HELMERICH & PAYNE, INC. Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10Q ("Form 10Q") contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities and Exchange
Act of 1934, as amended (the "Exchange Act"). All statements other than
statements of historical facts included in this Form 10-Q, including without
limitation, statements regarding our future financial position, business
strategy, budgets, projected costs and plans, objectives of management for
future operations, contract terms, financing and funding, and the ongoing effect
of the COVID-19 pandemic and actions we or others may take in response to the
COVID-19 pandemic are forward-looking statements. In addition, forward-looking
statements include all statements that are not historical facts and can be
identified by the use of forward-looking terminology such as "may," "will,"
"expect," "intend," "estimate," "anticipate," "believe," "predict," "project,"
"target," "continue," or the negative thereof or similar terminology.
Forward-looking statements are based upon current plans, estimates, and
expectations that are subject to risks, uncertainties, and assumptions. Although
we believe that the expectations reflected in such forward-looking statements
are reasonable, we can give no assurance that such expectations will prove to be
correct. Actual results may vary materially from those indicated or anticipated
by such forward-looking statements. The inclusion of such statements should not
be regarded as a representation that such plans, estimates, or expectations will
be achieved.
These forward-looking statements include, among others, information concerning
our possible or assumed future results of operations and statements about the
following such as:
•our business strategy;
•estimates of our revenues, income, earnings per share, and market share;
•our capital structure and our ability to return cash to stockholders through dividends or share repurchases;
•the amount and nature of our future capital expenditures and how we expect to fund our capital expenditures;
•the volatility of future oil and natural gas prices;
•the effects of actions by, or disputes among or between, members of theOrganization of Petroleum Exporting Countries ("OPEC") and other oil producing nations (together, "OPEC+") with respect to production levels or other matters related to the prices of oil and natural gas; •changes in future levels of drilling activity and capital expenditures by our customers, whether as a result of global capital markets and liquidity, changes in prices of oil and natural gas or otherwise, which may cause us to idle or stack additional rigs, or increase our capital expenditures and the construction or acquisition of rigs; •the ongoing effect, impact, potential duration or other implications of the novel strain of coronavirus ("COVID-19") pandemic, including any variants of the virus, and the effectiveness of vaccines and distribution of vaccines to treat the virus, any reinstatement of governmental-imposed restrictions, and the pace of the economic recovery and any expectations we may have with respect thereto;
•changes in worldwide rig supply and demand, competition, or technology;
•possible cancellation, suspension, renegotiation or termination (with or without cause) of our contracts as a result of general or industry-specific economic conditions, mechanical difficulties, performance or other reasons;
•expansion and growth of our business and operations;
•our belief that the final outcome of our legal proceedings will not materially affect our financial results;
•impact of federal and state legislative and regulatory actions and policies affecting our costs and increasing operation restrictions or delay and other adverse impacts on our business; •impact of geopolitical developments and tensions, war and uncertainty in oil-producing countries (including the invasion ofUkraine byRussia and any related political or economic responses and counter-responses or otherwise by various global actors or the general effect on the global economy); 28 -------------------------------------------------------------------------------- Table of Contents •environmental or other liabilities, risks, damages or losses, whether related to storms or hurricanes (including wreckage or debris removal), collisions, grounding, blowouts, fires, explosions, other accidents, terrorism or otherwise, for which insurance coverage and contractual indemnities may be insufficient, unenforceable or otherwise unavailable;
•our financial condition and liquidity;
•tax matters, including our effective tax rates, tax positions, results of audits, changes in tax laws, treaties and regulations, tax assessments and liabilities for taxes;
•the occurrence of cybersecurity incidents, attacks or other breaches to our information technology systems;
•potential impacts on our business resulting from climate change, greenhouse gas regulations, and the impact of climate change-related changes in the frequency and severity of weather patterns;
•potential long-lived asset impairments; and
•our sustainability strategy, including expectations, plans, or goals related to corporate responsibility, sustainability and environmental matters, and any related reputational risks as a result of execution of this strategy.
Important factors that could cause actual results to differ materially from our expectations or results discussed in the forwardlooking statements are disclosed in our 2021 Annual Report on Form 10-K under Item 1A- "Risk Factors," and Item 7- "Management's Discussion and Analysis of Financial Condition and Results of Operations." All subsequent written and oral forwardlooking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by such cautionary statements. Because of the underlying risks and uncertainties, we caution you against placing undue reliance on these forward-looking statements. We assume no duty to update or revise these forwardlooking statements based on changes in internal estimates, expectations or otherwise, except as required by law.
Executive Summary
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. As ofMarch 31, 2022 , our drilling rig fleet included a total of 271 drilling rigs. Our reportable operating business segments consist of the North America Solutions segment with 236 rigs, the OffshoreGulf of Mexico segment with seven offshore platform rigs and the International Solutions segment with 28 rigs as ofMarch 31, 2022 . At the close of the second quarter of fiscal year 2022, we had 181 contracted rigs, of which 106 were under a fixed-term contract and 75 were working well-to-well, compared to 137 contracted rigs atSeptember 30, 2021 . Our long-term strategy remains focused on innovation, technology, safety, operational excellence and reliability. As we move forward, we believe that our advanced uniform rig fleet, technology offerings, financial strength, contract backlog and strong customer and employee base position us very well to respond to continued cyclical and often times volatile market conditions and take advantage of future opportunities.
Market Outlook
Our revenues are primarily derived from the capital expenditures of companies
involved in the exploration, development and production of crude oil and natural
gas ("E&Ps"). Generally, the level of capital expenditures is dictated by
current and expected future prices of crude oil and natural gas, which are
determined by improving supply and demand factors. Both commodities have
historically been, and we expect them to continue to be, cyclical and highly
volatile.
Our drilling services operations are organized into the following reportable
operating segments: North America Solutions, Offshore Gulf of Mexico , and
International Solutions. With respect to North America Solutions, the resurgence
of oil and natural gas production coming from the United States brought about by
unconventional shale drilling for oil has significantly impacted the supply of
oil and natural gas and the type of rig utilized in the U.S. land drilling
industry. The advent of unconventional drilling for oil in the United States
began in early 2009 and continues to evolve as E&Ps drill longer lateral wells
with tighter well spacing. During this time, we designed, built and delivered to
the market new technology AC drive rigs (FlexRig®), substantially growing our
fleet. The pace of progress of unconventional drilling over the years has been
cyclical and volatile, dictated by crude oil and natural gas price fluctuations.
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Throughout this time, the length of the lateral section of wells drilled inthe United States has continued to grow. The progression of longer lateral wells has required many of the industry's rigs to be upgraded to certain specifications in order to meet the technical challenges of drilling longer lateral wells. The upgraded rigs meeting those specifications are commonly referred to in the industry as super-spec rigs and have the following specific characteristics: AC drive, minimum of 1,500 horsepower drawworks, minimum of 750,000 lbs. hookload rating, 7,500 psi mud circulating system, and multiple-well pad capability. The technical requirements of drilling longer lateral wells often necessitate the use of super-spec rigs and even when not required for shorter lateral wells, there is a strong customer preference for super-spec due to the drilling efficiencies gained in utilizing a super-spec rig. As a result, there has been a structural decline in the use of non-super-spec rigs across the industry. However, because we have a large super-spec fleet, we gained market share and became the largest provider of super-spec rigs in the industry. Accordingly, we believe we are well positioned to respond to various market conditions. In earlyMarch 2020 , the increase in crude oil supply resulting from production escalations from OPEC+ combined with a decrease in crude oil demand stemming from the global response and uncertainties surrounding the COVID-19 pandemic resulted in a sharp decline in crude oil prices. Specifically, during calendar year 2020, crude oil prices fell from approximately$60 per barrel to the low-to-mid-$20 per barrel range, lower in some cases, which resulted in customers decreasing their 2020 capital budgets nearly 50 percent from calendar year 2019 levels. There was a corresponding dramatic decline in the demand for land rigs, such that the overall rig count for calendar year 2020 averaged roughly 430 rigs, significantly lower than in calendar year 2019, which averaged approximately 940 rigs. Crude oil prices stabilized during the back half of calendar 2020 and were in the$40 to$50 per barrel range as customers set their capital budgets for calendar year 2021. During calendar 2021 crude oil prices continued to increase, reaching more than$70 per barrel. However, as expected, rig activity did not move in tandem with crude oil prices to the same extent it had historically as a large portion of our customers have a more disciplined approach to their operations and capital spending in order to enhance their own financial returns. The capital budgets for calendar year 2022 established by our customers were done so in a higher crude oil price environment compared to the prior year, which suggests a higher level of capital spending and activity in calendar year 2022 compared to calendar year 2021. Additionally, higher commodity prices have allowed customers to strengthen their balance sheets following the 2020 downturn freeing up additional funds for investment. More recently the invasion ofUkraine byRussia caused crude oil prices to spike well above$100 per barrel. However, as we have experienced in recent years, our customers have maintained a disciplined approach to their operations and kept capital spending levels as originally planned. We have noted no material reaction in customer behavior resulting from the spike in crude oil prices. In theU.S. , the demand for super-spec rigs continues to strengthen following higher capital spending by E&Ps in both calendar year 2021 and year to date 2022. While there is still idle super-spec rig capacity in the market, much of that idle capacity represents rigs that have not been active during the preceding two years and in some cases even longer. Consequently, there are additional costs that would be incurred to bring those long-idled rigs back into working condition, which has resulted in upward pricing for super-spec rigs. This supply-demand dynamic combined with the value proposition we provide our customers through our drilling expertise, high-quality FlexRig fleet, and automation technology has resulted in an improvement in our underlying contract economics. We believe these improvements will become more apparent in the coming quarters as an increasing amount of our active rigs are re-priced at higher rates. Our North America Solutions active rig count has more than tripled from 47 rigs inAugust 2020 to 171 rigs atMarch 31, 2022 . To date, our fiscal 2022 rig count increases appear to mirror those of 2021 with 27 rigs added during the first quarter and 17 rigs added during the second quarter of fiscal 2022 compared to 25 rigs and 15 rigs added for the same fiscal quarters in the prior year, respectively. Considering the Company's disciplined approach to deploying capital, maintaining our fiscal year 2022 capital budget of$250 to$270 million , and given the current market dynamics, we expect our active count to grow at a much more muted pace during the remaining quarters in fiscal year 2022. Collectively, our other business segments, OffshoreGulf of Mexico and International Solutions, are exposed to the same macro commodity price environment affecting our North America Solutions segment; however, activity levels in the International Solutions segment are also subject to other various geopolitical and financial factors specific to the countries of our operations. While we do not expect much change in our OffshoreGulf of Mexico segment, we see opportunities for improvement in our International Solutions segment, but those will likely occur on a more extended timeline compared to what we have experienced in the North America Solutions segment. 30
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From a financial perspective, we believe the Company is well positioned to manage through events, even protracted ones, that may result from market disruptions and the related commodity price volatility. More recent events, like the COVID-19 global pandemic and the Russian invasion ofUkraine , have elevated commodity price volatility and have other far reaching global market ramifications. The direct impacts of the COVID-19 pandemic on the Company have diminished significantly as health guidelines and restrictions have eased in most jurisdictions in which we operate. Since the COVID-19 outbreak began, no rigs have been fully shut down (other than temporary shutdowns for disinfecting and the suspension for a certain period of time on one of our international rigs) and these temporary shutdowns did not have a significant impact on service. Recently, the conflict between theRussian Federation andUkraine , and the international and social sanctions in reaction to the conflict have resulted in an increase in commodity price volatility. The Company does not have any operations in theRussia Federation ,Ukraine or adjacent regions and therefore our rig activity levels are not directly impacted by this conflict. While we do not have supplies originating in these countries, the conflict may create some inflationary pressures within our supply chain.
Recent Developments
Investments in Geothermal Energy
During the six months endedMarch 31, 2022 , we made an additional$14.1 million in geothermal energy investments consisting of both debt and equity securities. Investments were made in four separate companies that are pursuing technological concepts to make unconventional geothermal energy a viable economic renewable energy source. These companies are developing an enhanced geothermal system ("EGS") and closed loop concepts. The EGS concept uses horizontal drilling, induced permeability, and fiber optic sensing. The closed loop concepts use multilateral wellbores, propriety working fluid, or coaxial pipe configurations. All of these concepts are designed to harvest geothermal heat to create carbon-free, baseload energy. Our aggregate balance of investments in geothermal energy companies was$16.9 million atMarch 31, 2022 .
Investment in ADNOC Drilling
DuringSeptember 2021 , the Company made a$100.0 million cornerstone investment in ADNOC Drilling in advance of its announced IPO, representing 159.7 million shares of ADNOC Drilling, equivalent to a one percent ownership stake and subject to a three-year lockup period. ADNOC Drilling's IPO was completed onOctober 3, 2021 , and its shares are listed and traded on theAbu Dhabi Securities Exchange (ADX). Our investment is classified as a long-term equity investment within Investments in our Unaudited Condensed Consolidated Balance Sheets. We have applied the guidance in Topic 820, Fair Value Measurement, in the initial accounting of the transaction and the subsequent revaluation of the investment balance, concluding that a contractual restriction on the sale of an equity security that is publicly traded is not considered in measuring fair value. During the three and six months endedMarch 31, 2022 , we recognized a gain of$16.7 million and$64.5 million , respectively, in our Unaudited Condensed Consolidated Statement of Operations. As ofMarch 31, 2022 , this investment is classified as a Level 1 investment and based on the quoted stock price on the Abu Dhabi Securities Exchange, without applying a discount factor.
Investment in Galileo Technologies
DuringApril 2022 , the Company made a$33.0 million cornerstone investment in an affiliate of Galileo Technologies ("Galileo") in the form of a convertible note. The convertible note bears interest at 5% per annum and matures onApril 2027 . If the conversion option is exercised, the note would convert into common shares of Galileo. One of our Directors is an independent director of Galileo. This Director does not have a direct or indirect material interest in the transaction and was not involved in the negotiations or any approvals related to the transaction. Contract Backlog As ofMarch 31, 2022 andSeptember 30, 2021 , our contract drilling backlog, being the expected future dayrate revenue from executed contracts, was$727.7 million and$572.0 million , respectively. These amounts do not include anticipated contract renewals or expected performance bonuses. The increase in backlog atMarch 31, 2022 fromSeptember 30, 2021 is primarily due to an increase in the number of fixed term drilling contracts executed. Approximately 39.8 percent of theMarch 31, 2022 total backlog is reasonably expected to be fulfilled in fiscal year 2023 and thereafter. 31
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The following table sets forth the total backlog by reportable segment as ofMarch 31, 2022 andSeptember 30, 2021 , and the percentage of theMarch 31, 2022 backlog reasonably expected to be fulfilled in fiscal year 2023 and thereafter: Percentage Reasonably Expected to be Filled in Fiscal Year 2023 and (in millions) March 31, 2022 September 30, 2021 Thereafter North America Solutions$ 534.2 $ 429.6 29.7 % Offshore Gulf of Mexico 9.8 17.2 - International Solutions 183.7 125.2 71.5$ 727.7 $ 572.0 The early termination of a contract may result in a rig being idle for an extended period of time, which could adversely affect our financial condition, results of operations and cash flows. In some limited circumstances, such as sustained unacceptable performance by us, no early termination payment would be paid to us. Early terminations could cause the actual amount of revenue earned to vary from the backlog reported. See "Item 1A. Risk Factors - Our current backlog of drilling services and solutions revenue may continue to decline and may not be ultimately realized as fixedterm contracts and may, in certain instances, be terminated without an early termination payment," in our 2021 Annual Report on Form 10-K filed with theSecurities and Exchange Commission ("SEC"), regarding fixed term contract risk. Additionally, see "Item 1A. Risk Factors - The impact and effects of public health crises, pandemics and epidemics, such as the COVID-19 pandemic, have adversely affected and are expected to continue to adversely affect our business, financial condition and results of operations" within our 2021 Annual Report on Form 10-K.
Results of Operations for the Three Months Ended
Consolidated Results of Operations
Net Loss We reported a loss from continuing operations of$4.6 million ($0.05 loss per diluted share) on operating revenues of$467.6 million for the three months endedMarch 31, 2022 compared to a loss from continuing operations of$123.3 million ($1.15 loss per diluted share) on operating revenues of$296.2 million for the three months endedMarch 31, 2021 . Included in the net loss for the three months endedMarch 31, 2022 is a loss of$0.4 million (with no impact on a per diluted share basis) from discontinued operations. Including discontinued operations, we recorded a net loss of$5.0 million ($0.05 loss per diluted share) for the three months endedMarch 31, 2022 compared to a net loss of$121.0 million ($1.13 loss per diluted share) for the three months endedMarch 31, 2021 . Selling, General and Administrative Expense Selling, general and administrative expenses increased to$47.1 million during the three months endedMarch 31, 2022 compared to$39.3 million during the three months endedMarch 31, 2021 . The$7.8 million increase in fiscal year 2022 compared to the same period in fiscal year 2021 is primarily due to increases in IT infrastructure spending and professional services fees.
Asset Impairment Charge During the three months ended
Gain on Investment Securities InSeptember 2021 , the Company made a cornerstone equity investment consisting of 159.7 million shares for$100.0 million as part of ADNOC Drilling's initial public offering. This investment is subject to a three-year lock-up period. During the three months endedMarch 31, 2022 we recognized a gain of$16.7 million due to an increase in the fair market value of the stock. Income Taxes We have historically calculated our provision for income taxes during interim reporting periods by applying the estimated annual effective tax rate for the full year to pre-tax income or loss, excluding discrete items, for the reporting period. We used a discrete effective tax rate method to calculate income taxes for the three months endedMarch 31, 2022 as we determined the historical annualized effective rate method would not provide a reliable estimate for the three months endedMarch 31, 2022 . We anticipate utilizing the discrete effective tax rate method to calculate the provision for income taxes for the remainder of this fiscal year. For the three months endedMarch 31, 2022 , we had an income tax expense of$2.7 million compared to an income tax benefit of$36.6 million for the three months endedMarch 31, 2021 . Our statutory federal income tax rate for fiscal year 2022 is 21.0 percent (before incremental state and foreign taxes). 32
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North America Solutions
Three Months Ended March 31,
(in thousands, except operating statistics) 2022 2021 % Change
Operating revenues $ 408,814 $ 249,939 63.6
Direct operating expenses 294,397 185,841 58.4
Depreciation and amortization 95,817 99,917 (4.1)
Research and development 6,420 5,329 20.5
Selling, general and administrative expense 10,883 12,960 (16.0)
Asset impairment charge - 54,284 (100.0)
Restructuring charges - 1,442 (100.0)
Segment operating income (loss) $ 1,297 $ (109,834) (101.2)
Financial Data and Other Operating Statistics1:
Direct margin (Non-GAAP)2 114,417 64,098 78.5
Revenue days3 14,752 9,454 56.0
Average active rigs4 164 105 56.2
Number of active rigs at the end of period5 171 109 56.9
Number of available rigs at the end of period 236 242 (2.5)
Reimbursements of "out-of-pocket" expenses $ 46,664 $ 27,290 71.0
1)These operating metrics and financial data, including average active rigs, are
provided to allow investors to analyze the various components of segment
financial results in terms of activity, utilization and other key results.
Management uses these metrics to analyze historical segment financial results
and as the key inputs for forecasting and budgeting segment financial results.
2)Direct margin, which is considered a non-GAAP metric, is defined as operating
revenues less direct operating expenses and is included as a supplemental
disclosure because we believe it is useful in assessing and understanding our
current operational performance, especially in making comparisons over time. See
- Non-GAAP Measurements below for a reconciliation of segment operating income
(loss) to direct margin.
3)Defined as the number of contractual days we recognized revenue for during the period.
4)Active rigs generate revenue for the Company; accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period. This metric is calculated by dividing revenue days by total days in the applicable period (i.e. 90 days). 5)Defined as the number of rigs generating revenue at the applicable end date of the time period. Operating Revenues Operating revenues were$408.8 million and$249.9 million in the three months endedMarch 31, 2022 and 2021, respectively. The 63.6 percent increase in operating revenue is primarily due to a 56.0 percent increase in activity levels and higher pricing levels. Direct Operating Expenses Direct operating expenses increased to$294.4 million during the three months endedMarch 31, 2022 as compared to$185.8 million during the three months endedMarch 31, 2021 . The increase in direct operating expense was due to higher activity levels and an increase in field wages in December of 2021. Depreciation and Amortization Depreciation and amortization decreased to$95.8 million during the three months endedMarch 31, 2022 as compared to$99.9 million during the three months endedMarch 31, 2021 . The decrease was primarily attributable to the termination of depreciation on the six rigs located in the US that were included in the ADNOC sale in fiscal year 2021 and ongoing relatively low levels of capital expenditures.
Asset Impairment Charge During the three months ended
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Table of Contents OffshoreGulf of Mexico Three Months Ended March 31, (in thousands, except operating statistics) 2022 2021 % Change Operating revenues$ 29,147 $ 29,274 (0.4) Direct operating expenses 20,884 23,069 (9.5) Depreciation 2,401 2,593 (7.4) Selling, general and administrative expense 584 634 (7.9) Segment operating income $ 5,278$ 2,978 77.2 Financial Data and Other Operating Statistics1: Direct margin (Non-GAAP)2 8,263 6,205 33.2 Revenue days3 360 360 - Average active rigs4 4 4 - Number of active rigs at the end of period5 4 4 - Number of available rigs at the end of period 7 7 - Reimbursements of "out-of-pocket" expenses $ 5,809$ 5,193 11.9 1)These operating metrics and financial data, including average active rigs, are provided to allow investors to analyze the various components of segment financial results in terms of activity, utilization and other key results. Management uses these metrics to analyze historical segment financial results and as the key inputs for forecasting and budgeting segment financial results. 2)Direct margin, which is considered a non-GAAP metric, is defined as operating revenues less direct operating expenses and is included as a supplemental disclosure because we believe it is useful in assessing and understanding our current operational performance, especially in making comparisons over time. See - Non-GAAP Measurements below for a reconciliation of segment operating income to direct margin.
3)Defined as the number of contractual days we recognized revenue for during the period.
4)Active rigs generate revenue for the Company; accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period. This metric is calculated by dividing revenue days by total days in the applicable period (i.e. 90 days).
5)Defined as the number of rigs generating revenue at the applicable end date of the time period.
Operating Revenues Operating revenues were$29.1 million and$29.3 million in the three months endedMarch 31, 2022 and 2021, respectively. The 0.4 percent decrease was primarily driven by the mix of rigs working at full rates as compared to being on lower standby or mobilization rates. Direct Operating Expenses Direct operating expenses decreased to$20.9 million during the three months endedMarch 31, 2022 as compared to$23.1 million during the three months endedMarch 31, 2021 . The decrease was primarily driven by a favorable adjustment in self-insurance liabilities related to prior period as well as the factors described above. 34
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International Solutions
Three Months Ended March 31,
(in thousands, except operating statistics) 2022 2021 % Change
Operating revenues $ 27,422 $ 14,813 85.1
Direct operating expenses 25,171 16,718 50.6
Depreciation 1,049 415 152.8
Selling, general and administrative expense 2,050 1,138 80.1
Segment operating loss $ (848) $ (3,458) (75.5)
Financial Data and Other Operating Statistics1:
Direct margin (Non-GAAP)2 2,251 (1,905) (218.2)
Revenue days3 636 393 61.8
Average active rigs4 7 4 75.0
Number of active rigs at the end of period5 6 5 20.0
Number of available rigs at the end of period 28 32 (12.5)
Reimbursements of "out-of-pocket" expenses $ 1,226 $ 1,613 (24.0)
1)These operating metrics and financial data, including average active rigs, are
provided to allow investors to analyze the various components of segment
financial results in terms of activity, utilization and other key results.
Management uses these metrics to analyze historical segment financial results
and as the key inputs for forecasting and budgeting segment financial results.
2)Direct margin, which is considered a non-GAAP metric, is defined as operating
revenues less direct operating expenses and is included as a supplemental
disclosure because we believe it is useful in assessing and understanding our
current operational performance, especially in making comparisons over time. See
- Non-GAAP Measurements below for a reconciliation of segment operating loss to
direct margin.
3)Defined as the number of contractual days we recognized revenue for during the period.
4)Active rigs generate revenue for the Company; accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period. This metric is calculated by dividing revenue days by total days in the applicable period (i.e. 90 days).
5)Defined as the number of rigs generating revenue at the applicable end date of the time period.
Operating Revenues Operating revenues increased to$27.4 million during the three months endedMarch 31, 2022 as compared to$14.8 million during the three months endedMarch 31, 2021 . The change was primarily driven by a 62 percent increase in activity as well as the mix of rigs working. For the three months endedMarch 31, 2022 , we reported$0.5 million in early termination revenue associated with term contracts compared to$1.9 million during the same period of fiscal year 2021. Direct Operating Expenses Direct operating expenses increased to$25.2 million during the three months endedMarch 31, 2022 as compared to$16.7 million during the three months endedMarch 31, 2021 . This increase was primarily driven by higher activity levels. Selling, General and Administrative Expense We recognized a$0.9 million increase in selling, general and administrative costs during the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . This increase was primarily driven by higher compensation expense due to an increase in sales personnel. Other Operations Results of our other operations, excluding corporate restructuring charges, corporate selling, general and administrative costs and corporate depreciation, are as follows: Three Months Ended March 31, (in thousands) 2022 2021 % Change Operating revenues$ 15,418 $ 10,825 42.4 Direct operating expenses 11,208 11,222 (0.1) Depreciation 370 359 3.1 Research and development - 5 (100.0) Selling, general and administrative expense 673 311 116.4 Operating income (loss) $ 3,167$ (1,072) (395.4) Operating Revenues OnOctober 1, 2019 , we elected to capitalize a new Captive insurance company to insure the deductibles for our domestic workers' compensation, general liability and automobile liability claims programs, and to continue the practice of insuring deductibles from the Company's international casualty and rig property programs. Intercompany premium revenues recorded by the Captives during the three months endedMarch 31, 2022 and 2021 amounted to$13.2 million and$8.7 million , respectively, which were eliminated upon consolidation. 35
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Direct Operating Expenses Direct operating costs consisted primarily of$1.8 million and$2.3 million in adjustments to accruals for estimated losses allocated to the Captives and rig casualty insurance premiums of$7.9 million and$5.0 million during the three months endedMarch 31, 2022 and 2021, respectively. The decrease in estimated losses is primarily due to actuarial valuation adjustments by our third-party actuary.
Results of Operations for the Six Months Ended
Consolidated Results of Operations
Net Loss We reported a loss from continuing operations of$56.0 million ($0.53 loss per diluted share) on operating revenues of$877.4 million for the six months endedMarch 31, 2022 compared to a loss from continuing operations of$201.2 million ($1.87 loss per diluted share) on operating revenues of$542.5 million for the six months endedMarch 31, 2021 . Included in the net loss for the six months endedMarch 31, 2022 is a loss of$0.3 million (with no impact on a per diluted share basis) from discontinued operations. Including discontinued operations, we recorded a net loss of$56.3 million ($0.53 loss per diluted share) for the six months endedMarch 31, 2022 compared to a net loss of$191.4 million ($1.78 loss per diluted share) for the six months endedMarch 31, 2021 . Selling, General and Administrative Expense Selling, general and administrative expenses increased to$90.8 million during the six months endedMarch 31, 2022 compared to$78.7 million during the six months endedMarch 31, 2021 . The$12.1 million increase in fiscal year 2022 compared to the same period in fiscal year 2021 is is primarily due to increases in IT infrastructure spending and professional services fees. Asset Impairment Charge During the first quarter of fiscal year 2022, we identified two partial rig substructures and two international FlexRig® drilling rigs located inColombia 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 six months endedMarch 31, 2022 , compared to an impairment charge of$54.3 million for the six months endedMarch 31, 2021 . 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 six months endedMarch 31, 2022 , 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 . Gain on Investment Securities InSeptember 2021 , the Company made a cornerstone equity investment consisting of 159.7 million shares for$100.0 million as part of ADNOC Drilling's initial public offering. This investment is subject to a three-year lock-up period. During the six months endedMarch 31, 2022 we recognized a gain of$64.5 million due to an increase in the fair market value of the stock. Loss on Extinguishment of Debt OnOctober 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 theOctober 27, 2021 debt extinguishment and recorded in Loss on Extinguishment of Debt on our Unaudited Condensed Consolidated Statements of Operations during the six months endedMarch 31, 2022 . Income Taxes We have historically calculated our provision for income taxes during interim reporting periods by applying the estimated annual effective tax rate for the full year to pre-tax income or loss, excluding discrete items, for the reporting period. We used a discrete effective tax rate method to calculate income taxes for the six months endedMarch 31, 2022 as we determined the historical annualized method would not provide a reliable estimate for the six months endedMarch 31, 2022 . We anticipate utilizing the discrete effective tax rate method to calculate the provision for income taxes for the remainder of this fiscal year. For the six months endedMarch 31, 2022 , we had an income tax benefit of$4.9 million compared to an income tax benefit of$54.7 million (which included discrete tax expense of approximately$4.1 million related to equity compensation) for the six months endedMarch 31, 2021 . Our statutory federal income tax rate for fiscal year 2022 is 21.0 percent (before incremental state and foreign taxes). 36
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North America Solutions
Six Months Ended March 31,
(in thousands, except operating statistics) 2022 2021 % Change
Operating revenues $ 749,848 $ 451,929 65.9
Direct operating expenses 550,965 343,150 60.6
Depreciation and amortization 189,438 200,241 (5.4)
Research and development 12,988 10,795 20.3
Selling, general and administrative expense 21,712 24,640 (11.9)
Asset impairment charge 1,868 54,284 (96.6)
Restructuring charges 473 1,581 (70.1)
Segment operating loss $ (27,596) $ (182,762) (84.9)
Financial Data and Other Operating Statistics1:
Direct margin (Non-GAAP)2 198,883 108,779 82.8
Revenue days3 27,698 16,916 63.7
Average active rigs4 152 93 63.4
Number of active rigs at the end of period5 171 109 56.9
Number of available rigs at the end of period 236 242 (2.5)
Reimbursements of "out-of-pocket" expenses $ 89,793 $ 46,079 94.9
1)These operating metrics and financial data, including average active rigs, are
provided to allow investors to analyze the various components of segment
financial results in terms of activity, utilization and other key results.
Management uses these metrics to analyze historical segment financial results
and as the key inputs for forecasting and budgeting segment financial results.
2)Direct margin, which is considered a non-GAAP metric, is defined as operating
revenues less direct operating expenses and is included as a supplemental
disclosure because we believe it is useful in assessing and understanding our
current operational performance, especially in making comparisons over time. See
- Non-GAAP Measurements below for a reconciliation of segment operating loss to
direct margin.
3)Defined as the number of contractual days we recognized revenue for during the period.
4)Active rigs generate revenue for the Company; accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period. This metric is calculated by dividing revenue days by total days in the applicable period (i.e. 182 days). 5)Defined as the number of rigs generating revenue at the applicable end date of the time period. Operating Revenues Operating revenues were$749.8 million and$451.9 million during the six months endedMarch 31, 2022 and 2021, respectively. The 65.9 percent increase in operating revenue is primarily due to a 63.7 percent increase in activity levels, partially offset by a decrease in early termination revenue. For the six months endedMarch 31, 2022 , we reported$0.2 million in early termination revenue associated with term contracts compared to$5.8 million during the same period of fiscal year 2021. Direct Operating Expenses Direct operating expenses increased to$551.0 million during the six months endedMarch 31, 2022 as compared to$343.2 million during the six months endedMarch 31, 2021 . The increase in direct operating expense was due to higher activity levels and higher rig recommissioning expenses. Depreciation and Amortization Depreciation and amortization decreased to$189.4 million during the six months endedMarch 31, 2022 as compared to$200.2 million during the six months endedMarch 31, 2021 . The decrease was primarily attributable to the termination of depreciation on the six rigs located in the US that were included in the ADNOC sale in fiscal year 2021 and ongoing relatively low levels of capital expenditures. Asset Impairment Charge During the first quarter of fiscal year 2022, 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 these assets 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 during the six months endedMarch 31, 2022 in the Unaudited Condensed Consolidated Statement of Operations, compared to an impairment charge of$54.3 million for the six months endedMarch 31, 2021 . 37
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Table of Contents OffshoreGulf of Mexico Six Months Ended March 31, (in thousands, except operating statistics) 2022 2021 % Change Operating revenues$ 58,461 $ 61,547 (5.0) Direct operating expenses 41,595 49,325 (15.7) Depreciation 4,781 5,199 (8.0) Selling, general and administrative expense 1,341 1,303 2.9 Segment operating income$ 10,744 $ 5,720 87.8 Financial Data and Other Operating Statistics1: Direct margin (Non-GAAP)2 16,866 12,222 38.0 Revenue days3 728 820 (11.2) Average active rigs4 4 5 (20.0) Number of active rigs at the end of period5 4 4 - Number of available rigs at the end of period 7 7 - Reimbursements of "out-of-pocket" expenses$ 11,884 $ 13,061 (9.0) 1)These operating metrics and financial data, including average active rigs, are provided to allow investors to analyze the various components of segment financial results in terms of activity, utilization and other key results. Management uses these metrics to analyze historical segment financial results and as the key inputs for forecasting and budgeting segment financial results. 2)Direct margin, which is considered a non-GAAP metric, is defined as operating revenues less direct operating expenses and is included as a supplemental disclosure because we believe it is useful in assessing and understanding our current operational performance, especially in making comparisons over time. See - Non-GAAP Measurements below for a reconciliation of segment operating income to direct margin.
3)Defined as the number of contractual days we recognized revenue for during the period.
4)Active rigs generate revenue for the Company; accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period. This metric is calculated by dividing revenue days by total days in the applicable period (i.e. 182 days).
5)Defined as the number of rigs generating revenue at the applicable end date of the time period.
Operating Revenues Operating revenues were
Direct Operating Expenses Direct operating expenses decreased to$41.6 million during the six months endedMarch 31, 2021 as compared to$49.3 million during the six months endedMarch 31, 2021 . The decrease was primarily driven by a favorable adjustment in self-insurance liabilities related to prior period claims as well as the factors described above. 38
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International Solutions
Six Months Ended March 31,
(in thousands, except operating statistics) 2022 2021 % Change
Operating revenues $ 64,581 $ 25,331 154.9
Direct operating expenses 49,302 34,241 44.0
Depreciation 1,804 788 128.9
Selling, general and administrative expense 3,779 2,117 78.5
Asset impairment charge 2,495 - 100.0
Segment operating income (loss) $ 7,201 $ (11,815) (160.9)
Financial Data and Other Operating Statistics1:
Direct margin (Non-GAAP)2 15,279 (8,910) (271.5)
Revenue days3 1,283 741 73.1
Average active rigs4 7 4 75.0
Number of active rigs at the end of period5 6 5 20.0
Number of available rigs at the end of period 28 32 (12.5)
Reimbursements of "out-of-pocket" expenses $ 2,669 $ 4,172 (36.0)
1)These operating metrics and financial data, including average active rigs, are
provided to allow investors to analyze the various components of segment
financial results in terms of activity, utilization and other key results.
Management uses these metrics to analyze historical segment financial results
and as the key inputs for forecasting and budgeting segment financial results.
2)Direct margin, which is considered a non-GAAP metric, is defined as operating
revenues less direct operating expenses and is included as a supplemental
disclosure because we believe it is useful in assessing and understanding our
current operational performance, especially in making comparisons over time. See
- Non-GAAP Measurements below for a reconciliation of segment operating income
(loss) to direct margin.
3)Defined as the number of contractual days we recognized revenue for during the period.
4)Active rigs generate revenue for the Company; accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period. This metric is calculated by dividing revenue days by total days in the applicable period (i.e. 182 days).
5)Defined as the number of rigs generating revenue at the applicable end date of the time period.
Operating Revenues Operating revenues increased to$64.6 million during the six months endedMarch 31, 2022 as compared to$25.3 million during the six months endedMarch 31, 2021 . The change was primarily driven by a 73.1 percent increase in activity as well as the settlement of a contractual dispute that was recognized in operating revenues during the six months endedMarch 31, 2022 . Refer to Note 9-Revenue from Contracts with Customers for additional details. For the six months endedMarch 31, 2022 , we reported$0.5 million in early termination revenue associated with term contracts compared to$1.9 million during the same period of fiscal year 2021. Direct Operating Expenses Direct operating expenses increased to$49.3 million during the six months endedMarch 31, 2022 as compared to$34.2 million during the six months endedMarch 31, 2021 . This increase was primarily driven by higher activity levels partially offset by fixed cost leverage.
Selling, General and Administrative Expense We recognized a
Asset Impairment Charge During the first quarter of fiscal year 2022, we identified two international FlexRig® drilling rigs 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 these rigs we recognized a non-cash impairment charge of$2.5 million during the six months endedMarch 31, 2021 in the Unaudited Condensed Consolidated Statement of Operations, as the aggregate net book value of$3.4 million exceeded the fair value less estimated cost to sell of$0.9 million . 39
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Other Operations
Results of our other operations, excluding corporate restructuring charges,
corporate selling, general and administrative costs and corporate depreciation,
are as follows:
Six Months Ended March 31,
(in thousands) 2022 2021 % Change
Operating revenues $ 31,341 $ 19,543 60.4
Direct operating expenses 22,528 14,972 50.5
Depreciation 715 718 (0.4)
Research and development - 122 (100.0)
Selling, general and administrative expense 1,002 692 44.8
Operating income $ 7,096 $ 3,039 133.5
Operating Revenues On October 1, 2019 , we elected to capitalize a new Captive
insurance company to insure the deductibles for our domestic workers'
compensation, general liability and automobile liability claims programs, and to
continue the practice of insuring deductibles from the Company's international
casualty and rig property programs. Intercompany premium revenues recorded by
the Captives during the six months ended March 31, 2022 and 2021 amounted to
$26.9 million and $15.8 million , respectively, which were eliminated upon
consolidation.
Direct Operating Expenses Direct operating costs consisted primarily of $(0.4)
million and $2.8 million in adjustments to accruals for estimated losses
allocated to the Captives and rig casualty insurance premiums of $16.7 million
and $7.5 million during the six months ended March 31, 2022 and 2021,
respectively. The decrease in estimated losses is primarily due to actuarial
valuation adjustments by our third-party actuary.
Liquidity and Capital Resources
Sources of Liquidity
Our sources of available liquidity include existing cash balances on hand, cash flows from operations, and availability under the 2018 Credit Facility. Our liquidity requirements include meeting ongoing working capital needs, funding our capital expenditure projects, paying dividends declared, and repaying our outstanding indebtedness. Historically, we have financed operations primarily through internally generated cash flows. During periods when internally generated cash flows are not sufficient to meet liquidity needs, we may utilize cash on hand, borrow from available credit sources, access capital markets or sell our investments. Likewise, if we are generating excess cash flows or have cash balances on hand beyond our near-term needs, we may invest in highly rated shortterm money market and debt securities. These investments can includeU.S. Treasury securities,U.S. Agency issued debt securities, corporate bonds and commercial paper, certificates of deposit and money market funds. However, in some international locations we may make short-term investments that are less conservative, as equivalent highly rated investments are unavailable. See-Note 2-Summary of Significant Accounting Policies, Risks and Uncertainties-International Solutions Drilling Risks. We may seek to access the debt and equity capital markets from time to time to raise additional capital, increase liquidity as necessary, fund our additional purchases, exchange or redeem senior notes, or repay any amounts under the 2018 Credit Facility. Our ability to access the debt and equity capital markets depends on a number of factors, including our credit rating, market and industry conditions and market perceptions of our industry, general economic conditions, our revenue backlog and our capital expenditure commitments.
Cash Flows
Our cash flows fluctuate depending on a number of factors, including, among
others, the number of our drilling rigs under contract, the revenue we receive
under those contracts, the efficiency with which we operate our drilling rigs,
the timing of collections on outstanding accounts receivable, the timing of
payments to our vendors for operating costs, and capital expenditures. As our
revenues increase, operating net working capital is typically a use of capital,
while conversely, as our revenues decrease, operating net working capital is
typically a source of capital. To date, general inflationary trends have not had
a material effect on our operating margins.
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As ofMarch 31, 2022 , we had$202.2 million of cash and cash equivalents on hand and$148.4 million of short-term investments. Our cash flows for the six months endedMarch 31, 2022 and 2021 are presented below: Six Months Ended March 31, (in thousands) 2022 2021 Net cash provided by (used in): Operating activities$ 18,896 $ 58,802 Investing activities (45,321) (60,315) Financing activities (680,915) (56,599)
Net decrease in cash and cash equivalents and restricted cash
Operating Activities
Our operating net working capital (non-GAAP) as of
March 31, September 30,
(in thousands) 2022 2021
Total current assets $ 918,496 $ 1,586,566
Less:
Cash and cash equivalents 202,206 917,534
Short-term investments 148,377 198,700
Assets held-for-sale 57,373 71,453
510,540 398,879
Total current liabilities 377,598 866,306
Less:
Dividends payable 26,697 27,332
Current portion of long-term debt, net - 483,486
Advance payment for sale of property, plant and equipment 78,793 86,524
$ 272,108 Operating net working capital (non-GAAP)$ 238,432
Cash flows provided by operating activities were approximately$18.9 million and$58.8 million for the six months endedMarch 31, 2022 and 2021, respectively. The change in cash used in operating activities is primarily driven by changes in working capital. For the six months endedMarch 31, 2022 , working capital was a use of cash, while during the six months endedMarch 31, 2021 , working capital was a source of cash. Higher activity levels during the six months endedMarch 31, 2022 , are an offsetting contribution to cash flow from operations. For the purpose of understanding the impact on our cash flows from operating activities, operating net working capital is calculated as current assets, excluding cash and cash equivalents, short-term investments, and assets held-for-sale, less current liabilities, excluding dividends payable, short-term debt and advance payments for sale of property, plant and equipment. Operating net working capital was$238.4 million as ofMarch 31, 2022 compared to$129.9 million as ofSeptember 30, 2021 . This metric is considered a non-GAAP measure of the Company's liquidity. The Company considers operating net working capital to be a supplemental measure for presenting and analyzing trends in our cash flows from operations over time. Likewise, the Company believes that operating net working capital is useful to investors because it provides a means to evaluate the operating performance of the business using criteria that are used by our internal decision makers. The sequential increase in operating net working capital was primarily driven by higher rig activity and seasonal payments of annual incentive compensation and ad valorem taxes. Included in accounts receivable as ofMarch 31, 2022 was$24.3 million of income tax receivables, a portion of which we expect to collect before the end of calendar year 2022.
Investing Activities
Capital Expenditures Our capital expenditures during the six months endedMarch 31, 2022 were$104.5 million compared to$30.7 million during the six months endedMarch 31, 2021 . The increase is driven by higher activity and spending on walking rig conversions.
Purchase (Sales) of Short-Term Investments Our net sales of short-term
investments during the six months ended
Purchase of Long-Term Investments Our purchases of long-term investments during the six months endedMarch 31, 2022 were$14.1 million compared to$1.1 million during the six months endedMarch 31, 2021 . The increase is driven by purchases of geothermal investments made during the six months endedMarch 31, 2021 . 41
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Sale of Assets Our proceeds from asset sales during the six months endedMarch 31, 2022 were$34.9 million compared to proceeds of$13.4 million during the six months endedMarch 31, 2021 . The increase in proceeds is mainly driven by higher rig activity which drives higher reimbursement from customers for lost or damaged drill pipe. The increase is also attributable to the sale of our casing running and trucking assets that occurred during the six months endedMarch 31, 2022 . Financing Activities Dividends We paid dividends of$0.50 per share during the six months endedMarch 31, 2022 and 2021. Total dividends paid were$54.0 million and$54.2 million during the six months endedMarch 31, 2022 and 2021, respectively. A cash dividend of$0.25 per share was declared onMarch 2, 2022 for shareholders of record onMay 13, 2022 , payable onMay 27, 2022 . The declaration and amount of future dividends is at the discretion of the Board and subject to our financial condition, results of operations, cash flows, and other factors the Board deems relevant. Redemption of 4.65% Senior Notes due 2025 OnOctober 27, 2021 , we redeemed all of the outstanding 2025 Notes, resulting in a cash outflow of$487.1 million . As a result, the associated make-whole premium of$56.4 million was paid during the first fiscal quarter of 2022 contemporaneously with theOctober 27, 2021 debt extinguishment. Repurchase of Shares We have an evergreen authorization from theBoard for the repurchase of up to four million common shares in any calendar year. The repurchases may be made using our cash and cash equivalents or other available sources. During the six months endedMarch 31, 2021 , we repurchased 3.2 million common shares at an aggregate cost of$77.0 million , which are held as treasury shares. Credit Facilities OnNovember 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 onNovember 13, 2019 , providing for an unsecured revolving credit facility (as amended, the "2018 Credit Facility"), that was set to mature onNovember 13, 2024 . OnApril 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 fromNovember 13, 2024 toNovember 12, 2025 . No other terms of the 2018 Credit Facility were amended in connection with this extension. The remaining$70.0 million of commitments under the 2018 Credit Facility will expire onNovember 13, 2024 , unless extended by the applicable lender before such date. OnMarch 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 fromNovember 12, 2025 toNovember 11, 2026 . The remaining$70.0 million of commitments under the 2018 Credit Facility will expire onNovember 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 ofMarch 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 2021 Annual Report on Form 10-K.
As of
As ofMarch 31, 2022 , we also had a$20.0 million unsecured standalone line of credit facility, for the purpose of obtaining the issuance of international letters of credit, bank guarantees, and performance bonds. Of the$20.0 million ,$5.8 million of financial guarantees were outstanding as ofMarch 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. AtMarch 31, 2022 , we were in compliance with all debt covenants, and we anticipate that we will continue to be in compliance during the next quarter of fiscal year 2022. Senior Notes 2.90% Senior Notes due 2031 OnSeptember 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 inthe United States pursuant to Rule 144A under the Securities Act ("Rule 144A") and to certain non-U.S. persons in transactions outsidethe United States pursuant to Regulation S under the Securities Act ("Regulation S"). Interest on the 2031 Notes is payable semi-annually onMarch 29 andSeptember 29 of each year, commencing onMarch 29, 2022 . The 2031 Notes will mature onSeptember 29, 2031 and bear interest at a rate of 2.90 percent per annum. 42
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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. 4.65% Senior Notes due 2025 OnDecember 20, 2018 , we issued approximately$487.1 million in aggregate principal amount of the 2025 Notes. Interest on the 2025 Notes was payable semi-annually onMarch 15 andSeptember 15 of each year, commencing onMarch 15, 2019 . The debt issuance cost was being amortized straight-line over the stated life of the obligation, which approximated the effective interest method. OnSeptember 27, 2021 , the Company delivered a conditional notice of optional full redemption for all of the outstanding 2025 Notes at a redemption price calculated in accordance with the indenture governing the 2025 Notes, plus accrued and unpaid interest on the 2025 Notes to be redeemed. The Company financed the redemption of the 2025 Notes with the net proceeds from the offering of the 2031 Notes, together with cash on hand. The Company's obligation to redeem the 2025 Notes was conditioned upon the prior consummation of the issuance of the 2031 Notes, which was satisfied onSeptember 29, 2021 . OnOctober 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 theOctober 27, 2021 debt extinguishment and recorded in Loss on Extinguishment of Debt on our Unaudited Condensed Consolidated Statements of Operations during the six months endedMarch 31, 2022 . Future Cash Requirements Our operating cash requirements, scheduled debt repayments, interest payments, any declared dividends, and estimated capital expenditures for fiscal year 2022 are expected to be funded through current cash and cash to be provided from operating activities. However, there can be no assurance that we will continue to generate cash flows at current levels. If needed, we may decide to obtain additional funding from our$750.0 million 2018 Credit Facility. We currently do not anticipate the need to draw on the 2018 Credit Facility. Our indebtedness under our unsecured senior notes totaled$550.0 million atMarch 31, 2022 and matures onSeptember 29, 2031 . DuringApril 2022 , the Company made a$33.0 million cornerstone investment in an affiliate of Galileo in the form of a convertible note. Refer to Note 15-Subsequent Events for further details. As ofMarch 31, 2022 , we had a$552.3 million deferred tax liability on our Unaudited Condensed Consolidated Balance Sheets, primarily related to temporary differences between the financial and income tax basis of property, plant and equipment. Our levels of capital expenditures over the last several years have been subject to accelerated depreciation methods (including bonus depreciation) available under the Internal Revenue Code of 1986, as amended, enabling us to defer a portion of cash tax payments to future years. Future levels of capital expenditures and results of operations will determine the timing and amount of future cash tax payments. We expect to be able to meet any such obligations utilizing cash and investments on hand, as well as cash generated from ongoing operations.
At
The long-term debt to total capitalization ratio was 16.7 percent and 15.9 percent atMarch 31, 2022 andSeptember 30, 2021 , respectively. For additional information regarding debt agreements, refer to Note 6-Debt to the Unaudited Condensed Consolidated Financial Statements.
There were no other significant changes in our financial position since
Material Commitments
Material commitments as reported in our 2021 Annual Report on Form 10-K have not
changed significantly at
Critical Accounting Policies and Estimates
Our accounting policies and estimates that are critical or the most important to
understand our financial condition and results of operations, and that require
management to make the most difficult judgments, are described in our 2021
Annual Report on Form 10-K. There have been no material changes in these
critical accounting policies and estimates.
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Recently Issued Accounting Policies
See Note 2-Summary of Significant Accounting Policies, Risks and Uncertainties to the Unaudited Condensed Consolidated Financial Statements for recently adopted accounting standards and new accounting standards not yet adopted.
Non-GAAP Measurements
Direct Margin
Direct margin is considered a non-GAAP metric. We define "Direct margin" as
operating revenues less direct operating expenses. Direct margin is included as
a supplemental disclosure because we believe it is useful in assessing and
understanding our current operational performance, especially in making
comparisons over time. Direct margin is not a substitute for financial measures
prepared in accordance with GAAP and should therefore be considered only as
supplemental to such GAAP financial measures.
The following table reconciles direct margin to segment operating income (loss),
which we believe is the financial measure calculated and presented in accordance
with GAAP that is most directly comparable to direct margin.
Three
Months Ended
North America Offshore Gulf of International
(in thousands) Solutions Mexico Solutions
Segment operating income (loss) $ 1,297 $ 5,278 $ (848)
Add back:
Depreciation and amortization 95,817 2,401 1,049
Research and development 6,420 - -
Selling, general and administrative expense 10,883 584 2,050
Direct margin (Non-GAAP) $ 114,417 $ 8,263 $ 2,251
Three Months Ended March 31, 2021
North America Offshore Gulf of International
(in thousands) Solutions Mexico Solutions
Segment operating income (loss) $ (109,834) $ 2,978 $ (3,458)
Add back:
Depreciation and amortization 99,917 2,593 415
Research and development 5,329 - -
Selling, general and administrative expense 12,960 634 1,138
Asset impairment charge 54,284 - -
Restructuring charges 1,442 - -
Direct margin (Non-GAAP) $ 64,098 $ 6,205 $ (1,905)
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Six Months Ended March 31, 2022
North America Offshore Gulf of International
(in thousands) Solutions Mexico Solutions
Segment operating income (loss) $ (27,596) $ 10,744 $ 7,201
Add back:
Depreciation and amortization 189,438 4,781 1,804
Research and development 12,988 - -
Selling, general and administrative expense 21,712 1,341 3,779
Asset impairment charge 1,868 - 2,495
Restructuring charges 473 - -
Direct margin (Non-GAAP) $ 198,883 $ 16,866 $ 15,279
Six Months Ended March 31, 2021
Offshore Gulf of International
(in thousands) North America Solutions Mexico Solutions
Segment operating income (loss) $ (182,762) $ 5,720 $ (11,815)
Add back:
Depreciation and amortization 200,241 5,199 788
Research and development 10,795 - -
Selling, general and administrative expense 24,640 1,303 2,117
Asset impairment charge 54,284 - -
Restructuring charges 1,581 - -
Direct Margin (Non-GAAP) $ 108,779 $ 12,222 $ (8,910) © Edgar Online, source
