Helmerich & Payne, Inc. - 10-K Summary (Fiscal Year Ended Sept 30, 2003)
Business Context and Reporting Period
This Form 10-K covers the fiscal year ended September 30, 2003. Helmerich & Payne, Inc. operates two autonomous business segments: contract drilling (domestic land, domestic offshore, and international) and commercial real estate. The company spun off its exploration and production business into Cimarex Energy Co. in September 2002. As of September 30, 2003, the company employed 3,937 individuals (2,929 in the U.S. and 1,008 internationally).
Key Financial Metrics
- Revenue: Total sales, operating, and other revenues were $515,284,000 for fiscal 2003.
- Profitability: Income from continuing operations was $17,873,000. Basic earnings per share were $0.36, and diluted earnings per share were $0.35.
- Assets and Debt: Total assets were $1,415,835,000. Long-term debt totaled $200,000,000. The company held a committed unsecured line of credit of $125,000,000, with $30,000,000 borrowed and $13,747,260 in outstanding letters of credit as of period end.
- Dividends: Cash dividends declared were $0.32 per share for the year.
- Equity Holdings: The company held a portfolio of stocks in other publicly held companies with a market value of $169,546,000.
Material Changes vs. Prior Period
- Revenue Decline: Consolidated revenues decreased to $515.3 million in 2003 from $551.9 million in 2002.
- Profitability Drop: Income from continuing operations fell significantly to $17.9 million in 2003 compared to $53.7 million in 2002.
- Utilization Rates:
- Domestic land rig utilization dropped to 81% from 84% in 2002.
- Domestic offshore platform utilization fell sharply to 51% from 83% in 2002.
- International rig utilization declined to 39% from 51% in 2002.
- Debt Increase: Long-term debt doubled to $200 million in 2003 from $100 million in 2002 due to a new intermediate-term unsecured debt obligation.
- Real Estate: Occupancy at the Utica Square Shopping Center increased to 85% from 80%. The company sold 14.91 acres of undeveloped land in Southpark for approximately $2.2 million.
Outlook, Risks, and Management Commentary
Outlook and Operations: Management noted that while activity days increased due to a larger rig count, utilization rates declined across all drilling segments. Two offshore platform rigs are likely to be placed on standby status in early 2004. The company completed 25 new "FlexRig3" units by June 2003 and began constructing seven more.
Key Risks:
- Venezuela Currency Controls: The company holds approximately 14 billion bolivars ($8.8 million) in Venezuela. Due to exchange controls implemented in January 2003, these funds cannot be converted to U.S. dollars. A request for conversion was submitted in October 2003. Potential future devaluation losses could range from $3.2 million to $5.1 million if a 25% to 50% devaluation occurs.
- Customer Concentration: The top 10 customers accounted for 68% of consolidated revenues, with the top three (BP, Shell, ExxonMobil) accounting for 42%.
- Market Volatility: Operations are sensitive to oil and gas price volatility, which drives exploration and production activity.
- International Uncertainty: Risks include political instability, expropriation, and local law changes, particularly in South America where 86% of international revenues are generated.
Investor Verification Checklist
- Verify the status of the Venezuelan government's approval for the conversion of 14 billion bolivars into U.S. dollars.
- Monitor the utilization rates of the offshore platform rigs, specifically the two expected to go on standby in 2004.
- Review the impact of the $200 million long-term debt on future interest expense, noting the average rate of 6.3% for the next four years.
- Assess the stability of the top three customers (BP, Shell, ExxonMobil) given they represent 42% of revenue.
- Track the completion and deployment of the seven new FlexRig3 units under construction as of September 2003.