hp-20221231Q1false09/30000004676591212http://fasb.org/us-gaap/2022#SellingGeneralAndAdministrativeExpenseP5Y00000467652022-10-012022-12-3100000467652023-01-24xbrli:shares00000467652022-12-31iso4217:USD00000467652022-09-30iso4217:USDxbrli:shares00000467652021-10-012021-12-310000046765us-gaap:CommonStockMember2022-09-300000046765us-gaap:AdditionalPaidInCapitalMember2022-09-300000046765us-gaap:RetainedEarningsMember2022-09-300000046765us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-09-300000046765us-gaap:TreasuryStockCommonMember2022-09-300000046765us-gaap:RetainedEarningsMember2022-10-012022-12-310000046765us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-10-012022-12-310000046765us-gaap:AdditionalPaidInCapitalMember2022-10-012022-12-310000046765us-gaap:TreasuryStockCommonMember2022-10-012022-12-310000046765us-gaap:CommonStockMember2022-12-310000046765us-gaap:AdditionalPaidInCapitalMember2022-12-310000046765us-gaap:RetainedEarningsMember2022-12-310000046765us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-12-310000046765us-gaap:TreasuryStockCommonMember2022-12-310000046765us-gaap:CommonStockMember2021-09-300000046765us-gaap:AdditionalPaidInCapitalMember2021-09-300000046765us-gaap:RetainedEarningsMember2021-09-300000046765us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-09-300000046765us-gaap:TreasuryStockCommonMember2021-09-3000000467652021-09-300000046765us-gaap:RetainedEarningsMember2021-10-012021-12-310000046765us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-10-012021-12-310000046765us-gaap:AdditionalPaidInCapitalMember2021-10-012021-12-310000046765us-gaap:TreasuryStockCommonMember2021-10-012021-12-310000046765us-gaap:CommonStockMember2021-12-310000046765us-gaap:AdditionalPaidInCapitalMember2021-12-310000046765us-gaap:RetainedEarningsMember2021-12-310000046765us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-310000046765us-gaap:TreasuryStockCommonMember2021-12-3100000467652021-12-31hp:location0000046765hp:DrillingTechnologyCompaniesAcquisitionsMember2022-12-310000046765hp:DrillingTechnologyCompaniesAcquisitionsMember2022-09-300000046765us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember2022-12-310000046765us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember2021-12-310000046765us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember2022-09-300000046765us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember2021-09-300000046765us-gaap:OtherNoncurrentAssetsMember2022-12-310000046765us-gaap:OtherNoncurrentAssetsMember2021-12-310000046765us-gaap:OtherNoncurrentAssetsMember2022-09-300000046765us-gaap:OtherNoncurrentAssetsMember2021-09-3000000467652020-01-012020-03-31xbrli:pure0000046765country:AR2022-12-310000046765us-gaap:GeographicConcentrationRiskMemberus-gaap:SalesRevenueNetMemberus-gaap:GeographicDistributionForeignMember2022-10-012022-12-310000046765us-gaap:GeographicConcentrationRiskMemberus-gaap:SalesRevenueNetMemberus-gaap:GeographicDistributionForeignMember2021-10-012021-12-310000046765us-gaap:SalesRevenueSegmentMemberus-gaap:GeographicConcentrationRiskMemberhp:InternationalSolutionsSegmentMembersrt:SouthAmericaMemberus-gaap:GeographicDistributionForeignMember2022-10-012022-12-310000046765us-gaap:SalesRevenueSegmentMemberus-gaap:GeographicConcentrationRiskMemberhp:InternationalSolutionsSegmentMembersrt:SouthAmericaMemberus-gaap:GeographicDistributionForeignMember2021-10-012021-12-310000046765srt:MinimumMemberus-gaap:MachineryAndEquipmentMember2022-10-012022-12-310000046765srt:MaximumMemberus-gaap:MachineryAndEquipmentMember2022-10-012022-12-310000046765us-gaap:MachineryAndEquipmentMember2022-12-310000046765us-gaap:MachineryAndEquipmentMember2022-09-300000046765us-gaap:PublicUtilitiesInventoryTubularGoodsMember2022-10-012022-12-310000046765us-gaap:PublicUtilitiesInventoryTubularGoodsMember2022-12-310000046765us-gaap:PublicUtilitiesInventoryTubularGoodsMember2022-09-300000046765us-gaap:RealEstateInvestmentMembersrt:MinimumMember2022-10-012022-12-310000046765srt:MaximumMemberus-gaap:RealEstateInvestmentMember2022-10-012022-12-310000046765us-gaap:RealEstateInvestmentMember2022-12-310000046765us-gaap:RealEstateInvestmentMember2022-09-300000046765us-gaap:PropertyPlantAndEquipmentOtherTypesMembersrt:MinimumMember2022-10-012022-12-310000046765srt:MaximumMemberus-gaap:PropertyPlantAndEquipmentOtherTypesMember2022-10-012022-12-310000046765us-gaap:PropertyPlantAndEquipmentOtherTypesMember2022-12-310000046765us-gaap:PropertyPlantAndEquipmentOtherTypesMember2022-09-300000046765us-gaap:ConstructionInProgressMember2022-12-310000046765us-gaap:ConstructionInProgressMember2022-09-3000000467652022-11-012022-11-30hp:rig0000046765hp:DomesticNonSuperSpecAssetGroupMemberhp:NorthAmericaSolutionsMember2022-10-012022-12-310000046765hp:InternationalFlexRigMember2022-12-310000046765hp:ConventionalDrillingRigsMember2022-12-310000046765hp:InternationalFlexRigMember2022-10-012022-12-310000046765hp:AssetsPreviouslyHeldForSaleMember2022-12-310000046765hp:AssetsPreviouslyHeldForSaleMember2022-10-012022-12-310000046765hp:AdditionalEquipmentMember2022-12-310000046765hp:AdditionalEquipmentMember2022-10-012022-12-310000046765hp:AssetsRelatedToTruckingServicesAndCasinoRunningServicesMemberhp:NorthAmericaSolutionsMember2022-10-012022-12-310000046765hp:AssetsRelatedToTruckingServicesAndCasinoRunningServicesMemberhp:NorthAmericaSolutionsMember2021-10-012021-12-310000046765hp:NorthAmericaSolutionsMemberhp:PartialRigSubstructuresMember2021-12-310000046765hp:NorthAmericaSolutionsMemberhp:PartialRigSubstructuresMember2021-10-012021-12-310000046765hp:InternationalFlexRigMemberhp:InternationalSolutionsSegmentMember2021-12-310000046765hp:InternationalFlexRigMemberhp:InternationalSolutionsSegmentMember2021-10-012021-12-310000046765us-gaap:DevelopedTechnologyRightsMember2022-10-012022-12-310000046765us-gaap:DevelopedTechnologyRightsMember2022-12-310000046765us-gaap:DevelopedTechnologyRightsMember2022-09-300000046765us-gaap:IntellectualPropertyMember2022-10-012022-12-310000046765us-gaap:IntellectualPropertyMember2022-12-310000046765us-gaap:IntellectualPropertyMember2022-09-300000046765us-gaap:TradeNamesMember2022-10-012022-12-310000046765us-gaap:TradeNamesMember2022-12-310000046765us-gaap:TradeNamesMember2022-09-300000046765us-gaap:CustomerRelationshipsMember2022-10-012022-12-310000046765us-gaap:CustomerRelationshipsMember2022-12-310000046765us-gaap:CustomerRelationshipsMember2022-09-300000046765hp:UnsecuredSeniorNotesIssued2031Member2022-12-310000046765hp:UnsecuredSeniorNotesIssued2031Member2022-09-300000046765hp:UnsecuredSeniorNotesIssued2031Member2021-09-290000046765hp:UnsecuredSeniorNotesIssued2031Member2022-06-012022-06-300000046765hp:UnsecuredSeniorNotesIssued2025Member2021-10-270000046765hp:UnsecuredSeniorNotesIssued2025Member2021-10-012021-12-310000046765hp:A2018CreditFacilityDueNovember2025Member2021-04-160000046765hp:A2018CreditFacilityDueNovember2025Member2022-03-07hp:Options0000046765hp:A2018CreditFacilityDueNovember2025Member2022-03-080000046765hp:A2018CreditFacilityDueNovember2024Member2022-03-080000046765hp:A2018CreditFacilityMember2018-11-130000046765us-gaap:LetterOfCreditMemberhp:A2018CreditFacilityMember2018-11-130000046765hp:A2018CreditFacilityMember2022-12-310000046765hp:UnsecuredStandaloneLineOfCreditFacilityMember2022-12-310000046765us-gaap:LetterOfCreditMemberhp:BilateralLineOfCreditWithBankOneMember2022-12-310000046765us-gaap:LetterOfCreditMemberhp:BilateralLineOfCreditWithBankThreeMember2022-12-310000046765us-gaap:SubsequentEventMember2023-01-0100000467652022-09-072022-09-0700000467652022-10-172022-10-170000046765us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2022-12-310000046765us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2022-09-300000046765us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2022-10-012022-12-310000046765hp:YPFSAMember2021-11-122021-11-120000046765hp:YPFSAMember2021-11-120000046765hp:YPFSAMember2021-10-012021-12-3100000467652023-01-012022-12-3100000467652023-10-012022-12-3100000467652024-10-012022-12-310000046765hp:ContractDrillingCostsExcludingDepreciationAndAmortizationMember2022-10-012022-12-310000046765hp:ContractDrillingCostsExcludingDepreciationAndAmortizationMember2021-10-012021-12-310000046765us-gaap:ResearchAndDevelopmentExpenseMember2022-10-012022-12-310000046765us-gaap:ResearchAndDevelopmentExpenseMember2021-10-012021-12-310000046765us-gaap:SellingGeneralAndAdministrativeExpensesMember2022-10-012022-12-310000046765us-gaap:SellingGeneralAndAdministrativeExpensesMember2021-10-012021-12-310000046765us-gaap:RestrictedStockMember2022-09-300000046765us-gaap:RestrictedStockMember2022-10-012022-12-310000046765us-gaap:RestrictedStockMember2022-12-310000046765us-gaap:PhantomShareUnitsPSUsMember2022-10-012022-12-310000046765us-gaap:PerformanceSharesMember2022-09-300000046765us-gaap:PerformanceSharesMember2022-10-012022-12-310000046765us-gaap:PerformanceSharesMember2022-12-31hp:component0000046765hp:FirstComponentOfPerformanceUnitMember2022-10-012022-12-310000046765hp:SecondComponentOfPerformanceUnitMember2022-10-012022-12-31hp:tranche0000046765us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2022-12-310000046765us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2022-12-310000046765us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2022-12-310000046765us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:CorporateDebtSecuritiesMember2022-12-310000046765us-gaap:USGovernmentCorporationsAndAgenciesSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2022-12-310000046765us-gaap:FairValueInputsLevel1Memberus-gaap:USGovernmentCorporationsAndAgenciesSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2022-12-310000046765us-gaap:FairValueInputsLevel2Memberus-gaap:USGovernmentCorporationsAndAgenciesSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2022-12-310000046765us-gaap:USGovernmentCorporationsAndAgenciesSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2022-12-310000046765us-gaap:FairValueMeasurementsRecurringMember2022-12-310000046765us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2022-12-310000046765us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2022-12-310000046765us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2022-12-310000046765hp:ADNOCDrillingMemberus-gaap:FairValueMeasurementsRecurringMember2022-12-310000046765us-gaap:FairValueInputsLevel1Memberhp:ADNOCDrillingMemberus-gaap:FairValueMeasurementsRecurringMember2022-12-310000046765hp:ADNOCDrillingMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2022-12-310000046765hp:ADNOCDrillingMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2022-12-310000046765hp:TamboranResourcesLimitedMemberus-gaap:FairValueMeasurementsRecurringMember2022-12-310000046765us-gaap:FairValueInputsLevel1Memberhp:TamboranResourcesLimitedMemberus-gaap:FairValueMeasurementsRecurringMember2022-12-310000046765hp:TamboranResourcesLimitedMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2022-12-310000046765hp:TamboranResourcesLimitedMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2022-12-310000046765us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2022-09-300000046765us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2022-09-300000046765us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2022-09-300000046765us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:CorporateDebtSecuritiesMember2022-09-300000046765us-gaap:USGovernmentCorporationsAndAgenciesSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2022-09-300000046765us-gaap:FairValueInputsLevel1Memberus-gaap:USGovernmentCorporationsAndAgenciesSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2022-09-300000046765us-gaap:FairValueInputsLevel2Memberus-gaap:USGovernmentCorporationsAndAgenciesSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2022-09-300000046765us-gaap:USGovernmentCorporationsAndAgenciesSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2022-09-300000046765us-gaap:FairValueMeasurementsRecurringMember2022-09-300000046765us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2022-09-300000046765us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2022-09-300000046765us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2022-09-300000046765hp:ADNOCDrillingMemberus-gaap:FairValueMeasurementsRecurringMember2022-09-300000046765us-gaap:FairValueInputsLevel1Memberhp:ADNOCDrillingMemberus-gaap:FairValueMeasurementsRecurringMember2022-09-300000046765hp:ADNOCDrillingMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2022-09-300000046765hp:ADNOCDrillingMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2022-09-300000046765hp:ADNOCDrillingMember2021-09-012021-09-300000046765hp:ADNOCDrillingMember2021-09-300000046765hp:ADNOCDrillingMemberhp:ADNOCDrillingMember2021-09-300000046765hp:TamboranResourcesLimitedMember2022-10-012022-10-310000046765hp:TamboranResourcesLimitedMemberhp:TamboranResourcesLimitedMember2022-10-310000046765hp:GalileoTechnologiesMember2022-04-012022-04-300000046765us-gaap:ConvertibleDebtMemberhp:GalileoTechnologiesMember2022-04-30utr:Rate0000046765hp:GalileoTechnologiesMemberus-gaap:FairValueInputsLevel3Member2022-09-300000046765hp:GalileoTechnologiesMemberus-gaap:FairValueInputsLevel3Member2021-09-300000046765hp:GalileoTechnologiesMemberus-gaap:FairValueInputsLevel3Member2022-10-012022-12-310000046765hp:GalileoTechnologiesMemberus-gaap:FairValueInputsLevel3Member2021-10-012021-12-310000046765hp:GalileoTechnologiesMemberus-gaap:FairValueInputsLevel3Member2022-12-310000046765hp:GalileoTechnologiesMemberus-gaap:FairValueInputsLevel3Member2021-12-310000046765us-gaap:FairValueInputsLevel3Member2022-10-012022-12-310000046765us-gaap:FairValueInputsLevel3Member2022-09-300000046765us-gaap:FairValueInputsLevel3Member2021-09-300000046765us-gaap:FairValueInputsLevel3Member2021-10-012021-12-310000046765us-gaap:FairValueInputsLevel3Member2022-12-310000046765us-gaap:FairValueInputsLevel3Member2021-12-310000046765hp:GeothermalInvestmentsMember2022-12-310000046765hp:GeothermalInvestmentsMember2022-09-300000046765us-gaap:CarryingReportedAmountFairValueDisclosureMember2022-12-310000046765us-gaap:CarryingReportedAmountFairValueDisclosureMember2022-09-300000046765us-gaap:FairValueInputsLevel2Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2022-12-310000046765us-gaap:FairValueInputsLevel2Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2022-09-3000000467652022-02-012022-02-2800000467652022-06-012022-06-30hp:lease_extension0000046765hp:NorthAmericaSolutionsMember2022-10-012022-12-310000046765hp:OffshoreGulfofMexicoMember2022-10-012022-12-310000046765hp:InternationalSolutionsSegmentMember2022-10-012022-12-310000046765us-gaap:AllOtherSegmentsMember2022-10-012022-12-310000046765hp:NorthAmericaSolutionsMemberus-gaap:IntersegmentEliminationMember2022-10-012022-12-310000046765hp:OffshoreGulfofMexicoMemberus-gaap:IntersegmentEliminationMember2022-10-012022-12-310000046765us-gaap:IntersegmentEliminationMemberhp:InternationalSolutionsSegmentMember2022-10-012022-12-310000046765us-gaap:IntersegmentEliminationMemberus-gaap:AllOtherSegmentsMember2022-10-012022-12-310000046765us-gaap:IntersegmentEliminationMember2022-10-012022-12-310000046765us-gaap:OperatingSegmentsMemberhp:NorthAmericaSolutionsMember2022-10-012022-12-310000046765us-gaap:OperatingSegmentsMemberhp:OffshoreGulfofMexicoMember2022-10-012022-12-310000046765us-gaap:OperatingSegmentsMemberhp:InternationalSolutionsSegmentMember2022-10-012022-12-310000046765us-gaap:OperatingSegmentsMemberus-gaap:AllOtherSegmentsMember2022-10-012022-12-310000046765us-gaap:OperatingSegmentsMember2022-10-012022-12-310000046765hp:NorthAmericaSolutionsMember2021-10-012021-12-310000046765hp:OffshoreGulfofMexicoMember2021-10-012021-12-310000046765hp:InternationalSolutionsSegmentMember2021-10-012021-12-310000046765us-gaap:AllOtherSegmentsMember2021-10-012021-12-310000046765hp:NorthAmericaSolutionsMemberus-gaap:IntersegmentEliminationMember2021-10-012021-12-310000046765hp:OffshoreGulfofMexicoMemberus-gaap:IntersegmentEliminationMember2021-10-012021-12-310000046765us-gaap:IntersegmentEliminationMemberhp:InternationalSolutionsSegmentMember2021-10-012021-12-310000046765us-gaap:IntersegmentEliminationMemberus-gaap:AllOtherSegmentsMember2021-10-012021-12-310000046765us-gaap:IntersegmentEliminationMember2021-10-012021-12-310000046765us-gaap:OperatingSegmentsMemberhp:NorthAmericaSolutionsMember2021-10-012021-12-310000046765us-gaap:OperatingSegmentsMemberhp:OffshoreGulfofMexicoMember2021-10-012021-12-310000046765us-gaap:OperatingSegmentsMemberhp:InternationalSolutionsSegmentMember2021-10-012021-12-310000046765us-gaap:OperatingSegmentsMemberus-gaap:AllOtherSegmentsMember2021-10-012021-12-310000046765us-gaap:OperatingSegmentsMember2021-10-012021-12-310000046765us-gaap:MaterialReconcilingItemsMember2022-10-012022-12-310000046765us-gaap:MaterialReconcilingItemsMember2021-10-012021-12-310000046765us-gaap:CorporateNonSegmentMember2022-10-012022-12-310000046765us-gaap:CorporateNonSegmentMember2021-10-012021-12-310000046765us-gaap:OperatingSegmentsMemberhp:NorthAmericaSolutionsMember2022-12-310000046765us-gaap:OperatingSegmentsMemberhp:NorthAmericaSolutionsMember2022-09-300000046765us-gaap:OperatingSegmentsMemberhp:OffshoreGulfofMexicoMember2022-12-310000046765us-gaap:OperatingSegmentsMemberhp:OffshoreGulfofMexicoMember2022-09-300000046765us-gaap:OperatingSegmentsMemberhp:InternationalSolutionsSegmentMember2022-12-310000046765us-gaap:OperatingSegmentsMemberhp:InternationalSolutionsSegmentMember2022-09-300000046765us-gaap:OperatingSegmentsMemberus-gaap:AllOtherSegmentsMember2022-12-310000046765us-gaap:OperatingSegmentsMemberus-gaap:AllOtherSegmentsMember2022-09-300000046765us-gaap:OperatingSegmentsMember2022-12-310000046765us-gaap:OperatingSegmentsMember2022-09-300000046765us-gaap:CorporateNonSegmentMember2022-12-310000046765us-gaap:CorporateNonSegmentMember2022-09-300000046765country:US2022-10-012022-12-310000046765country:US2021-10-012021-12-310000046765country:AR2022-10-012022-12-310000046765country:AR2021-10-012021-12-310000046765country:BH2022-10-012022-12-310000046765country:BH2021-10-012021-12-310000046765country:AE2022-10-012022-12-310000046765country:AE2021-10-012021-12-310000046765country:CO2022-10-012022-12-310000046765country:CO2021-10-012021-12-310000046765hp:OtherForeignMember2022-10-012022-12-310000046765hp:OtherForeignMember2021-10-012021-12-310000046765us-gaap:SubsequentEventMember2023-01-012023-01-17
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2022
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 | 73-0679879 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1437 South Boulder Avenue, Suite 1400, Tulsa, Oklahoma 74119
(Address of principal executive offices) (Zip Code)
(918) 742-5531
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading symbol(s) | Name of each exchange on which registered |
Common Stock ($0.10 par value) | HP | New York Stock Exchange |
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 ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.
| | | | | | | | | | | |
Large accelerated filer | ☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No ☒
| | | | | | | | |
CLASS | | OUTSTANDING AT January 24, 2023 |
Common Stock, $0.10 par value | | 104,488,053 |
| | | | | | | | |
HELMERICH & PAYNE, INC. | |
INDEX TO FORM 10‑Q |
| | |
| | |
| | |
| | Page |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Q1FY23 FORM 10-Q | 2
| | | | | | | | | | | | | | |
PART I. FINANCIAL INFORMATION |
| | | | | | | | | | | | | | |
ITEM 1. FINANCIAL STATEMENTS |
| | | | | | | | | | | |
HELMERICH & PAYNE, INC. | | | |
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS |
| December 31, | | September 30, |
(in thousands except share data and per share amounts) | 2022 | | 2022 |
ASSETS | | | |
Current Assets: | | | |
Cash and cash equivalents | $ | 229,186 | | | $ | 232,131 | |
Restricted cash | 42,472 | | | 36,246 | |
Short-term investments | 118,457 | | | 117,101 | |
Accounts receivable, net of allowance of $6,242 and $2,975, respectively | 512,681 | | | 458,713 | |
Inventories of materials and supplies, net | 90,761 | | | 87,957 | |
Prepaid expenses and other, net | 83,506 | | | 66,463 | |
Assets held-for-sale | 1,551 | | | 4,333 | |
Total current assets | 1,078,614 | | | 1,002,944 | |
| | | |
Investments | 220,892 | | | 218,981 | |
Property, plant and equipment, net | 2,942,059 | | | 2,960,809 | |
Other Noncurrent Assets: | | | |
Goodwill | 45,653 | | | 45,653 | |
Intangible assets, net | 65,398 | | | 67,154 | |
Operating lease right-of-use assets | 38,539 | | | 39,064 | |
Other assets, net | 20,693 | | | 20,926 | |
Total other noncurrent assets | 170,283 | | | 172,797 | |
| | | |
Total assets | $ | 4,411,848 | | | $ | 4,355,531 | |
| | | |
LIABILITIES & SHAREHOLDERS' EQUITY | | | |
Current Liabilities: | | | |
Accounts payable | $ | 145,784 | | | $ | 126,966 | |
Dividends payable | 51,540 | | | 26,693 | |
| | | |
| | | |
Accrued liabilities | 272,247 | | | 241,151 | |
Total current liabilities | 469,571 | | | 394,810 | |
| | | |
Noncurrent Liabilities: | | | |
Long-term debt, net | 542,932 | | | 542,610 | |
Deferred income taxes | 537,264 | | | 537,712 | |
Other | 116,136 | | | 113,387 | |
Noncurrent liabilities - discontinued operations | 800 | | | 1,540 | |
Total noncurrent liabilities | 1,197,132 | | | 1,195,249 | |
Commitments and Contingencies (Note 12) | | | |
Shareholders' Equity: | | | |
Common stock, $0.10 par value, 160,000,000 shares authorized, 112,222,865 shares issued as of December 31, 2022 and September 30, 2022, and 104,898,566 and 105,293,662 shares outstanding as of December 31, 2022 and September 30, 2022, respectively | 11,222 | | | 11,222 | |
Preferred stock, no par value, 1,000,000 shares authorized, no shares issued | — | | | — | |
Additional paid-in capital | 512,928 | | | 528,278 | |
Retained earnings | 2,494,106 | | | 2,473,572 | |
Accumulated other comprehensive loss | (11,816) | | | (12,072) | |
Treasury stock, at cost, 7,324,299 shares and 6,929,203 shares as of December 31, 2022 and September 30, 2022, respectively | (261,295) | | | (235,528) | |
Total shareholders’ equity | 2,745,145 | | | 2,765,472 | |
Total liabilities and shareholders' equity | $ | 4,411,848 | | | $ | 4,355,531 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Q1FY23 FORM 10-Q | 3
| | | | | | | | | | | |
HELMERICH & PAYNE, INC. | | | |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
| Three Months Ended December 31, |
(in thousands, except per share amounts) | 2022 | | 2021 |
OPERATING REVENUES | | | |
Drilling services | $ | 717,170 | | | $ | 407,534 | |
Other | 2,467 | | | 2,248 | |
| 719,637 | | | 409,782 | |
OPERATING COSTS AND EXPENSES | | | |
Drilling services operating expenses, excluding depreciation and amortization | 428,251 | | | 299,652 | |
Other operating expenses | 1,126 | | | 1,182 | |
Depreciation and amortization | 96,655 | | | 100,437 | |
Research and development | 6,933 | | | 6,527 | |
Selling, general and administrative | 48,455 | | | 43,715 | |
Asset impairment charges | 12,097 | | | 4,363 | |
Restructuring charges | — | | | 742 | |
Gain on reimbursement of drilling equipment | (15,724) | | | (5,254) | |
Other (gain) loss on sale of assets | (2,379) | | | 1,029 | |
| 575,414 | | | 452,393 | |
OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS | 144,223 | | | (42,611) | |
Other income (expense) | | | |
Interest and dividend income | 4,705 | | | 2,589 | |
Interest expense | (4,355) | | | (6,114) | |
Gain (loss) on investment securities | (15,091) | | | 47,862 | |
Loss on extinguishment of debt | — | | | (60,083) | |
Other | (660) | | | (542) | |
| (15,401) | | | (16,288) | |
Income (loss) from continuing operations before income taxes | 128,822 | | | (58,899) | |
Income tax expense (benefit) | 32,395 | | | (7,568) | |
Income (loss) from continuing operations | 96,427 | | | (51,331) | |
Income (loss) from discontinued operations before income taxes | 718 | | | (31) | |
Income tax expense | — | | | — | |
Income (loss) from discontinued operations | 718 | | | (31) | |
NET INCOME (LOSS) | $ | 97,145 | | | $ | (51,362) | |
| | | |
Basic earnings (loss) per common share: | | | |
Income (loss) from continuing operations | $ | 0.91 | | | $ | (0.48) | |
Income from discontinued operations | 0.01 | | | — | |
Net income (loss) | $ | 0.92 | | | $ | (0.48) | |
| | | |
Diluted earnings (loss) per common share: | | | |
Income (loss) from continuing operations | $ | 0.90 | | | $ | (0.48) | |
Income from discontinued operations | 0.01 | | | — | |
Net income (loss) | $ | 0.91 | | | $ | (0.48) | |
| | | |
Weighted average shares outstanding: | | | |
Basic | 105,248 | | | 107,571 | |
Diluted | 106,104 | | | 107,571 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Q1FY23 FORM 10-Q | 4
| | | | | | | | | | | |
HELMERICH & PAYNE, INC. | | | |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) |
| Three months ended December 31, |
(in thousands) | 2022 | | 2021 |
Net income (loss) | $ | 97,145 | | | $ | (51,362) | |
Other comprehensive income, net of income taxes: | | | |
Net change related to employee benefit plans, net of income taxes of $(0.1) million for the three months ended December 31, 2022 and 2021 | 256 | | | 394 | |
Other comprehensive income | 256 | | | 394 | |
Comprehensive income (loss) | $ | 97,401 | | | $ | (50,968) | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Q1FY23 FORM 10-Q | 5
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
HELMERICH & PAYNE, INC. | | | | | | | | | | | | |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY |
| Three Months Ended December 31, 2022 and 2021 |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | |
(in thousands, except per share amounts) | Shares | | Amount | | | | | Shares | | Amount | | Total |
Balance at September 30, 2022 | 112,222 | | | $ | 11,222 | | | $ | 528,278 | | | $ | 2,473,572 | | | $ | (12,072) | | | 6,929 | | | $ | (235,528) | | | $ | 2,765,472 | |
Comprehensive income: | | | | | | | | | | | | | | | |
Net income | — | | | — | | | — | | | 97,145 | | | — | | | — | | | — | | | 97,145 | |
Other comprehensive income | — | | | — | | | — | | | — | | | 256 | | | — | | | — | | | 256 | |
Dividends declared ($0.25 base per share, $0.235 supplemental per share) | — | | | — | | | — | | | (76,611) | | | — | | | — | | | — | | | (76,611) | |
| | | | | | | | | | | | | | | |
Vesting of restricted stock awards, net of shares withheld for employee taxes | — | | | — | | | (22,776) | | | — | | | — | | | (449) | | | 13,293 | | | (9,483) | |
Stock-based compensation | — | | | — | | | 8,273 | | | — | | | — | | | — | | | — | | | 8,273 | |
Share repurchases | — | | | — | | | — | | | — | | | — | | | 844 | | | (39,060) | | | (39,060) | |
Other | — | | | — | | | (847) | | | — | | | — | | | — | | | — | | | (847) | |
Balance at December 31, 2022 | 112,222 | | | $ | 11,222 | | | $ | 512,928 | | | $ | 2,494,106 | | | $ | (11,816) | | | 7,324 | | | $ | (261,295) | | | $ | 2,745,145 | |
| | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | |
(in thousands, except per share amounts) | Shares | | Amount | | | | | Shares | | Amount | | Total |
Balance at September 30, 2021 | 112,222 | | | $ | 11,222 | | | $ | 529,903 | | | $ | 2,573,375 | | | $ | (20,244) | | | 4,324 | | | $ | (181,638) | | | 2,912,618 | |
Comprehensive income (loss): | | | | | | | | | | | | | | | |
Net loss | — | | | — | | | — | | | (51,362) | | | — | | | — | | | — | | | (51,362) | |
Other comprehensive income | — | | | — | | | — | | | — | | | 394 | | | — | | | — | | | 394 | |
Dividends declared ($0.25 per share) | — | | | — | | | — | | | (26,807) | | | — | | | — | | | — | | | (26,807) | |
| | | | | | | | | | | | | | | |
Vesting of restricted stock awards, net of shares withheld for employee taxes | — | | | — | | | (21,152) | | | — | | | — | | | (381) | | | 17,040 | | | (4,112) | |
Stock-based compensation | — | | | — | | | 6,218 | | | — | | | — | | | — | | | — | | | 6,218 | |
Share repurchases | — | | | — | | | — | | | — | | | — | | | 2,548 | | | (60,358) | | | (60,358) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Balance at December 31, 2021 | 112,222 | | | $ | 11,222 | | | $ | 514,969 | | | $ | 2,495,206 | | | $ | (19,850) | | | 6,491 | | | $ | (224,956) | | | $ | 2,776,591 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Q1FY23 FORM 10-Q | 6
| | | | | | | | | | | |
HELMERICH & PAYNE, INC. | | | |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| Three months ended December 31, |
(in thousands) | 2022 | | 2021 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net income (loss) | $ | 97,145 | | | $ | (51,362) | |
Adjustment for (income) loss from discontinued operations | (718) | | | 31 | |
Income (loss) from continuing operations | 96,427 | | | (51,331) | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | |
Depreciation and amortization | 96,655 | | | 100,437 | |
Asset impairment charges | 12,097 | | | 4,363 | |
Amortization of debt discount and debt issuance costs | 322 | | | 239 | |
Loss on extinguishment of debt | — | | | 60,083 | |
Provision for credit loss | 3,358 | | | (112) | |
| | | |
Stock-based compensation | 8,273 | | | 6,218 | |
(Gain) loss on investment securities | 15,091 | | | (47,862) | |
Gain on reimbursement of drilling equipment | (15,724) | | | (5,254) | |
Other (gain) loss on sale of assets | (2,379) | | | 1,029 | |
| | | |
Deferred income tax expense (benefit) | 188 | | | (17,750) | |
| | | |
Other | 7,692 | | | (4,489) | |
Change in assets and liabilities: | | | |
Accounts receivable | (57,896) | | | (54,641) | |
Inventories of materials and supplies | (3,007) | | | (2,507) | |
Prepaid expenses and other | (8,676) | | | 4,099 | |
Other noncurrent assets | (1,746) | | | 3,930 | |
Accounts payable | 10,450 | | | 36,041 | |
Accrued liabilities | 20,759 | | | (17,592) | |
Deferred income tax liability | (711) | | | 69 | |
Other noncurrent liabilities | 4,224 | | | (18,675) | |
Net cash provided by (used in) operating activities from continuing operations | 185,397 | | | (3,705) | |
Net cash used in operating activities from discontinued operations | (22) | | | (13) | |
Net cash provided by (used in) operating activities | 185,375 | | | (3,718) | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Capital expenditures | (96,027) | | | (44,014) | |
Other capital expenditures related to assets held-for-sale | — | | | (3,877) | |
Purchase of short-term investments | (41,641) | | | (47,083) | |
Purchase of long-term investments | (16,237) | | | (9,015) | |
| | | |
Proceeds from sale of short-term investments | 40,758 | | | 37,777 | |
| | | |
| | | |
Proceeds from asset sales | 30,978 | | | 21,483 | |
| | | |
| | | |
Net cash used in investing activities | (82,169) | | | (44,729) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Dividends paid | (51,764) | | | (27,320) | |
| | | |
| | | |
| | | |
Payments for employee taxes on net settlement of equity awards | (9,483) | | | (4,113) | |
Payment of contingent consideration from acquisition of business | (250) | | | (250) | |
Payments for early extinguishment of long-term debt | — | | | (487,148) | |
Make-whole premium payment | — | | | (56,421) | |
Share repurchases | (39,060) | | | (60,358) | |
| | | |
Net cash used in financing activities | (100,557) | | | (635,610) | |
Net increase (decrease) in cash and cash equivalents and restricted cash | 2,649 | | | (684,057) | |
Cash and cash equivalents and restricted cash, beginning of period | 269,009 | | | 936,716 | |
Cash and cash equivalents and restricted cash, end of period | $ | 271,658 | | | $ | 252,659 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Q1FY23 FORM 10-Q | 7
| | | | | | | | | | | |
HELMERICH & PAYNE, INC. | | | |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) |
| Three months ended December 31, |
(in thousands) | 2022 | | 2021 |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | |
Cash paid (received) during the period: | | | |
Interest paid | $ | 915 | | | $ | 2,673 | |
Income tax paid (received), net | (21,876) | | | 97 | |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Payments for operating leases | 2,474 | | | 3,657 | |
Non-cash operating and investing activities: | | | |
Change in accounts payable and accrued liabilities related to purchases of property, plant and equipment | (650) | | | (1,820) | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Q1FY23 FORM 10-Q | 8
| | | | | | | | | | | | | | |
HELMERICH & PAYNE, INC. |
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| | | | | | | | | | | | | | |
NOTE 1 NATURE OF OPERATIONS |
Helmerich & Payne, Inc. (“H&P,” which, together with its subsidiaries, is identified as the “Company,” “we,” “us,” or “our,” except where stated or the context requires otherwise) through its operating subsidiaries provides performance-driven drilling solutions and technologies that are intended to make hydrocarbon recovery safer and more economical for oil and gas exploration and production companies.
Our drilling services operations are organized into the following reportable operating business segments: North America Solutions, Offshore Gulf of Mexico and International Solutions. Our real estate operations, our incubator program for new research and development projects and our wholly-owned captive insurance companies are included in "Other." Refer to Note 13—Business Segments and Geographic Information for further details on our reportable segments.
Our North America Solutions operations are primarily located in Texas, but also traditionally operate in other states, depending on demand. Such states include: Colorado, Louisiana, New Mexico, North Dakota, Ohio, Oklahoma, Pennsylvania, Utah, West Virginia and Wyoming. Additionally, Offshore Gulf of Mexico operations are conducted in Louisiana and in U.S. federal waters in the Gulf of Mexico and our International Solutions operations have rigs and/or services primarily located in four international locations: Argentina, Bahrain, Colombia and the United Arab Emirates. Our operations in Australia are expected to begin in the latter half of fiscal year 2023.
We also own and operate a limited number of commercial real estate properties located in Tulsa, Oklahoma. Our real estate investments include a shopping center and undeveloped real estate.
| | | | | | | | | | | | | | |
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, RISKS AND UNCERTAINTIES |
Interim Financial Information
The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) pertaining to interim financial information. Accordingly, these interim financial statements do not include all information or footnote disclosures required by GAAP for complete financial statements and, therefore, should be read in conjunction with the Consolidated Financial Statements and notes thereto in our 2022 Annual Report on Form 10-K and other current filings with the SEC. In the opinion of management, all adjustments, consisting of those of a normal recurring nature, necessary to present fairly the results of the periods presented have been included. The results of operations for the interim periods presented may not necessarily be indicative of the results to be expected for the full year.
Principles of Consolidation
The Unaudited Condensed Consolidated Financial Statements include the accounts of Helmerich & Payne, Inc. and its domestic and foreign subsidiaries. Consolidation of a subsidiary begins when the Company gains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income, expenses and other comprehensive income or loss of a subsidiary acquired or disposed of during the fiscal year are included in the Unaudited Condensed Consolidated Statements of Operations and Unaudited Condensed Consolidated Statements of Comprehensive Income from the date the Company gains control until the date when the Company ceases to control the subsidiary. All intercompany accounts and transactions have been eliminated upon consolidation.
Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents include cash on hand, demand deposits with banks and all highly liquid investments with original maturities of three months or less. Our cash, cash equivalents and short-term investments are subject to potential credit risk, and certain of our cash accounts carry balances greater than the federally insured limits.
We had restricted cash of $42.5 million and $18.5 million at December 31, 2022 and 2021, respectively, and $36.9 million and $19.2 million at September 30, 2022 and 2021, respectively. Of the total at December 31, 2022 and September 30, 2022, $0.7 million and $1.1 million, respectively, is related to the acquisition of drilling technology companies, and $41.8 million and $35.8 million, respectively, represents an amount management has elected to restrict for the purpose of potential insurance claims in our wholly-owned captive insurance companies. The restricted amounts are primarily invested in short-term money market securities.
Q1FY23 FORM 10-Q | 9
Cash, cash equivalents, and restricted cash are reflected on the Unaudited Condensed Consolidated Balance Sheets as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, | | September 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Cash and cash equivalents | $ | 229,186 | | | $ | 234,196 | | | $ | 232,131 | | | $ | 917,534 | |
Restricted cash | 42,472 | | | 17,681 | | | 36,246 | | | 18,350 | |
Restricted cash - long-term: | | | | | | | |
Other assets, net | — | | | 782 | | | 632 | | | 832 | |
Total cash, cash equivalents, and restricted cash | $ | 271,658 | | | $ | 252,659 | | | $ | 269,009 | | | $ | 936,716 | |
Recently Issued Accounting Updates
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates ("ASUs") to the FASB Accounting Standards Codification ("ASC"). We consider the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable, clarifications of ASUs listed below, immaterial, or already adopted by the Company.
The following table provides a brief description of recently adopted accounting pronouncements and our analysis of the effects on our financial statements:
| | | | | | | | | | | |
Standard | Description | Date of Adoption | Effect on the Financial Statements or Other Significant Matters |
Recently Adopted Accounting Pronouncements |
|
ASU No. 2020-06, Debt with conversion and other options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s own equity (subtopic 815-40): Accounting for Convertible Instruments and Contracts In An Entity’s Own Equity | This ASU reduces the complexity of accounting for convertible debt and other equity-linked instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. This update is effective for annual and interim periods beginning after December 15, 2021. | October 1, 2022 | We adopted this ASU, as required, during the first quarter of fiscal year 2023. The adoption did not have a material effect on our Unaudited Condensed Consolidated Financial Statements and disclosures. |
ASU No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions | The amendments in this update clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value (i.e., the entity would not apply a discount related to the contractual sale restriction). Furthermore, an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The following disclosures for equity securities subject to contractual sale restrictions will be required: (1) the fair value of the equity securities subject to contractual sale restrictions reflected in the balance sheet, (2) the nature and remaining duration of the restriction(s), and (3) the circumstances that could cause a lapse in the restriction(s). This update is effective for annual and interim periods beginning after December 15, 2023. | October 1, 2022 | We early adopted this ASU during the first quarter of fiscal year 2023. The adoption did not have a material effect on our Unaudited Condensed Consolidated Financial Statements and disclosures. |
Q1FY23 FORM 10-Q | 10
Self-Insurance
Our wholly-owned insurance captives (the "Captives") incurred direct operating costs consisting primarily of adjustments to accruals for estimated losses of $2.9 million and $(2.2) million and rig and casualty insurance premiums of $10.0 million and $8.8 million during the three months ended December 31, 2022 and 2021 respectively. These operating costs were recorded within drilling services operating expenses in our Unaudited Condensed Consolidated Statement of Operations. Intercompany premium revenues recorded by the Captives during the three months ended December 31, 2022 and 2021 amounted to $16.4 million and $13.6 million respectively, which were eliminated upon consolidation. These intercompany insurance premiums are reflected as segment operating expenses within the North America Solutions, Offshore Gulf of Mexico, and International Solutions reportable operating segments and are reflected as intersegment sales within "Other." The Company self-insures employee health plan exposures in excess of employee deductibles. Starting in the second quarter of fiscal year 2020, the Captive insurer issued a stop-loss program that will reimburse the Company's health plan for claims that exceed $50,000. This program is reviewed at the end of each policy year by an outside actuary. Our medical stop loss operating expenses for the three months ended December 31, 2022 and 2021 were $2.8 million and $3.2 million, respectively.
International Solutions Drilling Risks
International Solutions drilling operations may significantly contribute to our revenues and net operating income (loss). There can be no assurance that we will be able to successfully conduct such operations, and a failure to do so may have an adverse effect on our financial position, results of operations, and cash flows. Also, the success of our International Solutions operations will be subject to numerous contingencies, some of which are beyond management’s control. These contingencies include general and regional economic conditions, fluctuations in currency exchange rates, modified exchange controls, changes in international regulatory requirements and international employment issues, risk of expropriation of real and personal property and the burden of complying with foreign laws. Additionally, in the event that extended labor strikes occur or a country experiences significant political, economic or social instability, we could experience shortages in labor and/or material and supplies necessary to operate some of our drilling rigs, thereby potentially causing an adverse material effect on our business, financial condition and results of operations.
We have also experienced certain risks specific to our Argentine operations. In Argentina, while our dayrate is denominated in U.S. dollars, we are paid the equivalent in Argentine pesos. The Argentine branch of one of our second-tier subsidiaries remits U.S. dollars to its U.S. parent by converting the Argentine pesos into U.S. dollars through the Argentine Foreign Exchange Market and repatriating the U.S. dollars. Argentina also has a history of implementing currency controls that restrict the conversion and repatriation of U.S. dollars. In September 2020, Argentina implemented additional currency controls in an effort to preserve Argentina's U.S. dollar reserves. As a result of these currency controls, our ability to remit funds from our Argentine subsidiary to its U.S. parent has been limited. In the past, the Argentine government has also instituted price controls on crude oil, diesel and gasoline prices and instituted an exchange rate freeze in connection with those prices. These price controls and an exchange rate freeze could be instituted again in the future. Further, there are additional concerns regarding Argentina's debt burden, notwithstanding Argentina's restructuring deal with international bondholders in August 2020, as Argentina attempts to manage its substantial sovereign debt issues. These concerns could further negatively impact Argentina's economy and adversely affect our Argentine operations. Argentina’s economy is considered highly inflationary, which is defined as cumulative inflation rates exceeding 100 percent in the most recent three-year period based on inflation data published by the respective governments. Nonetheless, all of our foreign subsidiaries use the U.S. dollar as the functional currency and local currency monetary assets and liabilities are remeasured into U.S. dollars with gains and losses resulting from foreign currency transactions included in current results of operations.
We recorded aggregate foreign currency losses of $0.2 million and $1.0 million for the three months ended December 31, 2022 and 2021 respectively. In the future, we may incur larger currency devaluations, foreign exchange restrictions or other difficulties repatriating U.S. dollars from Argentina or elsewhere, which could have a material adverse impact on our business, financial condition and results of operations. As of December 31, 2022, our cash balance in Argentina was $19.7 million.
Because of the impact of local laws, our future operations in certain areas may be conducted through entities in which local citizens own interests and through entities (including joint ventures) in which we hold only a minority interest or pursuant to arrangements under which we conduct operations under contract to local entities. While we believe that neither operating through such entities nor pursuant to such arrangements would have a material adverse effect on our operations or revenues, there can be no assurance that we will in all cases be able to structure or restructure our operations to conform to local law (or the administration thereof) on terms acceptable to us.
Although we attempt to minimize the potential impact of such risks by operating in more than one geographical area, during the three months ended December 31, 2022, approximately 7.7 percent of our operating revenues were generated from international locations compared to 9.3 percent during the three months ended December 31, 2021. During the three months ended December 31, 2022, approximately 90.5 percent of operating revenues from international locations were from operations in South America compared to 77.1 percent during the three months ended December 31, 2021. Substantially all of the South American operating revenues were from Argentina and Colombia. The future occurrence of one or more international events arising from the types of risks described above could have a material adverse impact on our business, financial condition and results of operations.
Q1FY23 FORM 10-Q | 11
| | | | | | | | | | | | | | |
NOTE 3 PROPERTY, PLANT AND EQUIPMENT |
Property, plant and equipment as of December 31, 2022 and September 30, 2022 consisted of the following:
| | | | | | | | | | | | | | | | | |
(in thousands) | Estimated Useful Lives | | December 31, 2022 | | September 30, 2022 |
Drilling services equipment | 4 - 15 years | | $ | 6,300,279 | | | $ | 6,369,888 | |
Tubulars | 4 years | | 570,833 | | | 569,496 | |
Real estate properties | 10 - 45 years | | 46,260 | | | 45,557 | |
Other | 2 - 23 years | | 429,724 | | | 422,479 | |
Construction in progress1 | | | 95,321 | | | 70,119 | |
| | | 7,442,417 | | | 7,477,539 | |
Accumulated depreciation | | | (4,500,358) | | | (4,516,730) | |
Property, plant and equipment, net | | | $ | 2,942,059 | | | $ | 2,960,809 | |
| | | | | |
Assets held-for-sale | | | $ | 1,551 | | | $ | 4,333 | |
(1)Included in construction in progress are costs for projects in progress to upgrade or refurbish certain rigs in our existing fleet. Additionally, we include other advances for capital maintenance purchase-orders that are open/in process. As these various projects are completed, the costs are then classified to their appropriate useful life category.
Depreciation
Depreciation expense in the Unaudited Condensed Consolidated Statements of Operations was $94.9 million and $98.6 million including abandonments of $1.2 million and $1.3 million for the three months ended December 31, 2022 and 2021, respectively. In November 2022, a fire at a wellsite caused substantial damage to one of our super spec-rigs within our North America Solutions segment. The major components were destroyed beyond repair and considered a total loss, and, as a result, these assets were written off and the rig was removed from our available rig count. At the time of the loss, the rig was fully insured under replacement cost insurance. The insurance recovery is expected to exceed the net book value of the components written off. The loss of $9.2 million is recorded as abandonment expense within Depreciation and Amortization in our Unaudited Condensed Consolidated Statement of Operations for the three months ended December 31, 2022 and is offset by an insurance recovery that was also recognized within Depreciation and Amortization for the same amount as the loss. Any insurance proceeds in excess of the loss will be recognized once it is collected.
Assets Held-for-Sale
The following table summarizes the balance (in thousands) of our assets held-for-sale at the dates indicated below:
| | | | | |
Balance at September 30, 2022 | $ | 4,333 | |
Plus: | |
Asset additions | 767 | |
Less: | |
Sale of assets held-for-sale | (816) | |
Impairment expense | (2,733) | |
Balance at December 31, 2022 | $ | 1,551 | |
Fiscal Year 2023 Activity
During the three months ended December 31, 2022, the Company initiated a plan to decommission and scrap four international FlexRig® drilling rigs and four conventional drilling rigs located in Argentina that are not suitable for unconventional drilling. As a result, these rigs were reclassified to Assets Held-for-Sale on our Unaudited Condensed Consolidated Balance Sheets as of December 31, 2022. The rigs’ aggregate net book value of $8.8 million was written down to the estimated scrap value of $0.7 million, which resulted in a non-cash impairment charge of $8.1 million within our International Solutions segment and recorded in our Unaudited Condensed Consolidated Statement of Operations during the three months ended December 31, 2022.
Q1FY23 FORM 10-Q | 12
During the three months ended December 31, 2022, our North America Solutions assets that were previously classified as Assets Held-for-Sale at September 30, 2022 were either sold or written down to scrap value. The aggregate net book value of these remaining assets was $3.0 million, which exceeded the estimated scrap value of $0.3 million, resulting in a non-cash impairment charge of $2.7 million during the three months ended December 31, 2022. During the three months ended December 31, 2022, we also identified additional equipment that met the asset held-for-sale criteria and was reclassified as Assets Held-for-Sale on our Unaudited Condensed Consolidated Balance Sheets. The aggregate net book value of the equipment of $1.4 million was written down to its estimated scrap value of $0.1 million, resulting in a non-cash impairment charge of $1.3 million during the three months ended December 31, 2022. These impairment charges are recorded within our North America Solutions segment in our Unaudited Condensed Consolidation Statement of Operations.
Fiscal Year 2022 Activity
During the three months ended December 31, 2021, we closed on the sale of our trucking and casing running assets for total consideration less costs to sell of $6.0 million, in addition to the possibility of future earnout proceeds, resulting in a loss of $3.4 million. We identified two partial rig substructures that met the asset held-for-sale criteria and were reclassified as Assets Held-for-Sale on our Unaudited Condensed Consolidated Balance Sheets. The combined net book value of the rig substructures of $2.0 million were written down to their estimated scrap value of $0.1 million, resulting in a non-cash impairment charge of $1.9 million within our North America Solutions segment and recorded in the Unaudited Condensed Consolidated Statement of Operations for the three months ended December 31, 2021. Two international FlexRig® drilling rigs located in Colombia were identified that met the asset held-for-sale criteria and were reclassified as Assets Held-for-Sale on our Unaudited Condensed Consolidated Balance Sheets. In conjunction with establishing a plan to sell the two international FlexRig® drilling rigs, we recognized a non-cash impairment charge of $2.5 million within our International Solutions segment and recorded in the Unaudited Condensed Consolidated Statement of Operations during the three months ended December 31, 2021, as the rigs aggregate net book value of $3.4 million exceeded the fair value of the rigs less estimated cost to sell of $0.9 million.
The significant assumptions utilized in the valuations of held-for-sale were based on our intended method of disposal, historical sales of similar assets, and market quotes and are classified as Level 2 and Level 3 inputs by ASC Topic 820, Fair Value Measurement and Disclosures. Although we believe the assumptions used in our analysis are reasonable and appropriate, different assumptions and estimates could materially impact the analysis and our resulting conclusion.
(Gain)/Loss on Sale of Assets
Gain on Reimbursement of Drilling Equipment
During the three months ended December 31, 2022 and 2021 we recognized a gain of $15.7 million and $5.3 million respectively, related to customer reimbursement for the current replacement value of lost or damaged drill pipe. Gains related to these asset sales are recorded in Gains on Reimbursement of Drilling Equipment within our Unaudited Condensed Consolidated Statements of Operations.
Other (Gain)/Loss on Sale of Assets
During the three months ended December 31, 2022 and 2021 we recognized a (gain) loss of $(2.4) million and $1.0 million, respectively, related to the sale of rig equipment and other capital assets. These amounts are recorded in Other (Gain) Loss on Sale of Assets within our Unaudited Condensed Consolidated Statements of Operations.
Fiscal Year 2023 During the first quarter of fiscal year 2023, we recognized a gain of $1.1 million in earnout proceeds associated with the sale of our trucking and casing services assets during the fiscal year ended September 30, 2022, as mentioned above.
Fiscal Year 2022 During the first quarter of fiscal year 2022, we closed on the sale of our former trucking and casing running assets resulting in a loss of $3.4 million, as mentioned above.
| | | | | | | | | | | | | | |
NOTE 4 GOODWILL AND INTANGIBLE ASSETS |
Goodwill
Goodwill represents the excess of the purchase price over the fair values of the assets acquired and liabilities assumed in a business combination, at the date of acquisition. Goodwill is not amortized but is tested for potential impairment at the reporting unit level, at a minimum on an annual basis in the fourth fiscal quarter, or when indications of potential impairment exist. All of our goodwill is within our North America Solutions reportable segment.
During the three months ended December 31, 2022, we had no additions or impairments to goodwill. As of December 31, 2022 and September 30, 2022, the goodwill balance was $45.7 million.
Q1FY23 FORM 10-Q | 13
Intangible Assets
Finite-lived intangible assets are amortized using the straight-line method over the period in which these assets contribute to our cash flows and are evaluated for impairment in accordance with our policies for valuation of long-lived assets. All of our intangible assets are within our North America Solutions reportable segment and consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2022 | | September 30, 2022 |
(in thousands) | Weighted Average Estimated Useful Lives | | Gross Carrying Amount | | Accumulated Amortization | | Net | | Gross Carrying Amount | | Accumulated Amortization | | Net |
Finite-lived intangible asset: | | | | | | | | | | | | | |
Developed technology | 15 years | | $ | 89,096 | | | $ | 29,626 | | | $ | 59,470 | | | $ | 89,096 | | | $ | 28,137 | | | $ | 60,959 | |
Intellectual property | 13 years | | 2,000 | | | 383 | | | 1,617 | | | 2,000 | | | 328 | | | 1,672 | |
Trade name | 20 years | | 5,865 | | | 1,554 | | | 4,311 | | | 5,865 | | | 1,475 | | | 4,390 | |
Customer relationships | 5 years | | 4,000 | | | 4,000 | | | — | | | 4,000 | | | 3,867 | | | 133 | |
| | | $ | 100,961 | | | $ | 35,563 | | | $ | 65,398 | | | $ | 100,961 | | | $ | 33,807 | | | $ | 67,154 | |
Amortization expense in the Unaudited Condensed Consolidated Statements of Operations was $1.8 million for both the three months ended December 31, 2022 and 2021 and is estimated to be approximately $4.8 million for the remainder of fiscal year 2023, and approximately $6.4 million for fiscal year 2024 through 2027.
We had the following unsecured long-term debt outstanding with maturities shown in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | September 30, 2022 |
(in thousands) | Face Amount | | Unamortized Discount and Debt Issuance Cost | | Book Value | | Face Amount | | Unamortized Discount and Debt Issuance Cost | | Book Value |
Unsecured senior notes: | | | | | | | | | | | |
| | | | | | | | | | | |
Due September 29, 2031 | $ | 550,000 | | | $ | (7,068) | | | $ | 542,932 | | | $ | 550,000 | | | $ | (7,390) | | | $ | 542,610 | |
| 550,000 | | | (7,068) | | | 542,932 | | | 550,000 | | | (7,390) | | | 542,610 | |
| | | | | | | | | | | |
Less: long-term debt due within one year | — | | | — | | | — | | | — | | | — | | | — | |
Long-term debt | $ | 550,000 | | | $ | (7,068) | | | $ | 542,932 | | | $ | 550,000 | | | $ | (7,390) | | | $ | 542,610 | |
Senior Notes
2.90% Senior Notes due 2031 On September 29, 2021, we issued $550.0 million aggregate principal amount of the 2.90 percent 2031 Notes in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A under the Securities Act (“Rule 144A”) and to certain non-U.S. persons in transactions outside the United States pursuant to Regulation S under the Securities Act (“Regulation S”). Interest on the 2031 Notes is payable semi-annually on March 29 and September 29 of each year, commencing on March 29, 2022. The 2031 Notes will mature on September 29, 2031 and bear interest at a rate of 2.90 percent per annum.
In June 2022, we settled a registered exchange offer (the “Registered Exchange Offer”) to exchange the 2031 Notes for new, SEC-registered notes that are substantially identical to the terms of the 2031 Notes, except that the offer and issuance of the new notes have been registered under the Securities Act and certain transfer restrictions, registration rights and additional interest provisions relating to the 2031 Notes do not apply to the new notes. One hundred percent of the 2031 Notes were exchanged in the Registered Exchange Offer.
The indenture governing the 2031 Notes contains certain covenants that, among other things and subject to certain exceptions, limit the ability of the Company and its subsidiaries to incur certain liens; engage in sale and lease-back transactions; and consolidate, merge or transfer all or substantially all of the assets of the Company. The indenture governing the 2031 Notes also contains customary events of default with respect to the 2031 Notes.
Q1FY23 FORM 10-Q | 14
4.65% Senior Notes due 2025 On October 27, 2021, we redeemed all of the outstanding 2025 Notes. As a result, the associated make-whole premium of $56.4 million and the write off of the unamortized discount and debt issuance costs of $3.7 million were recognized during the first fiscal quarter of 2022 contemporaneously with the October 27, 2021 debt extinguishment and recorded in Loss on Extinguishment of Debt on our Unaudited Condensed Consolidated Statements of Operations during the three months ended December 31, 2021.
Credit Facilities
On November 13, 2018, we entered into a credit agreement by and among the Company, as borrower, Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto, which was amended on November 13, 2019, providing for an unsecured revolving credit facility (as amended, the “2018 Credit Facility”), that was set to mature on November 13, 2024. On April 16, 2021, lenders with $680.0 million of commitments under the 2018 Credit Facility exercised their option to extend the maturity of the 2018 Credit Facility from November 13, 2024 to November 12, 2025. No other terms of the 2018 Credit Facility were amended in connection with this extension. Additionally, on March 8, 2022, we entered into the second amendment to the 2018 Credit Facility, which, among other things, raised the number of potential future extensions of the maturity date applicable to extending lenders from one to two such potential extensions and replaced provisions in respect of interest rate determinations that were based on the London Interbank Offered Rate with provisions based on the Secured Overnight Financing Rate. Lenders with $680.0 million of commitments under the 2018 Credit Facility also exercised their option to extend the maturity of the 2018 Credit Facility from November 12, 2025 to November 11, 2026. The remaining $70.0 million of commitments under the 2018 Credit Facility will expire on November 13, 2024, unless extended by the applicable lender before such date.
The 2018 Credit Facility has $750.0 million in aggregate availability with a maximum of $75.0 million available for use as letters of credit. As of December 31, 2022, there were no borrowings or letters of credit outstanding, leaving $750.0 million available to borrow under the 2018 Credit Facility. For a full description of the 2018 Credit Facility, see Note 7—Debt to the Consolidated Financial Statements in our 2022 Annual Report on Form 10-K.
As of December 31, 2022, we had $95.0 million in uncommitted bilateral credit facilities, for the purpose of obtaining the issuance of international letters of credit, bank guarantees, and performance bonds. Of the $95.0 million, $40.0 million was outstanding as of December 31, 2022. Separately, we had $2.1 million in standby letters of credit and bank guarantees outstanding. In total, we had $42.1 million outstanding as of December 31, 2022.
The applicable agreements for all unsecured debt contain additional terms, conditions and restrictions that we believe are usual and customary in unsecured debt arrangements for companies that are similar in size and credit quality. At December 31, 2022, we were in compliance with all debt covenants.
We use an estimated annual effective tax rate for purposes of determining the income tax provision during interim reporting periods. In calculating our estimated annual effective tax rate, we consider forecasted annual pre-tax income and estimated permanent book versus tax differences. Adjustments to the effective tax rate and estimates could occur during the year as information and assumptions change which could include, but are not limited to, changes to forecasted amounts, estimates of permanent book versus tax differences, and changes to tax laws and rates.
Our income tax expense (benefit) from continuing operations for the three months ended December 31, 2022 and 2021 was $32.4 million and $(7.6) million, respectively, resulting in effective tax rates of 25.1 percent and 12.8 percent, respectively. Effective tax rates differ from the U.S. federal statutory rate of 21.0 percent for the three months ended December 31, 2022 and 2021 primarily due to state and foreign income taxes, permanent non-deductible items and discrete adjustments. The discrete adjustments for the three months ended December 31, 2022 and 2021 are primarily due to tax expense related to equity compensation of $0.2 million and $3.5 million, respectively.
For the next 12 months, we cannot predict with certainty whether we will achieve ultimate resolution of any uncertain tax positions associated with our U.S. and international operations that could result in increases or decreases of our unrecognized tax benefits. However, we do not expect these increases or decreases to have a material effect on our results of continuing operations or financial position.
| | | | | | | | | | | | | | |
NOTE 7 SHAREHOLDERS’ EQUITY |
The Company has an evergreen authorization from the Board of Directors for the repurchase of up to four million common shares in any calendar year. In December 2022, the Board of Directors increased the maximum number of shares authorized to be repurchased in calendar year 2023 to five million common shares, effective on January 1, 2023. The repurchases may be made using our cash and cash equivalents or other available sources. During the three months ended December 31, 2022 and 2021, we repurchased 0.8 million common shares at an aggregate cost of $39.1 million and 2.5 million common shares at an aggregate cost of $60.4 million, respectively, which are held as treasury shares.
Q1FY23 FORM 10-Q | 15
A cash dividend of $0.25 per share was declared on September 7, 2022 and a supplemental dividend of $0.235 per share was declared on October 17, 2022, both for shareholders of record on November 15, 2022, and was paid on December 1, 2022. On December 9, 2022, the Board of Directors declared a quarterly cash dividend of $0.25 per share and a quarterly supplemental cash dividend of $0.235 per share for shareholders of record on February 14, 2023, payable on February 28, 2023. As a result, we recorded Dividends Payable of $51.5 million on our Unaudited Condensed Consolidated Balance Sheets as of December 31, 2022.
Accumulated Other Comprehensive Loss
Components of accumulated other comprehensive loss were as follows:
| | | | | | | | | | | |
| December 31, | | September 30, |
(in thousands) | 2022 | | 2022 |
Pre-tax amounts: | | | |
Unrealized actuarial loss | $ | (15,372) | | | $ | (15,703) | |
| | | |
After-tax amounts: | | | |
Unrealized actuarial loss | $ | (11,816) | | | $ | (12,072) | |
| | | |
The following is a summary of the changes in accumulated other comprehensive loss, net of tax, related to the defined benefit pension plan for the three months ended December 31, 2022:
| | | | | |
(in thousands) | Defined Benefit Pension Plan |
Balance at September 30, 2022 | $ | (12,072) | |
Activity during the period | |
Amounts reclassified from accumulated other comprehensive loss | 256 | |
Net current-period other comprehensive income | 256 | |
Balance at December 31, 2022 | $ | (11,816) | |
| | | | | | | | | | | | | | |
NOTE 8 REVENUE FROM CONTRACTS WITH CUSTOMERS |
Drilling Services Revenue
With most drilling contracts, we receive payments contractually designated for the mobilization and demobilization of drilling rigs and other equipment to and from the client’s drill site. Revenue associated with the mobilization and demobilization of our drilling rigs to and from the client’s drill site do not relate to a distinct good or service. These revenues are deferred and recognized ratably over the related contract term that drilling services are provided. For any contracts that include a provision for pooled term days at contract inception, followed by the assignment of days to specific rigs throughout the contract term, we have elected, as a practical expedient, to recognize revenue in the amount to which the entity has a right to invoice, as permitted by ASC 606.
On November 12, 2021, we settled a drilling contract dispute related to drilling services provided from fiscal years 2016 through 2019 with YPF S.A. (Argentina) ("YPF"). The settlement required that YPF make a one-time cash payment to H&P in the amount of $11.0 million and enter into drilling service contracts for three drilling rigs, each with multi-year terms. In addition, both parties were released of all outstanding claims against each other, and as a result, H&P recognized $5.4 million in revenue primarily due to accrued disputed amounts. Total revenue recognized as a result of the settlement in the amount of $16.4 million is included in Drilling Services Revenue within the International Solutions segment on our Unaudited Condensed Consolidated Statements of Operations for the three months ended December 31, 2021.
Contract Costs
We had capitalized fulfillment costs of $9.4 million and $6.3 million as of December 31, 2022 and September 30, 2022, respectively.
Q1FY23 FORM 10-Q | 16
Remaining Performance Obligations
The total aggregate transaction price allocated to the unsatisfied performance obligations, commonly referred to as backlog, as of December 31, 2022 was approximately $1.4 billion, of which approximately $1.0 billion is expected to be recognized during the remainder of fiscal year 2023, approximately $0.3 billion during fiscal year 2024, and approximately $0.1 billion in fiscal year 2025 and thereafter. These amounts do not include anticipated contract renewals. Additionally, contracts that currently contain month-to-month terms are represented in our backlog as one month of unsatisfied performance obligations. Our contracts are subject to cancellation or modification at the election of the customer; however, due to the level of capital deployed by our customers on underlying projects, we have not been materially adversely affected by contract cancellations or modifications in the past.
Contract Assets and Liabilities
The following table summarizes the balances of our contract assets (net of allowance for estimated credit losses) and liabilities at the dates indicated:
| | | | | | | | | | | |
(in thousands) | December 31, 2022 | | September 30, 2022 |
Contract assets, net | $ | 8,179 | | | $ | 6,319 | |
| | | | | |
(in thousands) | |
Contract liabilities balance at September 30, 2022 | $ | 20,646 | |
Payment received/accrued and deferred | 20,115 | |
Revenue recognized during the period | (15,080) | |
Contract liabilities balance at December 31, 2022 | $ | 25,681 | |
| | | | | | | | | | | | | | |
NOTE 9 STOCK-BASED COMPENSATION |
A summary of compensation expense for stock-based payment arrangements recognized in Drilling Services Operating Expense, Research and Development Expense and Selling, General and Administrative Expense on our Unaudited Condensed Consolidated Statements of Operations, is as follows:
| | | | | | | | | | | |
| Three Months Ended December 31, |
(in thousands) | 2022 | | 2021 |
Stock-based compensation expense | | | |
Drilling services operating | $ | 1,385 | | | $ | 1,240 | |
Research and development | 426 | | | 353 | |
Selling, general and administrative | 6,462 | | | 4,625 | |
| $ | 8,273 | | | $ | 6,218 | |
Restricted Stock
A summary of the status of our restricted stock awards as of December 31, 2022 and changes in non-vested restricted stock outstanding during the three months then ended is presented below:
| | | | | | | | | | | |
(shares in thousands) | Shares1 | | Weighted-Average Grant Date Fair Value per Share |
Non-vested restricted stock outstanding at September 30, 2022 | 1,493 | | | $ | 30.85 | |
Granted | 549 | | | 44.65 | |
Vested2 | (654) | | | 33.61 | |
Forfeited | (3) | | | 24.87 | |
Non-vested restricted stock outstanding at December 31, 2022 | 1,385 | | | $ | 35.02 | |
(1)Restricted stock shares include restricted phantom stock units under our Director Deferred Compensation Plan. These phantom stock units confer the economic benefits of owning company stock without the actual ownership, transfer or issuance of any shares. Phantom stock units are subject to a vesting period of one year from the grant date. During the three months ended December 31, 2022, no restricted phantom stock units were granted and no restricted phantom stock units vested.
(2)The number of restricted stock awards vested includes shares that we withheld on behalf of our employees to satisfy the statutory tax withholding requirements.
Q1FY23 FORM 10-Q | 17
Performance Units
A summary of the status of our performance-vested restricted share units ("performance units") as of December 31, 2022 and changes in non-vested performance units outstanding during the three months ended is presented below:
| | | | | | | | | | | |
(in thousands, except per share amounts) | Performance Units | | Weighted-Average Grant Date Fair Value per Share |
Non-vested performance units outstanding at September 30, 2022 | 726 | | | $ | 33.67 | |
Granted | 144 | | | 54.30 | |
| | | |
Dividend rights performance units credited | 7 | | | 33.67 | |
| | | |
Non-vested performance units outstanding at December 31, 20221 | 877 | | | $ | 37.06 | |
(1)Of the total non-vested performance units at the end of the period, specified performance criteria has been achieved with respect to 466,635 performance units which is calculated based on the payout percentage for the completed performance period. The vesting and number of the remainder of non-vested performance units reflected at the end of the period is contingent upon our achievement of specified target performance criteria. If we meet the specified maximum performance criteria, approximately 717,407 additional performance units could vest or become eligible to vest.
Subject to the terms and conditions set forth in the applicable performance share unit award agreements and the 2020 Plan, grants of performance units are subject to a vesting period of three years (the “Vesting Period”) that is dependent on the achievement of certain performance goals. Such performance unit grants consist of two separate components. Performance units that comprise the first component are subject to a three-year performance cycle. Performance units that comprise the second component are further divided into three separate tranches, each of which is subject to a separate one-year performance cycle within the full three-year performance cycle. The vesting of the performance units is generally dependent on (i) the achievement of the Company’s total shareholder return (“TSR”) performance goals relative to the TSR achievement of a peer group of companies over the applicable performance cycle, and (ii) the continued employment of the recipient of the performance unit award throughout the Vesting Period. The Vesting Period for performance units granted in November 2019 ended on December 31, 2022 and the performance units eligible to vest were settled in shares of common stock in January 2023. Stock-based compensation expense related to these grants has been fully recognized as of December 31, 2022.
| | | | | | | | | | | | | | |
NOTE 10 EARNINGS (LOSSES) PER COMMON SHARE |
ASC 260, Earnings per Share, requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividends or dividend equivalents as a separate class of securities in calculating earnings per share. We have granted and expect to continue to grant to employees restricted stock grants that contain non-forfeitable rights to dividends. Such grants are considered participating securities under ASC 260. As such, we are required to include these grants in the calculation of our basic earnings per share and calculate basic earnings per share using the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings.
Basic earnings per share is computed utilizing the two-class method and is calculated based on the weighted-average number of common shares outstanding during the periods presented.
Diluted earnings per share is computed using the weighted-average number of common and common equivalent shares outstanding during the periods utilizing the two-class method for stock options, non-vested restricted stock and performance units.
Under the two-class method of calculating earnings per share, dividends paid and a portion of undistributed net income, but not losses, are allocated to unvested restricted stock grants that receive dividends, which are considered participating securities.
Q1FY23 FORM 10-Q | 18
The following table sets forth the computation of basic and diluted earnings (loss) per share:
| | | | | | | | | | | |
| Three Months Ended December 31, |
(in thousands, except per share amounts) | 2022 | | 2021 |
Numerator: | | | |
Income (loss) from continuing operations | $ | 96,427 | | | $ | (51,331) | |
Income (loss) from discontinued operations | 718 | | | (31) | |
Net income (loss) | 97,145 | |