UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended: March 31, 2007
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-4221
HELMERICH & PAYNE, INC.
(Exact name of registrant as specified in its charter)
Delaware
73-0679879
(State or other jurisdiction of
(I.R.S. Employer I.D. Number)
incorporation or organization)
(918) 742-5531(Registrant’s telephone number, including area code)
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 o
Indicate by check mark whether the registrant is a large accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
CLASS
OUTSTANDING AT April 30, 2007
Common Stock, $0.10 par value
103,314,928
Total Number of Pages - 31
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
PART I.
FINANCIAL INFORMATION
Item 1.
Financial Statements
Consolidated Condensed Balance Sheets as of March 31, 2007 and September 30, 2006
3
Consolidated Condensed Statements of Income for the Three Months and Six Months Ended March 31, 2007 and 2006
4
Consolidated Condensed Statements of Cash Flows for the Six Months Ended March 31, 2007 and 2006
5
Consolidated Condensed Statement of Shareholders’ Equity for the Six Months Ended March 31, 2007
6
Notes to Consolidated Condensed Financial Statements
7-20
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
21-28
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
29
Item 4.
Controls and Procedures
PART II.
OTHER INFORMATION
Submission of Matters to a Vote of Security Holders
Item 6.
Exhibits
30
Signatures
31
2
PART I. FINANCIAL INFORMATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share and per share amounts)
ITEM 1. FINANCIAL STATEMENTS
Unaudited
March 31,
September 30,
2007
2006
ASSETS
Current assets:
Cash and cash equivalents
$
89,140
33,853
Short term investments
344
48,673
Accounts receivable, less reserve of $2,001 at March 31, 2007 and $2,007 at September 30, 2006
304,486
289,479
Inventories
26,025
26,165
Deferred income tax
11,301
10,168
Assets held for sale
—
4,234
Prepaid expenses and other
32,726
16,119
Total current assets
464,022
428,691
Investments
206,013
218,309
Property, plant and equipment, net
1,807,965
1,483,134
Other assets
6,537
4,578
Total assets
2,484,537
2,134,712
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Notes payable
3,721
Accounts payable
116,612
138,750
Accrued liabilities
106,120
97,077
Long-term debt due within one year
25,000
Total current liabilities
247,732
264,548
NonCurrent liabilities:
Long-term notes payable
330,000
175,000
Deferred income taxes
294,755
269,919
Other
42,919
43,353
Total noncurrent liabilities
667,674
488,272
Shareholders’ equity:
Common stock, $.10 par value, 160,000,000 shares authorized, 107,057,904 shares issued
10,706
Preferred stock, no par value, 1,000,000 shares authorized, no shares issued
Additional paid-in capital
138,934
135,500
Retained earnings
1,423,489
1,215,127
Accumulated other comprehensive income
59,748
69,645
Treasury stock, at cost
(63,746
)
(49,086
Total shareholders’ equity
1,569,131
1,381,892
Total liabilities and shareholders’ equity
The accompanying notes are an integral part of these statements.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)(in thousands, except per share data)
Three Months Ended
Six Months Ended
Operating revenues:
Drilling – U.S. Land
269,145
193,668
539,045
366,422
Drilling – U.S. Offshore
24,062
33,703
55,048
63,223
Drilling – International
76,591
61,117
159,205
111,374
Real Estate
2,738
2,342
5,637
5,199
372,536
290,830
758,935
546,218
Operating costs and other:
Operating costs, excluding depreciation
199,456
156,800
398,923
297,396
Depreciation
32,952
23,385
63,103
46,308
General and administrative
13,350
13,957
23,963
25,895
Gain from involuntary conversion of long-lived assets
(5,170
Income from asset sales
(32,336
(3,563
(32,822
(4,536
208,252
190,579
447,997
365,063
Operating income
164,284
100,251
310,938
181,155
Other income (expense):
Interest and dividend income
1,034
2,456
2,278
4,986
Interest expense
(1,913
(1,946
(2,832
(4,526
Gain on sale of investment securities
177
26,514
2,720
66
27
130
(486
(636
537
26,090
2,694
Income before income taxes and equity in income of affiliate
163,648
100,788
337,028
183,849
Income tax provision
59,338
38,240
123,436
71,042
Equity in income of affiliate net of income taxes
2,551
2,025
4,055
2,580
NET INCOME
106,861
64,573
217,647
115,387
Earnings per common share:
Basic
1.04
0.62
2.11
1.11
Diluted
1.02
0.61
2.08
1.09
Weighted average shares outstanding:
103,239
104,627
103,276
104,303
104,832
106,114
104,841
105,771
Dividends declared per common share
0.0450
0.04125
0.0900
0.0825
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)(in thousands)
OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash charges, net
99
Equity in income of affiliate before income taxes
(6,540
(4,161
Stock-based compensation
3,560
6,587
(26,376
(2,584
Gain on sale of assets
Other-net
(769
Deferred income tax expense
27,354
7,317
Change in assets and liabilities-
Accounts receivable
(21,115
(30,796
140
(2,684
(18,566
(8,849
34,920
4,749
8,792
5,984
2,416
3,205
Other noncurrent liabilities
(1,577
2,642
Net cash provided by operating activities
245,865
137,800
INVESTING ACTIVITIES:
Capital expenditures
(433,900
(170,900
Purchase of investments
(83,010
Insurance proceeds from involuntary conversion
5,170
Proceeds from sale of investments
84,812
5,060
Proceeds from asset sales
37,947
7,923
214
Net cash used in investing activities
(305,757
(240,927
FINANCING ACTIVITIES:
Repurchase of common stock
(17,621
Decrease in notes payable
(3,721
Increase in long-term debt
155,000
Decrease in bank overdraft
(10,195
Dividends paid
(9,311
(8,624
Proceeds from exercise of stock options
872
11,860
Excess tax benefit from stock-based compensation
155
6,294
Net cash provided by financing activities
115,179
9,530
Net increase (decrease) in cash and cash equivalents
55,287
(93,597
Cash and cash equivalents, beginning of period
288,752
Cash and cash equivalents, end of period
195,155
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS’ EQUITY
(in thousands, except per share amounts)
Accumulated
Additional
Total
Common Stock
Paid-In
Retained
Comprehensive
Treasury Stock
Shareholders’
Shares
Amount
Capital
Earnings
Income
Equity
Balance, September 30, 2006
107,058
3,189
Comprehensive Income:
Net Income
Other comprehensive income, Unrealized losses on available-for-sale securities, net of realized gains included in net income of $16,438 (net of $10,075 income tax)
(9,897
Total Comprehensive income
207,750
Cash dividends ($0.09 per share)
(9,285
Exercise of stock options
(327
(74
1,199
Tax benefit of stock-based awards, including excess tax benefits of $155
201
682
(15,859
Balance, March 31, 2007
3,797
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States and applicable rules and regulations of the Securities and Exchange Commission (the “Commission”) pertaining to interim financial information. Accordingly, these interim financial statements do not include all information or footnote disclosures required by accounting principles generally accepted in the United States for complete financial statements and, therefore should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s 2006 Annual Report on Form 10-K and other current filings with the Commission. In the opinion of management, all adjustments, consisting of those of a normal recurring nature, necessary to present fairly the results of the periods presented have been included. The results of operations for the interim periods presented may not necessarily be indicative of the results to be expected for the full year.
All prior period common stock and applicable share and per share amounts have been retroactively adjusted to reflect a 2-for-1 split of the Company’s common stock effective June 26, 2006.
2. Earnings per Share
Basic earnings per share is based on the weighted-average number of common shares outstanding during the period. Diluted earnings per share includes the dilutive effect of stock options and restricted stock.
A reconciliation of the weighted-average common shares outstanding on a basic and diluted basis is as follows (in thousands):
Basic weighted average shares
Effect of dilutive shares:
Stock options and restricted stock
1,593
1,487
1,565
1,468
Diluted weighted average shares
For the three months ended March 31, 2007, options to purchase 605,511 shares of common stock were outstanding but were not included in the computation of diluted earnings per share. Inclusion of these shares would be antidilutive.
For the six months ended March 31, 2007, options to purchase 1,332,036 shares of common stock were outstanding but were not included in the computation of diluted earnings per share. Inclusion of these shares would be antidilutive.
For the three and six months ended March 31, 2006, all options outstanding were included in the computation of diluted earnings per share.
3. Inventories
Inventories consist primarily of replacement parts and supplies held for use in the Company’s drilling operations.
7
HELMERICH & PAYNE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS(Unaudited)
4. Investments
The following is a summary of available-for-sale securities, which excludes those accounted for under the equity method of accounting, an investment in a limited partnership carried at cost and assets held in a Non-qualified Supplemental Savings Plan. The investment in the limited partnership carried at cost was $12.4 million at March 31, 2007 and September 30, 2006. The estimated fair value of the investments carried at cost was $17.0 million and $14.5 million at March 31, 2007 and September 30, 2006, respectively. The assets held in the Non-qualified Supplemental Savings Plan are valued at fair market which totaled $7.0 million at March 31, 2007 and $5.9 million at September 30, 2006. The recorded amounts for investments accounted for under the equity method are $64.8 million and $58.3 million at March 31, 2007 and September 30, 2006, respectively.
Gross
Est.
Unrealized
Fair
Cost
Gains
Losses
Value
(in thousands)
Equity Securities 03/31/07
15,399
106,410
121,809
Equity Securities 09/30/06
19,413
122,490
(115
141,788
5. Sale of Investment Securities
Net income includes after-tax gains from the sale of available-for-sale securities as follows (in thousands, except per share amounts):
After-tax gain (loss)
109
16,293
1,721
Earnings per diluted share
0.15
0.02
6. Comprehensive Income
Comprehensive income, net of related tax, is as follows (in thousands):
Other comprehensive income:
Net unrealized gain (loss) on securities
6,340
23,012
31,256
Total comprehensive income
113,201
87,585
146,643
The components of accumulated other comprehensive income, net of related taxes, are as follows (in thousands):
Unrealized gain on securities, net
65,974
75,871
Minimum pension liability
(6,226
8
7. Financial Instruments
At September 30, 2006, the Company’s short-term investments consisted primarily of auction rate securities classified as available-for-sale. During the six months ended March 31, 2007, the Company sold $48.3 million in auction rate securities with no realized gains or losses. There were no sales of auction rate securities in the second quarter of fiscal 2007. The proceeds of those sales are included in the sale of investments under investing activities on the Consolidated Condensed Statements of Cash Flows.
8. Derivative Financial Instruments
During the three months ended March 31, 2007, the Company entered into two written option transactions which expire May 19, 2007. The Company’s objective with a written option is to optimize earnings from the Company’s portfolio of available-for-sale securities. An amount equal to the premium received by the Company for the option is recorded as a liability and is subsequently marked-to-market at the end of each accounting period with the results included in net income. Premiums received from writing options that expire unexercised are treated by the Company on the expiration date as realized gains from investments. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether the Company has realized a gain or loss. As the writer of an option, the Company bears the market risk of an unfavorable change in the price of the security underlying the written option.
The Company received a premium of approximately $0.2 million. At March 31, 2007, the fair value of the options was approximately ($0.3) million and accordingly, the Company recorded an expense of $0.084 million. The adjustment to fair value is included as an other non-operating expense on the Consolidated Condensed Statements of Income and a non-operating, non-cash item in the Consolidated Condensed Statements of Cash Flows.
9. Cash Dividends
The $0.045 cash dividend declared December 5, 2006, was paid March 1, 2007. On March 7, 2007, a cash dividend of $0.045 per share was declared for shareholders of record on May 15, 2007, payable June 1, 2007.
10. Stock-Based Compensation
The Company has two plans providing for common-stock based awards to employees and to non-employee Directors. The plans permit the granting of various types of awards including stock options and restricted stock awards. Restricted stock may be granted for no consideration other than prior and future services. The purchase price per share for stock options may not be less than market price of the underlying stock on the date of grant. Stock options expire ten years after grant. Vesting requirements are determined by the Human Resources Committee of the Company’s Board of Directors. Readers should refer to Note 6 of the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2006 for additional information related to these stock-based compensation plans.
In October 2005, the Company adopted SFAS 123(R) “Share-Based Payment” using a modified prospective application. The Company uses the Black-Scholes formula to estimate the value of stock options granted. The fair value of the options is amortized to compensation expense on a straight-line basis over the requisite service periods of the stock awards, which are generally the vesting periods. The Company has the right to satisfy option exercises from treasury shares and from authorized but unissued shares.
9
During the six months ended March 31, 2007, the Company repurchased 681,900 shares of its common stock at an aggregate cost of $15.9 million. The Company may repurchase additional shares of its common stock during fiscal 2007 if the share price is favorable.
A summary of compensation cost for stock-based payment arrangements recognized in general and administrative expense and cash received from the exercise of stock options is as follows (in thousands, except per share amounts):
Compensation expense
Stock options
1,382
3,556
2,890
6,180
Restricted stock
343
311
670
407
1,725
$ 3,867
After-tax stock based compensation
1,069
$ 2,398
2,207
4,084
Per basic share
.01
$ .02
.02
$ .04
Per diluted share
Cash received from exercise of stock options
401
$ 8,142
$ 11,860
In December 2005, the Company accelerated the vesting of share options held by a senior executive who retired. As a result of that modification, the Company recognized additional compensation expense of $2.2 million and $3.1 million respectively, for the three and six months ended March 31, 2006.
STOCK OPTIONS
The following summarizes the weighted-average assumptions utilized in the model for the three and six months ended March 31, 2007 and 2006:
Risk-free interest rate
4.6
%
4.5
Expected stock volatility
35.9
36.9
Dividend yield
.7
.5
Expected term (in years)
5.5
5.2
Risk-Free Interest Rate. The risk-free interest rate is based on U.S. Treasury securities for the expected term of the option.
Expected Volatility Rate. Expected volatilities are based on the daily closing price of the Company’s stock based upon historical experience over a period which approximates the expected term of the option.
Dividend Yield. The expected dividend yield is based on the Company’s current dividend yield.
Expected Term. The expected term of the options granted represents the period of time that they are expected to be outstanding. The Company estimates the expected term of options granted based on historical experience with grants and exercises.
10
A summary of stock option activity under the Plan for the three months ended March 31, 2007 and 2006 is presented in the following tables:
Weighted-
Average
Aggregate
Remaining
Intrinsic
March 31, 2007
Exercise
Contractual
Options
Price
Term
Outstanding at January 1, 2007
6,307
15.72
Granted
27.45
Exercised
(33
12.02
Forfeited/Expired
(5
28.90
Outstanding at March 31, 2007
6,271
15.74
5.98
91,551
Vested and expected to vest at March 31, 2007
6,208
15.63
5.95
91,322
Exercisable at March 31, 2007
4,560
12.73
4.98
80,304
March 31, 2006
Outstanding at January 1, 2006
6,807
13.95
(668
12.18
(2
13.87
Outstanding at March 31, 2006
6,137
$ 14.14
6.18
63,736
Vested and expected to vest at March 31, 2006
6,108
$ 14.06
6.16
63,667
Exercisable at March 31, 2006
4,348
$ 11.85
5.21
50,139
A summary of stock option activity under the Plan for the six months ended March 31, 2007 and 2006 is presented in the following table:
Six Months Ended March 31,
Shares(inthousands)
Weighted-AverageExercisePrice
Outstanding at October 1,
5,619
14.24
6,488
12.28
731
26.90
640
29.68
10.62
(987
(4
13.19
Outstanding on March 31,
14.14
11
The weighted-average fair value of options granted in the first quarter of fiscal 2007 was $10.36 and the weighted-average fair value of options granted in the second quarter of fiscal 2007 was $9.11. The weighted-average fair value of options granted in the first quarter of fiscal 2006 was $11.62. No options were granted in the second quarter of fiscal 2006.
The total intrinsic value of options exercised during the three and six months ended March 31, 2007 was $0.5 million and $1.0 million, respectively. The total intrinsic value of options exercised during the three and six months ended March 31, 2006 was $16.7 million and $22.4 million, respectively.
As of March 31, 2007, the unrecognized compensation cost related to the stock options was $13.4 million. That costs is expected to be recognized over a weighted-average period of 2.9 years.
RESTRICTED STOCK
Restricted stock awards consist of the Company’s common stock and are time vested over 3-5 years. The Company recognizes compensation expense on a straight-line basis over the vesting period. The fair value of restricted stock awards is determined based on the closing trading price of the Company’s shares on the grant date. The weighted-average grant-date fair value of shares granted for the six months ended March 31, 2007 and 2006 was $26.90 and $30.24, respectively. No shares were granted in the second quarter of fiscal 2007 and 2006.
A summary of the status of the Company’s restricted stock awards as of March 31, 2007 and 2006, and changes during the six months then ended are presented below:
Six months ended March 31,
Grant-Date
Restricted Stock Awards
Fair Value
Unvested at October 1,
213
29.57
16.01
203
30.24
Vested
Forfeited
Unvested at March 31,
240
29.27
All grants of restricted stock awards shown in the table above were in the first quarter of that fiscal year.
As of March 31, 2007, there was $5.3 million of total unrecognized compensation cost related to unvested restricted stock options granted under the Plan. That cost is expected to be recognized over a weighted-average period of 3.8 years.
12
11. Notes Payable and Long-term Debt
At March 31, 2007, the Company had the following unsecured long-term debt outstanding:
Maturity Date
Interest Rate
Fixed rate debt:
August 15, 2007
5.51%
25,000,000
August 15, 2009
5.91%
August 15, 2012
6.46%
75,000,000
August 15, 2014
6.56%
Senior credit facility:
December 18, 2011
5.67%
155,000,000
355,000,000
less long-term debt due within one year
(25,000,000
Long-term debt
330,000,000
The terms of the fixed rate debt obligations require the Company to maintain a minimum ratio of debt to total capitalization.
On December 18, 2006, the Company entered into an agreement with a multi-bank syndicate for a five-year, $400 million senior unsecured credit facility. The Company anticipates that the majority of all of the borrowings over the life of the facility will accrue interest at a spread over LIBOR. The Company will also pay a commitment fee based on the unused balance of the facility. The spread over LIBOR as well as the commitment fee will be determined according to a scale based on a ratio of the Company’s total debt to total capitalization. The LIBOR spread will range from .30 percent to .45 percent depending on the ratios. At March 31, 2007, the LIBOR spread on borrowings was .35 percent and the commitment fee was .075 percent per annum.
Financial covenants in the facility require the Company to maintain a funded leverage ratio (as defined) of less than 50 percent and an interest coverage ratio (as defined) of not less than 3.00 to 1.00. The new facility contains additional terms, conditions, and restrictions that the Company believes are usual and customary in unsecured debt arrangements for companies that are similar in size and credit quality. At closing, the Company transferred two letters of credit totaling $20.9 million to the facility that remained outstanding at March 31, 2007. As of March 31, 2007, the Company had $155 million borrowed against the facility. The advance bears interest at 5.67 percent. Subsequent to March 31, 2007, the outstanding borrowings were reduced by $10 million.
In conjunction with the $400 million senior unsecured credit facility, the Company entered into an agreement with a single bank to amend and restate the previous unsecured line of credit from $50 million to $5 million. Pricing on the amended line of credit is prime minus 1.75 percent. The covenants and other terms and conditions are similar to the aforementioned senior credit facility except that there is no commitment fee. At March 31, 2007, the Company had no outstanding borrowings against this line.
13
12. Income Taxes
The Company’s effective tax rate was 36.6 percent in the first six months of fiscal 2007, compared to 38.6 percent in the first six months of fiscal 2006. The effective tax rate for the three months ended March 31, 2007 and 2006 was 36.3 percent and 37.9 percent, respectively. The effective rate differs from the U.S. federal statutory rate of 35.0 percent primarily due to state and foreign taxes.
13. Contingent Liabilities and Commitments
In conjunction with the Company’s current drilling rig construction program, purchase commitments for equipment, parts and supplies of approximately $205.2 million are outstanding at March 31, 2007.
Various legal actions, the majority of which arise in the ordinary course of business, are pending. The Company maintains insurance against certain business risks subject to certain deductibles. None of these legal actions are expected to have a material adverse effect on the Company’s financial condition, cash flows or results of operations.
14. Segment Information
The Company operates principally in the contract drilling industry. The Company’s contract drilling business includes the following operating segments: U.S. Land, U.S. Offshore, and International. The contract drilling operations consist mainly of contracting Company-owned drilling equipment primarily to major oil and gas exploration companies. The Company’s primary international areas of operation include Venezuela, Colombia, Ecuador, other South American countries and Africa. The International operations have similar services, have similar types of customers, operate in a consistent manner and have similar economic and regulatory characteristics. Therefore, the Company has aggregated its International operations into one reportable segment. The Company also has a Real Estate segment whose operations are conducted exclusively in the metropolitan area of Tulsa, Oklahoma. The key areas of operation include a shopping center and several multi-tenant warehouses. Each reportable segment is a strategic business unit which is managed separately. Other includes investments and corporate operations.
The Company evaluates segment performance based on income or loss from operations (segment operating income) before income taxes which includes:
· revenues from external and internal customers
· direct operating costs
· depreciation and
· allocated general and administrative costs
but excludes corporate costs for other depreciation, income from asset sales and other corporate income and expense.
General and administrative costs are allocated to the segments based primarily on specific identification and, to the extent that such identification is not practical, on other methods which the Company believes to be a reasonable reflection of the utilization of services provided.
14
Segment operating income for all segments is a non-GAAP financial measure of the Company’s performance, as it excludes general and administrative expenses, corporate depreciation, income from asset sales and other corporate income and expense.
The Company considers segment operating income to be an important supplemental measure of operating performance by presenting trends in the Company’s core businesses. This measure is used by the Company to facilitate period-to-period comparisons in operating performance of the Company’s reportable segments in the aggregate by eliminating items that affect comparability between periods. The Company believes that segment operating income is useful to investors because it provides a means to evaluate the operating performance of the segments and the Company on an ongoing basis using criteria that are used by our internal decision makers. Additionally, it highlights operating trends and aids analytical comparisons. However, segment operating income has limitations and should not be used as an alternative to operating income or loss, a performance measure determined in accordance with GAAP, as it excludes certain costs that may affect the Company’s operating performance in future periods.
Summarized financial information of the Company’s reportable segments for the six months ended March 31, 2007, and 2006, is shown in the following tables:
Segment
External
Inter-
Operating
Sales
Contract Drilling:
U.S. Land
228,190
U.S. Offshore
7,889
International
47,244
753,298
283,323
405
6,042
2,428
759,340
285,751
Eliminations
(405
153,868
12,480
22,414
541,019
188,762
394
5,593
2,179
546,612
190,941
(394
15
Summarized financial information of the Company’s reportable segments for the three months ended March 31, 2007, and 2006, is shown in the following tables:
109,782
2,198
21,481
369,798
133,461
207
2,945
961
372,743
134,422
(207
82,877
7,369
13,112
288,488
103,358
202
2,544
726
291,032
104,084
(202
16
The following table reconciles segment operating income per the table above to income before income taxes and equity in income of affiliate as reported on the Consolidated Condensed Statements of Income.
Segment operating income
32,336
3,563
32,822
4,536
Corporate general and administrative costs and corporate depreciation
(7,644
(7,396
(12,805
(14,322
Total other income (expense)
Total Assets
1,734,293
1,356,817
108,658
110,192
292,243
311,605
2,135,194
1,778,614
30,435
30,626
318,908
325,472
17
The following table presents revenues from external customers by country based on the location of service provided.
Operating revenues
United States
295,945
229,713
599,730
434,844
Venezuela
22,832
19,067
46,732
36,423
Ecuador
25,597
21,949
52,545
41,060
Other Foreign
28,162
20,101
59,928
33,891
15. Pensions and Other Post-retirement Benefits
The following provides information at March 31, 2007 and 2006 as to the Company-sponsored domestic defined benefit pension plan.
Components of Net Periodic Benefit Cost
Service Cost
1,021
2,042
Interest Cost
1,216
1,210
2,432
2,420
Expected return on plan assets
(1,281
(1,234
(2,562
(2,468
Recognized net actuarial loss
35
219
70
438
Net pension expense
(30
(60
Plan Assets
The weighted-average asset allocations for the pension plan by asset category follow:
At March 31,
Asset Category
Equity Securities
77.2
84.6
Debt Securities
20.5
13.9
Real Estate and Other
2.3
1.5
100.0
Employer Contributions
The Company does not anticipate that it will be required to fund the Pension Plan in fiscal 2007. However, the Company expects to make discretionary contributions to fund distributions in lieu of liquidating pension assets. The Company estimates contributing $3.0 million in fiscal 2007. Through March 31, 2007, the Company had contributed $1.0 million to the Pension Plan.
Foreign Plan
The Company maintains an unfunded pension plan in one of the international subsidiaries. Pension expense was approximately $67,000 and $93,000 for the three months ended March 31, 2007 and 2006, respectively. Pension expense was approximately $157,000 and $185,000 for the six months ended March 31, 2007 and 2006, respectively.
18
16. Risk Factors
The Company derives its revenue in Venezuela from Petróleos de Venezuela, S.A. (PDVSA), the Venezuelan state-owned petroleum company. The net receivable from PDVSA, as disclosed in the Company’s 2006 Annual Report on Form 10-K, was approximately $66 million at December 1, 2006. At March 31, 2007, the net receivable was $30 million, a reduction due to collections from PDVSA. As of May 1, 2007, the net receivable from PDVSA was approximately $39 million. With the collection of the amounts due, all prior short-term borrowings from two local banks in Venezuela have been paid.
17. Gain Contingencies
In August 2005, the Company’s Rig 201, which operates on an operator’s tension-leg platform in the Gulf of Mexico, lost its entire derrick and suffered significant damage as a result of Hurricane Katrina. The rig was insured at a value that approximated replacement cost. Capital costs incurred in conjunction with any repairs will be capitalized and depreciated in accordance with the Company’s accounting policies. Insurance proceeds of approximately $3.0 million were received in fiscal 2006. These proceeds approximated the net book value of equipment. During the six months ended March 31, 2007, additional insurance proceeds of approximately $5.2 million were received and recorded as gain from involuntary conversion of long-lived assets in the Consolidated Statements of Income. Additional claims will be submitted and as received, will also be recorded as income. Insurance proceeds are included in the Consolidated Statements of Cash Flows under investing activities. At this time, it is expected the entire amount of insurance proceeds may not be received until fiscal 2008. The Company anticipates the rig returning to service during fiscal 2007.
18. Recently Issued Accounting Standards
In February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company is currently evaluating the potential impact, if any, the adoption of SFAS No. 159 will have on its financial statements.
In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Benefit Plans (SFAS 158). SFAS 158 requires companies to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position. This statement is effective for financial statements as of the end of fiscal years ending after December 15, 2006. The Company’s pension plan was frozen on September 30, 2006, and as a result, the Company has effectively reflected the funded status of the plan in the Consolidated Balance Sheets; therefore, SFAS 158 will have no impact on consolidated financial statements.
In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is currently evaluating SFAS No. 157 to determine the impact, if any, on its financial statements.
19
In June, 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. This interpretation is effective for fiscal years beginning after December 15, 2006. The Company is currently assessing the impact of this interpretation on the financial statements.
19. Subsequent Events
Subsequent to March 31, 2006, the Company sold 50,000 shares of an available-for sale security resulting in a gain of approximately $3.4 million, $2.1 million after-tax. Proceeds from the sale were $3.8 million.
20
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RISK FACTORS AND FORWARD-LOOKING STATEMENTS
The following discussion should be read in conjunction with the consolidated condensed financial statements and related notes included elsewhere herein and the consolidated financial statements and notes thereto included in the Company’s 2006 Annual Report on Form 10-K. The Company’s future operating results may be affected by various trends and factors, which are beyond the Company’s control. These include, among other factors, fluctuations in natural gas and crude oil prices, expiration or termination of drilling contracts, forfeiture of early termination payments under fixed term contracts due to sustained unacceptable performance, unsuccessful collection of receivables, including Venezuelan receivables, inability to procure key rig components, failure to timely deliver rigs within applicable grace periods, disruption to or cessation of business of the Company’s limited source vendors or fabricators, currency exchange losses, changes in general economic and political conditions, adverse weather conditions including hurricanes, 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. The Company’s risk factors are more fully described in the Company’s 2006 Annual Report on Form 10-K. No material changes in the risk factors have occurred.
With the exception of historical information, the matters discussed in Management’s Discussion & Analysis of Financial Condition and Results of Operations include 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, assumptions about future events and conditions almost always vary from actual results. The differences between good faith assumptions and actual results can be material. The Company is including this cautionary statement to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by, or on behalf of, the Company. The factors identified in this cautionary statement are important factors (but not necessarily all important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2007 vs. Three Months Ended March 31, 2006
The Company reported net income of $106.9 million ($1.02 per diluted share) from operating revenues of $372.5 million for the second quarter ended March 31, 2007, compared with net income of $64.6 million ($0.61 per diluted share) from operating revenues of $290.8 million for the second quarter of fiscal year 2006. Net income for the second quarter of fiscal 2007 includes approximately $20.5 million ($0.20 per diluted share) of after-tax gains from the sale of assets. Net income for the second quarter of fiscal 2006 includes approximately $1.1 million ($0.02 per diluted share) of after-tax gains from the sale of assets. Also included in net income for the second quarter of fiscal 2007 is approximately $3.3 million ($0.03 per diluted share) of after-tax gains from involuntary conversion of long-lived assets.
The following tables summarize operations by business segment for the three months ended March 31, 2007 and 2006. Operating statistics in the tables exclude the effects of offshore platform and international management contracts, and do not include reimbursements of “out-of-pocket” expenses in revenue, expense and margin per day calculations. Per day calculations for international operations also exclude gains and losses from translation of foreign currency transactions. Segment operating income is described in detail in Note 14 to the financial statements.
21
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Three Months Ended March 31,
U.S. LAND OPERATIONS
(in thousands, except days and per day amounts)
Revenues
Direct operating expenses
132,399
92,051
General and administrative expense
3,151
3,908
23,813
14,832
Activity days
11,156
8,086
Average rig revenue per day
23,032
22,593
Average rig expense per day
10,774
10,026
Average rig margin per day
12,258
12,567
Rig utilization
97
98
U.S. LAND segment operating income increased to $109.8 million for the second quarter of fiscal 2007 compared to $82.9 million in the same period of fiscal 2006. Revenues were $269.1 million and $193.7 million in the second quarter of fiscal 2007 and 2006, respectively. Included in land revenues for the three months ended March 31, 2007 and 2006 are reimbursements for “out-of-pocket” expenses of $12.2 million and $11.0 million, respectively. The $26.9 million increase in segment operating income was primarily the result of increased activity days.
Average land rig revenue per day was $23,032 and $22,593 for the second quarter of fiscal 2007 and 2006, respectively. The increase in average rig revenue per day was primarily due to higher dayrates. Land rig utilization was 97 percent and 98 percent for the second quarter of fiscal 2007 and 2006, respectively. Land rig activity days for the second quarter of fiscal 2007 were 11,156 compared with 8,086 for the same period of fiscal 2006, with an average of 124.0 and 89.8 rigs working during the second quarter of fiscal 2007 and 2006, respectively.
Average rig expense per day increased $748 to $10,774 per day at March 31, 2007 from $10,026 per day at March 31, 2006. Intense demand for a quality labor force has elevated payroll and related costs.
U.S. OFFSHORE OPERATIONS
17,745
21,820
1,435
1,828
2,684
2,686
522
699
29,603
39,707
19,885
23,642
9,718
16,065
64
71
U.S. OFFSHORE revenues include reimbursements for “out-of-pocket” expenses of $3.6 million and $3.5 million for the three months ended March 31, 2007 and 2006, respectively.
22
Revenues, direct operating expenses, and segment operating income declined in the second quarter of fiscal 2007 compared to the second quarter of fiscal 2006 primarily as a result of decreased activity days.
The Company sold two of its offshore rigs in the second quarter of fiscal 2007. At March 31, 2007, the Company has five of its nine platform rigs working, three rigs waiting on location and one rig stacked.
INTERNATIONAL OPERATIONS
48,668
42,398
1,096
5,346
4,735
2,262
2,160
27,001
22,979
15,722
15,003
11,279
7,976
93
89
INTERNATIONAL DRILLING segment operating income for the second quarter of fiscal 2007 was $21.5 million, compared to $13.1 million in the same period of fiscal 2006. Rig utilization for international operations was 93 percent for this year’s second quarter, compared with 89 percent for the second quarter of fiscal 2006. During the quarter, an average of 25.1 rigs worked compared to an average of 24.0 rigs in the second quarter of fiscal 2006. International revenues were $76.6 million in the second quarter of fiscal 2007, compared with $61.1 million in the second quarter of fiscal 2006. The increase in revenue is attributable to increased activity days and increased dayrates. Included in International revenues for the three months ended March 31, 2007 and 2006 are reimbursements for “out-of-pocket” expenses of $11.1 million and $6.8 million, respectively.
General and administrative expenses decreased to $13.4 million in the second quarter of fiscal 2007 from $14.0 million in the second quarter of fiscal 2006. The $0.6 million decrease is primarily due to recording an additional $2.2 million of stock-based compensation expense in the second quarter of fiscal 2006, due to the Company accelerating the vesting of shares held by a senior executive that retired. This decrease is offset by increased employee benefits for all employees and higher corporate labor and operating expenses in the second quarter of fiscal 2007 due to the number of employees increasing.
Interest and dividend income decreased to $1.0 million in the second quarter of fiscal 2007 compared to $2.5 million in the second quarter of fiscal 2006. The $1.5 million decrease is attributable to a reduction in short-term investments that were used at maturity to meet the capital needs associated with the FlexRig construction.
Interest expense was $1.9 million in the second quarter of both fiscal 2007 and 2006. With the advances on credit facility, interest expense before capitalized interest increased $1.3 million during the second quarter of fiscal 2007 compared to the second quarter of fiscal 2006. Capitalized interest was $2.6 million and $1.3 million for the three months ended March 31, 2007 and 2006, respectively.
23
Income from asset sales was $32.3 million in the second quarter of fiscal 2007, compared to $3.6 million in the same period of fiscal 2006. The increase of $28.7 million in the second quarter of fiscal 2007 is primarily due to the sale of two U.S. offshore rigs.
In the second quarter of fiscal 2007, the Company recorded income of $5.2 million from involuntary conversion of long-lived assets that sustained significant damage as a result of hurricane Katrina in 2005.
Six Months Ended March 31, 2007 vs. Six Months Ended March 31, 2006
The Company reported net income of $217.6 million ($2.08 per diluted share) from operating revenues of $758.9 million for the six months ended March 31, 2007, compared with net income of $115.4 million ($1.09 per diluted share) from operating revenues of $546.2 million for the first six months of fiscal year 2006. Net income for the first six months of fiscal 2007 includes $16.3 million ($0.15 per diluted share) of after-tax gains from the sale of available-for-sale securities. Most of the sale of securities in fiscal 2007 occurred in the first quarter. The proceeds from the sale were used to repurchase 681,900 shares of Company common stock for approximately $15.9 million in October 2006 and funding capital expenditures. Gains in the second quarter of fiscal 2007 were due to a tender offer whereby, the available-for-sale security became privately owned. Net income for the first six months of fiscal 2006 includes $1.7 million ($0.02 per diluted share) of after-tax gains from the sale of available-for-sale securities. The proceeds from the sale of securities in the six months ending March 31, 2006 were used to fund capital expenditures. Also included in net income is after-tax gains from the sale of assets of approximately $20.8 million ($0.21 per diluted share) for the six months ended March 31, 2007, compared to approximately $2.9 million of after-tax gains ($0.03 per diluted share) for the six months ended March 31, 2006. Also included in net income for fiscal 2007 is approximately $3.3 million ($0.03 per diluted share) of after-tax gains from involuntary conversion of long-lived assets.
The following tables summarize operations by business segment for the six months ended March 31, 2007 and 2006. Operating statistics in the tables exclude the effects of offshore platform and international management contracts, and do not include reimbursements of “out-of-pocket” expenses in revenue, expense and margin per day calculations. Per day calculations for international operations also exclude gains and losses from translation of foreign currency transactions. Segment operating income is described in detail in Note 14 to the financial statements.
259,756
176,266
6,603
6,990
44,496
29,298
21,704
16,121
23,615
21,399
10,747
9,603
12,868
11,796
U.S. LAND segment operating income in the first six months of fiscal 2007 increased to $228.2 million from $153.9 million in the first six months of fiscal 2006.
24
Revenues were $539.0 million in the first six months of fiscal 2007, compared with $366.4 million in the same period of fiscal 2006. Included in land revenues for the six months ended March 31, 2007 and March 31, 2006 are reimbursements for “out-of-pocket” expenses of $26.5 million and $21.4 million, respectively. The $74.3 million increase in segment operating income was primarily the result of higher land rig margins and increased activity days.
The 9 percent increase in average rig margins was due primarily to higher dayrates in fiscal 2007. Land rig revenue days for the first six months of 2007 were 21,704 compared with 16,121 for the same period of 2006, with an average of 119.3 and 88.6 rigs working during the first six months of fiscal 2007 and 2006, respectively. The increase in rig days and average rigs working is attributable to new build rigs entering the fleet in fiscal 2007.
38,849
42,128
2,856
3,265
5,454
5,350
1,110
1,343
34,488
38,092
22,012
23,328
12,476
14,764
68
67
U.S. OFFSHORE operating revenues, direct operating expenses and segment operating income decreased due to lower activity. Included in offshore revenues for the six months ended March 31, 2007 and March 31, 2006 are reimbursements for “out-of-pocket” expenses of $6.9 million and $7.2 million, respectively. Segment operating income decreased to $7.9 million in the first six months of fiscal 2007 from $12.5 million in the first six months of fiscal 2006. Rig days were 1,110 and 1,343 for the first six months of fiscal 2007 and 2006, respectively. The decrease in days is due to two rigs working less in fiscal 2007 than fiscal 2006.
At March 31, 2007, the Company has five of its nine platform rigs working, three waiting on location and one rig stacked.
99,362
78,091
1,696
1,478
10,903
9,391
4,628
4,188
21,674
15,291
14,281
12,063
7,393
95
86
25
INTERNATIONAL DRILLING segment operating income in the first six months of fiscal 2007 was $47.2 million, compared to $22.4 million in the same period of 2006. The increase in segment operating income is primarily the result of increased rig activity and higher dayrates. Segment operating income also benefited from a new FlexRig being added to the international fleet at the end of fiscal 2006, increasing the number of international rigs to twenty-seven. Rig utilization for international operations averaged 95 percent for the first six months of fiscal 2007, compared with 86 percent for the first six months of fiscal 2006. An average of 25.6 rigs worked during the first six months of fiscal 2007, compared to 23.1 rigs in the first six months of fiscal 2006. International revenues were $159.2 million and $111.4 million in the first six months of fiscal 2007 and 2006, respectively. The overall increase in margins per day was primarily the result of dayrate increases in several foreign markets. Included in International revenues for the six months ended March 31, 2007 and 2006 are reimbursements for “out-of-pocket” expenses of $23.6 million and $11.9 million, respectively.
Direct operating expenses for the first six months of fiscal 2007 were up 27 percent from the first six months of fiscal 2006 due to increased activity days and inflationary pressures in the oil service sector.
OTHER
General and administrative expenses decreased to $24.0 million in the first six months of fiscal 2007 from $25.9 million in the first six months of fiscal 2006. The $1.9 million decrease is primarily due to recording, in fiscal 2006, $2.2 million of stock-based compensation expense due to the Company accelerating the vesting of share options held by a senior executive that retired.
Interest and dividend income decreased to $2.3 million in the first six months of fiscal 2007, compared to $5.0 million in the same period of fiscal 2006. The $2.7 million decrease is attributable to a reduction in short-term investments that were used at maturity to meet the capital needs associated with the FlexRig construction.
Interest expense was $2.8 million and $4.5 million for the six months ended March 31, 2007 and 2006, respectively. Interest expense is primarily attributable to the $200 million long-term debt in both periods and advances on the Senior Credit Facility in fiscal 2007. The reduction in interest expense is due to capitalized interest of $7.9 million related to the Company’s rig construction program in fiscal 2007 compared to $6.4 million in fiscal 2006 and an increase in interest expense for advances on the Senior Credit Facility in fiscal 2007.
Income from the sale of investment securities was $26.5 million, $16.3 million after-tax ($0.15 per diluted share) in the first six months of fiscal 2007. In the first six months of fiscal 2006, income from the sale of investment securities was $2.7 million, $1.7 million after-tax ($0.02 per diluted share). The gain in both periods was from the sale of available-for-sale investments.
Income from asset sales increased to $32.8 million in the first six months of fiscal 2007, compared to $4.5 million in the same period of fiscal 2006. The increase of $28.3 million is primarily due to the sale of two domestic offshore rigs in 2007 compared to the sale of one domestic land rig in 2006.
In fiscal 2007, the Company recorded income of $5.2 million from involuntary conversion of long-lived assets that sustained significant damage as a result of hurricane Katrina in 2005.
26
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalent balances increased to $89.1 million at March 31, 2007 from $33.9 million at September 30, 2006. Contributing to the increase in cash and cash equivalents were: net cash provided by operating activities of $245.9 million, proceeds from the sale of investment securities of $84.8 million, proceeds from the sale of assets and insurance proceeds totaling $43.1 million, increase in long-term debt of $155.0 million, other investing of $0.2 million and cash received from the exercise of stock options and the excess tax benefit from stock-based compensation of $1.0 million. The decreases include capital expenditures of $433.9 million, repurchase of common stock of $17.6 million, a reduction in bank overdraft of $10.2 million, payments made on short-term notes payable of $3.7 million and dividends paid of $9.3 million.
The Company’s contract drilling backlog, consisting of both executed contracts with original terms in excess of one year and binding letters of intent for contracts of similar duration, as of April 1, 2007 and October 31, 2006 was $2.034 billion and $2.116 billion, respectively. Approximately 84 percent of the April 1, 2007 backlog is not reasonably expected to be filled in fiscal 2007. Term contracts customarily provide for termination at the election of the customer with an “early termination payment” to be paid to the Company if a contract is terminated prior to the expiration of the fixed term. However, under certain limited circumstances, such as destruction of a drilling rig, bankruptcy, sustained unacceptable performance by the Company, or later delivery of a rig beyond certain grace and/or liquidated damage periods, no early termination payment would be paid to the Company. In addition, a significant amount of the backlog represents term contracts for new rigs that will be constructed in the future. The Company obtains certain key rig components from a single or limited number of vendors or fabricators. Certain of these vendors of fabricators are thinly capitalized independent companies located on the Texas Gulf Coast. Therefore, disruptions in rig component deliveries may occur. Accordingly, the actual amount of revenue earned may vary from the backlog reported. See “Fixed Term Contract Risk”, “Limited Number of Vendors”, “Thinly Capitalized Vendors” and “Operating and Weather Risks” under Item “1A. Risk Factors” of the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 13, 2006.
The following table sets forth the total backlog by reportable segment as of April 1, 2007 and October 31, 2006, and the percentage of the April 1, 2007 backlog not reasonably expected to be filled in fiscal 2007:
Reportable
Total Backlog
Percentage Not Reasonably
04/01/2007
10/31/2006
Expected to be Filled in Fiscal 2007
(in billions)
Land
1.886
1.949
84.0
Offshore
.078
96.7
.070
.089
57.9
2.034
2.116
During the six months ended March 31, 2007, the Company committed to build nine new FlexRigs. These nine, along with the 66 rigs announced in fiscal 2005 and 2006, brings the Company’s total commitment to 75 new FlexRigs. The drilling services are performed on a daywork contract basis. Through March 31, 2007, 51 rigs were completed for delivery, and 47 of the 51 rigs began field operations by March 31, 2007. The remaining rigs are expected to be completed by the end of calendar 2007.
During fiscal 2006, labor and equipment shortages resulted in construction delays and increased costs compared to initial schedules and original cost estimates. Delivery schedules of the new rigs were pushed back to such a degree that late-delivery contractual liquidated damage payments were incurred and are expected to be incurred
for most of the remaining rigs. However, the incurred and projected liquidated damage payments had, and are expected to have, an immaterial impact on revenues and margins. During the six months ended March 31, 2007, 27 rigs were completed for delivery. At this time, the Company does not anticipate any additional delays and expects to maintain a delivery of three to four rigs per month to the field.
Capital expenditures were $433.9 million and $170.9 million for the first six months of fiscal 2007 and 2006, respectively. Capital expenditures increased from 2006 due to the Company’s current construction program of new FlexRigs.
The Company anticipates capital expenditures to total approximately $750 million for fiscal 2007. Included in the $750 million is approximately $600 million to construct the new FlexRigs scheduled to be built in fiscal 2007. Current cash and cash provided from operating activities, together with funds available under the credit facilities, are anticipated to be sufficient to meet the Company’s operating cash requirements and estimated capital expenditures, including rig construction, for fiscal 2007.
The Company’s indebtedness totaled $355 million at March 31, 2007, as described in Note 11 to the Consolidated Condensed Financial Statements.
There were no other significant changes in the Company’s financial position since September 30, 2007.
28
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a description of the Company’s market risks, see
· “Item 7 (a). Quantitative and Qualitative Disclosures About Market Risk” in the Company’s 2006 Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 13, 2006,
· Note 8 to the Consolidated Condensed Financial Statements contained in Item 1 of Part I hereof with regard to equity price risk is incorporated herein by reference.
· Note 11 to the Consolidated Condensed Financial Statements contained in Item 1 of Part I hereof with regard to interest rate risk is incorporated herein by reference.
· Note 16 to the Consolidated Condensed Financial Statements contained in Item 1 of Part I hereof with regard to credit risk is incorporated herein by reference.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, an evaluation was performed with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective, as of March 31, 2007, at ensuring that information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. There have been no changes in the Company’s internal controls over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of Helmerich & Payne, Inc. was held on March 7, 2007. Proxies for the meeting were solicited by and on behalf of the Board of Directors of Helmerich & Payne, Inc., and there was no solicitation in opposition to such solicitation. The matter presented for vote received the following for and withheld votes as noted below:
To elect three Directors comprising the class of Directors of the Company known as the “First Class” for a three-year term expiring in 2010. Each of the 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, respectively, were as follows: Hans Helmerich 90,381,155 for and 1,134,066 shares withheld; Paula Marshall 91,068,300 for and 446,921 shares withheld; and Randy A. Foutch, 91,067,238 for and 447,984 shares withheld. There were no broker non-votes or other abstentions. The other Directors whose term of office as Director continued after the meeting are W.H. Helmerich, III, Glenn A. Cox, Edward B. Rust, Jr., William L. Armstrong and John D. Zeglis.
ITEM 6. EXHIBITS
The following documents are included as exhibits to this Form 10-Q. Those exhibits below incorporated by reference herein are indicated as such by the information supplied in the parenthetical thereafter. If no parenthetical appears after an exhibit, such exhibit is filed or furnished herewith.
Exhibit
Number
Description
10.1
First Amendment to Advisory Services Agreement dated March 7, 2007 between Helmerich & Payne, Inc. and George S. Dotson (incorporated herein by reference to Form 8-K of the Company filed on March 8, 2007).
31.1
Certification of Chief Executive Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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.
(Registrant)
Date:
May 8, 2007
By:
/S/ HANS C HELMERICH
Hans C. Helmerich, President
/S/ DOUGLAS E. FEARS
Douglas E. Fears, Chief Financial Officer
(Principal Financial Officer)
EXHIBIT INDEX