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OFFON

HELMERICH & PAYNE, INC.

(HP)
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HELMERICH & PAYNE : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

07/28/2021 | 05:09pm EDT
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 and objectives of management for
future operations, are forward-looking statements. In addition, forward-looking
statements generally 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, such things 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 the
Organization of Petroleum Exporting Countries and other oil producing nations
("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 effect, impact, potential duration or other implications of the ongoing
outbreak of a novel strain of coronavirus ("COVID-19") and the oil price
collapse in 2020, 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, including as a
result of the change in the U.S. presidential administration, affecting our
costs and increasing operation restrictions or delay and other adverse impacts
on our business;
•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; and
•potential long-lived asset impairments.
Important factors that could cause actual results to differ materially from our
expectations or results discussed in the forward­looking statements are
disclosed in our 2020 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.
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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 of June 30, 2021, our drilling rig fleet included a
total of 281 drilling rigs. Our reportable operating business segments consist
of the North America Solutions segment with 242 rigs, the Offshore Gulf of
Mexico segment with seven offshore platform rigs and the International Solutions
segment with 32 rigs as of June 30, 2021. At the close of the third quarter of
fiscal year 2021, we had 131 contracted rigs, of which 64 were under a
fixed-term contract and 67 were working well-to-well, compared to 79 contracted
rigs at September 30, 2020. 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 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
various supply and demand factors. Both commodities have historically been, and
we expect them to continue to be, cyclical and highly volatile.
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, which at
times have proven to be dramatic.
Throughout this time, the length of the lateral section of wells drilled in the
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, as a result of having a large super-spec fleet, we gained market share
and became the largest provider of super-spec rigs in the industry. As such, we
believe we are well positioned to respond to various market conditions.
In early March 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.
We experienced much of our rig count decline during the second and third
quarters of fiscal year 2020 as our North American Solutions active rig count
declined from 195 rigs at December 31, 2019 to a low of 47 rigs in August of
2020. However, during the fourth quarter of fiscal year 2020, the market
experienced a stabilization of crude oil prices in the $40 per barrel range and
subsequently crude oil prices moved toward $50 per barrel as our customers set
their capital budgets for calendar year 2021. More recently, crude oil prices
have continued to increase, reaching more than $70 per barrel. That said,
however, we do not expect rig activity to move in tandem with crude oil prices
to the same extent as it has historically. This is primarily due to a large
portion of our customers having a more disciplined approach to their operations
and capital spending. We expect a majority will maintain their activity levels
in accordance with their capital budgets for 2021, which were set during a time
when crude oil prices were lower and will not adjust spending levels higher as
crude oil prices move higher. Along with stabilization of crude prices during
the fourth quarter of fiscal year 2020, our rig activity began to increase, and
increased more significantly during the first and second quarters of fiscal year
2021. Our North American Solutions active rig count has more than doubled from
47 rigs in August 2020 to 121 rigs at June 30, 2021. We do expect further
increases in our rig count for the remainder of fiscal year 2021 as the level of
customer capital spending is higher in calendar 2021 than it was in calendar
2020. However, we expect the rate of rig count increases to be at a much more
modest pace during the remainder of our fiscal year 2021 compared to what we
experienced during the first nine months of fiscal year 2021.
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Utilization for our super-spec FlexRig® fleet peaked in late calendar year 2018
with 216 of 221 super-spec rigs working (98 percent utilization); however, the
subsequent decline in the demand for land rigs resulted in customers idling a
large portion of our super-spec FlexRig® fleet. At June 30, 2021, we had 113
idle super-spec rigs out of our FlexRig® fleet of 232 super-spec rigs (51
percent utilization).
Collectively, our other business segments, Offshore Gulf 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 Offshore Gulf 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.
H&P recognizes the uncertainties and concerns caused by the COVID-19 pandemic;
however, we have managed the Company over time to be in a position of strength
both financially and operationally when facing uncertainties of this magnitude.
The COVID-19 pandemic has had a significant financial impact on the Company,
including increased costs as a result of labor shortages and logistics
constraints. The global response to coping with the pandemic resulted in a drop
in demand for crude oil, which, when combined with a more than adequate supply
of crude oil, has resulted in a sharp decline in crude oil prices, causing our
customers to have pronounced pullbacks in their operations and planned capital
expenditures. The direct impact of COVID-19 on H&P's operations has created some
challenges that we believe the Company is adequately addressing to ensure a
robust continuation of our operations albeit at a lower activity level.
The health and safety of all H&P stakeholders - our employees, customers, and
vendors - remain a top priority at the Company. Accordingly, H&P has implemented
additional policies and procedures designed to protect the well-being of our
stakeholders and to minimize the impact of COVID-19 on our ongoing operations.
We are adhering to Center for Disease Control guidelines for evaluating actual
and potential COVID-19 exposures and we are complying with local governmental
jurisdiction policies and procedures where our operations reside; in some
instances, policies and procedures are more stringent in our foreign operations
than in our North America operations and this resulted in a complete suspension,
for a certain period of time, of all drilling operations in at least one foreign
jurisdiction.
In the United States, the Company is an 'essential critical infrastructure'
company as defined by the Department of Homeland Security and the Cybersecurity
and Infrastructure Security Agency and, as such, continues to operate rigs and
technology solutions, providing valuable services to our customers in support of
the global energy infrastructure.
Since the COVID-19 outbreak began, no rigs have been fully shut down (other than
temporary shutdowns for disinfecting) and such measures to disinfect facilities
have not had a significant impact on service. We believe our service levels are
unchanged from pre-pandemic levels.
From a financial perspective, we believe the Company is well positioned to
continue as a going concern even through a more protracted disruption caused by
COVID-19, oil oversupply and low oil prices. We have taken measures to reduce
costs and capital expenditures to levels that better reflect a lower activity
environment. The actions we took during fiscal year 2020 included a reduction to
the annual dividend of approximately $200 million, a reduction of approximately
$145 million in the fiscal year 2020 capital spend, a reduction of over $50
million in fixed operational overhead, and a reduction of selling, general and
administrative expenses of more than $25 million on an annualized basis. The
culmination of these cost-saving initiatives resulted in a $16.0 million
restructuring charge during fiscal year 2020. Further, we took additional steps
in fiscal year 2021 to reduce our operating cost structure. These measures will
result in an estimated annualized savings of $7 million with the full benefit
expected to be realized in calendar year 2022. We anticipate further cost
reductions going forward; however, implementation of future cost initiatives
will be incremental and are anticipated to be realized over the next few
quarters. These cost reduction measures could lead to additional restructuring
charges in future periods. At June 30, 2021, the Company had cash and cash
equivalents and short-term investments of $557.8 million and availability under
the 2018 Credit Facility (as defined herein) of $750.0 million resulting in
approximately $1.3 billion in near-term liquidity. We currently do not
anticipate the need to draw on the 2018 Credit Facility.
As part of the Company's normal operations, we regularly monitor the
creditworthiness of our customers and vendors, screening out those that we
believe have a high risk of failure to honor their counter-party obligations
either through payment or delivery of goods or services. We also perform routine
reviews of our accounts receivable and other amounts owed to us to assess and
quantify the ultimate collectability of those amounts. At June 30, 2021 and
September 30, 2020, the Company had a net allowance against its accounts
receivable of $1.9 million and $1.8 million, respectively.
The nature of the COVID-19 pandemic is inherently uncertain, and as a result,
the Company is unable to reasonably estimate the duration and ultimate impacts
of the pandemic, including the timing or level of any subsequent recovery. As a
result, the Company cannot be certain of the degree of impact on the Company's
business, results of operations and/or financial position for future periods.
Subsequent to March 31, 2020, we adjusted our credit risk monitoring for
specific customers, in response to the economic events described above.
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Recent Developments
Credit Facility Maturity Extension
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. 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.
Assets Held-for-Sale
In March 2021, the Company's leadership continued the execution of the current
strategy, which was initially introduced in 2019, focusing on operating various
types of highly capable upgraded rigs and phasing out the older, less capable
fleet. As a result, the Company has undertaken a plan to sell 71 Domestic
non-super-spec rigs, all within our North America Solutions segment, the
majority of which were previously decommissioned, written down and/or held as
capital spares. The book values of those assets were written down to their fair
value less cost to sell of $13.5 million, and were reclassified as held-for-sale
in the second and third quarter of fiscal year 2021. As a result, we recognized
a non-cash impairment charge of $56.4 million, during the nine months ended June
30, 2021, in the Unaudited Condensed Consolidated Statement of Operations.
During the three months ended June 30, 2021, we completed the sale of assets
with a net book value of $3.4 million that were classified as held-for-sale
during the second quarter of fiscal year 2021.
Restructuring Charges
During the second quarter of fiscal year 2021, we reorganized our IT operations
and moved select IT functions to a managed service provider. Costs incurred as
of June 30, 2021 in connection with the restructuring are primarily comprised of
one-time severance benefits to employees who were involuntarily terminated. The
termination date of some of the employees extend beyond June 30, 2021, and such
employees are required to render service through their respective termination
date in order to receive the one-time severance benefit. During the third
quarter of fiscal year 2021, we commenced a voluntary separation program at our
local office in Argentina for which we incurred one-time severance charges for
employees who were voluntarily terminated.
Additionally, we continue to take measures to lower our cost structure based on
activity levels. During the second and third quarter of fiscal year 2021, we
incurred one-time moving related expenses due to the downsizing and relocation
of our Houston assembly facility and storage yards. This together with
additional restructuring activities that could result from our in-process cost
management review could result in additional restructuring charges throughout
the year.
Sale of Offshore Rig
During the first quarter of fiscal year 2021, we closed on the sale of an
offshore platform rig within our Offshore Gulf of Mexico operating segment for
total consideration of $12.0 million with an aggregate net book value of
$2.8 million, resulting in a gain of $9.2 million, which is included within
(gain) loss on sale of assets on our Unaudited Condensed Consolidated Statements
of Operations during the nine months ended June 30, 2021.
Contract Backlog
As of June 30, 2021 and September 30, 2020, our contract drilling backlog, being
the expected future dayrate revenue from executed contracts, was $582.5 million
and $658.0 million, respectively. These amounts do not include anticipated
contract renewals or expected performance bonuses. The decrease in backlog at
June 30, 2021 from September 30, 2020 is primarily due to prevailing market
conditions causing a decline in the number of longer term drilling contracts
executed. Approximately 65.2 percent of the June 30, 2021 total backlog is
reasonably expected to be fulfilled in fiscal year 2022 and thereafter.
Fixed-term contracts customarily provide for termination at the election of the
customer, with an early termination payment to be paid to us if a contract is
terminated prior to the expiration of the fixed term. As a result of the
depressed market conditions and negative outlook for the near term, beginning in
the second quarter of fiscal year 2020, certain of our customers, as well as
those of our competitors, opted to renegotiate or early terminate existing
drilling contracts. Such renegotiations included requests to lower the contract
dayrate in exchange for additional terms, temporary stacking of the rig, and
other proposals. During the three months ended June 30, 2021, we reported no
early termination revenue associated with term contracts. For the nine months
ended June 30, 2021, we recognized $7.7 million of early termination revenue
associated with term contracts. During the three and nine months ended June 30,
2020, we reported early termination revenue of $49.5 million and $57.8 million,
respectively.
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The following table sets forth the total backlog by reportable segment as of
June 30, 2021 and September 30, 2020, and the percentage of the June 30, 2021
backlog reasonably expected to be fulfilled in fiscal year 2022 and thereafter:
                                                                                                      Percentage Reasonably
                                                                                                    Expected to be Filled in
                                                                              September 30,             Fiscal Year 2022
(in millions)                                          June 30, 2021               2020                  and Thereafter
North America Solutions                              $        500.3          $       542.4                            66.2  %
Offshore Gulf of Mexico                                        13.9                   16.7                               -
International Solutions                                        68.3                   98.9                            70.9
                                                     $        582.5          $       658.0


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 2020
Annual Report on Form 10-K filed with the Securities 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 ongoing outbreak of COVID-19, have adversely affected and
are expected to continue to adversely affect our business, financial condition
and results of operations" within our 2020 Annual Report on Form 10-K.
Results of Operations for the Three Months Ended June 30, 2021 and 2020
Consolidated Results of Operations
Net Loss We reported a loss from continuing operations of $56.7 million ($0.53
loss per diluted share) on operating revenues of $332.2 million for the three
months ended June 30, 2021 compared to a loss from continuing operations of
$46.0 million ($0.43 loss per diluted share) on operating revenues of $317.4
million for the three months ended June 30, 2020. Included in the net loss for
the three months ended June 30, 2021 is income of $1.2 million ($0.01 per
diluted share) from discontinued operations. Including discontinued operations,
we recorded a net loss of $55.6 million ($0.52 loss per diluted share) for the
three months ended June 30, 2021 compared to a net loss of $45.6 million ($0.43
loss per diluted share) for the three months ended June 30, 2020.
Research and Development For the three months ended June 30, 2021 and 2020, we
incurred $5.6 million and $3.6 million, respectively, of research and
development expenses.

Selling, General and Administrative Expense Selling, general and administrative
expenses decreased to $41.7 million during the three months ended June 30, 2021
compared to $43.1 million during the three months ended June 30, 2020. The $1.4
million decrease in fiscal year 2021 compared to the same period in fiscal year
2020 is primarily due to a lower number of personnel, partially offset by higher
accrued variable compensation expense.
Asset Impairment Charge During the three months ended June 30, 2021, three
Domestic non super-spec rigs were reclassified as assets held-for-sale. As such,
the book values of these rigs were written down to their fair value less costs
to sell of $0.4 million, resulting in a non-cash impairment charge of $2.1
million ($0.9 million net of tax, or $0.01 per diluted share) in the Unaudited
Consolidated Statement of Operations. We had no impairment charges during the
three months ended June 30, 2020.
Restructuring Charges During the three months ended June 30, 2021 and 2020 we
incurred $2.1 million and $15.5 million, respectively, in restructuring charges.
The charges incurred during the third quarter of fiscal year 2021 included $0.7
million in one-time severance benefits paid to employees who were voluntarily or
involuntarily terminated coupled with charges of $1.4 million related to the
downsizing of yard facilities. The charges incurred during the third quarter of
fiscal year 2020 were primarily comprised of $19.0 million in one-time severance
benefits to employees who were voluntarily or involuntarily terminated, offset
by a benefit of $3.5 million related to forfeitures and modifications of
stock-based compensation awards.
Income Taxes We had an income tax benefit of $23.7 million for the three months
ended June 30, 2021 (which includes discrete tax benefits of approximately $5.8
million primarily related to a decrease in our deferred state income tax rate)
compared to an income tax benefit of $17.6 million for the three months ended
June 30, 2020 (which includes discrete tax benefits of approximately $5.9
million primarily related to a decrease in our deferred state income tax rate
and return to provision adjustments). Our statutory federal income tax rate for
fiscal year 2021 is 21.0 percent (before incremental state and foreign taxes).
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North America Solutions Operations Segment
                                                           Three Months Ended June 30,
(in thousands, except operating statistics)                  2021                  2020               % Change
Operating revenues                                     $      281,132          $ 254,434                 10.5
Direct operating expenses                                     206,172            152,663                 35.1
Segment gross margin                                           74,960            101,771                (26.3)

Depreciation and amortization                                  96,997            102,699                 (5.6)
Research and development                                        5,605              3,459                 62.0
Selling, general and administrative expense                    12,583             13,533                 (7.0)
Asset impairment charge                                         2,130                  -                    -
Restructuring charges                                           1,388              7,237                (80.8)
Segment operating loss                                 $      (43,743)         $ (25,157)                73.9

Operating Statistics (1):
Average active rigs                                               119                 89                 33.7
Number of active rigs at the end of period                        121                 68                 77.9
Number of available rigs at the end of period                     242                262                 (7.6)
Reimbursements of "out-of-pocket" expenses             $       33,282          $  27,806                 19.7


(1)These operating metrics 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. Beginning in the first quarter of fiscal year 2021, these operating
metrics replaced previously used per day metrics. As a result, prior year
comparative information is also provided above.

Segment Gross Margin The North America Solutions segment gross margin was $75.0
million for the three months ended June 30, 2021 compared to $101.8 million in
the same period of fiscal year 2020. The decrease was primarily driven by a
decline in early termination revenue, partially offset by higher activity
levels. Revenues were $281.1 million and $254.4 million in the three months
ended June 30, 2021 and 2020, respectively. The increase in operating revenue is
primarily due to higher activity levels. For the three months ended June 30,
2021, we reported no early termination revenue associated with term contracts
compared to $48.8 million during the same period of fiscal year 2020. Fixed­term
contracts customarily provide for termination at the election of the customer,
with an early termination payment to be paid to us if a contract is terminated
prior to the expiration of the fixed term (except in limited circumstances
including sustained unsatisfactory performance by us). Direct operating expenses
increased to $206.2 million during the three months ended June 30, 2021 as
compared to $152.7 million during the three months ended June 30, 2020. The
increase was due to higher activity levels and higher rig recommissioning
expenses.

Depreciation Depreciation decreased to $97.0 million during the three months
ended June 30, 2021 as compared to $102.7 million during the three months ended
June 30, 2020. The decrease was primarily attributable to rig impairments during
fiscal year 2020 and ongoing low levels of capital expenditures.
Asset Impairment Charge During the three months ended June 30, 2021, three
Domestic non super-spec rigs were reclassified as assets held-for-sale. As such,
the book values of these rigs were written down to their fair value less cost to
sell of $0.4 million, resulting in a non-cash impairment charge of $2.1 million
in the Unaudited Consolidated Statement of Operations. We had no impairment
charges during the three months ended June 30, 2020.
Restructuring Charges For the three months ended June 30, 2021, we incurred $1.4
million in restructuring charges. These expenses primarily include charges
related to the downsizing of yard facilities. During the three months ended June
30, 2020, we incurred $7.2 million in restructuring charges primarily comprised
of $10.2 million in one-time severance benefits to employees who were
voluntarily or involuntarily terminated, offset by a benefit of $3.0 million
related to forfeitures and modifications of stock-based compensation awards.
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Offshore Gulf of Mexico Operations Segment
                                                                 Three Months Ended June 30,
(in thousands, except operating statistics)                        2021                  2020               % Change
Operating revenues                                           $       33,364          $  37,494                 (11.0)
Direct operating expenses                                            24,127             28,967                 (16.7)
Segment gross margin                                                  9,237              8,527                   8.3

Depreciation                                                          2,938              3,004                  (2.2)
Selling, general and administrative expense                             592              1,248                 (52.6)
Restructuring charges                                                     -              1,262                (100.0)
Segment operating income                                     $        5,707          $   3,013                  89.4

Operating Statistics (1):
Average active rigs                                                       4                  5                 (20.0)
Number of active rigs at the end of period                                4                  5                 (20.0)
Number of available rigs at the end of period                             7                  8                 (12.5)
Reimbursements of "out-of-pocket" expenses                   $        8,342          $   8,224                   1.4


(1)These operating metrics 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. Beginning in the first quarter of fiscal year 2021, these operating
metrics replaced previously used per day metrics. As a result, prior year
comparative information is also provided above.

Segment Gross Margin During the three months ended June 30, 2021, the Offshore
Gulf of Mexico segment gross margin was $9.2 million compared to a gross margin
of $8.5 million for the three months ended June 30, 2020. This increase was
driven by increased contribution from a rig that finished its mobilization and
began drilling operations in April 2020. We had an 11.0 percent decrease in
operating revenue during the three months ended June 30, 2021 compared to the
three months ended June 30, 2020. Direct operating expenses decreased to $24.1
million during the three months ended June 30, 2021 as compared to $29.0 million
during the three months ended June 30, 2020. The decrease in operating revenue
and expenses was primarily driven by the previously mentioned rig mobilization.
Restructuring Charges We did not incur any restructuring charges during the
three months ended June 30, 2021. During the three months ended June 30, 2020,
we incurred $1.3 million in restructuring charges, which primarily consisted of
employee termination benefits that resulted from our reduction in staffing
levels.
International Solutions Operations Segment
                                                           Three Months Ended June 30,
(in thousands, except operating statistics)                  2021                  2020               % Change
Operating revenues                                     $       15,278          $  22,477                (32.0)
Direct operating expenses                                      16,690             27,595                (39.5)
Segment gross margin                                           (1,412)            (5,118)                72.4

Depreciation                                                      573                996                (42.5)
Selling, general and administrative expense                     1,346              1,129                 19.2

Restructuring charges                                             207              2,297                (91.0)
Segment operating loss                                 $       (3,538)         $  (9,540)               (62.9)

Operating Statistics (1):
Average active rigs                                                 5                 11                (54.5)
Number of active rigs at the end of period                          6                  8                (25.0)
Number of available rigs at the end of period                      32                 32                    -
Reimbursements of "out-of-pocket" expenses             $        1,152          $   3,079                (62.6)


(1)These operating metrics 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. Beginning in the first quarter of fiscal year 2021, these operating
metrics replaced previously used per day metrics. As a result, prior year
comparative information is also provided above.
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Segment Gross Margin The International Solutions segment gross margin was $(1.4)
million for the three months ended June 30, 2021 compared to a gross margin of
$(5.1) million for the three months ended June 30, 2020. The change was
primarily driven by lower activity levels offset by fixed minimum levels of
country overhead during the three months ended June 30, 2021. We had a 32.0
percent decrease in operating revenue during the three months ended June 30,
2021 compared to the three months ended June 30, 2020. Direct operating expenses
decreased to $16.7 million during the three months ended June 30, 2021 as
compared to $27.6 million during the three months ended June 30, 2020. This
decrease in both operating revenue and expense was driven by lower activity
levels.
Restructuring Charges For the three months ended June 30, 2021 and 2020, we
incurred $0.2 million and $2.3 million in restructuring charges, respectively.
During the three months ended June 30, 2021, we commenced a voluntary separation
program at our local office in Argentina for which we incurred one-time
severance charges for employees who were voluntarily terminated. Charges
incurred during the three months ended June 30, 2020 primarily consisted of
employee termination benefits that resulted from our reduction in staffing
levels.
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 June 30,
(in thousands)                                              2021                  2020               % Change
Operating revenues                                    $       11,818          $  13,343                 (11.4)
Direct operating expenses                                     15,865              7,906                 100.7
Gross margin                                                  (4,047)             5,437                (174.4)

Depreciation                                                     357                293                  21.8
Research and development                                           5                179                 (97.2)
Selling, general and administrative expense                      261                309                 (15.5)
Restructuring charges                                              -                267                (100.0)
Operating income (loss)                               $       (4,670)         $   4,389                (206.4)



Gross Margin On October 1, 2019, we elected to utilize the Captive to insure the
deductibles for our workers' compensation, general liability and automobile
liability claims programs. Direct operating costs consisted primarily of
adjustments to accruals for estimated losses of $6.0 million and $1.1 million
allocated to the Captive during the three months ended June 30, 2021 and 2020,
respectively. The increase in estimated losses is primarily due to revised
estimates of probable losses related to an open claim associated with an
incident that occurred in the period covered by the Captive. Intercompany
premium revenues recorded by the Captive during the three months ended June 30,
2021 and 2020 amounted to $9.4 million and $10.4 million, respectively, which
were eliminated upon consolidation.
Results of Operations for the Nine Months Ended June 30, 2021 and 2020
Consolidated Results of Operations
Net Loss We reported a loss from continuing operations of $257.9 million ($2.40
loss per diluted share) on operating revenues of $874.8 million for the nine
months ended June 30, 2021 compared to a loss from continuing operations of
$435.7 million ($4.05 loss per diluted share) on operating revenues of $1.6
billion for the nine months ended June 30, 2020. Included in the net loss for
the nine months ended June 30, 2021 is income of $10.9 million ($0.10 per
diluted share) from discontinued operations. Including discontinued operations,
we recorded a net loss of $247.0 million ($2.30 loss per diluted share) for the
nine months ended June 30, 2021 compared to a net loss of $435.5 million ($4.05
loss per diluted share) for the nine months ended June 30, 2020.
Research and Development For the nine months ended June 30, 2021 and 2020, we
incurred $16.5 million and $16.7 million, respectively, of research and
development expenses.
Selling, General and Administrative Expense Selling, general and administrative
expenses decreased to $120.4 million during the nine months ended June 30, 2021
compared to $134.9 million during the nine months ended June 30, 2020. The $14.5
million decrease in fiscal year 2021 compared to the same period in fiscal year
2020 is primarily due to a lower number of personnel, partially offset by higher
accrued variable compensation expense.
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Asset Impairment Charge During the nine months ended June 30, 2021, we undertook
a plan to sell 71 Domestic non-super-spec rigs, all within our North America
Solutions segment, the majority of which were previously decommissioned, written
down and/or held as capital spares. This resulted in an impairment charge of
$56.4 million ($43.3 million, net of tax, or $0.40 per diluted share), which is
included in asset impairment charge on the Unaudited Condensed Consolidated
Statement of Operations for the nine months ended June 30, 2021. Comparatively,
during the nine months ended June 30, 2020, we recorded an asset impairment
charge of $563.2 million ($438.6 million net of tax, or $5.21 per diluted share)
resulting from impairment of several assets including rotational inventory,
property, plant and equipment, and goodwill.
Restructuring Charges During the nine months ended June 30, 2021 and 2020, we
incurred $3.9 million and $15.5 million, respectively, in restructuring charges.
The charges incurred during the nine months ended June 30, 2021 included $0.9
million in one-time severance benefits paid to employees who were voluntarily or
involuntarily terminated coupled with charges of $3.0 million related to the
relocation of the Houston assembly facility and the downsizing of storage yard
facilities. The charges incurred during the nine months ended June 30, 2020 were
primarily comprised of $19.0 million in one-time severance benefits to employees
who were voluntarily or involuntarily terminated, offset by a benefit of $3.5
million related to forfeitures and modifications of stock-based compensation
awards.
Income Taxes We had an income tax benefit of $78.4 million for the nine months
ended June 30, 2021 (which includes discrete tax benefits of approximately $1.9
million primarily related to a decrease in our deferred state income tax rate
and equity compensation) compared to income tax benefit of $116.9 million (which
includes discrete tax benefits of approximately $3.5 million primarily related
to a decrease in our deferred state income tax rate, return to provision
adjustments, and equity compensation) for the nine months ended June 30, 2020.
Our statutory federal income tax rate for fiscal year 2021 is 21.0 percent
(before incremental state and foreign taxes).
North America Solutions Operations Segment
                                                               Nine Months Ended June 30,
(in thousands, except operating statistics)                    2021                     2020                % Change
Operating revenues                                     $      733,061              $ 1,325,076                (44.7)
Direct operating expenses                                     549,322                  832,229                (34.0)
Segment gross margin                                          183,739                  492,847                (62.7)

Depreciation and amortization                                 297,238                  336,098                (11.6)
Research and development                                       16,400                   15,871                  3.3
Selling, general and administrative expense                    37,223                   42,798                (13.0)
Asset impairment charge                                        56,414                  406,548                (86.1)
Restructuring charges                                           2,969                    7,237                (59.0)
Segment operating loss                                 $     (226,505)             $  (315,705)               (28.3)

Operating Statistics (1):
Average active rigs                                               102                      157                (35.0)
Number of active rigs at the end of period                        121                       68                 77.9
Number of available rigs at the end of period                     242                      262                 (7.6)
Reimbursements of "out-of-pocket" expenses             $       79,361              $   164,540                (51.8)


(1)These operating metrics 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. Beginning in the first quarter of fiscal year 2021, these operating
metrics replaced previously used per day metrics. As a result, prior year
comparative information is also provided above.
Segment Gross Margin The North America Solutions segment gross margin was $183.7
million for the nine months ended June 30, 2021 compared to $492.8 million in
the same period of fiscal year 2020. The decrease was primarily driven by lower
activity levels, lower early termination revenue, lower average rig pricing, and
higher rig recommissioning expenses. Revenues were $733.1 million and $1.3
billion in the nine months ended June 30, 2021 and 2020, respectively. The
decrease in operating revenue is primarily due to the factors mentioned above.
Included in revenues for the nine months ended June 30, 2021 is early
termination revenue associated with term contracts of $5.8 million compared to
$57.1 million during the same period of fiscal year 2020. Fixed­term contracts
customarily provide for termination at the election of the customer, with an
early termination payment to be paid to us if a contract is terminated prior to
the expiration of the fixed term (except in limited circumstances including
sustained unsatisfactory performance by us). Direct operating expenses decreased
to $549.3 million during the nine months ended June 30, 2021 as compared to
$832.2 million during the nine months ended June 30, 2020 primarily due to the
factors mentioned above.

Depreciation Depreciation decreased to $297.2 million during the nine months
ended June 30, 2021 as compared to $336.1 million during the nine months ended
June 30, 2020. The decrease was primarily attributable to rig impairments during
fiscal year 2020 and ongoing low levels of capital expenditures.
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Asset Impairment Charge During the nine months ended June 30, 2021, we undertook
a plan to sell 71 Domestic non-super-spec rigs, all within our North America
Solutions segment, the majority of which were previously decommissioned, written
down and/or held as capital spares. This resulted in an impairment charge of
$56.4 million ($43.3 million, net of tax, or $0.40 per diluted share), for the
nine months ended June 30, 2021. Comparatively, during the nine months ended
June 30, 2020, we recorded an impairment charge of $406.5 million ($314.9
million net of tax, or $3.76 per diluted share) resulting from our impairment of
our Domestic Conventional, FlexRig3, and FlexRig4 asset groups, in addition to
our in-progress drilling equipment and rotational inventory.
Restructuring Charges During the nine months ended June 30, 2021 and 2020, we
incurred $3.0 million and $7.2 million, respectively, in restructuring charges.
The charges incurred during the nine months ended June 30, 2021 primarily
included charges of $2.9 million related to the relocation of the Houston
assembly facility and the downsizing of storage yard facilities. The charges
incurred during the nine months ended June 30, 2020 were primarily comprised of
$10.3 million in one-time severance benefits to employees who were voluntarily
or involuntarily terminated, offset by a benefit of $3.0 million related to
forfeitures and modifications of stock-based compensation awards.
Offshore Gulf of Mexico Operations Segment
                                                                 Nine Months Ended June 30,
(in thousands, except operating statistics)                        2021                 2020               % Change
Operating revenues                                           $      94,911          $ 110,828                 (14.4)
Direct operating expenses                                           73,452             91,660                 (19.9)
Segment gross margin                                                21,459             19,168                  12.0

Depreciation                                                         8,137              8,591                  (5.3)
Selling, general and administrative expense                          1,895              3,293                 (42.5)
Restructuring charges                                                    -              1,262                (100.0)
Segment operating income                                     $      11,427          $   6,022                  89.8

Operating Statistics (1):
Average active rigs                                                      4                  5                 (20.0)
Number of active rigs at the end of period                               4                  5                 (20.0)
Number of available rigs at the end of period                            7                  8                 (12.5)
Reimbursements of "out-of-pocket" expenses                   $      21,403          $  24,888                 (14.0)


(1)These operating metrics 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. Beginning in the first quarter of fiscal year 2021, these operating
metrics replaced previously used per day metrics. As a result, prior year
comparative information is also provided above.
Segment Gross Margin During the nine months ended June 30, 2021, the Offshore
Gulf of Mexico segment gross margin was $21.5 million compared to a gross margin
of $19.2 million for the nine months ended June 30, 2020. This increase was
driven by the absence of $3.7 million of bad debt expense that was incurred
during the nine months ended June 30, 2020. We had a 14.4 percent decrease in
operating revenue during the nine months ended June 30, 2021 compared to the
nine months ended June 30, 2020. The decrease in operating revenue is primarily
due to lower activity levels partially offset by the mix of rigs working as
compared to being on standby or mobilization rates. Direct operating expenses
decreased to $73.5 million during the nine months ended June 30, 2021 as
compared to $91.7 million during the nine months ended June 30, 2020. The
decrease was primarily driven by the factors described above.
Restructuring Charges We did not incur any restructuring charges during the nine
months ended June 30, 2021. During the nine months ended June 30, 2020, we
incurred $1.3 million in restructuring charges. Charges incurred during the nine
months ended June 30, 2020 primarily consisted of employee termination benefits
that resulted from our reduction in staffing levels.
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International Solutions Operations Segment
                                                            Nine Months Ended June 30,
(in thousands, except operating statistics)                  2021                 2020                % Change
Operating revenues                                     $      40,609          $  120,189                 (66.2)
Direct operating expenses                                     50,931              99,634                 (48.9)
Segment gross margin                                         (10,322)             20,555                (150.2)

Depreciation                                                   1,361              16,634                 (91.8)
Selling, general and administrative expense                    3,463               3,832                  (9.6)
Asset impairment charge                                            -             156,686                (100.0)
Restructuring charges                                            207               2,297                 (91.0)
Segment operating loss                                 $     (15,353)         $ (158,894)                (90.3)

Operating Statistics (1):
Average active rigs                                                5                  15                 (66.7)
Number of active rigs at the end of period                         6                   8                 (25.0)
Number of available rigs at the end of period                     32                  32                     -
Reimbursements of "out-of-pocket" expenses             $       5,324          $    6,875                 (22.6)


(1)These operating metrics 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. Beginning in the first quarter of fiscal year 2021, these operating
metrics replaced previously used per day metrics. As a result, prior year
comparative information is also provided above.
Segment Gross Margin The International Solutions segment gross margin was
$(10.3) million for the nine months ended June 30, 2021 compared to a gross
margin of $20.6 million for the nine months ended June 30, 2020. The change was
primarily driven by lower activity levels coupled with fixed minimum levels of
country overhead during the nine months ended June 30, 2021. We had a 66.2
percent decrease in operating revenue during the nine months ended June 30, 2021
compared to the nine months ended June 30, 2020. The decrease in operating
revenue is primarily due to lower activity levels. Direct operating expenses
decreased to $50.9 million during the nine months ended June 30, 2021 as
compared to $99.6 million during the nine months ended June 30, 2020 and was
driven by the factors described above.
Asset Impairment Charge During the nine months ended June 30, 2021, we recorded
no impairment charges, compared to an impairment charge of $156.7 million
($123.8 million net of tax, or $1.45 per diluted share) for the nine months
ended June 30, 2020.
Restructuring Charges For the nine months ended June 30, 2021 and 2020, we
incurred $0.2 million and $2.3 million in restructuring charges, respectively.
During the nine months ended June 30, 2021, we commenced a voluntary separation
program at our local office in Argentina for which we incurred one-time
severance charges for employees who were voluntarily terminated. Charges
incurred during the nine months ended June 30, 2020 primarily consisted of
employee termination benefits that resulted from our reduction in staffing
levels.
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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:
                                                           Nine Months Ended June 30,
(in thousands)                                              2021                  2020               % Change
Operating revenues                                    $       31,361          $  38,494                 (18.5)
Direct operating expenses                                     30,837             31,960                  (3.5)
Gross margin                                                     524              6,534                 (92.0)

Depreciation                                                   1,075                908                  18.4
Research and development                                         127                859                 (85.2)
Selling, general and administrative expense                      953                796                  19.7
Restructuring charges                                              -                267                (100.0)
Operating income (loss)                               $       (1,631)         $   3,704                (144.0)


Gross Margin On October 1, 2019, we elected to utilize the Captive to insure the
deductibles for our workers' compensation, general liability and automobile
liability claims programs. Direct operating costs consisted primarily of
adjustments to accruals for estimated losses of $8.8 million and $15.8 million
allocated to the Captive during the nine months ended June 30, 2021 and 2020,
respectively. The decrease in estimated losses is primarily due to actuarial
valuation adjustments by our third-party actuary as well as lower activity
levels. Intercompany premium revenues recorded by the Captive during the nine
months ended June 30, 2021 and 2020 amounted to $25.2 million and $28.9 million,
respectively, which were eliminated upon consolidation.
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 include U.S.
Treasury securities, U.S. Agency issued debt securities, corporate bonds and
commercial paper, certificates of deposit and money market funds.
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.
The effects of the COVID-19 outbreak and the oil price collapse in 2020 have had
significant adverse consequences for general economic, financial and business
conditions, as well as for our business and financial position and the business
and financial position of our customers, suppliers and vendors and may, among
other things, impact our ability to generate cash flows from operations, access
the capital markets on acceptable terms or at all and affect our future need or
ability to borrow under the 2018 Credit Facility. In addition to our potential
sources of funding, the effects of such global events may impact our liquidity
or need to alter our allocation or sources of capital, implement additional cost
reduction measures and further change our financial strategy. Although the
COVID-19 outbreak and the oil price collapse could have a broad range of effects
on our sources and uses of liquidity, the ultimate effect thereon, if any, will
depend on future developments, which cannot be predicted at this time.
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 units,
the timing of collections on outstanding accounts receivable, the timing of
payments to our vendors for operating costs, and capital expenditures, all of
which was impacted by the COVID-19 outbreak and the oil price collapse in 2020.
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 of June 30, 2021, we had $370.6 million of cash and cash equivalents on hand
and $187.3 million of short-term investments. Our cash flows for the nine months
ended June 30, 2021 and 2020 are presented below:
                                                                            Nine Months Ended June 30,
(in thousands)                                                               2021                  2020
Net cash provided by (used in):
Operating activities                                                  $        89,821          $  446,253
Investing activities                                                         (119,752)            (87,024)
Financing activities                                                          (84,944)           (265,976)
Net increase (decrease) in cash and cash equivalents and restricted
cash                                                                  $      (114,875)         $   93,253


Operating Activities
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 the current portion of long-term debt. Operating net working capital
was $177.7 million as of June 30, 2021 compared to $194.2 million as of
September 30, 2020. The sequential decrease in net working capital was primarily
driven by the collection of a $32.1 million income tax receivable during the
second quarter of fiscal year 2021, partially offset by activity-driven
increases in other components of our operating net working capital. Included in
accounts receivable as of June 30, 2021 was $23.1 million of income tax
receivables. Cash flows provided by operating activities were approximately
$89.8 million and $446.3 million for the nine months ended June 30, 2021 and
2020, respectively. The decrease in cash provided by operating activities is
primarily driven by lower operating activity and lower pricing.
Investing Activities
Capital Expenditures Our capital expenditures during the nine months ended June
30, 2021 were $49.2 million compared to $121.0 million during the nine months
ended June 30, 2020. The decrease is driven by lower maintenance capital
expenditures as a result of lower activity.
Purchase of Investments Our net purchases of investments during the nine months
ended June 30, 2021 were $97.4 million compared to net purchases of $12.3
million during the nine months ended June 30, 2020. The increase in purchases is
attributable to our strategy to optimize our returns on investment.
Sale of Subsidiary In December 2019, we closed on the sale of a wholly-owned
subsidiary of Helmerich & Payne International Drilling Co., TerraVici Drilling
Solutions, Inc. ("TerraVici"). As a result of the sale, 100% of TerraVici's
outstanding capital stock was transferred to the purchaser in exchange for
approximately $15.1 million, resulting in a total gain on the sale of TerraVici
of approximately $15.0 million.
Equity Securities As of June 30, 2021, our equity securities primarily consist
of common shares in Schlumberger, Ltd. that, at the close of the third quarter
of fiscal year 2021, had a fair value of $15.0 million. The value of our
securities are subject to fluctuation in the market and may vary considerably
over time. This investment is recorded at fair value on our Unaudited Condensed
Consolidated Balance Sheets.
Financing Activities
Repurchase of Shares We have an evergreen authorization from the Board of
Directors (the "Board") 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. We had a $28.5 million cash outflow for
repurchases of common shares during the nine months ended June 30, 2020. There
were no purchases of common shares during the nine months ended June 30, 2021.
Dividends We paid dividends of $0.75 and $2.13 per share during the nine months
ended June 30, 2021 and 2020, respectively. Total dividends paid were $81.8
million and $233.1 million during the nine months ended June 30, 2021 and 2020,
respectively. A cash dividend of $0.25 per share was declared on June 2, 2021
for shareholders of record on August 17, 2021, payable on August 31, 2021. 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.
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. 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.
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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 June 30,
2021, 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 8-Debt to the consolidated
financial statements in our 2020 Annual Report on Form 10-K.
As of June 30, 2021, we had two outstanding letters of credit with banks, in the
amounts of $24.8 million and $2.1 million, respectively. As of June 30, 2021, 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, $1.8 million of
financial guarantees were outstanding as of June 30, 2021. 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
June 30, 2021, 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
2021.
Senior Notes
On December 20, 2018, we issued approximately $487.1 million in aggregate
principal amount of 4.65 percent unsecured senior notes due 2025 (the "Company
2025 Notes"). Interest on the Company 2025 Notes is payable semi-annually on
March 15 and September 15 of each year, commencing March 15, 2019. The debt
issuance costs are being amortized straight-line over the stated life of the
obligation, which approximates the effective interest method.
Future Cash Requirements
Our operating cash requirements, scheduled debt repayments, interest payments,
any declared dividends, and estimated capital expenditures for fiscal year 2021
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. Our
indebtedness under our unsecured senior notes totaled $487.1 million at June 30,
2021 and matures on March 19, 2025.
As of June 30, 2021, we had a $584.6 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.
The long-term debt to total capitalization ratio was 13.9 percent and 12.8
percent at June 30, 2021 and September 30, 2020, 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
September 30, 2020.
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements as that term is defined in Item
303(a)(4)(ii) of Regulation S-K. For information regarding our drilling contract
backlog, see Item 2- "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Contract Backlog".
Material Commitments
Material commitments as reported in our 2020 Annual Report on Form 10-K have not
changed significantly at June 30, 2021, other than those disclosed in Note
13-Commitments and Contingencies to the Unaudited Condensed Consolidated
Financial Statements.
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 2020
Annual Report on Form 10-K. There have been no material changes in these
critical accounting policies and estimates.
Recently Issued Accounting Standards
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.
                                       42

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