<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>d94256e10-q.txt
<DESCRIPTION>FORM 10-Q FOR QUARTER ENDED DECEMBER 31, 2001
<TEXT>
<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended: DECEMBER 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 DECEMBER 31, 2001
Common Stock, $0.10 par value 49,860,447
TOTAL NUMBER OF PAGES - 16
<PAGE>
HELMERICH & PAYNE, INC.
INDEX
<Table>
<Caption>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
December 31, 2001 and September 30, 2001 .............................3
Consolidated Condensed Statements of Income for the
Three Months Ended December 31, 2001 and 2000 .......................4
Consolidated Condensed Statements of Cash Flows for the
Three Months Ended December 31, 2001 and 2000 .......................5
Consolidated Condensed Statement of Shareholders' Equity
for the Three Months Ended December 31, 2001 .........................6
Notes to Consolidated Condensed Financial Statements ..............7-12
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition ...............................13-16
Item 3. Quantitative and Qualitative Disclosures about Market
Risk ................................................................16
PART II. OTHER INFORMATION ...........................................................16
Item 1 Legal Proceedings ...................................................16
Item 6 Exhibits and Reports on Form 8-K ....................................16
Signatures ..................................................................16
</Table>
-2-
<PAGE>
PART I.FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
<Table>
<Caption>
Unaudited
December 31, September 30,
2001 2001
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 77,724 $ 122,962
Accounts receivable, net 134,580 147,235
Inventories 24,744 28,934
Prepaid expenses and other 30,553 32,281
------------- -------------
Total current assets 267,601 331,412
------------- -------------
Investments 230,057 200,286
Property, plant and equipment, net 860,684 818,404
Other assets 13,489 14,405
------------- -------------
Total assets $ 1,371,831 $ 1,364,507
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 28,816 $ 67,595
Accrued liabilities 51,021 53,626
------------- -------------
Total current liabilities 79,837 121,221
------------- -------------
Noncurrent liabilities:
Long-term notes payable 50,000 50,000
Deferred income taxes 162,337 144,439
Other 23,646 22,370
------------- -------------
Total noncurrent liabilities 235,983 216,809
------------- -------------
SHAREHOLDERS' EQUITY
Common stock, par value $.10 per
share 5,353 5,353
Preferred stock, no shares issued -- --
Additional paid-in capital 80,202 80,324
Retained earnings 954,962 943,105
Unearned compensation (1,446) (1,812)
Accumulated other comprehensive income 66,638 49,309
------------- -------------
1,105,709 1,076,279
Less treasury stock, at cost 49,698 49,802
------------- -------------
Total shareholders' equity 1,056,011 1,026,477
------------- -------------
Total liabilities and shareholders' equity $ 1,371,831 $ 1,364,507
============= =============
</Table>
The accompanying notes are an integral part of these statements.
-3-
<PAGE>
HELMERICH & PAYNE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share data)
<Table>
<Caption>
Three Months Ended
December 31,
2001 2000
------------ ------------
<S> <C> <C>
REVENUES:
Sales and other operating revenues $ 172,797 $ 189,748
Income from investments 1,350 2,802
------------ ------------
174,147 192,550
------------ ------------
COST AND EXPENSES:
Operating costs 102,331 94,046
Depreciation, depletion and
amortization 26,993 17,978
Dry holes and abandonments 5,812 12,044
Taxes, other than income taxes 8,959 8,868
General and administrative 4,568 3,567
Interest 374 607
------------ ------------
149,037 137,110
------------ ------------
INCOME BEFORE INCOME TAXES AND
EQUITY IN INCOME OF AFFILIATES 25,110 55,440
PROVISION FOR INCOME TAXES 10,598 22,035
EQUITY IN INCOME OF AFFILIATES,
net of income taxes 1,092 435
------------ ------------
NET INCOME $ 15,604 $ 33,840
============ ============
EARNINGS PER COMMON SHARE:
Basic $ 0.31 $ 0.68
Diluted $ 0.31 $ 0.67
CASH DIVIDENDS (Note 2) $ 0.075 $ 0.075
AVERAGE COMMON SHARES OUTSTANDING:
Basic 49,736 49,818
Diluted 50,078 50,431
</Table>
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
HELMERICH & PAYNE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<Table>
<Caption>
Three Months Ended
December 31,
2001 2000
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 15,604 $ 33,840
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 26,993 17,978
Dry holes and abandonments 5,812 12,044
Equity in income of affiliates before income taxes (1,970) (910)
Amortization of deferred compensation 366 379
Gain on sale of property, plant & equipment (683) (1,614)
Other, net (91) 97
Change in assets and liabilities-
Receivables 12,655 (18,653)
Inventories 4,190 98
Prepaid expenses and other 2,644 1,389
Accounts payable (34,966) 5,872
Accrued liabilities (2,605) 9,099
Deferred income taxes 7,278 4,600
Other noncurrent liabilities 1,395 150
------------- -------------
Total adjustments 21,018 30,529
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 36,622 64,369
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, including dry hole costs (79,842) (48,687)
Proceeds from sales of property, plant and equipment 1,609 4,488
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (78,233) (44,199)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (3,747) (3,757)
Proceeds from exercise of stock options 120 2,038
------------- -------------
NET CASH USED IN FINANCING ACTIVITIES (3,627) (1,719)
------------- -------------
NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS (45,238) 18,451
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 122,962 108,087
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 77,724 $ 126,538
============= =============
</Table>
The accompanying notes are an integral part of these statements.
-5-
<PAGE>
HELMERICH & PAYNE, INC.
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands - except per share data)
<Table>
<Caption>
Accumulated
Common Stock Additional Treasury Stock Other Total
-------------- Paid-In Unearned Retained ---------------- Comprehensive Shareholders'
Shares Amount Capital Compensation Earnings Shares Amount Income Equity
------ ------ ---------- ------------ -------- ------ -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 2001 53,529 $5,353 $ 80,324 $ (1,812) $943,105 3,676 $(49,802) $ 49,309 $ 1,026,477
Comprehensive Income:
Net Income 15,604 15,604
Other comprehensive income,
Unrealized gains on available-
for-sale securities, net 17,255 17,255
Derivatives instruments gains,
net 74 74
------------ -------------
Total other comprehensive
income 17,329 17,329
------------ -------------
Comprehensive income 32,933
-------------
Cash dividends ($0.075 per share) (3,747) (3,747)
Exercise of Stock Options 16 (7) 104 120
Tax benefit of stock-based awards (138) (138)
Amortization of deferred
compensation 366 366
------ ------ ---------- ------------ -------- ------ -------- ------------ -------------
Balance, December 31, 2001 53,529 $5,353 $ 80,202 $ (1,446) $954,962 3,669 $(49,698) $ 66,638 $ 1,056,011
====== ====== ========== ============ ======== ===== ======== ============ =============
</Table>
-6-
<PAGE>
HELMERICH & PAYNE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments, consisting only
of those of a normal recurring nature, necessary to present fairly the
results of the periods presented. The results of operations for the
three months ended December 31, 2001, and December 31, 2000, are not
necessarily indicative of the results to be expected for the full year.
These consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto in the Company's 2001 Annual Report on Form 10K.
2. The $.075 cash dividend declared in September, 2001, was paid December
3, 2001. On December 5, 2001, a cash dividend of $.075 per share was
declared for shareholders of record on February 15, 2002, payable March
1, 2002.
3. Inventories consist of materials and supplies.
4. There were no gains from sales of available-for-sale securities during
the first quarter of fiscal years 2002 and 2001.
5. The following is a summary of available-for-sale securities, which
excludes those accounted for under the equity method of accounting. The
recorded amount for investments accounted for under the equity method
is $57.4 million.
<Table>
<Caption>
Gross Gross Est.
Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Equity Securities 12/31/01 $ 63,748 $ 109,431 $ 479 $ 172,700
Equity Securities 09/30/01 $ 63,778 $ 84,257 $ 3,136 $ 144,899
</Table>
6. Comprehensive Income -
Comprehensive income, net of related tax, is as follows (in thousands):
<Table>
<Caption>
Three Months Ended
December 31,
2001 2000
------------ ------------
<S> <C> <C>
Net Income $ 15,604 $ 33,840
Other comprehensive income(loss):
Net unrealized gain (loss) on securities 17,255 (8,445)
Net unrealized gain on derivative instruments 74 698
------------ ------------
Other comprehensive income (loss) 17,329 (7,747)
------------ ------------
Comprehensive income $ 32,933 $ 26,093
============ ============
</Table>
The components of accumulated other comprehensive income, net of
related taxes, are as follows (in thousands):
<Table>
<Caption>
December 31, September 30,
2001 2001
------------ ------------
<S> <C> <C>
Unrealized gain on securities, net $ 67,550 $ 50,295
Unrealized loss on derivative instruments (912) (986)
------------ ------------
Accumulated other comprehensive income $ 66,638 $ 49,309
============ ============
</Table>
-7-
<PAGE>
HELMERICH & PAYNE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - Continued
(Unaudited)
7. At December 31, 2001, the Company had committed bank lines totaling $85
million; $35 million expires May 2002 and $50 million expires October
2003. Additionally, the Company had uncommitted credit facilities
totaling $10 million. Collectively, the Company had $50 million in
outstanding borrowings and outstanding letters of credit totaling $10.6
million against these lines at December 31, 2001. Concurrent with $50
million borrowing under the facility that expires October 2003, the
Company entered into an interest rate swap with a notional value of $50
million and an expiration date of October 2003. The swap effectively
converts this $50 million facility from a floating rate of LIBOR plus
50 basis points to a fixed effective rate of 5.38 percent. Excluding
the impact of the interest rate swap, the average interest rate for the
borrowings at December 31, 2001, was approximately 2.43 percent on a
360 day basis.
Under the various credit agreements, the Company must meet certain
requirements regarding levels of debt, net worth and earnings. The
Company met all requirements at December 31, 2001.
8. 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
December 31,
2001 2000
------------ ------------
(in thousands)
<S> <C> <C>
Basic weighted-average shares 49,736 49,818
Effect of dilutive shares:
Stock options 335 603
Restricted stock 7 10
------------ ------------
342 613
------------ ------------
Diluted weighted-average shares 50,078 50,431
============ ============
</Table>
Restricted stock of 60,012 shares at a weighted-average price of $37.73
and options to purchase 2,050,750 shares of common stock at a
weighted-average price of $32.25 were outstanding at December 31, 2001,
but were not included in the computation of diluted earnings per common
share. Inclusion of these shares would be antidilutive.
9. Income Taxes -
The Company's effective tax rate was 42.2% in the first quarter of
fiscal 2002. Costs and expenses, related to certain foreign locations
for which the Company does not receive a tax benefit, resulted in the
current year estimated effective tax rate. The two major reasons for
the effective tax rate increase are that the Company had larger net
operating loss carry forwards from Venezuela in fiscal 2001, and the
Company does not receive a tax benefit from the devaluation losses in
Argentina.
-8-
<PAGE>
HELMERICH & PAYNE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - Continued
(Unaudited)
10. 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, with a $50 million notional
principal amount, to exchange floating rate for fixed rate interest
payments through October 2003, the remaining life of the debt. (See
Note 7)
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.
11. Impairment -
Included in depreciation, depletion and amortization for the three
months ended December 31, 2001, were impairment charges of $5.4 million
for proved Exploration & Production properties. After-tax, the
impairment charges reduced the first quarter net income by
approximately $3.3 million ($0.07 per share). There were no impairment
charges in the first quarter of fiscal 2001.
12. Argentina Devaluation -
In the first quarter of fiscal 2002, the Company incurred a pre-tax
loss of $1.2 million related to devaluation of the Argentina peso. With
current conditions in Argentina, there is significant uncertainty
regarding economic, banking and currency stability. Based on a peso
exchange rate of between 2.0 and 3.0, the Company could be exposed for
additional losses of between $3 and $6 million during this fiscal year
due to currency devaluation. The Company currently has two rigs located
in Argentina, one of which is working with almost a year remaining
under contract. The other rig is contracted for approximately 90 more
days of work.
-9-
<PAGE>
HELMERICH & PAYNE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - Continued
(Unaudited)
13. Contingent Liabilities and Commitments -
Litigation Settlement -
The Company is a defendant in Verdin v. R&B Falcon Drilling USA, Inc.,
et al., a civil action in the United States District Court, Galveston,
Texas. In May 2001, the Company reached an agreement in principle with
Plaintiff's counsel to settle all claims pending court approval of the
settlement. In the third quarter of fiscal 2001, the Company accrued
$3.25 million to contract drilling expense based on the pending
settlement. The total settlement liability is $10 million of which
$6.75 million will be paid by the Company's insurer. The Court has
scheduled an April 18, 2002 hearing to consider approval of the
settlement. If final approval is obtained from the Court, payment of
the settlement proceeds is expected in May 2002.
The Company, on a regular basis, makes commitments for the purchase of
contract drilling equipment. At December 31, 2001, the Company had
commitments outstanding of approximately $200 million for the purchase
of drilling equipment.
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-
<PAGE>
HELMERICH & PAYNE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - Continued
(Unaudited)
Summarized financial information of the Company's reportable segments
for the quarter ended December 31, 2001, and 2000, is shown in the
following tables:
<Table>
<Caption>
External Inter- Total Operating
(in thousands) Sales Segment Sales Profit
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
DECEMBER 31, 2001
Contract Drilling
Domestic $ 92,123 $ 342 $ 92,465 $ 27,816
International 39,053 -- 39,053 3,877
------------ ------------ ------------ ------------
131,176 342 131,518 31,693
------------ ------------ ------------ ------------
Oil & Gas Operations
Exploration & Prod. 24,791 -- 24,791 (3,959)
Natural Gas Marketing 14,321 -- 14,321 460
------------ ------------ ------------ ------------
39,112 -- 39,112 (3,499)
------------ ------------ ------------ ------------
Real Estate 2,495 379 2,874 1,397
Other 1,364 -- 1,364 --
Eliminations -- (721) (721) --
------------ ------------ ------------ ------------
Total $ 174,147 $ -- $ 174,147 $ 29,591
============ ============ ============ ============
</Table>
<Table>
<Caption>
External Inter- Total Operating
(in thousands) Sales Segment Sales Profit
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
DECEMBER 31, 2000
Contract Drilling
Domestic $ 62,294 $ 941 $ 63,235 $ 17,046
International 38,691 -- 38,691 7,548
------------ ------------ ------------ ------------
100,985 941 101,926 24,594
------------ ------------ ------------ ------------
Oil & Gas Operations
Exploration & Prod. 57,728 -- 57,728 27,020
Natural Gas Marketing 28,679 -- 28,679 4,699
------------ ------------ ------------ ------------
86,407 -- 86,407 31,719
------------ ------------ ------------ ------------
Real Estate 2,331 389 2,720 1,375
Other 2,827 -- 2,827 --
Eliminations -- (1,330) (1,330) --
------------ ------------ ------------ ------------
Total $ 192,550 $ -- $ 192,550 $ 57,688
============ ============ ============ ============
</Table>
-11-
<PAGE>
HELMERICH & PAYNE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - Continued
(Unaudited)
The following table reconciles segment operating profit per the table above to
income before income taxes and equity in income of affiliates as reported on the
Consolidated Condensed Statements of Income.
<Table>
<Caption>
Three Months Ended
December 31,
2001 2000
------------ ------------
(in thousands)
<S> <C> <C>
Segment operating profit $ 29,591 $ 57,688
Unallocated amounts:
Income from investments 1,350 2,802
General corporate expense (4,568) (3,567)
Interest expense (374) (607)
Corporate depreciation (483) (471)
Other corporate expense (406) (405)
------------ ------------
Total unallocated amounts (4,481) (2,248)
------------ ------------
Income before income taxes
and equity in income of
affiliates $ 25,110 $ 55,440
============ ============
</Table>
The following table presents revenues from external customers by country based
on the location of service provided.
<Table>
<Caption>
Three Months Ended
December 31,
2001 2000
------------ ------------
(in thousands)
<S> <C> <C>
Revenues
United States $ 135,094 $ 153,859
Venezuela 15,289 8,681
Colombia 3,781 7,767
Other Foreign 19,983 22,243
------------ ------------
Total $ 174,147 $ 192,550
============ ============
</Table>
-12-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
DECEMBER 31, 2001
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 2001 Annual Report on Form 10-K. The Company's future operating
results may be affected by various trends and factors, which are beyond the
Company's control. These include, among other factors, fluctuations in natural
gas and crude oil prices, expiration or termination of drilling contracts,
currency exchange losses, changes in general economic and political conditions,
rapid or unexpected changes in technologies and uncertain business conditions
that affect the Company's businesses. Accordingly, past results and trends
should not be used by investors to anticipate future results or trends.
With the exception of historical information, the matters discussed in
Management's Discussion & Analysis of 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
THREE MONTHS ENDED DECEMBER 31, 2001 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
2000
The Company reported net income of $15.6 million ($0.31 per share) from revenues
of $174.1 million for the first quarter of fiscal 2002, compared with net income
of $33.8 million ($0.67 per share) from revenues of $192.6 million for the first
quarter of fiscal year 2001.
OIL & GAS DIVISION
EXPLORATION and PRODUCTION reported an operating loss of $4.0 million for the
first quarter of 2002, compared with an operating profit of $27.0 million for
the same period of fiscal 2001. Oil & gas revenues decreased to $24.8 million
from $57.7 last year. Natural gas revenues decreased to $20.7 million from $50.5
as both gas prices and volumes declined from last year. Natural gas prices
averaged $2.05 per mcf and $4.73 per mcf for the first quarter of fiscal 2002
and 2001, respectively. Natural gas volumes averaged 109.3 mmcf/d and 116.5
mmcf/d for the first quarter of fiscal 2002 and 2001, respectively. Oil revenues
decreased to $3.7 million in the first quarter of 2002, compared with $7.1
million in the first quarter of the previous year. Crude oil prices averaged
$18.97 and $31.44 per bbl for the first quarter of fiscal 2002 and 2001,
respectively. Crude oil volumes averaged 2,132 bbls/d and 2,429 bbls/d for the
first quarter of fiscal 2002 and 2001, respectively.
-13-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
DECEMBER 31, 2001
(continued)
Dry Hole, abandonments, geophysical, and other exploration expense totaled $7.7
million for this year's first quarter, compared with $15.5 million for the first
quarter of last year. Dry holes decreased approximately $6.0 million to $2.5
million in the first quarter of 2002 and geophysical expense decreased $1.4
million to $.9 million in the first quarter of 2002. The decreases were a result
of a decline in exploration activity in the first quarter of fiscal 2002.
In the first quarter of 2002, the Company recognized an impairment charge of
approximately $5.4 million for producing properties, which is included in
depreciation, depletion and amortization expense.
NATURAL GAS MARKETING segment reported an operating profit of $0.5 million in
the first quarter of 2002, compared to $4.7 million in the same period of last
year. In the first quarter of fiscal 2001, spot market prices were very
favorable in both November and December 2000 as gas prices were increasing to
record levels. In the first quarter of fiscal 2002, gas prices were
substantially lower with fluctuating prices. Additionally in the first quarter
of 2002, the Company charged $900,000 to its reserve for bad debts in connection
with anticipated uncollectible receivables from Enron Corporation. The Natural
Gas Marketing segment recorded a charge of $.7 million and Exploration and
Production recorded a charge for $.2 million.
As previously announced, an investment banking firm is currently assisting the
Company in its effort to establish the Oil and Gas Division as a separate public
entity and to potentially expand that operation through a business combination.
The Company is currently holding discussions and negotiations toward that end.
Although hopeful of announcing a deal in the second quarter, there is no
assurance that an agreement will be reached.
CONTRACT DRILLING
DOMESTIC DRILLING'S operating profit increased $10.8 million to $27.8 million in
the first quarter of fiscal 2002, compared with $17.0 million in last year's
first quarter. The increase was primarily the result of increased U.S. land
dayrates and operating days.
Domestic land operations in the first quarter of fiscal 2002 improved
significantly over the same period in fiscal 2001. Average revenue per day for
fiscal 2002 increased 29% over last year to $14,192 per day, with margins up 33%
from the first quarter of fiscal 2001. Rig utilization for land rigs was 89% in
fiscal 2002 compared to 93% in fiscal 2001. Offshore utilization increased from
92% during last year's first quarter to 100% during this year's first quarter,
as offshore earnings were up 17% from last year.
Currently, the Company has 54 U.S. land rigs and ten U.S. platform rigs located
in the Gulf of Mexico. As previously announced, the Company is currently engaged
in its FlexRigs III construction program wherein 25 new rigs will be built over
the next two years, with ten to be completed in fiscal 2002 and 15 to be
completed in fiscal 2003. Additionally, the Company has two offshore rigs under
construction that will begin working in the Gulf of Mexico in June 2002.
The Company has revised downward its guidance for fiscal year 2002 earnings as
the result of expected lower oil and gas prices and significantly lower U.S.
land dayrates for the remainder of fiscal 2002. The revised assumptions for
Domestic Drilling operations, for the remaining three-quarters of the Company's
fiscal year ending September 30, 2002, are average U.S. land rig dayrates of
$10,660, U.S. land rig utilization of 81%, and 88% rig utilization for U.S.
offshore platforms.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
DECEMBER 31, 2001
(continued)
INTERNATIONAL DRILLING'S operating profit decreased to $3.9 million in the first
quarter of fiscal 2002, from $7.5 million in last year's first quarter. Revenues
increased to $39.1 million in the first quarter of fiscal 2002, from $38.7
million in last year's first quarter. Rig utilization for international
operations averaged 55% for this year's first quarter, compared with 53% for the
first quarter of fiscal 2001. Operating profit in Colombia declined $1.8 million
in the current quarter compared to the first quarter of 2001, with only one rig
working currently versus three rigs working in the first quarter of 2001. First
quarter of 2002 operating profit was also impacted by approximately $1.9 million
for rig moving expenses in Venezuela.
Additionally, the Company incurred a pre-tax loss of $1.2 million due to
devaluation of the Argentina peso. With current conditions in Argentina, there
is significant uncertainty regarding economic, banking and currency stability.
Based on a peso exchange rate of between 2.0 and 3.0, the Company could be
exposed to additional losses of between $3 and $6 million during this fiscal
year due to currency devaluation. The Company currently has two rigs located in
Argentina, one of which is working with almost a year remaining under contract.
The other rig is contracted for approximately 90 more days of work.
OTHER
Other revenues decreased approximately $1.4 million from last year. Interest
income was $0.7 million in the first quarter of fiscal 2002, compared with $1.6
million in the same period of 2001, as both interest rates and cash balances
were lower. Dividend income decreased $0.4 million in the first quarter of 2002,
compared with first quarter of 2001 as the result of security sales in the
second and third quarters of fiscal 2001.
Corporate general and administrative expenses increased from $3.6 million in the
first quarter of fiscal 2001 to $4.6 million in the first quarter of fiscal
2002. The increase is related to labor and benefits, additional legal and
professional services related to the efforts to establish the Oil and Gas
Division as a separate public entity, and higher pension expense.
The Company's effective income tax rate increased to 42.2% for the quarter
compared to 39.7% for the first quarter of last year due to the impact of net
operating loss carry forwards from Venezuela in fiscal 2001, and certain costs
and expenses related to foreign locations for which the Company does not receive
a tax benefit.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $36.6 million for the first
quarter of fiscal 2002, compared with $64.4 million for the same period in 2001.
Capital expenditures were $79.8 million and $48.7 million for the first quarter
of fiscal 2002 and 2001, respectively.
The Company anticipates capital expenditures to be approximately $355 million
for fiscal 2002, which is lower than originally projected, primarily due to
delays in steel shipments. This has reduced the number of new rigs that will be
completed in fiscal 2002 and has lowered the projected Contract Drilling
Division capital expenditures from $340 million to $300 million. Internally
generated cash flows are
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
DECEMBER 31, 2001
(continued)
projected to be approximately $160 million for fiscal 2002 and cash balances
were $78 million at December 31, 2001. The Company's indebtedness totaled $50
million as of December 31, 2001, as described in Note 7 to the Consolidated
Condensed Financial Statements. It is anticipated that the Company will secure
additional borrowing in fiscal 2002 and possibly sell a portion of its
investment portfolio to fund projected capital expenditures.
The Company's Board of Directors, at its December 5, 2001 quarterly Board
meeting, approved the purchase in the open market or in private transactions,
the common stock of the Company in an aggregate amount not to exceed two million
(2,000,000) shares per calendar year. The repurchased shares will be held in
treasury for use in the Company's benefit plans or for any other appropriate
general corporate purposes.
There were no other significant changes in the Company's financial position
since September 30, 2001.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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 Annual Report on
Form 10-K for the fiscal year ended September 30, 2001, and Note 10 to the
Consolidated Condensed Financial Statements contained in Part I hereof.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The discussion of legal proceedings disclosed in Note 13 to the Consolidated
Condensed Financial Statements contained in Part I hereof is hereby
incorporated by reference.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K
For the three quarters ended December 31, 2001, registrant furnished, on
November 13, 2001, one Form 8-K reporting under Item 9, Regulation for
Disclosure, attaching a press release announcing results of operations and
certain supplemental information, including financial statements.
SIGNATURES
HELMERICH & PAYNE, INC.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 14, 2002 /s/ DOUGLAS E. FEARS
----------------- -----------------------------------------
Douglas E. Fears, Chief Financial Officer
Date: February 14, 2002 /s/ HANS C. HELMERICH
----------------- -----------------------------------------
Hans C. Helmerich, President
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