HP

Helmerich & Payne, Inc. - 10-Q Summary

Business Context and Reporting Period

This filing covers the quarterly period ended March 31, 2003 (Second Quarter of Fiscal 2003) and the six months ended March 31, 2003. Helmerich & Payne, Inc. operates primarily in the contract drilling industry (Domestic and International segments) and Real Estate. Following the September 30, 2002 spin-off of its exploration and production business (Cimarex Energy Co.), the Company reports results for its former E&P division as discontinued operations.

Key Financial Metrics

Note: Operating margins are not explicitly stated as a percentage in the text, but operating profit for the six months was $24.1 million.

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased 4.6% for the quarter and 13.3% for the six months compared to the prior year periods. This was driven by lower dayrates and reduced rig utilization, particularly in International operations.
• Profitability Drop: Net income from continuing operations fell significantly. For the six months ended March 31, 2003, net income was $3.2 million compared to $26.3 million in the prior year. The prior year included income from discontinued operations ($0.2 million) which is absent in the current period.
• Increased Expenses:
  • Depreciation: Increased to $38.2 million for the six months (vs. $28.9 million prior year) due to new rig investments.
  • Interest Expense: Rose to $5.8 million for the six months (vs. $0.7 million prior year) following the issuance of $200 million in term notes in late 2002.
  • G&A Expenses: Increased to $13.8 million (vs. $10.6 million) largely due to higher pension costs.
• Segment Performance:
  • Domestic: Operating profit dropped to $20.9 million (six months) from $41.3 million, despite higher rig counts, due to a 15% reduction in average dayrates.
  • International: Operating profit collapsed to $0.7 million (six months) from $8.3 million. Utilization averaged 36.8% vs. 56.1% prior year. Venezuela and Colombia operations faced significant declines in revenue days.

Guidance, Outlook, and Risks

• Capital Expenditures: Management anticipates capital expenditures of approximately $220 million for fiscal 2003. Funding is expected to come from internally generated cash flows (projected at $90 million), existing cash balances, borrowing against a $125 million line of credit, or selling investment securities.
• Operational Outlook:
  • Domestic: Margins are expected to improve in the second half of fiscal 2003, though demand recovery is expected to be slow.
  • International: Outlook remains uncertain. Venezuela faces political and economic instability; Bolivia outlook is unfavorable for 2003. Ecuador utilization remains high (93%).
• Risks: Key risks include fluctuations in oil and gas prices, contract expirations, currency exchange losses, and political instability in international operating regions (specifically Venezuela, Colombia, and Bolivia).
• Accounting Changes: The Company is considering adopting SFAS No. 123 fair value method for stock-based compensation, which would reduce reported net income.

Investor Verification Checklist

• Debt Servicing: Verify the impact of the new $200 million debt load on future cash flows and compliance with debt-to-capitalization covenants.
• International Exposure: Assess the specific political risks in Venezuela and Colombia and the potential for further rig idling in these regions.
• Dayrate Trends: Monitor the trend of domestic land rig dayrates to confirm management's expectation of margin improvement in the second half of the year.
• Capital Allocation: Confirm the source of funding for the remaining $130 million of projected capital expenditures (borrowing vs. asset sales).
• Stock Compensation: Review the final decision on adopting SFAS No. 123 and its potential impact on future earnings per share.