Helmerich & Payne, Inc. quarterly report, Q3 FY2009

Helmerich & Payne, Inc. — Form 10-Q Summary

Reporting period: Third quarter and first nine months of fiscal 2009, ended June 30, 2009. The company provides contract drilling services through U.S. Land, Offshore, and International Land operations. Unless otherwise noted, financial amounts below are in millions of dollars.

Financial performance

Metric	Three months ended June 30	Nine months ended June 30
Revenue, 2009	$387.8	$1,531.8
Revenue, 2008	$522.5	$1,452.8
Operating income, 2009 / 2008	$91.4 / $177.8	$497.2 / $502.1
Net income, 2009 / 2008	$53.0 / $125.4	$302.1 / $335.3
Diluted EPS, 2009 / 2008	$0.50 / $1.18	$2.84 / $3.16
Operating margin, 2009 / 2008	23.6% / 34.0%	32.5% / 34.6%
Net margin, 2009 / 2008	13.7% / 24.0%	19.7% / 23.1%

Quarterly revenue fell about 26% and net income about 58% year over year; nine-month revenue rose about 5%, while net income declined about 10%. The quarter’s prior-year results included after-tax gains from investment securities, asset sales and insurance recoveries, as well as an in-process R&D charge. No investment-security sale gain was recorded in 2009.

Quarterly segments: U.S. Land revenue was $282.4 million and segment operating income $96.6 million, versus $391.8 million and $159.4 million. Offshore revenue was $55.6 million and segment income $12.7 million, versus $47.3 million and $12.0 million. International Land revenue was $47.3 million and recorded an $8.3 million segment loss, versus $80.6 million and $17.5 million income.
Cash flow, nine months: Operating cash flow was $710.5 million, investing cash outflow $743.7 million and financing cash inflow $53.3 million. Capital expenditures were $738.4 million; operating cash flow less capital expenditures was negative $27.9 million. Cash increased $20.2 million to $141.7 million.
Balance sheet at June 30: Current assets were $592.1 million and current liabilities $358.8 million (current ratio approximately 1.65). Total assets were $4.08 billion and shareholders’ equity $2.59 billion.
Debt and liquidity: Debt totaled approximately $560 million, including $105 million of short-term borrowing, $25 million due within one year and $430 million of long-term debt. The $400 million credit facility had $280 million drawn and $99.1 million available after letters of credit. The company reported compliance with debt covenants.

Material changes and significant items

U.S. Land utilization fell to 51% from 96% for the quarter, reflecting customer contract terminations and rigs stacked. Quarterly U.S. Land revenue included approximately $40.9 million of early-termination fees and requested delivery-delay revenue; nine-month revenue included about $140.9 million of such revenue.
Venezuelan receivable collectability became uncertain. Beginning in the second fiscal quarter, the company stopped recognizing revenue from PDVSA unless collectability was reasonably assured: $19.7 million was not recorded in the quarter and $55.3 million in the nine-month period. PDVSA receivables were $76.7 million at June 30. Subsequent payments through July 31 included approximately $41.5 million applied to that balance.
At quarter-end, three of the company’s eleven Venezuelan rigs remained active; one more was idled by July 31. Management said further idling was likely absent satisfactory payments. Venezuelan assets had a $74.3 million net book value.
The investment in Atwood Oceanics shifted from equity-method accounting to available-for-sale accounting effective April 1, 2009. The company reported $251.6 million of available-for-sale equity securities at June 30, including substantial unrealized appreciation.
On July 21, the company received $200 million from senior unsecured notes due 2016, bearing 6.10% interest, to fund capital spending, repay debt and for general corporate purposes. The filing says $115 million of debt was subsequently reduced using proceeds from a new facility.
The company settled an FCPA matter announced July 30: it agreed to pay approximately $376,000 to the SEC and a $1 million DOJ civil penalty, take further compliance-remediation steps, and entered a DOJ non-prosecution agreement. The filing reports no criminal charges.

Outlook, risks and commitments

Management believed operating cash flow, cash and credit facilities would be sufficient for fiscal 2009 operations and estimated capital spending, while cautioning that financing and future cash generation were not assured.
Fiscal 2009 capital expenditures could exceed the prior estimate of approximately $850 million. The company had spent $738.4 million through June 30 and had $160.5 million of outstanding rig-construction equipment and supply purchase commitments.
Backlog at August 1, 2009 was reported as $2.448 billion, with approximately 90.1% not expected to be filled in fiscal 2009. The filing’s narrative gives October 31, 2008 backlog as $2.898 billion, while its table gives $3.374 billion; this discrepancy should be verified.
Management anticipated up to approximately $2.5 million of R&D expense in the fourth quarter for a Rotary Steerable System. New international contracts and project timing could affect capital-spending plans. The filing provides no specific earnings or revenue guidance.
Key risks include lower oil and gas activity, contract terminations and rig idling, collection delays or losses on Venezuelan receivables, currency devaluation, political instability or expropriation, rig-component supply constraints, weather, and foreign-exchange and interest-rate exposure. A 10%–30% Venezuelan currency devaluation was estimated to potentially cause $4.9–$12.2 million of losses under stated assumptions.

Investor verification priorities

Reconcile the conflicting October 2008 backlog figures ($2.898 billion in the narrative versus $3.374 billion in the table).
Track subsequent PDVSA collections, remaining receivables, Venezuelan cash conversion approvals and rig-idling decisions.
Assess how much reported U.S. Land earnings depended on early-termination and delivery-delay revenue, and whether stacked rigs return to work.
Review actual capital expenditures, financing use and debt maturities following the July 2009 note issuance.
Monitor execution of the FCPA remediation commitments and any related compliance or legal costs.