dividends ($0.15 per share) (7,572) Exercise of stock options 7,715 Tax benefit of stock-based awards Stock issued under Restricted Stock 6,204 Award Plan Amortization of deferred compensation 732 13 ------------------------------------------------------------- Balance, March 31, 2001 53,529 $5,353 $80,009 $(2,545) $881,915 ============================================================= </TABLE> <TABLE> <CAPTION> Accumulated Treasury Stock Other -------------- Comprehensive Shares Amount Income Total - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Balance, September 30, 2000 3,548 $(32,412) $106,064 $ 955,703 Comprehensive Income: Net Income 75,589 Other comprehensive income, Unrealized losses on available- for-sale securities, net (35,710) (35,710) Derivatives instruments losses, net ( 28) ( 28) --------- --------- Total other comprehensive income (35,738) (35,738) --------- --------- Comprehensive income 39,851 --------- Cash dividends ($0.15 per share) (7,572) Exercise of stock options (628) 5,621 13,336 Tax benefit of stock-based awards 6,204 Stock issued under Restricted Stock Award Plan Amortization of deferred compensation 745 ------------------------------------------------------ Balance, March 31, 2001 2,920 $(26,791) $ 70,326 $1,008,267 ====================================================== </TABLE>
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 six months ended March 31, 2001, and March 31, 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 Quarter Report 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 December, 2000, was paid March 1, 2001. On March 7, 2001, a cash dividend of $.075 per share was declared for shareholders of record on May 15, 2001, payable June 1, 2001. 4. Inventories consist of materials and supplies. 5. Income from investments includes $-0- and $74,000 after-tax gains from sales of available-for-sale securities during the second quarter and first six months of fiscal 2001, respectively. After-tax gains from security sales were $5,996,000 and $7,750,000 for the same periods in fiscal 2000. Also included in income from investments for the first six months of fiscal 2000 were gains related to a non-monetary dividend ($9,509,000) and a 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 $53,715,000. <TABLE> <CAPTION> Unrealized Unrealized Fair Cost Gains Losses Value ---------------------------------------------------------------------------------------- (in thousands) <S> <C> <C> <C> <C> Equity Securities 03/31/01 $84,694 $114,592 $1,118 $198,168 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 - The components of comprehensive income, net of related tax, are as follows (in thousands): <TABLE> <CAPTION> Three Months Ended Six Months Ended March 31, March 31, 2001 2000 2001 2000 ---------------------- ------------------------ <S> <C> <C> <C> <C> Net Income $ 41,749 $ 19,273 $ 75,589 $ 39,734 Other comprehensive income: Net unrealized gain(loss) on securities (27,265) 21,133 (35,710) 24,947 Net unrealized loss on derivative instruments ( 726) - ( 28) - --------- --------- --------- ---------- Other comprehensive income (27,991) 21,133 (35,738) 24,947 --------- --------- --------- ---------- Comprehensive income $ 13,758 $ 40,406 $ 39,851 $ 64,681 ========= ========= ========= ========== </TABLE> The components of accumulated other comprehensive income, net of related taxes, are as follows (in thousands): <TABLE> <CAPTION> 03/31/01 09/30/00 -------- -------- <S> <C> <C> Unrealized gains on securities, net $70,354 $106,064 Unrealized loss on derivative instruments (28) - -------- -------- Accumulated other comprehensive income $70,326 $106,064 ======== ======== </TABLE> 8. At March 31, 2001, the Company had committed bank lines of credit totaling $85 million; $35 million expires in May 2001 and $50 million expires in 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 has outstanding letters of credit totaling $8.2 million against these lines at March 31, 2001. The average rate on the borrowings at March 31, 2001, was 5.56 percent. 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 fixes the interest rate on this facility at 5.38% for the entire 5-year 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 Six Months Ended March 31, March 31, (in thousands) 2001 2000 2001 2000 ---------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Basic weighted-average shares 50,197 49,442 50,005 49,434 Effect of dilutive shares: Stock options 889 377 746 356 Restricted stock 53 9 32 6 ------------------------------------------------ 942 386 778 362 ------------------------------------------------ Diluted weighted-average shares 51,139 49,828 50,783 49,796 ================================================ </TABLE> 10. Change in Depreciable Lives - As a result of a recently completed 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 six months ended March 31, 2001, by approximately $7.5 million and $15.0 million, respectively. 11. Impairment - Depreciation, depletion and amortization increased in the current quarter as the result of an impairment charge of approximately $3.8 million for proved Exploration and Production properties. After-tax, the impairment charge reduced the second quarter net income by approximately $2.4 million, $0.05 per share on a diluted basis. 12. 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. -9-
10 PART I. FINANCIAL INFORMATION HELMERICH & PAYNE, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued) 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 Board has reserved 3,000,000 shares of common stock of the Corporation 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. 13. 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 March 31, 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. 14. 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. -10-
11 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 six months ended March 31, 2001, and 2000, is shown in the following table: <TABLE> <CAPTION> External Inter- Total Operating (in thousands) Sales Segment Sales Profit --------------------------------------------------------------------------------------------------------- March 31, 2001 <S> <C> <C> <C> <C> CONTRACT DRILLING Domestic $135,453 $ 1,612 $137,065 $ 37,690 International 73,819 - 73,819 11,353 ------------------------------------------------------------- 209,272 1,612 210,884 49,043 ------------------------------------------------------------- OIL & GAS OPERATIONS Exploration & Prod. 132,563 - 132,563 71,115 Natural Gas Mktg. 60,153 - 60,153 4,666 ------------------------------------------------------------- 192,716 - 192,716 75,781 ------------------------------------------------------------- REAL ESTATE 6,576 776 7,352 4,304 OTHER 5,555 - 5,555 - ELIMINATIONS - (2,388) (2,388) - ------------------------------------------------------------- TOTAL $414,119 $ - $414,119 $129,128 ============================================================= </TABLE> <TABLE> <CAPTION> External Inter- Total Operating (in thousands) Sales Segment Sales Profit --------------------------------------------------------------------------------------------------------- March 31, 2000 <S> <C> <C> <C> <C> CONTRACT DRILLING Domestic $103,636 $ 1,201 $104,837 $ 14,672 International 66,368 - 66,368 3,813 ------------------------------------------------------------- 170,004 1,201 171,205 18,485 ------------------------------------------------------------- OIL & GAS OPERATIONS Exploration & Prod. 64,258 - 64,258 25,139 Natural Gas Mktg. 36,149 - 36,149 2,784 -------------------------------------------------------------- 100,407 - 100,407 27,923 ------------------------------------------------------------- REAL ESTATE 4,480 775 5,255 2,728 OTHER 26,538 - 26,538 - ELIMINATIONS - (1,976) (1,976) - ------------------------------------------------------------- TOTAL $301,429 $ - $301,429 $ 49,136 ============================================================= </TABLE> -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 quarters ended March 31, 2001, and 2000, is shown in the following table: <TABLE> <CAPTION> External Inter- Total Operating (in thousands) Sales Segment Sales Profit --------------------------------------------------------------------------------------------------------- March 31, 2001 <S> <C> <C> <C> <C> CONTRACT DRILLING Domestic $ 73,159 $ 671 $ 73,830 $20,644 International 35,128 - 35,128 3,805 ------------------------------------------------------------ 108,287 671 108,958 24,449 ------------------------------------------------------------ OIL & GAS OPERATIONS Exploration & Prod. 74,835 - 74,835 44,095 Natural Gas Mktg. 31,474 - 31,474 ( 33) ------------------------------------------------------------ 106,309 - 106,309 44,062 ------------------------------------------------------------ REAL ESTATE 4,245 387 4,632 2,929 OTHER 2,728 - 2,728 - ELIMINATIONS - (1,058) (1,058) - ------------------------------------------------------------ TOTAL $221,569 $ - $221,569 $71,440 ============================================================ </TABLE> <TABLE> <CAPTION> External Inter- Total Operating (in thousands) Sales Segment Sales Profit --------------------------------------------------------------------------------------------------------- March 31, 2001 <S> <C> <C> <C> <C> CONTRACT DRILLING Domestic $ 53,417 $ 692 $ 54,109 $ 8,161 International 32,167 - 32,167 1,303 ------------------------------------------------------------ 85,584 692 86,276 9,464 ------------------------------------------------------------ OIL & GAS OPERATIONS Exploration & Prod. 34,140 - 34,140 12,445 Natural Gas Mktg. 17,834 - 17,834 1,834 ------------------------------------------------------------- 51,974 - 51,974 14,279 ------------------------------------------------------------- REAL ESTATE 2,238 387 2,625 1,343 OTHER 12,052 - 12,052 - ELIMINATIONS - (1,079) (1,079) - ------------------------------------------------------------ TOTAL $151,848 $ - $151,848 $25,086 ============================================================ </TABLE> -12-
13 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 (in thousands). <TABLE> <CAPTION> Quarter Ended Six Months Ended March 31, March 31, 2001 2000 2001 2000 ---------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Segment operating profit $ 71,440 $ 25,086 $129,128 $ 49,136 Unallocated amounts: Income from investments 2,752 11,607 5,554 25,994 General corporate expense (4,646) (3,334) (8,213) (6,155) Interest expense ( 68) ( 801) ( 675) (1,622) Corporate depreciation ( 505) ( 417) ( 976) ( 804) Other corporate expense ( 748) ( 20) (1,153) ( 218) -------------------------------------------------------------- Total unallocated amounts (3,215) 7,035 (5,463) 17,195 -------------------------------------------------------------- Income before income taxes and equity in income of affiliate $ 68,225 $ 32,121 $123,665 $ 66,331 ============================================================== </TABLE> The following table presents revenues from external customers by country based on the location of service provided (in thousands). <TABLE> <CAPTION> Quarter Ended Six Months Ended March 31, March 31, 2001 2000 2001 2000 --------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Revenues United States $186,441 $119,681 $340,300 $235,061 Venezuela 9,150 8,835 17,831 17,882 Colombia 6,299 11,204 14,066 23,448 Other Foreign 19,679 12,128 41,922 25,038 ------------------------------------------------------------- Total $221,569 $151,848 $414,119 $301,429 ============================================================= </TABLE> -13-
14 PART I. FINANCIAL INFORMATION HELMERICH & PAYNE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION MARCH 31, 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 Company's 2001 First Quarter Report on Form 10-Q and the condensed 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, 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 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 SECOND QUARTER 2001 VS SECOND QUARTER 2000 The Company reported net income of $41,749,000 ($0.82 per share) from revenues of $221,569,000 for the second quarter ended March 31, 2001, compared with net income of $19,273,000 ($0.39 per share) from revenues of $151,848,000 for the second quarter of the prior fiscal year. Net income in the second quarter of fiscal 2001 and 2000 included $74,000 and $5,996,000 ($0.12 per share), respectively, from the sale of investment securities. EXPLORATION AND PRODUCTION Exploration and Production reported operating profit of $44.1 million for the second quarter compared with $12.4 million for the same period of fiscal 2000. Oil & gas revenues increased to $74.8 million from $34.1 million as gas prices increased significantly during the second quarter of fiscal 2001. Natural gas revenues increased $41.1 million to $69 million for the quarter, due primarily to higher gas prices, partially offset by lower volumes. Oil revenues decreased $.7 million, or 10.5 percent, as oil volumes dropped 9% compared to last year. Natural gas prices averaged $6.46 per mcf and $2.28 per mcf for the second quarter of fiscal 2001 and 2000, respectively. Natural gas volumes averaged 118.4 mmcf/d and 135.8 mmcf/d, respectively. Crude oil prices averaged $27.78 per bbl and $27.80 per bbl for the second quarter of fiscal 2001 and 2000, respectively. Crude oil volumes averaged 2,258 bbls/d and 2,483 bbls/d, respectively. -14-
15 PART I. FINANCIAL INFORMATION HELMERICH & PAYNE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION MARCH 31, 2001 (Continued) Exploration expenses increased $1.6 million in the second quarter of fiscal 2001, compared with the same period of last year as a result of increased dry hole costs. Also in the quarter, the natural gas marketing segment reported an operating loss of $33,000 compared with an operating profit of $1.8 million in the second quarter of fiscal 2000, as higher priced inventory was sold during January 2001 as spot prices declined rapidly. During the second quarter, the Company participated in the drilling of 40 wells, 33 of which are producing, completing or waiting on pipeline connections, and seven were dry holes. The Company expects to participate in the drilling of approximately 85 wells during the remainder of fiscal 2001, bringing the total wells drilled during the fiscal year to approximately 150. The capital expenditures estimated for the Oil and Gas operations for fiscal 2001 is $75 million for drilling and $24 million for land and seismic investments. DOMESTIC DRILLING Domestic Drilling's operating profit increased to $20.6 million from $8.2 million in the second quarter of fiscal 2000. The sharp increase is mainly due to a significant improvement in the Company's land operations. Also impacting the operating profit increase was a reduction in depreciation expense due to the change in the Company's estimated useful life for drilling equipment. The previously announced change from a 10-year depreciation term, to a 15-year depreciation term, resulted in a $3.8 million improvement in operating profit in the second quarter of fiscal 2001 compared with the same period in fiscal 2000. An overall increase in U.S. land rig dayrates of 19% over the previous quarter and 60% over last year's second quarter, helped push operating profit for the U.S. land rigs up by 21% over the previous quarter and over last year's second quarter by 106%, after adjusting for the change in depreciation. U.S. land rig utilization averaged 96% for this year's second quarter, compared with 82% during last year's second quarter. Offshore platform rig utilization was 100% and 92% for the second quarter of fiscal 2001 and 2000, respectively. During the quarter the Company announced plans to construct an additional fifteen new FlexRigs, a highly mobile 8,000-18,000' land rig. The Company will take delivery of the new rigs from March 2002 to February 2003 with an investment of approximately $9 million per rig. INTERNATIONAL DRILLING International Drilling's operating profit increased to $3.8 million from $1.3 million. Revenues increased to $35.1 million from $32.2 million. The increase in operating profit is due primarily to lower depreciation of $3.7 million as the result of the Company changing the estimated useful life for drilling equipment as discussed above. International rig utilization averaged 49% during the second quarter and 45% during last year's second quarter. International operations still suffer from sluggish rig demand in South America, especially in Venezuela. While management expects activity to pick up in the fourth quarter of this year, the direction and extent of any increased demand in South America is still very difficult for the Company to predict. -15-
16 PART I. FINANCIAL INFORMATION HELMERICH & PAYNE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION MARCH 31, 2001 (Continued) OTHER Other revenues decreased approximately $9 million from last year, with $9.6 million due to decreased gains from the sale of available-for-sale securities, offset by a $.6 million increase in interest income. Interest expense decreased to $.1 million from $.8 million because of increased capitalized interest and the reversal of $.4 million of interest expense related to a lawsuit. Corporate general and administrative expenses increased to $4.6 million from $3.3 million mainly due to labor and benefits and increased professional services. The Company's effective income tax rate decreased to 39.7% for the quarter compared to 43% for the second quarter of last year. The decrease is due primarily to a larger proportionate income in the Company's U.S. operations instead of international drilling operations. SIX MONTHS ENDED MARCH 31, 2001 VS SIX MONTHS ENDED MARCH 31, 2000 The Company reported net income of $75,589,000 ($1.49 per share) from revenues of $414,119,000 for the six months ended March 31, 2001, compared with net income of $39,734,000 ($0.80 per share) from revenues of $301,429,000 for the first six months of the prior fiscal year. Net income in the first six months of fiscal 2001 and 2000 included $155,000 and $7,750,000 ($0.16 per share), respectively, from the sale of investment securities. Revenues for the first six 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. EXPLORATION AND PRODUCTION Exploration and Production reported an operating profit of $71,115,000 for the first six months of fiscal 2001 compared with $25,139,000 for the same period of fiscal 2000. Oil & gas revenues increased to $132.6 million from $64.3 million. Natural gas revenues were $119.5 million for the first six months of fiscal 2001 compared with $54 million for the same period of fiscal 2000 as gas prices increased significantly, partially offset by lower gas volumes. Oil revenues increased $2.7 million to $12.7 million for the first six months of fiscal 2001. Natural gas prices averaged $5.59 per mcf and $2.28 per mcf for the first six months of fiscal 2001 and 2000, respectively. Natural gas volumes averaged 117.4 mmcf/d and 129.7 mmcf/d, respectively. Crude oil prices averaged $29.70 per bbl and $25.94 per bbl for the first six months of fiscal 2001 and 2000, respectively. Crude oil volumes averaged 2,345 bbls/d and 2,184 bbls/d, respectively. Additional exploration activity increased exploration expenses. Geophysical, dry hole and abandonment expenses were $21.8 million for the first six months of fiscal 2001, $12.5 million higher than in the same period of last year. Also in fiscal 2001 was an impairment charge of approximately $3.8 million for proved Exploration and Production properties. After-tax, the impairment charge reduced the first six months net income by approximately $2.4 million, $0.05 per share, on a diluted basis. Production expenses also increased to $19.2 million for fiscal 2001 from $12.1 million in fiscal 2000 as both production taxes and ad valorem taxes increased with higher natural gas prices. -16-
17 PART I. FINANCIAL INFORMATION HELMERICH & PAYNE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION MARCH 31, 2001 (Continued) DOMESTIC DRILLING Domestic Drilling's operating profit increased $23 million, due primarily to increased dayrates, margins and rig utilization in land operations and a reduction in depreciation expense as the Company changed the estimated useful life for its drilling equipment. As previously announced, the Company has extended the depreciable life of its rig equipment from 10 to 15 years, as the result of a recently completed economic evaluation of the useful lives of its drilling equipment. This will provide a better matching of revenues and depreciation expense over the useful life of the equipment. This change, effective October 1, 2000, is expected to reduce depreciation expense in fiscal 2001 for total contract drilling by an estimated $30 million ($15 million each for Domestic and International segments). The change increased domestic operating profit in the first six months of fiscal 2001 by approximately $7.5 million. Domestic land operations in the first six months of fiscal 2001 improved significantly over the same period in fiscal 2000. Average revenues per day for fiscal 2001 increased 40% over last year to $11,884 per day. Rig utilization for land rigs was 94% in fiscal 2001 compared to 79% in fiscal 2000. Offshore activity was 95.7% for the first six months of fiscal 2001 compared with 96% in the same period of fiscal 2000. The Company's U.S. land fleet is expected to reach a total of 46 rigs by April 15 and approach 52 rigs by December 31. Earnings for the remainder of fiscal 2001 are expected to be positively impacted by both the number of operating rigs and increasing dayrates. INTERNATIONAL DRILLING International Drilling's operating profit for the first six months of fiscal 2001 increased to $11.3 million from $3.8 million for the same period last year. Revenues increased to $73.8 million for the first six months of fiscal 2001 from $66.4 million for the same period in fiscal 2000. The increase in operating profit is due primarily to lower depreciation of $7.4 million as the result of the Company changing the estimated useful life for drilling equipment. Rig utilization averaged 51% during the first six months and 46% during last year's first six months. There are currently 32 land rigs in South America with five of those rigs undergoing modifications. Some improvement in Venezuela is projected for the fourth quarter of fiscal 2001, but the timing and number of additional rigs is difficult to predict. OTHER Other revenues decreased approximately $21 million over last year, with $12.4 million due to decreased gains from the sale of available-for-sale securities, offset by a $1.8 million increase in interest income due to increased cash balances. Revenues for the first six 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 six months of fiscal 2001 was $0.7 million compared with $1.6 for the same period in fiscal 2000. The decrease is the -17-
18 PART I. FINANCIAL INFORMATION HELMERICH & PAYNE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION MARCH 31, 2001 (Continued) result of an increase in capitalized interest and the reversal of $.4 million of interest expense related to a lawsuit. Corporate general and administrative expense increased from $6.2 million in the first six months of fiscal 2000 to $8.2 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 and Production Division as a separate public entity. The Company's effective income tax rate decreased to 39.7% for the six months compared to 43% for the first six 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. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $133,739,000 for the first six months of fiscal 2001, compared with $91,799,000 for the same period in 2000. Capital expenditures were $110,503,000 and $47,411,000 for the first six months of fiscal 2001 and 2000, respectively. The Company anticipates capital expenditures to be approximately $295 million for fiscal 2001. Internally generated cash flows are projected to be approximately $270 million for fiscal 2001 and cash balances were $146 at March 31, 2001. The Company's indebtedness totaled $50,000,000 as of March 31, 2001, 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, 2000. PART II. OTHER INFORMATION HELMERICH & PAYNE, INC. March 31, 2001 Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Stockholders of Helmerich & Payne, Inc. was held on March 7, 2001, for the purpose of electing three members of the Board of Directors and to consider and vote upon approval of the Helmerich & Payne, Inc. Stock Incentive Plan ("Plan"). Proxies for the meeting were solicited by and on behalf of the management of Helmerich & Payne, Inc., and there was no solicitation in opposition to management's solicitation. Each of management's incumbent nominees for directorship was 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, were as follows: Hans Helmerich, 45,091,840 for and 635,715 withheld; George S. Dotson, 45,367,431 for and 360,124 withheld; and George A. Schaefer, 45,358,616 for and 368,939 withheld. There were no broker non-votes or other abstentions. The other Directors whose term of office as Director continued after the meeting are W.H. Helmerich,III, Edward B. Rust, Jr., Glenn A. Cox, William L. Armstrong, L. F. Rooney, III, and John D. Zeglis. The number of votes in favor of, against and withheld on the Plan proposal were 24,753,180; 16,691,213; and 310,051, respectively. Broker non-votes totaled 3,973,111 on the Plan proposal. -18-
19 PART II. OTHER INFORMATION HELMERICH & PAYNE, INC. March 31, 2001 (continued) Item 6(b) Reports on Form 8-K There were no reports on Form 8-K for the three months ended March 31, 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: MAY 11, 2001 /S/ DOUGLAS E. FEARS --------------------------- ----------------------------------------- Douglas E. Fears, Chief Financial Officer Date: MAY 11, 2001 /S/ HANS C. HELMERICH --------------------------- ----------------------------------------- Hans C. Helmerich, President -19-