<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 30549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended: DECEMBER 31, 1998
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, 1998
Common Stock, .10 par value 49,416,682
<PAGE> 2
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets -
December 31, 1998 and September 30, 1998 . . . . . . . . . 3
Consolidated Condensed Statements of Income -
Three Months Ended December 31, 1998 and 1997. . . . . . . 4
Consolidated Condensed Statements of Cash Flows -
Three Months Ended December 31, 1998 and 1997. . . . . . . 5
Consolidated Condensed Statement of Shareholders' Equity
Three Months Ended December 31, 1998 . . . . . . . . . . . 6
Notes to Consolidated Condensed Financial Statements . . . 7, 8 & 9
Revenues and Income by Business Segments . . . . . . . . . 10
Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . . . . 11 - 16
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . 17
Signature Page . . . . . . . . . . . . . . . . . . . . . . 17
-2-
<PAGE> 3
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
(Unaudited)
December 31 September 30
1998 1998
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 27,890 $ 24,476
Short-term investments 244 262
Accounts receivable, net 116,893 119,395
Inventories 26,982 25,401
Prepaid expenses and other 25,924 14,811
------------ ------------
Total Current Assets 197,933 184,345
------------ ------------
Investments 199,141 200,400
Property, Plant and Equipment, net 709,721 692,371
Other Assets 13,053 13,314
------------ ------------
Total Assets $ 1,119,848 $ 1,090,430
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 33,102 $ 41,851
Accrued liabilities 40,603 38,833
Notes payable 73,500 44,800
------------ ------------
Total Current Liabilities 147,205 125,484
------------ ------------
Noncurrent Liabilities
Long-term notes payable 50,000 50,000
Deferred income taxes 103,218 103,469
Other 17,790 18,329
------------ ------------
Total Noncurrent Liabilities 171,008 171,798
------------ ------------
SHAREHOLDERS' EQUITY
Common stock, par value $.10 per
share 5,353 5,353
Preferred stock, no shares issued -- --
Additional paid-in capital 59,250 59,004
Retained earnings 726,267 716,875
Unearned compensation (5,549) (5,605)
Accumulated other comprehensive income 53,178 54,689
------------ ------------
838,499 830,316
Less treasury stock, at cost 36,864 37,168
------------ ------------
Total Shareholders' Equity 801,635 793,148
------------ ------------
Total Liabilities and Shareholders' Equity $ 1,119,848 $ 1,090,430
============ ============
</TABLE>
See accompanying notes to financial statements.
-3-
<PAGE> 4
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended
12/31/98 12/31/97
-----------------------------
<S> <C> <C>
REVENUES:
Sales and other operating revenues $ 142,518 $ 144,112
Income from investments 1,346 7,711
------------ ------------
143,864 151,823
------------ ------------
COST AND EXPENSES:
Operating costs 86,614 76,490
Depreciation, depletion and
amortization 23,999 18,651
Dry holes and abandonments 1,759 4,137
Taxes, other than income taxes 6,421 5,194
General and administrative 3,590 2,556
Interest 1,602 25
------------ ------------
123,985 107,053
------------ ------------
INCOME BEFORE INCOME TAXES AND
EQUITY IN INCOME OF AFFILIATE 19,879 44,770
INCOME TAX EXPENSE 7,862 16,822
EQUITY IN INCOME OF AFFILIATE,
net of income taxes 794 1,217
------------ ------------
NET INCOME $ 12,811 $ 29,165
============ ============
EARNINGS PER COMMON SHARE:
Basic $ 0.26 $ 0.58
Diluted $ 0.26 $ 0.57
CASH DIVIDENDS (Note 2) $ 0.07 $ 0.07
AVERAGE COMMON SHARES OUTSTANDING:
Basic 49,182 50,006
Diluted 49,664 51,066
</TABLE>
The accompanying notes are an integral part of these statements.
-4-
<PAGE> 5
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
12/31/98 12/31/97
------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 12,811 $ 29,165
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 23,999 18,651
Dry holes and abandonments 1,759 4,137
Equity in income of affiliate before income taxes (1,281) (1,963)
Amortization of deferred compensation 386 209
Gain on sale of securities (116) (6,015)
Gain on sale of property, plant & equipment (4,957) (526)
Other, net 287 348
Change in assets and liabilities-
Accounts receivable 2,502 (13,782)
Inventories (1,581) (1,316)
Prepaid expenses and other (10,852) (6,639)
Accounts payable (8,749) (32)
Accrued liabilities 1,770 1,023
Deferred income taxes 675 7,508
Other noncurrent liabilities (539) 1,416
------------ ------------
Total adjustments 3,303 3,019
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 16,114 32,184
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, including dry hole costs (44,418) (48,633)
Proceeds from sales of property, plant and equipment 6,248 10,756
Purchase of investments (3) (103)
Proceeds from sale of investments 53 21,070
Proceeds from sale of short-term investments 18 32
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (38,102) (16,878)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 58,000 33,000
Payments made on notes payable (29,300) (23,000)
Dividends paid (3,458) (3,524)
Proceeds from exercise of stock options 160 669
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 25,402 7,145
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,414 22,451
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 24,476 27,963
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 27,890 $ 50,414
============ ============
</TABLE>
-5-
<PAGE> 6
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands - except per share data)
<TABLE>
<CAPTION>
Additional Accumulated
Common Stock Paid-In Unearned Retained Treasury Stock Other
------------- ----------------- Comprehensive
Shares Amount Capital Compensation Earnings Shares Amount Income Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1998 53,529 $5,353 $59,004 $(5,605) $716,875 4,146 $(37,168) $ 54,689 $793,148
Comprehensive Income:
Net Income 12,811 12,811
Other comprehensive income,
net of tax
Unrealized losses on available-
for-sale securities (1,511) (1,511)
-------
Comprehensive income 11,300
-------
Cash dividends ($0.07 per share) (3,460) (3,460)
Exercise of Stock Options 109 (17) 152 261
Stock issued under Restricted Stock
Award Plan 137 (289) (17) 152
Amortization of deferred
compensation 345 41 386
-----------------------------------------------------------------------------------------------
Balance, December 31, 1998 53,529 $5,353 $59,250 $(5,549) $726,267 4,112 $(36,864) $53,178 $801.635
===============================================================================================
</TABLE>
-6-
<PAGE> 7
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited
condensed financial statements contain all adjustments (consisting
of only normal recurring accruals) necessary to present fairly the
results of the periods presented. The results of operations for
the three months ended December 31, 1998, and December 31, 1997,
are not necessarily indicative of the results to be expected for
the full year.
2. The $.07 cash dividend declared in September, 1998, was paid
December 1, 1998. On December 2, 1998, a cash dividend of $.07 per
share was declared for shareholders of record on February 15,
1999, payable March 1, 1999.
3. Inventories consist of materials and supplies.
4. Income from investments includes $116,000 and $6,015,000 from
gains on sales of available-for-sale securities during the first
quarter of fiscal years 1999 and 1998, respectively.
5. The following is a summary of available-for-sale securities, which
excludes those accounted for under the equity method of
accounting. The recorded investment in securities accounted for
under the equity method is $36,702,000.
<TABLE>
<CAPTION>
Gross Gross Est.
Unrealized Unrealized Fair
Cost Gains Losses Value
-------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Equity Securities 12/31/98 $76,668 $94,199 $8,428 162,439
Equity Securities 09/30/98 $76,770 $93,364 $5,156 164,978
</TABLE>
6. As of October 1, 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income" (SFAS 130). SFAS 130 establishes new rules
for the reporting and display of comprehensive income and its
components; however, the adoption of this statement had no impact
on the Company's net income or shareholders' equity. SFAS 130
requires the Company's unrealized gains or losses on
available-for-sale securities to be included in other
comprehensive income. Prior to adoption this item was reported
separately in shareholders' equity. Prior year financial
statements have been reclassified to conform to the requirements
of SFAS 130.
-7-
<PAGE> 8
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
The components of comprehensive income, net of related tax, for
the three month periods ended December 31, 1998, and 1997, are as
follows:
<TABLE>
<CAPTION>
Fiscal Fiscal
1998 1997
------- -------
<S> <C> <C>
Net Income $12,811 $29,165
Unrealized losses on securities (1,511) (6,064)
------- -------
Comprehensive income $11,300 $23,101
======= =======
</TABLE>
The only component of accumulated other comprehensive income is
unrealized gains on available-for-sale securities.
7. At December 31, 1998, the Company had committed bank lines of
credit totaling $130 million; $20 million may be borrowed through
February 1999, $50 million may be borrowed through May 1999, $10
million may be borrowed through May 2000, and $50 million may be
borrowed through October 2003. Additionally, the Company had
uncommitted credit facilities totaling $63 million. Collectively,
the Company had $123.5 million in outstanding borrowings and
outstanding letters of credit totaling $8.2 million against these
lines at December 31, 1998. The average rate on the borrowings at
December 31, 1998, was 5.6 percent.
Concurrent with a $50 million borrowing under one of its committed
facilities, the Company has entered into a 5-year, $50 million
interest rate swap, which closely correlates with the terms and
maturity of the facility. The swap effectively fixes the interest
rate on this facility at 5.38% for the entire 5 year term of the
note.
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 includes 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
(in thousands) 12-31-98 12-31-97
-----------------------------------------------------------------------------
<S> <C> <C>
Basic weighted-average shares 49,182 50,006
Effect of dilutive shares:
Stock options 472 984
Restricted stock 10 76
-------- -------
482 1,060
-------- -------
Diluted weighted-average shares 49,664 51,066
======== =======
</TABLE>
-8-
<PAGE> 9
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
Restricted stock of 180,000 shares at a weighted-average price of
$37.73 and options to purchase 919,000 shares of common stock at a
weighted-average price of $32.40 were outstanding at December 31, 1998,
but were not included in the computation of diluted earnings per common
share. Inclusion of these shares would be antidilutive, as the exercise
prices of the options exceed the average market price of the common
shares.
9. New Accounting Pronouncements -
The Financial Accounting Standards Board has issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS
133). SFAS 133 is effective for fiscal years beginning after June 15,
1999. This standard requires that all derivatives be recognized as
assets or liabilities in the balance sheet and that those instruments
be measured at fair value. The Company has not yet determined what the
effect of SFAS 133 will be on the earnings and the financial position
of the Company.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures About Segments of an Enterprise and Related
Information". This statement, which is effective for fiscal years
beginning after December 15, 1997, expands or modifies disclosures and
will have no impact on the Company's consolidated financial position,
results of operations or cash flows.
The American Institute of Certified Public Accountants (AICPA) issued
Statement of Position (SOP)98-5, "Reporting on the Costs of Start-Up
Activities", effective for fiscal years beginning after December 15,
1998. The SOP requires that all start-up costs be expensed and that the
effect of adopting the SOP be reported as the cumulative effect of a
change in accounting principle. The effect of this SOP on the Company's
results of operations and financial position is not expected to be
material.
10. Restricted Stock Awards -
In the first quarter of fiscal year 1999, the Company issued to certain
employees 17,000 shares of treasury stock as restricted stock awards
under the 1996 Stock Incentive Plan. The Company recognized unearned
compensation of $289,000, which was the fair market value of the stock
at the time of issuance. Treasury stock was reduced by the book value
of the shares issued ($152,396) with the difference recognized as an
increase in paid-in-capital. The unearned compensation is being
amortized over a five-year period as compensation expense.
-9-
<PAGE> 10
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
REVENUES AND INCOME BY BUSINESS SEGMENTS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
12/31/98 12/31/97
-------- --------
SALES AND OTHER REVENUES:
<S> <C> <C>
Contract Drilling-Domestic $ 45,985 $ 41,736
Contract Drilling-Internat'l 54,685 51,994
-------- --------
Total Contract Drilling
Division 100,670 93,730
-------- --------
Exploration and Production 26,428 32,171
Natural Gas Marketing 13,175 16,056
-------- --------
Total Oil & Gas Division 39,603 48,227
-------- --------
Real Estate Division 2,193 2,091
Investments and other 1,398 7,775
-------- --------
TOTAL REVENUES $143,864 $151,823
======== ========
OPERATING PROFIT:
Contract Drilling-Domestic $ 7,664 $ 9,371
Contract Drilling-Internat'l 9,941 14,055
-------- --------
Total Contract Drilling
Division 17,605 23,426
-------- --------
Exploration and Production 4,505 14,859
Natural Gas Marketing 941 587
-------- --------
Total Oil & Gas Division 5,446 15,446
-------- --------
Real Estate Division 1,391 1,308
-------- --------
Total Operating Profit 24,442 40,180
-------- --------
OTHER (4,563) 4,590
--------- --------
INCOME BEFORE INCOME TAXES AND
EQUITY IN INCOME OF AFFILIATE $ 19,879 $ 44,770
========= ========
</TABLE>
-10-
<PAGE> 11
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
DECEMBER 31, 1998
RISK FACTORS AND FORWARD-LOOKING STATEMENTS
The following discussion should be read in conjunction with the consolidated
financial statements and related notes included elsewhere herein. 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
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
The Company reported net income of $12,811,000 ($0.26 per share on a diluted
basis) from revenues of $143,864,000 for the first quarter ended December 31,
1998, compared with net income of $29,165,000 ($0.57 per share, diluted) from
revenues of $151,823,000 for the first quarter of the prior fiscal year. Net
income in the first quarter of fiscal 1998 included $3,675,000 ($0.07 per share,
diluted) from the sale of investment securities.
The Company's Exploration and Production Division reported operating profit of
$4,505,000 for the first quarter ended December 31, 1998, compared with
operating profit of $14,859,000 for the same period in fiscal 1998. This
significant decrease is the result of lower oil and gas revenues, increased
exploration costs and increased depreciation and depletion, offset by decreased
dry hole expense and a gain recorded from the sale of producing properties.
Oil and gas revenues decreased approximately 32% from the first quarter of
fiscal 1998 to $21.6 million in the first quarter of fiscal 1999. Crude oil
prices for the first quarter of fiscal 1999 averaged $10.95 per bbl, compared
with $18.50 per bbl in the same period of 1998. Crude oil volumes were 1,951
bbls/d and 2,220 bbls/d for the first quarter of 1999 and 1998, respectively.
Natural gas prices for the first quarter of fiscal 1999 averaged $1.79 per mcf,
compared with $2.61 per mcf in the same period of 1998. Natural gas volumes for
the first quarter of fiscal 1999 averaged 119.4 mmcf/d, compared with 117.1
mmcf/d in the same period of 1998. The first quarter of fiscal 1999 also
included gains from the sale of producing properties of approximately $4.6
million.
-11-
<PAGE> 12
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
DECEMBER 31, 1998
(Continued)
Exploration costs, primarily geophysical charges, increased to $6.8 million in
the first quarter of fiscal 1999, compared with $.9 million in the first quarter
of fiscal 1998. Dry hole expense was $17,000 in first quarter of fiscal 1999,
compared with $2,581,000 in the same period of fiscal 1998. Depreciation and
depletion increased $1.3 million (21%) in the first quarter of fiscal 1999,
compared with first quarter of fiscal 1998. A portion of the increase in
depreciation and depletion was the recognition of an impairment charge of
approximately $.7 million for proved exploration and production properties,
which is included in depreciation, depletion and amortization expense.
Operating profit from the Company's domestic drilling operations for the first
three months of fiscal 1999 and 1998 was $7,664,000 and $9,371,000,
respectively. Domestic land rig activity averaged 85% for the first quarter of
fiscal 1999, down from the 100% utilization experienced in the same period of
fiscal 1998. Revenue days for land rigs were essentially the same as last year,
while average dayrates were down approximately 7% from last year's first
quarter. Continued softening of land dayrates and rig utilization are expected
for the remainder of the fiscal year.
Domestic offshore platform rig activity was at 100% for the first quarter of
both fiscal 1999 and 1998. Recent increases in offshore platform rig revenues
and earnings from the Company's commencement of operations on Shell's Ursa
Tension Leg Platform, together with fees earned from managing the construction
of a large platform rig, should help offset declines in land rig revenues and
earnings during the next three quarters.
Operating profit from the Company's international drilling operations for the
first three months of fiscal 1999 and 1998 was $9,941,000 and $14,055,000,
respectively. Revenues for the same periods were $54,685,000 and $51,994,000.
Included in revenues and operating profit for the first quarter of fiscal 1999
were recently negotiated retroactive billings in Colombia and incentive payments
in Venezuela, as well as revenues from Rig 91, which did not commence operations
until late in the first quarter of fiscal 1998. During the second quarter, Rig
91 was moved from offshore Venezuela to the Company's domestic operations and
will be working in the Gulf of Mexico for a major oil company.
Rig utilization in South America has fallen from 91% in the first quarter of
fiscal 1998 to 65% in this year's first quarter. As volatility in dayrates and
utilization continues, revenues and operating profit from international
operations are expected to be lower in the next three quarters.
IMPACT OF YEAR 2000
Readers are cautioned that forward-looking statements contained in the following
Year 2000 discussion should be read in conjunction with the Company's
disclosures under the heading: "Risk Factors and Forward-Looking Statements".
This discussion shall constitute the Company's "Year 2000 Readiness Disclosure"
within the meaning of the Year 2000 Information and Readiness Act.
-12-
<PAGE> 13
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
DECEMBER 31, 1998
(Continued)
THE COMPANY'S STATE OF READINESS
The Company has undertaken various initiatives in an attempt to ensure that its
hardware, software and equipment will function properly with respect to dates
before and after January 1, 2000. For this purpose, the phrase "hardware,
software and equipment" includes systems that are commonly thought of as
Information Technology ("IT") systems, as well as those Non-Information
Technology ("Non-IT") systems and equipment which include imbedded technology.
IT systems include computer hardware and software, and other related systems.
Non-IT systems include certain oil and gas drilling and production equipment,
security systems and other miscellaneous systems. The Non-IT systems present the
greatest compliance challenge since identification of embedded technology is
difficult and because the Company is, to a great extent, reliant on third
parties for Non-IT compliance.
The Company has formed a Year 2000 ("Y2K") Project team which is chaired by the
Director of IT. The team includes IT staff, corporate staff and representatives
from the Company's business units. The Company has organized its compliance
efforts into a four-phase approach as follows:
Phase 1: Identification - Identify and inventory mission
critical components of Company operations and systems which
may be affected.
Phase 2: Assessment - Determine which hardware, software and
equipment must be modified, upgraded or replaced.
Phase 3: Remediation - Modify, upgrade or replace non-compliant
hardware, software and equipment.
Phase 4: Testing - Fully test all IT systems which are material to
the Company's operations. Selectively test those Non-IT
systems and equipment which are material to the Company's
operations.
For the purposes of the Y2K Project material items are those items the Company
believes to have a risk involving safety of individuals, damage to the
environment, material effect on revenues or material damage to property.
The following represents the status of the Company's IT and Non-IT Compliance
Project:
<TABLE>
<CAPTION>
STATUS OF TARGET FOR
IT COMPLETION COMPLETION
- -- ---------- ------------
<S> <C> <C>
o Core accounting and operational Phases 1,2 & 3 March 1999
(mainframe) systems Complete; 4 in
Progress
o Human Resources & Payroll Systems Phases 1,2 & 3 March 1999
Complete; 4 in
Progress.
</TABLE>
-13-
<PAGE> 14
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
DECEMBER 31, 1998
(Continued)
<TABLE>
<CAPTION>
STATUS OF TARGET FOR
IT COMPLETION COMPLETION
- -- ---------- ----------
<S> <C> <C>
o Network Completed
o Desktop Computer Hardware Phases 1 & 2 March 1999
Complete; 3 in
Progress
o Standard Company Desktop Phases 1 & 2 March 1999
Computer Software Complete; 3 in
Progress
o Business Unit User Software Phase 1 in September 1999
Progress
Non-IT
- ------
o Systems and Equipment Phases 1 & 2 in September 1999
Progress
</TABLE>
As reflected in the above table, the Company is in the process of identifying
embedded technology and determining the extent to which such technology is Y2K
compliant. As part of this process, the Company has mailed letters to its
significant vendors and service providers to confirm that the products and
services purchased from or by such entities are Y2K compliant. Also, the Company
is in the process of obtaining information from significant customers regarding
the extent to which Y2K issues may affect the amount of business the Company
currently conducts with such customers. As of February 1, 1999, the Company had
received responses from approximately 57% of such vendors and service providers.
Approximately 86% of such vendors and service providers have provided written
assurances that they expect to address their significant Y2K issues on a timely
basis. A follow-up mailing to significant vendors and services providers that
did not initially respond, or whose responses were deemed unsatisfactory, has
been completed. As a result of these activities, the Company expects discussions
will be conducted with the vendors or manufacturers of such mission critical
equipment to determine the most effective solutions to Y2K compliance issues.
THE COST TO ADDRESS Y2K ISSUES
The Company believes that the cost of its Y2K Project should not exceed
$1,000,000, including costs of employees working on the Y2K Project. Costs
incurred for new software and hardware purchases are being capitalized, and
other costs are being expensed as incurred. The costs relating to the Company's
Y2K Project are paid from the Company's general funds. To date, the Company has
incurred Y2K Project costs of approximately $600,000. This expenditure mainly
relates to repair, upgrading or replacement of existing software and hardware,
and solicitation and evaluation of information received from significant
vendors, service providers, or customers. The $1,000,000 figure does not include
the costs of independent Y2K consultants. The Company has not determined whether
it will engage independent Y2K consultants. The cost of such consultants would
not be material to the Company.
-14-
<PAGE> 15
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
DECEMBER 31, 1998
(Continued)
THE COMPANY'S CONTINGENCY PLAN
The Company is in the process of developing its contingency plans on a business
unit and departmental basis. These plans are projected to be complete by May 31,
1999. These contingency plans will include, but will not be limited to:
development of backup and recovery procedures for IT Systems; remediation of
existing systems or equipment; installation of new systems or equipment;
stockpiling of Y2K compliant goods and supplies; stockpiling old equipment which
does not contain embedded technology; replacement of current services with
temporary manual processes; finding non-technological alternatives or sources
for information; or identification of alternative customers, suppliers or
outsourcing subcontractors who stand ready to receive or provide critical goods,
equipment and services. The Company has engaged a computer recovery services
contractor as a potential source of alternative computer systems as part of its
contingency plan.
THE RISKS OF THE COMPANY'S Y2K ISSUES
The Company is in the process of completing an analysis of the operational
problems and costs (including loss of revenues) that would be reasonably likely
to result from the failure by the Company and certain third parties to complete
efforts necessary to achieve Y2K compliance on a timely basis. The Company
presently believes that the Y2K issue will not pose significant operational
problems for the Company. However, if all significant Y2K issues are not
properly identified, or assessment, remediation and testing are not effected
timely, there can be no assurance that the Y2K issue will not materially and
adversely impact the Company's results of operations, liquidity and financial
condition or materially and adversely affect the Company's relationships with
customers, vendors, or others. Additionally, there can be no assurance that the
lack of Y2K compliance by other entities will not have a material and adverse
impact on the Company's operations or financial condition.
The preceding Y2K disclosure is based upon certain forward-looking information
including, but not limited to, the dates on which the Company believes that
various phases of the Y2K Project will be completed. This forward-looking
information is based on Management's good faith estimates. These estimates were
derived utilizing numerous assumptions of future events, including the continued
availability of certain resources, third-party plans and other factors. However,
there can be no guarantee that these estimates will be achieved, or that there
will not be a delay in, or increased costs associated with, the implementation
of the Y2K Project. Specific factors that might cause differences between the
estimates and actual results include, but are not limited to, the availability
and cost of personnel trained in these areas, the ability to locate and correct
all relevant computer code, timely responses to and corrections by third-parties
and suppliers, the ability to implement interfaces between the new systems and
the systems not being replaced, and similar uncertainties. Due to the general
uncertainty inherent in Y2K issues, including the uncertainty of third party Y2K
compliance, the Company cannot ensure its ability to timely and cost-effectively
resolve problems associated with Y2K issues that may affect its operations and
business, or expose it to third party liability.
-15-
<PAGE> 16
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
DECEMBER 31, 1998
(Continued)
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $16,114,000 for the first quarter
of fiscal 1999, compared with $32,184,000 for the same period in 1998. Capital
expenditures were $44,418,000 and $48,633,000 for the first quarter of fiscal
1999 and 1998, respectively.
It is anticipated for fiscal 1999 that capital expenditures will approach $135
million, which is close to the Company's projected internally generated cash
flows. The Company would, if necessary, borrow under its line of credit
agreement to fund capital expenditures in excess of cash flows. The Company
borrowed an additional $28,700,000 during the current quarter. The Company's
indebtedness totaled $123,500,000 as of December 31, 1998, as described in Note
7 to the Consolidated Condensed Financial Statements.
There were no other significant changes in the Company's financial position
since September 30, 1998.
-16-
<PAGE> 17
PART II. OTHER INFORMATION
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
Item 6(b) Reports on Form 8-K
There were no reports on Form 8-K for the three months ended December
31, 1998.
SIGNATURES
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 16, 1999 /S/ DOUGLAS E. FEARS
----------------------- -----------------------------------------
Douglas E. Fears, Chief Financial Officer
Date: FEBRUARY 16, 1999 /S/ HANS C. HELMERICH
----------------------- -----------------------------------------
Hans C. Helmerich, President
-17-
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 27,890
<SECURITIES> 199,141
<RECEIVABLES> 120,301
<ALLOWANCES> 3,408
<INVENTORY> 26,982
<CURRENT-ASSETS> 197,933
<PP&E> 1,399,884
<DEPRECIATION> 690,163
<TOTAL-ASSETS> 1,119,848
<CURRENT-LIABILITIES> 147,205
<BONDS> 0
0
0
<COMMON> 5,353
<OTHER-SE> 796,282
<TOTAL-LIABILITY-AND-EQUITY> 1,119,848
<SALES> 142,518
<TOTAL-REVENUES> 143,864
<CGS> 110,765
<TOTAL-COSTS> 110,765
<OTHER-EXPENSES> 8,028
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,602
<INCOME-PRETAX> 19,879
<INCOME-TAX> 7,862
<INCOME-CONTINUING> 12,811
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,811
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>