Helmerich & Payne, Inc. — FY2014 Form 10-K
Reporting period: Fiscal year ended September 30, 2014. The filing also reports unaudited fourth-quarter results. The company primarily provides contract drilling services through U.S. Land, Offshore and International Land segments; it also operates Tulsa-area real estate and develops rotary-steerable technology.
Financial and operating performance
| Metric | FY2014 | FY2013 |
|---|---|---|
| Operating revenue | $3.720 billion | $3.388 billion |
| Operating income | $1.055 billion | $956.7 million |
| Net income | $708.7 million | $736.6 million |
| Diluted EPS | $6.46 | $6.79 |
| Cash provided by operating activities | $1.119 billion | $997.2 million |
| Capital expenditures | $952.9 million | $809.1 million |
- Revenue increased 9.8%; operating income increased 10.3%. Net income fell 3.8%, partly reflecting lower investment-sale gains: $45.2 million in FY2014 versus $162.1 million in FY2013. FY2014 net income also included after-tax investment-sale gains of $27.8 million.
- Operating margin was approximately 28.4% of revenue, compared with 28.2% in FY2013; direct operating costs were 54% of revenue versus 55%.
- Segment revenue and operating income: U.S. Land, $3.100 billion and $1.026 billion; Offshore, $250.8 million and $69.8 million; International Land, $355.5 million and $36.4 million. U.S. Land revenue rose 11.3%, Offshore rose 13.0%, and International Land declined 3.1%.
- Utilization was 86% for U.S. Land (82% in FY2013), 89% for Offshore (unchanged), and 76% for International Land (82%). The fleet totaled 374 rigs at year-end; 325 were active, versus 276 a year earlier.
- Fourth-quarter revenue was $985.0 million, operating income $263.5 million, net income $168.7 million and diluted EPS $1.53.
Liquidity, debt and capital returns
- At September 30, 2014, cash and cash equivalents were $360.9 million, current assets $1.277 billion and current liabilities $507.5 million; the current ratio was 2.5.
- Total debt was $80 million, including $40 million due within one year. The company had no revolving-facility borrowings and reported $265.8 million available under its $300 million facility. It reported compliance with debt covenants; long-term debt to total capitalization was 2%.
- Operating cash flow exceeded capital expenditures by approximately $165.6 million. The company paid $264.4 million of dividends during FY2014, or $2.438 per share. It made no share repurchases during the year; after year-end it repurchased 414,992 shares for $32.3 million.
- Shareholders’ equity was $4.891 billion and total assets were $6.722 billion. The company held $222.3 million of marketable securities at year-end, concentrated in Atwood Oceanics and Schlumberger.
Changes, outlook and material matters
- Contract drilling backlog rose to $5.0 billion from $2.9 billion, mainly from fixed-term contracts for new FlexRigs. Approximately 63.6% of year-end backlog was not reasonably expected to be filled in FY2015; backlog is subject to cancellation, delivery and customer-performance risks.
- Management estimated FY2015 capital spending at $1.4–$1.7 billion, depending mainly on market conditions and demand for new FlexRigs. It expected depreciation to increase in FY2015 as new rigs entered service. No earnings guidance was provided.
- During FY2014, the company placed 45 new rigs into service and announced agreements to build and operate 83 new U.S. FlexRigs. At November 13, 41 customer-committed FlexRigs remained under construction; subsequent to year-end, agreements for six additional rigs were announced. Outstanding equipment purchase orders were approximately $412.9 million.
- Revenue is highly exposed to oil-and-gas customer activity, commodity-price expectations and access to capital. Ten customers generated approximately 56% of consolidated revenue; the three largest generated approximately 26%. The company also disclosed vendor concentration, competition, regulatory and geopolitical risks, and substantial self-insured exposures.
- A subsidiary’s 2013 DOJ plea agreement resolved an investigation into 2010 offshore choke-manifold testing irregularities and requires a three-year probationary period and environmental compliance plan. Discussions with the Department of the Interior remained ongoing; the company said it could not assure their timing or outcome.
- The company continues litigation over Venezuela’s 2010 seizure of its drilling business; any recovery’s timing, amount and likelihood were undetermined and no gain was recorded. The market value of its securities portfolio fell to approximately $184.8 million by November 13, 2014.
- The financial statements received an unqualified audit opinion, and the auditor also gave an unqualified opinion on internal control over financial reporting.
Key facts for investors to verify
- Whether new-rig deliveries and customer commitments convert into operating rigs and realized revenue, and whether backlog is retained or deferred.
- Whether the planned $1.4–$1.7 billion FY2015 capital program is funded from operating cash flow without materially increasing debt.
- How much FY2014 earnings depended on investment-sale gains, and the effect of subsequent portfolio-price changes.
- Customer concentration, fixed-term contract termination provisions, rig utilization and day-rate trends, particularly in U.S. Land and International Land.
- Developments in the Department of the Interior discussions, compliance with the DOJ plea agreement, and the uncertain Venezuela litigation.