<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: JUNE 30, 1999
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 JUNE 30, 1999
Common Stock, .10 par value 49,497,299
----------
TOTAL NUMBER OF PAGES 18
<PAGE> 2
HELMERICH & PAYNE, INC.
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets -
June 30, 1999 and September 30, 1998 . . . . . . . . . . . 3
Consolidated Condensed Statements of Income -
Three Months and Nine Months Ended
June 30, 1999 and 1998 . . . . . . . . . . . . . . . . . . 4
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended June 30, 1999 and 1998 . . . . . . . . . 5
Consolidated Condensed Statement of Shareholders' Equity
Nine Months Ended June 30, 1999. . . . . . . . . . . . . . 6
Notes to Consolidated Condensed Financial Statements . . . 7, 8 & 9
Revenues and Income by Business Segments . . . . . . . . . 10
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . 11 - 17
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . 18
Signature Page . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
-2-
<PAGE> 3
PART I FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
(Unaudited)
June 30 September 30
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 27,055 $ 24,476
Short-term investments 303 262
Accounts receivable, net 98,338 119,395
Inventories 26,463 25,401
Prepaid expenses and other 22,382 14,811
------------ ------------
Total Current Assets 174,541 184,345
------------ ------------
Investments 237,728 200,400
Property, Plant and Equipment, net 693,556 692,371
Other Assets 12,569 13,314
------------ ------------
Total Assets $ 1,118,394 $ 1,090,430
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 24,505 $ 41,851
Accrued liabilities 35,057 38,833
Notes payable 36,000 44,800
------------ ------------
Total Current Liabilities 95,562 125,484
------------ ------------
Noncurrent Liabilities
Long-term notes payable 50,000 50,000
Deferred income taxes 118,513 103,469
Other 16,226 18,329
------------ ------------
Total Noncurrent Liabilities 184,739 171,798
------------ ------------
SHAREHOLDERS' EQUITY
Common stock, par value, $.10 per
share 5,353 5,353
Preferred stock, no shares issued -- --
Additional paid-in capital 59,653 59,004
Retained earnings 738,969 716,875
Unearned compensation (4,841) (5,605)
Accumulated other comprehensive income 75,138 54,689
------------ ------------
874,272 830,316
Less treasury stock, at cost 36,179 37,168
------------ ------------
Total Shareholders' Equity 838,093 793,148
------------ ------------
Total Liabilities and Shareholders' Equity $ 1,118,394 $ 1,090,430
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
-3-
<PAGE> 4
PART I FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
June 30 June 30
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Sales and other operating revenues $129,284 $153,902 $425,844 $438,836
Income from investments 2,515 23,234 5,193 32,512
-------- -------- -------- --------
131,799 177,136 431,037 471,348
-------- -------- -------- --------
COST AND EXPENSES:
Operating costs 73,888 91,976 256,793 249,848
Depreciation, depletion and
amortization 25,341 21,195 82,711 59,032
Dry holes and abandonments 3,063 1,967 6,956 9,273
Taxes, other than income taxes 5,975 6,900 19,050 17,877
General and administrative 3,296 2,406 11,413 8,801
Interest 1,928 572 5,407 631
-------- -------- -------- --------
113,491 125,016 382,330 345,462
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES AND
EQUITY IN INCOME OF AFFILIATE 18,308 52,120 48,707 125,886
INCOME TAX EXPENSE 7,293 19,836 19,190 47,876
EQUITY IN INCOME OF AFFILIATE,
net of income taxes 1,181 1,577 2,842 4,353
-------- -------- -------- --------
NET INCOME $ 12,196 $ 33,861 $ 32,359 $ 82,363
======== ======== ======== ========
EARNINGS PER COMMON SHARE:
Basic $ 0.25 $ 0.68 $ 0.66 $ 1.65
Diluted $ 0.24 $ 0.67 $ 0.65 $ 1.62
CASH DIVIDENDS (Note 2) $ 0.07 $ 0.07 $ 0.21 $ 0.21
AVERAGE COMMON SHARES OUTSTANDING:
Basic 49,252 50,078 49,211 50,045
Diluted 49,933 50,540 49,730 50,738
</TABLE>
The accompanying notes are an integral part of these statements.
-4-
<PAGE> 5
PART I FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
06/30/99 06/30/98
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 32,359 $ 82,363
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 82,711 59,032
Dry holes and abandonments 6,956 9,273
Equity in income of affiliate before income taxes (4,583) (7,021)
Amortization of deferred compensation 1,177 972
Gain on sale of securities (1,310) (27,650)
Gain on sale of property, plant & equipment (6,984) (2,886)
Other, net 923 178
Change in assets and liabilities-
Accounts receivable 21,057 (21,905)
Inventories (1,062) (3,609)
Prepaid expenses and other (6,826) (5,400)
Account payable (17,346) (1,028)
Accrued liabilities (3,776) (572)
Deferred income taxes 2,511 1,078
Other noncurrent liabilities (2,103) 9,326
---------- ----------
Total adjustments 71,345 9,788
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 103,704 92,151
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, including dry hole costs, (93,150) (177,239)
Proceeds from sales of property, plant and equipment 9,405 14,452
Purchase of investments (684) (52)
Proceeds from sale of investments 1,285 58,703
Purchase of short-term investments (63) --
Proceeds from sale of short-term investments 22 50
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (83,185) (104,086)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 99,000 102,000
Payments made on notes payable (107,800) (78,000)
Dividends paid (10,389) (10,297)
Purchases of stock for treasury -- (273)
Proceeds from exercise of stock options 1,249 1,245
---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (17,940) 14,675
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,579 2,740
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 24,476 27,963
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 27,055 $ 30,703
========== ==========
</TABLE>
-5-
<PAGE> 6
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands - except per share data)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Treasury Stock Other
-------------- Paid-In Unearned Retained --------------- 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 32,359 32,359
Other comprehensive income,
net of tax - unrealized
gains on available-for
sale securities 20,449 20,449
--------
Comprehensive income 52,808
--------
Cash dividends ($0.21 per share) (10,389) (10,389)
Exercise of Stock Options 512 (97) 837 1,349
Stock issued under Restricted Stock
Award Plan 137 (289) (17) 152
Amortization of deferred compensation 1,053 124 1,177
------ ------ ------- ------- -------- ----- -------- ------- --------
Balance, June 30, 1999 53,529 $5,353 $59,653 $(4,841) $738,969 4,032 $(36,179) $75,138 $838,093
====== ====== ======= ======= ======== ===== ======== ======= ========
</TABLE>
-6-
<PAGE> 7
PART I FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
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 and nine
months ended June 30, 1999, and June 30, 1998, are not necessarily
indicative of the results to be expected for the full year. These
condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto in the Company's 1998 Annual Report on Form 10-K and the
Company's 1999 First and Second Quarter Reports on Form 10-Q.
2. The $.07 cash dividend declared in March, 1999, was paid June 1, 1999.
On June 2, 1999, a cash dividend of $.07 per share was declared for
shareholders of record on August 13, 1999, payable September 1, 1999.
3. Inventories consist of materials and supplies.
4. Income from investments includes $1,310,000 and $27,650,000 from gains
on sales of available-for-sale securities during the first nine months
of 1999 and 1998, respectively.
Depreciation and depletion for the nine months ended June 30, 1999
includes an impairment charge of $8.9 million in connection with the
drilling and completion of a pinnacle reef well with reserve values
significantly below its carrying cost.
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 $40,006,000.
<TABLE>
<CAPTION>
Gross Gross Est.
Unrealized Unrealized Fair
Cost Gains Losses Value
(in thousands)
-------------------------------------------------
<S> <C> <C> <C> <C>
Equity Securities 06/30/99 $76,532 $124,284 $ 3,094 $197,722
Equity Securities 09/30/98 $76,770 $ 93,364 $ 5,156 $164,978
</TABLE>
6. Comprehensive Income -
Comprehensive income, net of related tax, is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
1999 1998 1999 1998
------- -------- ------- --------
<S> <C> <C> <C> <C>
Net Income $12,196 $33,861 $32,359 $ 82,363
Unrealized gains(losses)
on available-for-sale
securities 11,214 (20,782) 20,449 (26,030)
------- -------- ------- --------
Comprehensive Income $23,410 $ 13,079 $52,808 $ 56,333
======= ======== ======= ========
</TABLE>
-7-
<PAGE> 8
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
7. Notes payable and Long-term Debt -
At June 30, 1999, the Company had committed bank lines of credit
totaling $120 million; $70 million may be borrowed through May 2000,
and $50 million may be borrowed through October 2003. Additionally, the
Company had uncommitted credit facilities totaling $60 million.
Collectively, the Company had $86 million in outstanding borrowings and
outstanding letters of credit totaling $8.3 million at June 30, 1999.
The average rate on the borrowings at June 30, 1999, was 5.4 percent,
including the estimated effect of an interest rate swap described
below.
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
include 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 Nine Months Ended
June 30 June 30
(in thousands) 1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic weighted-average shares 49,252 50,078 49,211 50,045
Effect of dilutive shares:
Stock options 666 462 506 668
Restricted stock 15 -- 13 25
------ ------ ------ ------
681 462 519 693
------ ------ ------ ------
Diluted weighted-average shares 49,933 50,540 49,730 50,738
====== ====== ====== ======
</TABLE>
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 June 30, 1999, 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.
-8-
<PAGE> 9
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
9. New Accounting Pronouncements -
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures About Segments of an Enterprise and Related
Information". This statement, which the Company has not adopted, 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.
The Financial Accounting Standards Board has issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", (SFAS
133) which, as amended, is effective for fiscal years beginning after
June 15, 2000. 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 results of
operations and the financial position of the Company.
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.
REVENUES AND INCOME BY BUSINESS SEGMENTS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
FISCAL YEAR 1999 Nine Mos. Nine Mos.
1st Qtr 2nd Qtr 3rd Qtr 06/30/99 06/30/98
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SALES AND OTHER REVENUES:
Contract Drilling-Domestic $ 45,985 $ 72,150 $ 47,848 $ 165,983 $ 131,121
Contract Drilling-Internat'l 54,685 49,853 42,528 147,066 182,873
--------- --------- --------- --------- ---------
Total Contract Drilling
Division 100,670 122,003 90,376 313,049 313,994
--------- --------- --------- --------- ---------
Exploration and Production 26,428 18,849 22,364 67,641 76,697
Natural Gas Marketing 13,175 11,481 13,993 38,649 41,045
--------- --------- --------- --------- ---------
Total Oil & Gas Division 39,603 30,330 36,357 106,290 117,742
--------- --------- --------- --------- ---------
Real Estate Division 2,193 2,095 2,188 6,476 6,773
Investments and other 1,398 946 2,878 5,222 32,839
--------- --------- --------- --------- ---------
Total Revenues $ 143,864 $ 155,374 $ 131,799 $ 431,037 $ 471,348
========= ========= ========= ========= =========
OPERATING PROFIT(LOSS):
Contract Drilling-Domestic $ 7,664 $ 11,704 $ 6,332 $ 25,700 $ 27,009
Contract Drilling-Internat'l 9,941 9,082 7,307 26,330 42,272
--------- --------- --------- --------- ---------
Total Contract Drilling
Division 17,605 20,786 13,639 52,030 69,281
--------- --------- --------- --------- ---------
Exploration and Production 4,505 (6,270) 5,445 3,680 28,794
Natural Gas Marketing 941 1,039 1,023 3,003 1,686
--------- --------- --------- --------- ---------
Total Oil & Gas Division 5,446 (5,231) 6,468 6,683 30,480
--------- --------- --------- --------- ---------
Real Estate Division 1,391 1,270 1,333 3,994 4,443
--------- --------- --------- --------- ---------
Total Operating Profit 24,442 16,825 21,440 62,707 104,204
--------- --------- --------- --------- ---------
OTHER (4,563) (6,305) (3,132) (14,000) 21,682
--------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES AND
EQUITY IN INCOME OF AFFILIATE $ 19,879 $ 10,520 $ 18,308 $ 48,707 $ 125,886
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
-10-
<PAGE> 11
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
JUNE 30, 1999
RISK FACTORS AND FORWARD-LOOKING STATEMENTS
The following discussion should be read in conjunction with the consolidated
financial statements, notes and management's narrative analysis contained in the
Company's 1998 Annual Report on Form 10-K and the Company's 1999 First and
Second Quarter Reports on Form 10-Q and the condensed 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 $12,196,000 ($0.24 per share)from revenues of
$131,799,000 for the third quarter ended June 30, 1999, compared with net income
of $33,861,000 ($0.67 per share) from revenues of $177,136,000 for the third
quarter of the prior fiscal year. Net income for the first nine months of this
fiscal year totaled $32,359,000 ($0.65 per share) from revenues of $431,037,000,
compared with net income of $82,363,000 ($1.62 per share) from revenues of
$471,348,000 recorded for the same period last year.
Included in the third quarter net income were gains from the sale of
available-for-sale securities of $0.01 per share, compared with $0.26 per share
during last year's third quarter. Net income from security sales for the nine
months ended June 30, 1999, was $0.02 per share and $0.33 per share for same
period of fiscal 1998.
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
Operating profit from the Company's domestic drilling operations for the third
quarter of fiscal 1999 and 1998 was $6,332,000 and $9,363,000, respectively.
Fundamentals in the domestic drilling land sector continued to deteriorate in
the current quarter, because of reductions in capital spending by most of the
Company's customers. Land rig utilization during the quarter was 53%, compared
with 95% during the third quarter of fiscal 1998, and 74% in the second quarter
of fiscal 1999. Average U.S. land rig dayrates were down by approximately 19%
from last year's third quarter and down 5% from the second quarter of fiscal
1999. Offshore rig utilization during the third quarter of fiscal 1999 was 83%,
compared with 98% during last year's third quarter. Although rig utilization was
-11-
<PAGE> 12
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
JUNE 30, 1999
(Continued)
down from last year, third quarter results from domestic offshore operations
were higher than last year, helped by a full quarter of income from Rig 204 and
the income from Rig 91, which was transferred from offshore Venezuela to U.S.
operations in December, 1998. Also included in this quarter's domestic operating
results was $10.4 million of revenues and $2.3 million of operating profit from
the Company's JADE construction project. This project neared completion during
the third quarter, and could produce as much as a half million dollars of
operating profit in the fourth quarter.
Operating profit from the Company's international drilling operations for the
third quarter of fiscal 1999 and 1998 was $7,307,000 and $13,414,000,
respectively. Revenues for the same periods were $42,528,000 and $69,202,000,
respectively. International rig utilization fell to 49% for this year's third
quarter, compared with 91% during third quarter of fiscal 1998. The most
significant declines in rig utilization and operating profit occurred in the
Company's largest international operations in Venezuela and Colombia. Also
during the current quarter, Rig 200, the offshore platform rig located in
Australia owned in a 50-50 partnership with Atwood Oceanics, ceased operations
and is now stacked.
The Company's Exploration and Production Division reported an operating profit
of $5,445,000 and $7,299,000 for the third quarter of fiscal 1999 and 1998,
respectively. Oil and gas revenues for the same periods were $22,364,000 and
$22,296,000, respectively. The decrease in operating profit in the third quarter
of fiscal 1999, compared with the same quarter of 1998, is primarily the result
of higher depreciation and depletion expense and dry hole costs. Crude oil
prices for the third quarter of fiscal 1999 and 1998 averaged $15.66 per bbl and
$12.89 per bbl, respectively, while crude oil volumes for the same periods
averaged 1,718 bbls/d and 1,886 bbls/d, respectively. Natural gas prices for the
third quarter of fiscal 1999 and 1998 averaged $1.80 per mcf and $1.94 per mcf,
respectively. Natural gas volumes for the third quarter of fiscal 1999 and 1998
averaged 122.0 mcf/d and 112.5 mcf/d, respectively.
COMPARISON OF THE NINE MONTHS ENDED JUNE 30, 1999 AND 1998
Operating profit from the Company's domestic drilling operations for the nine
months ended June 30, 1999 and 1998 was $25,700,000 and $27,009,000,
respectively. Land rig utilization during the first nine months of fiscal 1999
was 71%, compared with 97% for the same period of fiscal 1998. Average U.S. land
rig dayrates were down approximately 14% for the same periods. Offshore rig
utilization for the nine months ended June 30, 1999, was 94% compared with 99%
for the same period of fiscal 1998. The Company experienced substantial
increases in operating results from offshore rigs for the nine months ended June
30, 1999, compared with the first nine months of fiscal 1998. This was the
result of increased operating days of Rig 204 (273 days vs. 77 days) and the
transfer of Rig 91 from offshore Venezuela to U.S. offshore operations in
December 1998. Also included in the nine months operating results for domestic
operations was $36.4 million of revenues and $4.9 million of operating profit
from the Company's JADE construction project. Even with some improvements in
offshore operations, operating profit for the domestic drilling operations are
expected to decline during the fourth quarter.
-12-
<PAGE> 13
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
JUNE 30, 1999
(Continued)
Operating profit from the Company's international drilling operations for the
nine months ended June 30, 1999 and 1998 was $26,330,000 and $42,272,000,
respectively. Revenues for the same periods were $147,066,000 and $182,873,000,
respectively. International rig utilization was 56% for the first nine months of
fiscal 1999, compared with 92% for the same period of fiscal 1998. Significant
declines in rig utilization in both Venezuela and Colombia, as well as reduced
dayrates in both countries, were the major reasons for the overall decline in
international operating results. The Company expects to record lower
international earnings during the fourth quarter primarily because Rig 200 in
Australia will be stacked and continued low rig utilization in South America.
The Company's Exploration and Production Division reported an operating profit
of $3,680,000 and $28,794,000 for the nine months ended June 30, 1999, and 1998,
respectively. The significant decrease in operating profit is the result of
lower oil and gas revenues, increased exploration costs and increased
depreciation and depletion expense, offset by decreased dry hole expense and
gains recorded from the sale of producing properties.
Oil and gas revenues for the nine months ended June 30, 1999 and 1998 were
$67,641,000 and $76,697,000, respectively. For the nine months ended June 30,
1999 and 1998, crude oil prices averaged $12.69 per bbl and $15.52 per bbl,
respectively, while crude oil volumes for the same periods averaged 1,743 bbls/d
and 1,962 bbls/d, respectively. Natural gas prices for the nine months ended
June 30, 1999 and 1998 averaged $1.69 per mcf and $2.15 per mcf, respectively.
Natural gas volumes for the same periods averaged 122.4 mcf/d and 115.1 mcf/d,
respectively. Also included in revenues for the nine months ended June 30, 1999,
were gains from the sale of producing properties of approximately $4.7 million.
Exploration costs, primarily geophysical charges, increased to $9.4 million for
the nine months ending June 30, 1999, compared with $4.6 million for the same
period of fiscal 1998. Division depreciation and depletion expense was $30.7
million for the first nine months of fiscal 1999, compared with $18.2 million
during the first nine months of fiscal 1998. This year's total included an
impairment charge of $8.9 million in connection with the drilling and completion
of a pinnacle reef well with reserve values significantly below its carrying
cost. Dry hole expense for the first nine months of fiscal 1999, and 1998, were
$978,000 and $4,505,000, respectively.
During the fourth quarter, the Company will be drilling a significant
development well in its Dixieland prospect in Texas, and will continue its
drilling in Jefferson County, Texas, where four successful exploratory wells, in
which the Company owns approximately 33%, are at various stages of completion.
For the nine months ended June 30, 1999 and 1998, the other line item, included
in the Statement of Revenues and Income by Business Segments on page 10, was a
loss of $14,000,000 and a profit of $21,682,000, respectively. The significant
decrease in other operating profit is the result of lower gains on the sale of
available-for-sale securities in fiscal 1999 compared with fiscal 1998 (see Note
4), increased interest expense in fiscal 1999, and increased corporate general
and administrative expense in fiscal 1999. Interest expense increased to
$5,407,000 in fiscal 1999, compared with $631,000 in fiscal 1998 because of
increased notes payable balances. General and administrative expense increased
to $11,413,000 in fiscal 1999, compared with $8,801,000 in fiscal 1998 as the
result of higher employee benefit expenses and expenses associated with staff
increases in the information technology area.
-13-
<PAGE> 14
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
JUNE 30, 1999
(Continued)
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $103,704,000 for the first nine
months of fiscal 1999, compared with $92,151,000 for the same period in 1998.
Capital expenditures were $93,150,000 and $177,329,000 for the first nine months
of fiscal 1999 and 1998, respectively.
It is anticipated for fiscal 1999 that capital expenditures will approach $135
million, which is less than the Company's projected internally generated cash
flow. The Company would, if necessary, borrow under its line of credit agreement
to fund capital expenditures in excess of cash flows. The Company reduced
borrowings by $23,500,000 during the current quarter. The Company's indebtedness
totaled $86,000,000 as of June 30, 1999, 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.
YEAR 2000 COMPLIANCE
THE COMPANY'S STATE OF READINESS
The following information shall constitute the Company's "Year 2000 Readiness
Disclosure" within the meaning of the Year 2000 Information Readiness Act.
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 embedded 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.
-14-
<PAGE> 15
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
JUNE 30, 1999
(Continued)
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
project is proceeding on schedule to date. The following represents the status
of the Company's IT and Non-IT Compliance Project:
<TABLE>
<CAPTION>
STATUS OF TARGET FOR
COMPLETION COMPLETION
------------- ----------
IT
<S> <C> <C>
o Core accounting and operational Phases 1,2,3 Completed
(mainframe) systems & 4 completed
o Human Resources & Payroll Systems Phases 1,2,3 Completed
& 4 completed
o Network Phases 1,2,3 Completed
& 4 completed
o Desktop Computer Hardware Phases 1,2,3 & Completed
4 completed
o Standard Company Desktop Phases 1,2,3 & Completed
Computer Software 4 completed
o Business Unit User Software Phase 1 & 2 completed; September 30,
Phases 3 & 4 in 1999
progress
Non-IT
o Systems and Equipment Phase 1 & 2 completed; September 30,
Phases 3 & 4 in 1999
progress
</TABLE>
As reflected in the above table, the Company has exercised diligence 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 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 obtained 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 June 30, 1999, this phase of the
Y2K project was essentially complete. As a result of these activities, the
Company is conducting discussions 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 Compliance Project should not
exceed $1,000,000, including costs of employees working on the Y2K Project.
Costs for the new hardware and equipment are being capitalized, and other costs
are being expensed as incurred. The costs relating to the Company's Y2K
-15-
<PAGE> 16
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
JUNE 30, 1999
(Continued)
project are paid from the Company's general funds. To date, the Company has
incurred Y2K Project costs of approximately $800,000. 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 includes the
costs of independent consultants engaged to review selected Y2K issues.
THE COMPANY'S CONTINGENCY PLAN
The Company has developed its contingency plans on a business unit and
departmental basis. These contingency plans include, but are not 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 for its core
accounting 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
-16-
<PAGE> 17
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
JUNE 30, 1999
(Continued)
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.
-17-
<PAGE> 18
PART II. OTHER INFORMATION
HELMERICH & PAYNE, INC.
Item 6(b) Reports on Form 8-K
There were no reports on Form 8-K for the three months ended June 30,
1999.
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: AUGUST 13, 1999 /s/ DOUGLAS E. FEARS
------------ -------------------------------------------
Douglas E. Fears, Chief Financial Officer
Date: AUGUST 13, 1999 /s/ HANS C. HELMERICH
------------ -------------------------------------------
Hans C. Helmerich, President
-18-
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 27,055
<SECURITIES> 237,728
<RECEIVABLES> 101,746
<ALLOWANCES> 3,408
<INVENTORY> 26,463
<CURRENT-ASSETS> 174,541
<PP&E> 1,430,563
<DEPRECIATION> 737,007
<TOTAL-ASSETS> 1,118,394
<CURRENT-LIABILITIES> 95,562
<BONDS> 0
0
0
<COMMON> 5,353
<OTHER-SE> 832,740
<TOTAL-LIABILITY-AND-EQUITY> 1,118,394
<SALES> 425,844
<TOTAL-REVENUES> 431,037
<CGS> 354,722
<TOTAL-COSTS> 354,722
<OTHER-EXPENSES> 10,788
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,407
<INCOME-PRETAX> 48,707
<INCOME-TAX> 19,190
<INCOME-CONTINUING> 32,359
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,359
<EPS-BASIC> .66
<EPS-DILUTED> .65
</TABLE>