UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended: December 31, 2018
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-4221
HELMERICH & PAYNE, INC.
(Exact name of registrant as specified in its charter)
Delaware |
|
73-0679879 |
(State or other jurisdiction of |
|
(I.R.S. Employer I.D. Number) |
incorporation or organization) |
|
|
1437 South Boulder Avenue, Suite 1400, Tulsa, Oklahoma, 74119
(Address of principal executive office) (Zip Code)
(918) 742-5531
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ |
|
Accelerated filer ☐ |
Non-accelerated filer ☐ |
|
Smaller reporting company ☐ |
|
|
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
CLASS |
|
OUTSTANDING AT January 24, 2019 |
Common Stock, $0.10 par value |
109,405,326 |
HELMERICH & PAYNE, INC.
2
HELMERICH & PAYNE, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
|
|
December 31, |
|
September 30, |
||
(in thousands except share data and per share amounts) |
|
2018 |
|
2018 |
||
Assets |
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
228,462 |
|
$ |
284,355 |
Short-term investments |
|
|
41,072 |
|
|
41,461 |
Accounts receivable, net of allowance of $6,230 and $6,217, respectively |
|
|
545,731 |
|
|
565,202 |
Inventories of materials and supplies, net |
|
|
159,992 |
|
|
158,134 |
Prepaid expenses and other |
|
|
67,490 |
|
|
66,398 |
Total current assets |
|
|
1,042,747 |
|
|
1,115,550 |
Investments |
|
|
54,731 |
|
|
98,696 |
Property, plant and equipment, net |
|
|
4,900,339 |
|
|
4,857,382 |
Other Noncurrent Assets: |
|
|
|
|
|
|
Goodwill |
|
|
67,902 |
|
|
64,777 |
Intangible assets, net |
|
|
71,969 |
|
|
73,207 |
Other assets |
|
|
6,653 |
|
|
5,255 |
Total other noncurrent assets |
|
|
146,524 |
|
|
143,239 |
|
|
|
|
|
|
|
Total assets |
|
$ |
6,144,341 |
|
$ |
6,214,867 |
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
Accounts payable |
|
$ |
141,406 |
|
$ |
132,664 |
Accrued liabilities |
|
|
244,507 |
|
|
244,504 |
Total current liabilities |
|
|
385,913 |
|
|
377,168 |
Noncurrent Liabilities: |
|
|
|
|
|
|
Long-term debt |
|
|
490,805 |
|
|
493,968 |
Deferred income taxes |
|
|
853,187 |
|
|
853,136 |
Other |
|
|
84,565 |
|
|
93,606 |
Noncurrent liabilities - discontinued operations |
|
|
3,633 |
|
|
14,254 |
Total noncurrent liabilities |
|
|
1,432,190 |
|
|
1,454,964 |
Commitments and Contingencies (Note 14) |
|
|
|
|
|
|
Shareholders' Equity: |
|
|
|
|
|
|
Common stock, $.10 par value, 160,000,000 shares authorized, 112,080,262 and 112,008,961 shares issued as of December 31, 2018 and September 30, 2018, respectively, and 109,404,890 and 108,993,718 shares outstanding as of December 31, 2018 and September 30, 2018, respectively |
|
|
11,208 |
|
|
11,201 |
Preferred stock, no par value, 1,000,000 shares authorized, no shares issued |
|
|
— |
|
|
— |
Additional paid-in capital |
|
|
484,122 |
|
|
500,393 |
Retained earnings |
|
|
3,997,283 |
|
|
4,027,779 |
Accumulated other comprehensive income (loss) |
|
|
(12,296) |
|
|
16,550 |
Treasury stock, at cost, 2,675,372 shares and 3,015,243 shares as of December 31, 2018 and September 30, 2018, respectively |
|
|
(154,079) |
|
|
(173,188) |
Total shareholders’ equity |
|
|
4,326,238 |
|
|
4,382,735 |
Total liabilities and shareholders' equity |
|
$ |
6,144,341 |
|
$ |
6,214,867 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
HELMERICH & PAYNE, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
|
|
Three Months Ended December 31, |
||||
(in thousands, except per share amounts) |
|
2018 |
|
2017 |
||
|
|
|
|
|
As adjusted (Note 2) |
|
Operating revenues |
|
|
|
|
|
|
Contract drilling |
|
$ |
737,358 |
|
$ |
561,069 |
Other |
|
|
3,240 |
|
|
3,018 |
|
|
|
740,598 |
|
|
564,087 |
Operating costs and expenses |
|
|
|
|
|
|
Contract drilling operating expenses, excluding depreciation and amortization |
|
|
487,593 |
|
|
371,916 |
Operating expenses applicable to other revenues |
|
|
1,274 |
|
|
1,167 |
Depreciation and amortization |
|
|
141,460 |
|
|
143,267 |
Research and development |
|
|
7,019 |
|
|
3,234 |
Selling, general and administrative |
|
|
54,508 |
|
|
46,459 |
Gain on sale of assets |
|
|
(5,545) |
|
|
(5,565) |
|
|
|
686,309 |
|
|
560,478 |
Operating income from continuing operations |
|
|
54,289 |
|
|
3,609 |
Other income (expense) |
|
|
|
|
|
|
Interest and dividend income |
|
|
2,450 |
|
|
1,724 |
Interest expense |
|
|
(4,720) |
|
|
(5,773) |
Loss on investment securities |
|
|
(42,844) |
|
|
— |
Other |
|
|
541 |
|
|
441 |
|
|
|
(44,573) |
|
|
(3,608) |
Income from continuing operations before income taxes |
|
|
9,716 |
|
|
1 |
Income tax provision (benefit) |
|
|
1,352 |
|
|
(500,641) |
Income from continuing operations |
|
|
8,364 |
|
|
500,642 |
Income (loss) from discontinued operations before income taxes |
|
|
12,665 |
|
|
(519) |
Income tax provision |
|
|
2,070 |
|
|
17 |
Income (loss) from discontinued operations |
|
|
10,595 |
|
|
(536) |
Net Income |
|
$ |
18,959 |
|
$ |
500,106 |
Basic earnings per common share: |
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.07 |
|
$ |
4.57 |
Income from discontinued operations |
|
$ |
0.10 |
|
$ |
— |
Net income |
|
$ |
0.17 |
|
$ |
4.57 |
Diluted earnings per common share: |
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.07 |
|
$ |
4.55 |
Income from discontinued operations |
|
$ |
0.10 |
|
$ |
— |
Net income |
|
$ |
0.17 |
|
$ |
4.55 |
Weighted average shares outstanding (in thousands): |
|
|
|
|
|
|
Basic |
|
|
109,142 |
|
|
108,683 |
Diluted |
|
|
109,425 |
|
|
109,095 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
HELMERICH & PAYNE, INC.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
|
|
Three Months Ended December 31, |
||||
(in thousands) |
|
2018 |
|
2017 |
||
Net income |
|
$ |
18,959 |
|
$ |
500,106 |
Other comprehensive income (loss), net of income taxes: |
|
|
|
|
|
|
Unrealized depreciation on securities, net of income taxes of $0.2 million at December 31, 2017 |
|
|
— |
|
|
(601) |
Minimum pension liability adjustments, net of income taxes of ($0.1) million at December 31, 2018, and ($0.1) million at December 31, 2017 |
|
|
225 |
|
|
340 |
Other comprehensive income (loss) |
|
|
225 |
|
|
(261) |
Comprehensive income (loss) |
|
$ |
19,184 |
|
$ |
499,845 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
HELMERICH & PAYNE, INC.
Condensed Consolidated Statement of Shareholders’ Equity
Three Months Ended December 31, 2018
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
Other |
|
|
|
|
|
|
|
|
||
(in thousands, except |
|
Common Stock |
|
Paid-In |
|
Retained |
|
Comprehensive |
|
Treasury Stock |
|
|
|
|||||||||
per share amounts) |
|
Shares |
|
Amount |
|
Capital |
|
Earnings |
|
(Loss) Income |
|
Shares |
|
Amount |
|
Total |
||||||
Balance, September 30, 2018 |
|
112,009 |
|
$ |
11,201 |
|
$ |
500,393 |
|
$ |
4,027,779 |
|
$ |
16,550 |
|
3,015 |
|
$ |
(173,188) |
|
$ |
4,382,735 |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
18,959 |
|
|
|
|
|
|
|
|
|
|
18,959 |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
225 |
|
|
|
|
|
|
|
225 |
Dividends declared ($0.71 per share) |
|
|
|
|
|
|
|
|
|
|
(78,488) |
|
|
|
|
|
|
|
|
|
|
(78,488) |
Exercise of employee stock options, net of shares withheld for employee taxes |
|
|
|
|
|
|
|
(6,756) |
|
|
|
|
|
|
|
(125) |
|
|
6,980 |
|
|
224 |
Vesting of restricted stock awards, net of shares withheld for employee taxes |
|
71 |
|
|
7 |
|
|
(16,673) |
|
|
|
|
|
|
|
(215) |
|
|
12,129 |
|
|
(4,537) |
Stock-based compensation |
|
|
|
|
|
|
|
7,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
7,158 |
Cumulative effect adjustment for adoption of ASC 606 (Note 9) |
|
|
|
|
|
|
|
|
|
|
(38) |
|
|
|
|
|
|
|
|
|
|
(38) |
Cumulative effect adjustment for adoption of ASU No. 2016-01 (Note 2) |
|
|
|
|
|
|
|
|
|
|
29,071 |
|
|
(29,071) |
|
|
|
|
|
|
|
— |
Balance, December 31, 2018 |
|
112,080 |
|
$ |
11,208 |
|
$ |
484,122 |
|
$ |
3,997,283 |
|
$ |
(12,296) |
|
2,675 |
|
$ |
(154,079) |
|
$ |
4,326,238 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
HELMERICH & PAYNE, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
Three Months Ended December 31, |
||||
(in thousands) |
|
2018 |
|
2017 |
||
|
|
|
|
|
As adjusted (Note 2) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
Net income |
|
$ |
18,959 |
|
$ |
500,106 |
Adjustment for (income) loss from discontinued operations |
|
|
(10,595) |
|
|
536 |
Income from continuing operations |
|
|
8,364 |
|
|
500,642 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
|
|
141,460 |
|
|
143,267 |
Amortization of debt discount and debt issuance costs |
|
|
329 |
|
|
266 |
Provision for bad debt |
|
|
873 |
|
|
53 |
Stock-based compensation |
|
|
7,158 |
|
|
7,087 |
Loss on investment securities |
|
|
42,844 |
|
|
— |
Gain from sale of assets |
|
|
(5,545) |
|
|
(5,565) |
Deferred income tax (benefit) expense |
|
|
1,107 |
|
|
(503,744) |
Other |
|
|
168 |
|
|
3,799 |
Change in assets and liabilities increasing (decreasing) cash: |
|
|
|
|
|
|
Accounts receivable |
|
|
19,700 |
|
|
(53,778) |
Inventories of materials and supplies |
|
|
(1,858) |
|
|
(1,862) |
Prepaid expenses and other |
|
|
(209) |
|
|
(2,672) |
Accounts payable |
|
|
8,012 |
|
|
(8,997) |
Accrued liabilities |
|
|
(2,919) |
|
|
16,824 |
Deferred income tax liability |
|
|
(306) |
|
|
1,987 |
Other noncurrent liabilities |
|
|
(9,670) |
|
|
(17,645) |
Net cash provided by operating activities from continuing operations |
|
|
209,508 |
|
|
79,662 |
Net cash used in operating activities from discontinued operations |
|
|
(26) |
|
|
(57) |
Net cash provided by operating activities |
|
|
209,482 |
|
|
79,605 |
Cash flows from investing activities: |
|
|
|
|
|
|
Capital expenditures |
|
|
(196,094) |
|
|
(91,698) |
Purchase of short-term investments |
|
|
(31,324) |
|
|
(16,183) |
Payment for acquisition of business, net of cash acquired |
|
|
(2,781) |
|
|
(47,832) |
Proceeds from sale of short-term investments |
|
|
31,860 |
|
|
18,120 |
Proceeds from asset sales |
|
|
11,609 |
|
|
8,749 |
Net cash used in investing activities |
|
|
(186,730) |
|
|
(128,844) |
Cash flows from financing activities: |
|
|
|
|
|
|
Dividends paid |
|
|
(78,122) |
|
|
(76,503) |
Debt issuance costs paid |
|
|
(3,912) |
|
|
— |
Proceeds from stock option exercises |
|
|
1,954 |
|
|
892 |
Payments for employee taxes on net settlement of equity awards |
|
|
(6,267) |
|
|
(5,471) |
Payment of contingent consideration from acquisition of business |
|
|
— |
|
|
(1,500) |
Net cash used in financing activities |
|
|
(86,347) |
|
|
(82,582) |
Net decrease in cash and cash equivalents and restricted cash |
|
|
(63,595) |
|
|
(131,821) |
Cash and cash equivalents and restricted cash, beginning of period |
|
|
326,185 |
|
|
560,509 |
Cash and cash equivalents and restricted cash, end of period |
|
$ |
262,590 |
|
$ |
428,688 |
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
Cash paid during the period: |
|
|
|
|
|
|
Interest paid |
|
$ |
6,140 |
|
$ |
75 |
Income tax paid, net |
|
$ |
5,710 |
|
$ |
2,673 |
Changes in accounts payable and accrued liabilities related to purchases of property, plant and equipment |
|
$ |
8,708 |
|
$ |
(4,448) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
HELMERICH & PAYNE, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 1 NATURE OF OPERATIONS
Helmerich & Payne, Inc. (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 services and technologies that are intended to make hydrocarbon recovery safer and more economical for oil and gas exploration and production companies.
Effective October 1, 2018, we implemented organizational changes, consistent with the manner in which our chief operating decision maker evaluates performance and allocates resources. Certain operations previously reported in “Other” within our segment disclosures are now managed and presented within the new H&P Technologies reportable segment. As a result, beginning with the reporting of first quarter 2019, our operations are organized into the following reportable business segments: U.S. Land, Offshore, International Land and H&P Technologies. Certain other corporate activities and our real estate operations are included in Other. All segment disclosures have been recast for these segment changes. Refer to Note 15—Business Segments and Geographic Information for further details on H&P Technologies, our new reportable segment.
Our U.S. Land operations are primarily located in Colorado, Louisiana, Ohio, Oklahoma, New Mexico, North Dakota, Pennsylvania, Texas, Utah, West Virginia and Wyoming. Additionally, Offshore operations are conducted in the Gulf of Mexico and our International Land operations has rigs primarily located in four international locations: Argentina, Bahrain, Colombia and United Arab Emirates (“U.A.E.”).
We also own, develop and operate limited commercial real estate properties. Our real estate investments, which are located exclusively within Tulsa, Oklahoma, include a shopping center, multi-tenant industrial warehouse properties, and undeveloped real estate.
Fiscal Year 2019 Acquisition
On November 1, 2018, we completed an acquisition of an unaffiliated company, Angus Jamieson Consulting (“AJC”), which is now a wholly-owned subsidiary of the Company for a total consideration of approximately $3.4 million. AJC is a software-based, training and consultancy company based in Inverness, Scotland and is widely recognized as an industry leader in wellbore positioning. The operations of AJC are included in the H&P Technologies reportable business segment. The acquisition of AJC has been accounted for as a business combination in accordance with FASB Accounting Standards Codification (“ASC”) ASC 805, Business Combinations, which requires the assets acquired and liabilities assumed to be recorded at their acquisition date fair values. The allocation of the purchase price includes goodwill of $3.1 million.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, RISKS AND UNCERTAINTIES
Interim Financial Information
The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “Commission”) pertaining to interim financial information. Accordingly, these interim financial statements do not include all information or footnote disclosures required by GAAP for complete financial statements and, therefore, should be read in conjunction with the Consolidated Financial Statements and notes thereto in our 2018 Annual Report on Form 10-K and other current filings with the Commission. In the opinion of management, all adjustments, consisting of those of a normal recurring nature, necessary to present fairly the results of the periods presented have been included. The results of operations for the interim periods presented may not necessarily be indicative of the results to be expected for the full year. Certain prior period financial information has been recast to reflect the current year’s presentation as it relates to the new reportable segment, H&P Technologies, effective October 1, 2018. Refer to Note 15–Business Segments and Geographic Information. Additionally, the prior comparative periods presented in the unaudited condensed consolidated financial statements have been adjusted in accordance with the adoption of accounting standard updates included in the Recently Issued Accounting Updates table below.
8
Principles of Consolidation
The unaudited consolidated financial statements include the accounts of Helmerich & Payne, Inc. and its domestic and foreign subsidiaries. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the fiscal year are included in the unaudited condensed consolidated statements of operations and other comprehensive income (loss) from the date the Company gains control until the date when the Company ceases to control the subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents include cash on hand, demand deposits with banks and all highly liquid investments with original maturities of three months or less. Our cash, cash equivalents and short-term investments are subject to potential credit risk, and certain of our cash accounts carry balances greater than the federally insured limits.
We had restricted cash and cash equivalents of $34.1 million and $41.8 million at December 31, 2018 and September 30, 2018, respectively. Of the total at December 31, 2018 and September 30, 2018, $3.0 million and $11.3 million, respectively, is related to the acquisition of drilling technology companies, $2.0 million as of each of December 31, 2018 and September 30, 2018 is from the initial capitalization of the captive insurance company, and $29.1 million and $28.5 million, respectively, represents an additional amount management has elected to restrict for the purpose of potential insurance claims in our wholly-owned captive insurance company. The restricted amounts are primarily invested in short-term money market securities. See Recently Issued Accounting Updates below for changes to the presentation of restricted cash effective October 1, 2018 as a result of adopting Accounting Standards Update (“ASU”) No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash during the three months ended December 31, 2018.
The restricted cash and cash equivalents are reflected within the following line items on the Unaudited Condensed Consolidated Balance Sheets (in thousands):
|
December 31, |
|
September 30, |
||||||||
|
2018 |
|
2017 |
|
2018 |
|
2017 |
||||
Cash |
$ |
228,462 |
|
$ |
383,664 |
|
$ |
284,355 |
|
$ |
521,375 |
Restricted Cash |
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other |
|
30,246 |
|
|
38,226 |
|
|
39,830 |
|
|
32,439 |
Other assets |
|
3,882 |
|
|
6,798 |
|
|
2,000 |
|
|
6,695 |
Total cash, cash equivalents, and restricted cash |
$ |
262,590 |
|
$ |
428,688 |
|
$ |
326,185 |
|
$ |
560,509 |
Drilling Revenues
Contract drilling revenues are comprised of daywork drilling contracts for which the related revenues and expenses are recognized as services are performed and collection is reasonably assured and it is determined to be probable that a significant reversal will not occur. For certain contracts, we receive payments contractually designated for the mobilization of rigs and other drilling equipment. Mobilization payments received, and direct costs incurred for the mobilization, are deferred and recognized on a straight-line basis over the term of the related drilling contract. Costs incurred to relocate rigs and other drilling equipment to areas in which a contract has not been secured are expensed as incurred. Refer to Note 9—Revenue from Contracts with Customers for additional information regarding our contract drilling services revenue.
9
Recently Issued Accounting Updates
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of ASUs to the FASB Accounting Standards Codification (“ASC”). We consider the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable, clarifications of ASUs listed below, immaterial, or already adopted by the Company.
The following table provides a brief description of recent accounting pronouncements and our analysis of the effects on our financial statements:
Standard |
Description |
Date of |
Effect on the Financial Statements or Other Significant Matters |
Recently Adopted Accounting Pronouncements |
|||
ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting |
Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. Regardless of whether the change to the terms or conditions of the award requires modification accounting, the existing disclosure requirements and other aspects of U.S. GAAP associated with modification, such as earnings per share, continue to apply. |
October 1, 2018 |
We adopted this ASU during the first quarter of fiscal year 2019, as required. There was no impact to our unaudited condensed consolidated financial statements and disclosures. |
ASU No. 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost |
The ASU changes how employers that sponsor defined benefit pension and/or other postretirement benefit plans present the net periodic benefit cost in the income statement. Employers present the service cost component of net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. Employers present the other components of the net periodic benefit cost separately from the line item(s) that includes the service cost and outside of any subtotal of operating income, if one is presented. |
October 1, 2018 |
We adopted this ASU during the first quarter of fiscal year 2019, as required. There was not a material impact on our unaudited condensed consolidated financial statements and disclosures. |
ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash |
The ASU requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending cash amounts for the periods shown on the statement of cash flows. |
October 1, 2018 |
We adopted this ASU during the first quarter of fiscal year 2019, as required, on a retrospective basis. The retrospective impact on the unaudited condensed consolidated statement of cash flows for the three months ended December 31, 2017 was an increase of $5.9 million in net cash provided by operating activities. |
10
ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory |
Under prior U.S. GAAP, the tax effects of intra-entity asset transfers (intercompany sales) were deferred until the transferred asset was sold to a third party or otherwise recovered through use. This was an exception to the principle in ASC 740, Income Taxes, that generally requires comprehensive recognition of current and deferred income taxes. The new guidance eliminates the exception for all intra-entity sales of assets other than inventory. As a result, a reporting entity recognizes the tax expense from the sale of the asset in the seller's tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buyer's jurisdiction is also recognized at the time of the transfer. The new guidance does not apply to intra-entity transfers of inventory. The income tax consequences from the sale of inventory from one member of a consolidated entity to another will continue to be deferred until the inventory is sold to a third party. |
October 1, 2018 |
We adopted this ASU during the first quarter of fiscal year 2019, as required. There was no material impact to our unaudited condensed consolidated financial statements and disclosures. |
ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments |
The ASU was intended to reduce diversity in practice in presentation and classification of certain cash receipts and cash payments by providing guidance on eight specific cash flow issues. |
October 1, 2018 |
We adopted this ASU during the first quarter of fiscal year 2019, as required, on a retrospective basis. The retrospective impact on the unaudited condensed consolidated statement of cash flows for the three months ended December 31, 2017 is a reclassification of $1.5 million from net cash provided by operating activities to net cash used in financing activities. |
ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities |
The standard requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income. At adoption, a cumulative-effect adjustment to beginning retained earnings is recorded to reflect the fair value of such investments at the date of adoption in retained earnings rather than accumulated other comprehensive income. |
October 1, 2018 |
We adopted this ASU during the first quarter of fiscal year 2019, as required. As a result, changes in the fair value of our equity investments have been recognized in net income since the date of adoption, and our future results of operations will continue to be subject to stock market fluctuations for these investments. The cumulative catch up impact that was recorded to the beginning balance of retained earnings at October 1, 2018 was a reclassification of $44.0 million ($29.1 million after-tax) of cumulative gains from the beginning balance of accumulated other comprehensive income. |
11
Topic 606: Revenue from Contracts with Customers |
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”). The update outlined a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers and superseded other revenue recognition guidance, including industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled for those goods or services. The update also required disclosures enabling users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Furthermore, as part of Topic 606, the FASB introduced ASC 340-40 Other Assets and Deferred Costs, which provides guidance on the capitalization of contract related costs that are not within the scope of other authoritative literature. Companies could use either a full retrospective or a modified retrospective approach to adopt the updates. |
October 1, 2018 |
We adopted this topic, using the modified retrospective transitional approach, during the first quarter of fiscal year 2019, as required. We recognized the cumulative effect by initially applying the revenue standard as an adjustment to the opening balance of retained earnings during the period (October 1, 2018). Refer to Note 9—Revenue from Contracts with Customers for the impact of the adoption. |
Standards that are not yet adopted as of December 31, 2018 |
|||
ASU No. 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans—General (Topic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans |
This ASU amends ASC 715 to add, remove, and clarify disclosure requirements related to defined benefit, pension and other postretirement plans. This update is effective for annual and interim periods beginning after December 15, 2020. |
October 1, 2021 |
We are currently evaluating the impact that the new guidance may have on our consolidated financial statements and disclosures. |
ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement |
This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of the FASB’s disclosure framework project, where entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. This update is effective for annual and interim periods beginning after December 15, 2019.
|
October 1, 2020 |
We are currently evaluating the impact that the new guidance may have on our consolidated financial statements and disclosures. |
12
ASU No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income |
This ASU relates to the impacts of the tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Reform Act”). The guidance permits the reclassification of certain income tax effects of the Tax Reform Act from Accumulated Other Comprehensive Income (Loss) to Retained Earnings. The guidance also requires certain new disclosures. This update is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal periods and early adoption is permitted. Entities may adopt the guidance using one of two transition methods, retrospective to each period (or periods) in which the income tax effects of the Tax Reform Act related to the items remaining in Other Comprehensive Income are recognized or at the beginning of the period of adoption. |
October 1, 2019 |
We are currently evaluating the impact that the new guidance may have on our consolidated financial statements and disclosures. |
ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) |
This ASU introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The new model will apply to: (1) loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, (2) loan commitments and certain other off-balance sheet credit exposures, (3) debt securities and other financial assets measured at fair value through other comprehensive income(loss), and (4) beneficial interests in securitized financial assets. This update is effective for annual and interim periods beginning after December 15, 2019. |
October 1, 2020 |
We are currently evaluating the impact that the new guidance may have on our consolidated financial statements and disclosures. |
ASU No. 2016-02, Leases (Topic 842) |
ASU No. 2016-02 will require organizations that lease assets — referred to as “lessees” — to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases with lease terms of more than 12 months. Lessor accounting remains substantially similar to current U.S. GAAP. In addition, disclosures of leasing activities are to be expanded to include qualitative along with specific quantitative information. ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. ASU 2016-02 mandates a modified retrospective transition method of adoption with an option to use certain practical expedients. |
October 1, 2019 |
We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements and disclosures. |
Cash Flows
The following is a summary of the retrospective impact of our adoption of ASU No. 2016-15 and ASU No. 2016-18 (in thousands):
|
Three Months Ended December 31, 2017 |
||||||||||
|
Historical |
|
Effect of |
|
Effect of |
|
|
|
|||
|
Accounting |
|
Adoption of |
|
Adoption of |
|
As |
||||
|
Method |
|
ASU No. 2016-15 |
|
ASU No. 2016-18 |
|
Adjusted |
||||
Unaudited Condensed Consolidated Statements of Cash Flows |
|
|
|
|
|
|
|
|
|
|
|
Change in prepaid expenses and other |
$ |
(8,562) |
|
$ |
- |
|
$ |
5,890 |
|
$ |
(2,672) |
Change in accrued liabilities |
|
15,324 |
|
|
1,500 |
|
|
- |
|
|
16,824 |
Cash provided by operating activities |
|
72,215 |
|
|
1,500 |
xx |
|
5,890 |
|
|
79,605 |
|
|
|
|
|
|
|
|
|
|
|
|
Payment of contingent consideration from acquisition of business |
|
- |
|
|
(1,500) |
|
|
- |
|
|
(1,500) |
Cash used in financing activities |
|
(81,082) |
|
|
(1,500) |
|
|
- |
|
|
(82,582) |
13
Self-Insurance
We have accrued a liability for estimated workers’ compensation and other casualty claims incurred based upon cash reserves plus an estimate of loss development and incurred but not reported claims. The estimate is based upon historical trends. Insurance recoveries related to such liability are recorded when considered probable.
We self-insure a significant portion of expected losses relating to workers’ compensation, general liability and automobile liability. Generally, deductibles range from $1 million to $5 million per occurrence depending on the coverage and whether a claim occurs outside or inside of the United States. Insurance is purchased over deductibles to reduce our exposure to catastrophic events. Estimates are recorded for incurred outstanding liabilities for workers’ compensation, general liability claims and claims that are incurred but not reported. Estimates are based on adjusters’ estimates, historic experience and statistical methods that we believe are reliable. We have also engaged an actuary to perform a review of our domestic casualty losses. Nonetheless, insurance estimates include certain assumptions and management judgments regarding the frequency and severity of claims, claim development and settlement practices. Unanticipated changes in these factors may produce materially different amounts of expense that would be reported under these programs.
International Land Drilling Risks
International Land drilling operations may significantly contribute to our revenues and net operating income. There can be no assurance that we will be able to successfully conduct such operations, and a failure to do so may have an adverse effect on our financial position, results of operations, and cash flows. Also, the success of our international land operations will be subject to numerous contingencies, some of which are beyond management’s control. These contingencies include general and regional economic conditions, fluctuations in currency exchange rates, modified exchange controls, changes in international regulatory requirements and international employment issues, risk of expropriation of real and personal property and the burden of complying with foreign laws. Additionally, in the event that extended labor strikes occur or a country experiences significant political, economic or social instability, we could experience shortages in labor and/or material and supplies necessary to operate some of our drilling rigs, thereby potentially causing an adverse material effect on our business, financial condition and results of operations. In Argentina, while our dayrate is denominated in U.S. dollars, we are paid in Argentine pesos. The Argentine branch of one of our second-tier subsidiaries remits U.S. dollars to its U.S. parent by converting the Argentine pesos into U.S. dollars through the Argentine Foreign Exchange Market and repatriating the U.S. dollars. Argentina has a history of implementing currency controls which restrict the conversion and repatriation of U.S. dollars. These controls have not been in place in Argentina since December of 2016.
Argentina’s economy is considered highly inflationary, which is defined as cumulative inflation rates exceeding 100 percent in the most recent three-year period based on inflation data published by the respective governments. Nonetheless, all of our foreign subsidiaries use the U.S. dollar as the functional currency and local currency monetary assets and liabilities are remeasured into U.S. dollars with gains and losses resulting from foreign currency transactions included in current results of operations.
For the three months ended December 31, 2018 and 2017, we experienced aggregate foreign currency losses of $3.9 million and $1.5 million, respectively. However, in the future, we may incur larger currency devaluations, foreign exchange restrictions or other difficulties repatriating U.S. dollars from Argentina or elsewhere, which could have a material adverse impact on our business, financial condition and results of operations.
Because of the impact of local laws, our future operations in certain areas may be conducted through entities in which local citizens own interests and through entities (including joint ventures) in which we hold only a minority interest or pursuant to arrangements under which we conduct operations under contract to local entities. While we believe that neither operating through such entities nor pursuant to such arrangements would have a material adverse effect on our operations or revenues, there can be no assurance that we will in all cases be able to structure or restructure our operations to conform to local law (or the administration thereof) on terms acceptable to us.
Although we attempt to minimize the potential impact of such risks by operating in more than one geographical area, during the three months ended December 31, 2018, approximately 8.9 percent of our operating revenues were generated from international locations in our contract drilling business compared to 11.2 percent during the three months ended December 31, 2017. During the three months ended December 31, 2018, approximately 89.1 percent of operating revenues from international locations were from operations in South America compared to 96.2 percent during the three months ended December 31, 2017. Substantially all of the South American operating revenues were from Argentina and
14
Colombia. The future occurrence of one or more international events arising from the types of risks described above could have a material adverse impact on our business, financial condition and results of operations.
NOTE 3 DISCONTINUED OPERATIONS
Current and noncurrent liabilities consist of municipal and income taxes payable and social obligations due within the country of Venezuela. Expenses incurred for in-country obligations are reported as discontinued operations. The activity for the three months ended December 31, 2018 was primarily due to the remeasurement of uncertain tax liabilities as a result of the devaluation of the Venezuela bolivar. Early in 2018, the Venezuelan government announced that it changed the existing dual-rate foreign currency exchange system by eliminating its heavily subsidized foreign exchange rate, which was 10 Bolivars per United States dollar, and relaunched an exchange system known as DICOM. The Venezuela government also established a new currency called the “Sovereign Bolivar,” which was determined by the elimination of five zeros from the old currency. The DICOM floating rate was approximately 638 Bolivars per United States dollar at December 31, 2018. The DICOM floating rate might not reflect the barter market exchange rates.
NOTE 4 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 2018 and September 30, 2018 consisted of the following (in thousands):
|
|
Estimated Useful Lives |
|
December 31, 2018 |
|
September 30, 2018 |
||
Contract drilling equipment |
|
4 - 15 years |
|
$ |
8,534,720 |
|
$ |
8,442,081 |
Real estate properties |
|
10 - 45 years |
|
|
69,420 |
|
|
68,888 |
Other |
|
2 - 23 years |
|
|
478,604 |
|
|
471,310 |
Construction in progress |
|
|
|
|
192,983 |
|
|
163,968 |
|
|
|
|
|
9,275,727 |
|
|
9,146,247 |
Accumulated depreciation |
|
|
|
|
(4,375,388) |
|
|
(4,288,865) |
Property, plant and equipment, net |
|
|
|
$ |
4,900,339 |
|
$ |
4,857,382 |
Depreciation
Depreciation expense in the Unaudited Condensed Consolidated Statements of Operations of $140.0 million and $142.4 million includes abandonments of $1.0 million and $7.3 million for the three months ended December 31, 2018 and 2017, respectively.
During the three months ended December 31, 2018, we shortened the estimated useful life of certain components of rigs planned for conversion resulting in an increase in depreciation expense during the three months ended December 31, 2018 of approximately $2.5 million. This will also increase the depreciation expense for the next three months by approximately $0.7 million and will decrease the depreciation expense for fiscal years 2020, 2021, 2022, 2023, and 2024 by $0.6 million, $0.6 million, $0.4 million, $0.1 million, and $0.1 million, respectively and thereafter by $0.1 million.
Gain on Sale of Assets
We had a gain on sales of assets of $5.5 million and $5.6 million for the three months ended December 31, 2018 and 2017, respectively. These gains were primarily related to drill pipe damaged or lost in drilling operations.
NOTE 5 GOODWILL AND INTANGIBLE ASSETS
Goodwill
Goodwill represents the excess of the purchase price over the fair values of the assets acquired and liabilities assumed in a business combination, at the date of acquisition. Goodwill is not amortized but is tested for potential impairment at the reporting unit level, at a minimum on an annual basis, or when indications of potential impairment exist. All of our goodwill is within our H&P Technologies reportable segment.
15
The following is a summary of changes in goodwill (in thousands):
Balance at September 30, 2018 |
|
|
64,777 |
Additions (Note 1) |
|
|
3,125 |
Balance at December 31, 2018 |
|
$ |
67,902 |
Intangible Assets
Finite-lived intangible assets are amortized using the straight-line method over the period in which these assets contribute to our cash flows and are evaluated for impairment in accordance with our policies for valuation of long-lived assets. Intangible assets arising from business acquisitions consisted of the following:
|
|
|
December 31, 2018 |
|
September 30, 2018 |
||||||||||||||
|
|
|
Gross |
|
|
|
|
|
Gross |
|
|
|
|
||||||
|
|
|
Carrying |
|
Accumulated |
|
|
|
Carrying |
|
Accumulated |
|
|
||||||
(in thousands) |
|
|
Amount |
|
Amortization |
|
Net |
|
Amount |
|
Amortization |
|
Net |
||||||
Finite-lived intangible asset: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed technology |
|
|
$ |
70,200 |
|
$ |
6,755 |
|
$ |
63,445 |
|
$ |
70,000 |
|
$ |
5,589 |
|
$ |
64,411 |
Trade name |
|
|
|
5,700 |
|
|
309 |
|
|
5,391 |
|
|
5,700 |
|
|
237 |
|
|
5,463 |
Customer relationships |
|
|
|
4,000 |
|
|
867 |
|
|
3,133 |
|
|
4,000 |
|
|
667 |
|
|
3,333 |
|
|
|
$ |
79,900 |
|
$ |
7,931 |
|
$ |
71,969 |
|
$ |
79,700 |
|
$ |
6,493 |
|
$ |
73,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense in the Unaudited Condensed Consolidated Statements of Operations was $1.4 million and $0.8 million for three months ended December 31, 2018 and 2017, respectively. Estimated intangible amortization is estimated to be approximately $5.8 million for each of the next three succeeding fiscal years and approximately $5.1 million for fiscal year 2023.
NOTE 6 DEBT
At December 31, 2018 and September 30, 2018, we had the following unsecured long-term debt outstanding:
|
|
December 31, 2018 |
|
September 30, 2018 |
||||||||||||||
|
|
|
|
Unamortized |
|
|
|
|
|
Unamortized |
|
|
||||||
|
|
Face |
|
Debt Issuance |
|
Book |
|
Face |
|
Debt Issuance |
|
Book |
||||||
|
|
Amount |
|
Cost |
|
Value |
|
Amount |
|
Cost |
|
Value |
||||||
|
|
(in thousands) |
||||||||||||||||
Unsecured senior notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due March 19, 2025 |
|
$ |
500,000 |
|
$ |
(9,195) |
|
$ |
490,805 |
|
$ |
500,000 |
|
$ |
(6,032) |
|
$ |
493,968 |
|
|
|
500,000 |
|
|
(9,195) |
|
|
490,805 |
|
|
500,000 |
|
|
(6,032) |
|
|
493,968 |
Less long-term debt due within one year |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Long-term debt |
|
$ |
500,000 |
|
$ |
(9,195) |
|
$ |
490,805 |
|
$ |
500,000 |
|
$ |
(6,032) |
|
$ |
493,968 |
On March 19, 2015, our wholly-owned direct subsidiary, Helmerich & Payne International Drilling Co. (“HPIDC”), issued $500 million of 4.65 percent 10-year unsecured senior notes (the “HPIDC 2025 Notes”). Interest on the HPIDC 2025 Notes is payable semi-annually on March 15 and September 15. The debt discount is being amortized to interest expense using the effective interest method. The debt issuance costs are amortized straight-line over the stated life of the obligation, which approximates the effective interest method.
On November 19, 2018, we commenced an offer to exchange (the “Exchange Offer”) any and all outstanding HPIDC 2025 Notes for (i) up to $500.0 million aggregate principal amount of new 4.65 percent 10-year unsecured senior notes of the Company (the “Company 2025 Notes”), with registration rights, and (ii) cash. Concurrently with the Exchange Offer, we solicited consents (the “Consent Solicitation”) to adopt certain proposed amendments (the “Proposed Amendments”) to the indenture governing the HPIDC 2025 Notes, which include eliminating substantially all of the restrictive covenants in such indenture and limiting the reporting covenant under such indenture. On December 20, 2018, we settled the Exchange Offer, pursuant to which we issued approximately $487.1 million in aggregate principal amount of 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 terms of the Company 2025 Notes are governed by an indenture, dated December 20, 2018, as amended and supplemented by the first supplemental indenture thereto, dated December 20, 2018, each among the Company, HPIDC and Wells Fargo Bank, National Association, as trustee. Following the consummation of the Exchange Offer, HPIDC had outstanding approximately $12.9 million in aggregate principal amount of HPIDC 2025 Notes. In connection with the Consent Solicitation, the requisite number of consents to adopt the
16
Proposed Amendments was received. Accordingly, on December 20, 2018, HPIDC, the Company and Wells Fargo Bank, National Association, as trustee, entered into a supplemental indenture to the indenture governing the HPIDC 2025 Notes to adopt the Proposed Amendments.
On November 13, 2018, we entered into an unsecured revolving credit facility (the “2018 Credit Facility”), which will mature on November 13, 2023. The 2018 Credit Facility has $750 million in aggregate availability with a maximum of $75 million available for use as letters of credit. The 2018 Credit Facility also permits aggregate commitments under the facility to be increased by $300 million, subject to the satisfaction of certain conditions and the procurement of additional commitments from new or existing lenders. The 2018 Credit Facility is currently guaranteed by HPIDC, which guarantee is subject to release following or simultaneously with HPIDC’s release as an obligor under the HPIDC 2025 Notes and the Company 2025 Notes. The borrowings under the 2018 Credit Facility accrue interest at a spread over either the London Interbank Offered Rate (LIBOR) or the Base Rate. We also pay a commitment fee on the unused balance of the facility. Borrowing spreads as well as commitment fees are determined based on the debt rating for senior unsecured debt of the Company or HPIDC as determined by Moody’s and Standard & Poor’s (“S&P”). The spread over LIBOR ranges from 0.875 percent to 1.500 percent per annum and commitment fees range from 0.075 percent to 0.200 percent per annum. Based on the unsecured debt rating of HPIDC on September 30, 2018, the spread over LIBOR would have been 1.125 percent and commitment fees would have been 0.125 percent had borrowings been outstanding under the facility. There is a financial covenant in the 2018 Credit Facility that requires us to maintain a total debt to total capitalization ratio of less than 50 percent. The 2018 Credit Facility contains additional terms, conditions, restrictions and covenants that we believe are usual and customary in unsecured debt arrangements for companies of similar size and credit quality, including a limitation that priority debt (as defined in the credit agreement) may not exceed 17.5 percent of the net worth of the Company. As of December 31, 2018, there were no borrowings, but there were three letters of credit outstanding in the amount of $38.0 million, and we had $712.0 million available to borrow under the 2018 Credit Facility. Subsequent to December 31, 2018, one letter of credit was reduced by $500,000, increasing the amount available under the 2018 Credit Facility by that amount.
In connection with entering into the 2018 Credit Facility, we terminated our $300 million unsecured credit facility under the credit agreement dated as of July 13, 2016 by and among HPIDC, as borrower, the Company, as guarantor, Wells Fargo, National Association, as administrative agent, and the lenders party thereto.
At December 31, 2018, we had a $12 million unsecured standalone line of credit facility, which is purposed for the issuance of bid and performance bonds, as needed, for international operations. There was nothing outstanding as of December 31, 2018.
The applicable agreements for all unsecured debt contain additional terms, conditions and restrictions that we believe are usual and customary in unsecured debt arrangements for companies that are similar in size and credit quality. At December 31, 2018, we were in compliance with all debt covenants.
NOTE 7 INCOME TAXES
Our income tax provision (benefit) from continuing operations for the first three months of fiscal years 2019 and 2018 was $1.4 million and ($500.6) million, respectively, resulting in effective tax rates of 13.9 percent and (50,064,100.0) percent, respectively. Effective tax rates differ from the U.S. federal statutory rate of 21.0 percent for fiscal year 2019 (24.53 percent for fiscal year 2018) primarily due to state and foreign income taxes, permanent non-deductible items and discrete adjustments. The discrete adjustments for the first three months of fiscal year 2019 are primarily due to the recording of a tax benefit related to the reversal of an uncertain tax liability of $1.7 million, as the statute of limitations has expired. The discrete adjustments for the first three months of fiscal year 2018 were primarily due to the recording of a tax benefit of $500.4 million related to the remeasurement of the Company’s net deferred tax liability as a result of the Tax Reform Act.
For the next 12 months, we cannot predict with certainty whether we will achieve ultimate resolution of any uncertain tax positions associated with our U.S. and international operations that could result in increases or decreases of our unrecognized tax benefits. However, we do not expect the increases or decreases to have a material effect on our results of continuing operations or financial position.
NOTE 8 SHAREHOLDERS’ EQUITY
The Company has authorization from the Board of Directors for the repurchase of up to four million common shares per calendar year. The repurchases may be made using our cash and cash equivalents or other available sources. We had no purchases of common shares during the three months ended December 31, 2018 and 2017.
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Components of accumulated other comprehensive income were as follows:
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