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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2020-11-20 compared with 2019-11-15 · 17 added, 1570 removed, 35 unchanged (98% of the section changed)

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our financial position is exposed to a variety of risks, including foreign currency exchange risk, commodity price risk, credit and capital market risk, interest rate risk and equity price risk.

We have seen an increase in these risks and related uncertainties with increased volatility in oil and gas prices and the financial markets as a result of the COVID-19 pandemic.

Foreign Currency Exchange Rate Risk

Our drilling contracts in foreign countries generally provide for payment in U.S.

However, in Argentina, while the contracts are denominated in the U.S.

dollar, we are paid in Argentine pesos.

The Argentine branch of one of our second ‑ tier subsidiaries then converts the Argentine pesos to U.S.

dollars through the Argentine Foreign Exchange Market and then remits the dollars to its U.S.

Historically, in Argentina, while the contracts were denominated in the U.S.

dollar, we were paid in Argentine pesos.

We are currently receiving some customer payments in U.S.

dollars, but we will likely receive future payments in Argentine pesos as we have in the past.

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.

In the future, other contracts or applicable law may require payments to be made in foreign currencies.

1 unchanged sentence

dollars even if we are able to negotiate the contract provisions designed to mitigate such risks.

At September 30, 2019 , a hypothetical decrease in value of 10 percent would result in an insignificant decrease in value of our monetary assets and liabilities denominated in Argentine pesos by approximately $57,094.

At September 30, 2020 , a hypothetical decrease in value of 10 percent would result in an insignificant decrease in value of our monetary assets and liabilities denominated in Argentine pesos by approximately $2.2 million .

Argentina’s economy is currently 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.

3 unchanged sentences

Commodity Price Risk

The demand for contract drilling services is derived from exploration and production companies spending money to explore and develop drilling prospects in search of crude oil and natural gas.

The demand for drilling services and solutions is derived from exploration and production companies spending money to explore and develop drilling prospects in search of crude oil and natural gas.

Their spending is driven by their cash flow and financial strength, which is affected by trends in crude oil and natural gas commodity prices.

3 unchanged sentences

This volatility can lead many exploration and production companies to base their capital spending on much more conservative estimates of commodity prices.

As a result, demand for contract drilling services is not always purely a function of the movement of commodity prices.

As a result, demand for drilling services and solutions is not always purely a function of the movement of commodity prices.

Credit and Capital Market Risk

11 unchanged sentences

Our interest rate risk exposure results primarily from short‑term rates, mainly LIBOR‑based, on any borrowings from our revolving credit facility.

There were no outstanding borrowings under this facility at September 30, 2019 , and our outstanding debt consisted of $487.1 million in a senior unsecured note, which has a fixed rate of 4.65 percent .

There were no outstanding borrowings under this facility at September 30, 2020 , and our outstanding debt consisted of $487.1 million (face amount) in senior unsecured notes, which have a fixed rate of 4.65 percent .

The fair value of the fixed-rate debt was estimated to be $534.5 million and $526.4 million for fiscal years 2020 and 2019 , respectively.

Equity Price Risk

On September 30, 2019 , we had marketable securities with a total fair value of $16.3 million .

On September 30, 2020 , we had marketable equity securities with a total fair value of $7.3 million .

The total fair value of our marketable securities was $16.3 million at September 30, 2019 .

A hypothetical 10 percent decrease in the market price for our marketable securities as of September 30, 2019 would decrease the fair value of our marketable securities by $1.6 million .

In September 2019, we sold our remaining 1.6 million shares in Valaris, previously known as Ensco Rowan plc, for total proceeds of approximately $12.0 million.

A hypothetical 10 percent decrease in the market price for our marketable equity securities as of September 30, 2020 would decrease the fair value by $0.7 million .

We make no specific plans to sell securities, but rather sell securities based on market conditions and other circumstances.

These securities are subject to a wide variety and number of market‑related risks that could substantially reduce or increase the fair value of our holdings.

At November 6, 2019 , the total fair value of our securities increased to approximately $16.5 million.

At November 12, 2020 , the total fair value of our marketable securities increased to approximately $8.1 million .

We continually monitor the fair value of the investments but are unable to predict future market volatility and any potential impact to the Consolidated Financial Statements.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

Management’s Report on Internal Control over Financial Reporting

Report of Independent Registered Public Accounting Firm

Consolidated Financial Statements:

Consolidated Balance Sheets at September 30, 2019 and 2018

Consolidated Statements of Operations for the Years Ended September 30, 2019, 2018 and 2017

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended September 30, 2019, 2018 and 2017

Consolidated Statements of Shareholders’ Equity for the Years Ended September 30, 2019, 2018 and 2017

Consolidated Statements of Cash Flows for the Years Ended September 30, 2019, 2018 and 2017

Notes to Consolidated Financial Statements

Management’s Report on Internal Control over Financial Reporting

Management of Helmerich & Payne, Inc.

is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a ‑ 15(f) or 15d ‑ 15(f) under the Securities Exchange Act of 1934.

Our internal control over financial reporting was designed under the supervision of the Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America, and includes those policies and procedures that:

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and the Board of Directors;

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2019 .

In making this assessment, management used the criteria established in the Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on our evaluation under the criteria in Internal Control-Integrated Framework (2013) , management has concluded that the Company maintained effective internal control over financial reporting as of September 30, 2019 .

Ernst & Young LLP, an independent public accounting firm, has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting as of September 30, 2019 , as stated in their report which appears herein.

Helmerich & Payne, Inc.

Director, President and Chief Executive Officer

Vice President and Chief Financial Officer

November 15, 2019

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of

Helmerich & Payne, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Helmerich & Payne, Inc.

(the Company) as of September 30, 2019 and 2018 , the related consolidated statements of operations, comprehensive income (loss), shareholders' equity and cash flows for each of the three years in the period ended September 30, 2019 , and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2019 and 2018 , and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2019 , in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of September 30, 2019 , based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated November 15, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Self-Insurance Accruals

Description of the Matter

The Company's self-insurance liability for workers’ compensation and other casualty claims was $74.2 million at September 30, 2019.

As described in Note 2 to the consolidated financial statements, this liability is based on a third-party actuarial analysis, which includes an estimate for incurred but not reported ("IBNR") claims.

The actuarial analysis considers a variety of factors, including third-party adjusters’ estimates, historic experience, and statistical methods commonly used within the insurance industry.

Auditing the Company's reserve for self-insured risks for worker’s compensation and other casualty claims is complex and required us to use our actuarial specialists due to the significant measurement uncertainty associated with the estimate, management’s application of significant judgment, and the use of various actuarial methods.

How We Addressed the Matter in Our Audit

We evaluated the design and tested the operating effectiveness of the Company’s controls over the workers’ compensation and other casualty claims accrual process.

For example, we tested controls over management’s determination of the appropriateness of the significant assumptions used in the calculation and the completeness and accuracy of the data underlying the reserve.

To evaluate the self-insurance liability for worker’s compensation and other casualty claims, we performed audit procedures that included, among others, testing the completeness and accuracy of the underlying claims data provided to management’s actuary and obtaining legal confirmation letters to evaluate the reserves recorded on significant litigated matters.

Furthermore, we involved our actuarial specialists to assist in our evaluation of the methodologies applied by management’s actuary in establishing the actuarially determined reserve.

We compared the Company’s assumptions to ranges of assumptions independently developed by our actuarial specialists.

Impairment of Long-Lived Assets

Description of the Matter

As more fully described in Note 5 to the consolidated financial statements, the Company recognized a $224.3 million charge in 2019 following the decommissioning of certain drilling rigs within the Domestic and International FlexRig4 asset groups.

Also during 2019, the Company evaluated the Domestic and International FlexRig4 asset groups for recoverability, ultimately determining the net book values were recoverable through undiscounted future cash flows.

As a result, no impairment of these asset groups was recognized;

however, different assumptions and estimates could materially impact management's analysis and resulting conclusion.

Auditing the Company's impairment analysis involved a high degree of subjectivity as the determination of undiscounted cash flows was based on assumptions about future market and economic conditions.

Significant assumptions used in the Company’s undiscounted cash flow estimate included drilling rig utilization, period of operation and net proceeds received upon future sale/disposition.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company's process to estimate the undiscounted cash flows of the asset groups that were tested for recoverability.

For example, we tested controls over management's assessment of the appropriateness of the significant assumptions underlying the undiscounted cash flows.

Our testing of the Company’s undiscounted cash flows included, among other procedures, evaluating the significant assumptions used and testing the completeness and accuracy of the underlying data.

For example, we compared the projected drilling rig utilization assumption to current and forecasted industry and market information and any ongoing bid and contracting activity and compared the estimated net proceeds received upon future sale/disposition to industry ranges, market quotes and the Company’s historical experience.

We also compared the projected period of operation to peer averages, the Company’s historical experience and market activity.

Furthermore, we searched for and evaluated information that corroborates or contradicts the Company’s assumptions, performed retrospective reviews of projected cash flows to historical actuals, and performed a sensitivity analysis to evaluate the change in the projected cash flows that would result from changes in the underlying assumptions.

/s/Ernst & Young LLP

We have served as the Company’s auditor since 1994.

Tulsa, Oklahoma

November 15, 2019

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of

Helmerich & Payne, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Helmerich & Payne, Inc.’s internal control over financial reporting as of September 30, 2019 , based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, Helmerich & Payne, Inc.

(the Company) maintained, in all material respects, effective internal control over financial reporting as of September 30, 2019 , based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of September 30, 2019 and 2018 , and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended September 30, 2019 , and the related notes and our report dated November 15, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Tulsa, Oklahoma

November 15, 2019

HELMERICH & PAYNE, INC.

Consolidated Balance Sheets

September 30,

(in thousands except share data and per share amounts)

Current Assets:

Cash and cash equivalents

Short-term investments

Accounts receivable, net of allowance of $9,927 and $6,217, respectively

Inventories of materials and supplies, net

Prepaid expenses and other

Total current assets

Property, plant and equipment, net

Other Noncurrent Assets:

Intangible assets, net

Total other noncurrent assets

Liabilities and Shareholders’ Equity

Current Liabilities:

Accounts payable

Accrued liabilities

Total current liabilities

Noncurrent Liabilities:

Long-term debt, net

Deferred income taxes

Noncurrent liabilities - discontinued operations

Total noncurrent liabilities

Commitments and Contingencies (Note 16)

Shareholders' Equity:

Common stock, $.10 par value, 160,000,000 shares authorized, 112,080,262 and 112,008,961 shares issued as of September 30, 2019 and 2018, respectively, and 108,437,904 and 108,993,718 shares outstanding as of September 30, 2019 and 2018, respectively

Preferred stock, no par value, 1,000,000 shares authorized, no shares issued

Additional paid-in capital

Retained earnings

Accumulated other comprehensive income (loss)

Treasury stock, at cost, 3,642,358 shares and 3,015,243 shares as of September 30, 2019 and 2018, respectively

Total shareholders’ equity

Total liabilities and shareholders' equity

The accompanying notes are an integral part of these consolidated financial statements.

HELMERICH & PAYNE, INC.

Consolidated Statements of Operations

Year Ended September 30,

(in thousands, except per share amounts)

As adjusted (Note 2)

Operating revenues

Contract drilling services

Operating costs and expenses

Contract drilling services operating expenses, excluding depreciation and amortization

Operating expenses applicable to other revenues

Depreciation and amortization

Research and development

Selling, general and administrative

Asset impairment charge

Gain on sale of assets

Operating income (loss) from continuing operations

Other income (expense)

Interest and dividend income

Interest expense

Gain (loss) on investment securities

Income (loss) from continuing operations before income taxes

Income tax benefit

Income (loss) from continuing operations

Income from discontinued operations before income taxes

Income tax provision

Loss from discontinued operations

Net income (loss)

Basic earnings (loss) per common share:

Income (loss) from continuing operations

Loss from discontinued operations

Net income (loss)

Diluted earnings (loss) per common share:

Income (loss) from continuing operations

Loss from discontinued operations

Net income (loss)

Weighted average shares outstanding:

The accompanying notes are an integral part of these consolidated financial statements.

HELMERICH & PAYNE, INC.

Consolidated Statements of Comprehensive Income (Loss)

September 30,

(in thousands)

Net income (loss)

Other comprehensive income (loss), net of income taxes:

Unrealized appreciation (depreciation) on securities, net of income taxes of $3.3 million at September 30, 2018 and ($0.5) million at September 30, 2017

Minimum pension liability adjustments, net of income taxes of ($3.5) million at September 30, 2019, $1.9 million at September 30, 2018 and $1.9 million at September 30, 2017

Other comprehensive income (loss)

Comprehensive income (loss)

The accompanying notes are an integral part of these consolidated financial statements.

HELMERICH & PAYNE, INC.

Consolidated Statements of Shareholders’ Equity

Retained Earnings

Comprehensive

Income (Loss)

Treasury Stock

(in thousands, except per share amounts)

Balance at September 30, 2016

Comprehensive income (loss):

Other comprehensive income

Dividends declared ($2.80 per share)

Exercise of employee stock options, net of shares withheld for employee taxes

Tax benefit of stock-based awards

Vesting of restricted stock awards, net of shares withheld for employee taxes

Stock-based compensation

Balance at September 30, 2017

Comprehensive income:

Other comprehensive income

Dividends declared ($2.82 per share)

Exercise of employee stock options, net of shares withheld for employee taxes

Vesting of restricted stock awards, net of shares withheld for employee taxes

Stock-based compensation

Adoption of ASU 2016-09

Balance at September 30, 2018

Comprehensive loss:

Other comprehensive loss

Dividends declared ($2.84 per share)

Exercise of employee stock options, net of shares withheld for employee taxes

Vesting of restricted stock awards, net of shares withheld for employee taxes

Stock-based compensation

Share repurchases

Cumulative effect adjustment for adoption of ASU No.

2014-09 (Note 10)

Cumulative effect adjustment for adoption of ASU No.

2016-01 (Note 2)

Reclassification of stranded tax effect for adoption of ASU No.

2018-02 (Note 2)

Balance at September 30, 2019

The accompanying notes are an integral part of these consolidated financial statements.

HELMERICH & PAYNE, INC.

Consolidated Statements of Cash Flows

Year Ended September 30,

(in thousands)

As adjusted (Note 2)

Cash flows from operating activities:

Net income (loss)

Adjustment for loss from discontinued operations

Income (loss) from continuing operations

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

Asset impairment charge

Amortization of debt discount and debt issuance costs

Provision for bad debt

Stock-based compensation

Pension settlement charge

Loss (gain) on investment securities

Gain on sale of assets

Deferred income tax benefit

Change in assets and liabilities increasing (decreasing) cash:

Accounts receivable

Inventories of materials and supplies

Prepaid expenses and other

Other noncurrent assets

Accounts payable

Accrued liabilities

Deferred income tax liability

Other noncurrent liabilities

Net cash provided by operating activities from continuing operations

Net cash used in operating activities from discontinued operations

Net cash provided by operating activities

Cash flows from investing activities:

Capital expenditures

Purchase of short-term investments

Payment for acquisition of business, net of cash acquired

Proceeds from sale of short-term investments

Proceeds from sale of marketable securities

Proceeds from asset sales

Net cash used in investing activities

Cash flows from financing activities:

Dividends paid

Debt issuance costs

Proceeds from stock option exercises

Payments for employee taxes on net settlement of equity awards

Payment of contingent consideration from acquisition of business

Payments for early extinguishment of long term debt

Share repurchase

Net cash used in financing activities

Net increase (decrease) in cash and cash equivalents and restricted cash

Cash and cash equivalents and restricted cash, beginning of period

Cash and cash equivalents and restricted cash, end of period

Supplemental disclosure of cash flow information:

Cash paid during the period:

Interest paid

Income tax paid (refund), net

Changes in accounts payable and accrued liabilities related to purchases of property, plant and equipment

The accompanying notes are an integral part of these consolidated financial statements.

HELMERICH & PAYNE, INC.

Notes to Consolidated Financial Statements

NOTE 1 NATURE OF OPERATIONS

Helmerich & Payne, Inc.

(“H&P,” which, together with its subsidiaries, is identified as the “Company,” “we,” “us,” or “our,” except where stated or the context requires otherwise) through its operating subsidiaries provides performance-driven drilling solutions and technologies that are intended to make hydrocarbon recovery safer and more economical for oil and gas exploration and production companies.

Effective October 1, 2018 and during the fourth quarter of fiscal year 2019, we implemented organizational changes, consistent with the manner in which our chief operating decision maker evaluates performance and allocates resources.

Effective October 1, 2018, 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 segments:

Land, Offshore, International Land and H&P Technologies.

Additionally, during the fourth quarter of fiscal year 2019, we migrated our FlexApp offerings into our H&P Technologies business segment.

The activity of our FlexApps was previously included in our U.S.

Land segment.

Certain other corporate activities, our real estate operations and our incubator program for new research and development projects are included in "Other".

All segment disclosures have been restated for these segment changes.

Refer to Note 17—Business Segments and Geographic Information for further details on H&P Technologies, our new reportable segment.

Land operations are primarily located in Colorado, Louisiana, Ohio, Oklahoma, Montana, 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 have 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.

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, RISKS AND UNCERTAINTIES

Basis of Presentation

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

We classified our former Venezuelan operation as a discontinued operation in the third quarter of fiscal year 2010, as more fully described in Note 4—Discontinued Operations .

Unless indicated otherwise, the information in the Notes to Consolidated Financial Statements relates only to our continuing operations.

Principles of Consolidation

The 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 consolidated statement of profit or loss and other comprehensive income 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.

Foreign Currencies

Our functional currency, together with all our foreign subsidiaries, is the U.S.

Monetary assets and liabilities denominated in currencies other than the U.S.

dollar are translated at exchange rates in effect at the end of the period, and the resulting gains and losses are recorded on our statement of operations.

Aggregate foreign currency losses of $ 8.2 million , $ 4.0 million and $ 7.1 million in fiscal years 2019 , 2018 and 2017 , respectively, are included in direct operating costs.

Use of Estimates

The preparation of our financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

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 $ 35.0 million and $ 41.8 million at September 30, 2019 and 2018 , respectively.

Of the total at September 30, 2019 and 2018 , $ 3.0 million and $ 11.3 million , respectively, is related to the acquisition of drilling technology companies described in Note 3—Business Combinations , $ 2.0 million as of both fiscal year ends is from the initial capitalization of the captive insurance company, and $ 30.0 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.

The restricted cash and cash equivalents are reflected in the Consolidated Balance Sheets as follows:

September 30,

(in thousands)

Restricted Cash

Prepaid expenses and other

Total cash, cash equivalents, and restricted cash

Inventories of Materials and Supplies

Inventories are primarily replacement parts and supplies held for consumption in our drilling operations.

Inventories are valued at the lower of cost or net realizable value.

Cost is determined on a weighted average basis and includes the cost of materials, shipping, duties and labor.

Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.

The reserves for excess and obsolete inventory were $ 11.5 million and $ 9.9 million for fiscal years 2019 and 2018 , respectively.

We maintain investments in equity securities of certain publicly traded companies.

We recognize our marketable equity securities that have readily determinable fair values at fair value, with changes in such values reflected in net income.

We adopted ASU No.

2016-01 on October 1, 2018, and as a result, we recognize our marketable equity securities that have readily determinable fair values at fair value, with changes in such values reflected in net income.

Previously, we recognized changes in fair value of equity securities in other comprehensive income in the Consolidated Statements of Comprehensive Income (Loss).

There is no longer a requirement to consider whether the decline in fair value is other-than-temporary.

Property, Plant, and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation.

Substantially all property, plant and equipment are depreciated using the straight-line method based on the estimated useful lives of the assets after deducting their salvage values.

The amount of depreciation expense we record is dependent upon certain assumptions, including an asset’s estimated useful life, rate of consumption, and corresponding salvage value.

We periodically review these assumptions and may change one or more of these assumptions.

Changes in our assumptions may require us to recognize, on a prospective basis, increased or decreased depreciation expense.

We capitalize interest on major projects during construction.

Interest is capitalized based on the average interest rate on related debt.

We had no capitalized interest for fiscal year 2019 and $ 0.4 million and $ 0.3 million of capitalized interest for 2018 and 2017 , respectively.

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Changes that could prompt such an assessment include a significant decline in revenue or cash margin per day, extended periods of low rig asset group utilization, changes in market demand for a specific asset, obsolescence, completion of specific contracts, restructuring of our drilling fleet, and/or overall general market conditions.

If the review of the long-lived assets indicates that the carrying value of these assets/asset groups is more than the estimated undiscounted future cash flows projected to be realized from the use of the asset and its eventual disposal an impairment charge is made, as required, to adjust the carrying value down to the estimated fair value of the asset.

The estimated fair value is determined based upon either an income approach using estimated discounted future cash flows, a market approach considering factors such as recent market sales of rigs of other companies and our own sales of rigs, appraisals and other factors, a cost approach utilizing reproduction costs new as adjusted for the asset age and condition, and/or a combination of multiple approaches.

Cash flows are estimated by management considering factors such as prospective market demand, margins, recent changes in rig technology and its effect on each rig’s marketability, any investment required to make a rig operational, suitability of rig size and make up to existing platforms, and competitive dynamics including industry utilization.

Long-lived assets that are held for sale are recorded at the lower of carrying value or the fair value less costs to sell.

Goodwill and Intangible Assets

Goodwill represents the excess of purchase price over the fair value of net assets acquired in a business combination, at the date of acquisition.

Goodwill is not amortized but is tested for potential impairment at the reporting unit level at a minimum on an annual basis in the fourth fiscal quarter of each fiscal year or when it is more likely than not that the carrying value may exceed fair value.

If an impairment is determined to exist, an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value is recognized, limited to the total amount of goodwill allocated to that reporting unit.

The reporting unit level is defined as an operating segment or one level below an operating segment.

Finite-lived intangible assets are amortized using the straight-line method over the period in which these assets contribute to our cash flows, generally estimated to be 5 to 20 years and are evaluated for impairment in accordance with our policies for valuation of long-lived assets.

Drilling Revenues

Contract drilling services 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.

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 as the drilling service is provided.

Costs incurred to relocate rigs and other drilling equipment to areas in which a contract has not been secured are expensed as incurred.

Reimbursements received for out-of-pocket expenses are recorded as both revenues and direct costs.

Reimbursements for fiscal years 2019 , 2018 and 2017 were $ 322.8 million , $ 274.7 million and $ 179.9 million , respectively.

For contracts that are terminated by customers prior to the expirations of their fixed terms, contractual provisions customarily require early termination amounts to be paid to us.

Revenues from early terminated contracts are recognized when all contractual requirements have been met.

Early termination revenue for fiscal years 2019 , 2018 and 2017 was approximately $ 11.3 million , $ 17.1 million and $ 29.4 million , respectively.

Rent Revenues

We enter into leases with tenants in our rental properties consisting primarily of retail and multi-tenant warehouse space.

The lease terms of tenants occupying space in the retail centers and warehouse buildings generally range from three to ten years .

Minimum rents are recognized on a straight-line basis over the term of the related leases.

Overage and percentage rents are based on tenants’ sales volume.

Recoveries from tenants for property taxes and operating expenses are recognized in other operating revenues in the Consolidated Statements of Operations.

Our rent revenues are as follows:

Year Ended September 30,

(in thousands)

Minimum rents

Overage and percentage rents

At September 30, 2019 , minimum future rental income to be received on noncancelable operating leases was as follows (in thousands):

Leasehold improvement allowances are capitalized and amortized over the lease term.

At September 30, 2019 and 2018 , the cost and accumulated depreciation for real estate properties were as follows:

September 30,

(in thousands)

Real estate properties

Accumulated depreciation

Current income tax expense is the amount of income taxes expected to be payable for the current fiscal year.

Deferred income taxes are computed using the liability method and are provided on all temporary differences between the financial basis and the tax basis of our assets and liabilities.

We provide for uncertain tax positions when such tax positions do not meet the recognition thresholds or measurement standards prescribed in Accounting Standards Codification (“ASC”) 740, Income Taxes , which is more fully discussed in Note 8—Income Taxes .

Amounts for uncertain tax positions are adjusted in periods when new information becomes available or when positions are effectively settled.

We recognize accrued interest related to unrecognized tax benefits in interest expense and penalties in other expense in the Consolidated Statements of Operations.

Earnings per Common Share

Basic earnings per share is computed utilizing the two-class method and is calculated based on the weighted-average number of common shares outstanding during the periods presented.

Diluted earnings per share is computed using the weighted-average number of common and common equivalent shares outstanding during the periods utilizing the two-class method for stock options and nonvested restricted stock.

We have granted and expect to continue to grant to employees restricted stock grants that contain non-forfeitable rights to dividends.

Such grants are considered participating securities under ASC 260, Earnings Per Share .

As such, we have included these grants in the calculation of our basic earnings per share.

Stock-Based Compensation

Stock-based compensation expense is determined using a fair-value-based measurement method for all awards granted.

During the fiscal year ended September 30, 2019, there were no new non-qualified stock options granted, as we have, prospectively and for fiscal year 2019, replaced stock options with performance share units as a component of our executives’ long-term equity incentive compensation.

We have also eliminated stock options as an element of our director compensation program.

The Board has determined to award stock-based compensation to directors solely in the form of restricted stock.

The fair value of each option granted in prior years was estimated on the date of grant based on the Black-Scholes options-pricing model utilizing assumptions for a risk-free interest rate, volatility, dividend yield and expected remaining term of the awards.

The assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment.

The grant date fair value of performance share units is determined through use of the Monte Carlo simulation method.

The Monte Carlo simulation method requires the use of highly subjective assumptions.

Our key assumptions in the method include the price and the expected volatility of our stock and our self-determined peer group of companies’ (the "Peer Group") stock, risk free rate of return, dividend yields and cross-correlations between the Company and our Peer Group.

Stock-based compensation is recognized on a straight-line basis over the requisite service periods of the stock awards, which is generally the vesting period.

Compensation expense is recorded as a component of contract drilling services operating expenses and selling, general and administrative expenses in the Consolidated Statements of Operations.

See Note 11—Stock-based Compensation for additional discussion on stock-based compensation.

Treasury Stock

Treasury stock purchases are accounted for under the cost method whereby the cost of the acquired stock is recorded as treasury stock.

Gains and losses on the subsequent reissuance of shares are credited or charged to additional paid-in capital using the average-cost method.

The stock to be offered pursuant to the grant of an award under the Helmerich & Payne, Inc.

2016 Omnibus Incentive Plan may be authorized as treasury shares.

Comprehensive Income or Loss

Other comprehensive income or loss refers to revenues, expenses, gains, and losses that are included in comprehensive income or loss but excluded from net income or loss.

We report the components of other comprehensive income or loss, net of tax, by their nature and disclose the tax effect allocated to each component in the Consolidated Statements of Comprehensive Income (Loss).

We lease office space and equipment for use in operations.

Leases are evaluated at inception or upon any subsequent material modification and, depending on the lease terms, are classified as either capital leases or operating leases as appropriate under ASC 840, Leases .

For operating leases that contain built-in pre-determined rent escalations, rent expense is recognized on a straight-line basis over the life of the lease.

Leasehold improvements are capitalized and amortized over the lease term.

We do not have significant capital leases.

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 ASC.

We consider the applicability and impact of all ASUs.

ASUs not listed below were assessed and determined to be either not applicable or clarifications of ASUs listed below.

The following tables provide a brief description of recent accounting pronouncements and our analysis of the effects on our financial statements:

Effect on the Financial Statements or Other Significant Matters

Recently Adopted Accounting Pronouncements

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 consolidated financial statements and disclosures.

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 should 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 should 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.

The amendments are applied retrospectively for the presentation of the service cost component and other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement.

October 1, 2018

We adopted this ASU during the first quarter of fiscal year 2019, as required, on a retrospective basis.

The retrospective impact was not material to our consolidated financial statements and disclosures.

Effect on the Financial Statements or Other Significant Matters

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 consolidated statement of cash flows for the year ended September 30, 2018 and 2017 was an increase of $2.7 million and $9.6 million in net cash provided by operating activities, respectively.

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 consolidated financial statements and disclosures.

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.

One of the key changes is related to contingent consideration payments made after a business combination.

Cash payments not made soon after the acquisition date of a business combination by an acquirer to settle a contingent consideration liability should be separated and classified as cash outflows for financing activities and operating activities.

Cash payments up to the amount of the contingent consideration liability recognized at the acquisition date (including measurement-period adjustments) should be classified as financing activities;

any excess should be classified as operating activities.

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 consolidated statement of cash flows for the year ended September 30, 2018 was a reclassification of $10.6 million from net cash provided by operating activities to net cash used in financing activities.

There was no impact in fiscal year 2017.

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.

Effect on the Financial Statements or Other Significant Matters

2014-09, Revenue from Contracts with Customers (Topic 606)

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 10—Revenue from Contracts with Customers for the impact of the adoption.

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.

Early adoption is permitted.

June 30, 2019

We early adopted this ASU during the third quarter of fiscal year 2019.

The adoption did not have a material impact to our consolidated financial statements and disclosures.

Refer to Note 13—Fair Value Measurement of Financial Instruments.

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 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.

June 30, 2019

We early adopted this ASU during the third quarter of fiscal year 2019.

We reclassified $4.2 million from accumulated other comprehensive income (loss) to retained earnings for stranded income tax effects resulting from the Tax Reform Act.

The adoption did not have a material impact to our consolidated financial statements and disclosures.

Standards that are not yet adopted as of September 30, 2019

2018-15, Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40):

Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract

This ASU aims to reduce complexity in the accounting for costs of implementing a cloud computing service arrangement.

2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).

This update is effective for annual and interim periods beginning after December 15, 2019.

Early adoption is permitted.

October 1, 2019

We plan to early adopt this ASU in the first quarter of fiscal year 2020.

At this time, we are currently evaluating the impact the new guidance may have on our consolidated financial statements and disclosures;

however, we do not believe the adoption of this ASU will have a material effect on the consolidated financial statements and disclosures.

Effect on the Financial Statements or Other Significant Matters

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 ending after December 15, 2020.

October 1, 2021

We are currently evaluating the impact the new guidance may have on our consolidated financial statements and disclosures.

2016-13, Financial Instruments – Credit Losses (Topic 326) and related ASUs issued subsequent

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 the new guidance may have on our consolidated financial statements and disclosures.

2016-02, Leases (Topic 842) and related ASUs issued subsequent

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.

In addition, disclosures of leasing activities are to be expanded to include qualitative along with specific quantitative information.

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 adopted the new lease guidance on October 1, 2019, using the transition method that allows us to initially apply Topic 842 as of October 1, 2019 and recognize a cumulative-effect adjustment in the period of adoption, without restating prior years' financial statements.

Refer to the paragraph below for additional disclosure.

Adoption of ASU No.

2016-02 - Leases

As stated in the table above, we adopted ASU No.

2016-02 on October 1, 2019.

Additionally, we have elected most of the standard’s available practical expedients upon adoption, including the package of practical expedients that allows us to not reassess expired or existing contracts for:

(1) embedded leases, (2) lease classification and (3) initial direct costs.

In addition, we are expecting to elect the Topic 842 practical expedient available to lessors to not separate lease and non-lease components and account for the combined component under Topic 606 when the non-lease component is the predominant element of the combined component.

The lessor practical expedient is limited to circumstances in which the lease, if accounted for separately, would be classified as an operating lease under Topic 842.

For existing contracts that do not require reassessment due to the practical expedient package we have elected, those contracts will continue to be classified in our financial statements according to our accounting policies in place at September 30, 2019.

New contracts entered into or any contract in existence at September 30, 2019 modified on or after October 1, 2019 will be assessed in accordance with Topic 842 and Topic 606, as applicable.

We are analyzing and updating data previously collected to evaluate the impact the adoption will have on our financial statements and implementing a system to capture the increased reporting and disclosure requirements.

Currently, we tentatively estimate that, as a lessee, our assets and liabilities will increase by no more than $ 100 million upon adoption of the new lease guidance.

Based upon the transition method and practical expedients we have elected, we do not believe the adoption of this standard will have a material effect on our statements of operations and cash flows.

The following is a summary of the retrospective impact of our adoption of ASU No.

2016-15 and ASU 2016-18:

Year Ended September 30, 2018

(in thousands)

Historical Accounting Method

Effect of Adoption of ASU No.

Consolidated Statements of Cash Flows

Change in prepaid expenses and other

Change in noncurrent assets

Change in accrued liabilities

Net cash provided by operating activities

Payment of contingent consideration from acquisition of business

Net cash used in financing activities

Year Ended September 30, 2017

(in thousands)

Historical Accounting Method

Effect of Adoption of ASU No.

Consolidated Statements of Cash Flows

Change in prepaid expenses and other

Change in noncurrent assets

Net cash provided by operating activities

Concentration of Credit Risk

Financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of temporary cash investments, short-term investments and trade receivables.

The industry concentration has the potential to impact our overall exposure to market and credit risks, either positively or negatively, in that our customers could be affected by similar changes in economic, industry or other conditions.

However, we believe that the credit risk posed by this industry concentration is offset by the creditworthiness of our customer base.

We had revenues from individual customers that constituted 10 percent or more of our total revenues as follows:

(in thousands)

EOG Resources, Inc.

In fiscal year 2019, no individual customers constituted 10 percent or more of our total revenues.

We place temporary cash investments in the U.S.

with established financial institutions and invest in a diversified portfolio of highly rated, short-term money market instruments.

Our trade receivables, primarily with established companies in the oil and gas industry, may impact credit risk as customers may be similarly affected by prolonged changes in economic and industry conditions.

International sales also present various risks including governmental activities that may limit or disrupt markets and restrict the movement of funds.

Most of our international sales, however, are to large international or government-owned national oil companies.

We perform credit evaluations of customers and do not typically require collateral in support for trade receivables.

We provide an allowance for doubtful accounts, when necessary, to cover estimated credit losses.

Such an allowance is based on management’s knowledge of customer accounts.

Volatility of Market

Our operations can be materially affected by oil and gas prices.

Oil and natural gas prices have been historically volatile and difficult to predict with any degree of certainty.

While current energy prices are important contributors to positive cash flow for customers, expectations about future prices and price volatility are generally more important for determining a customer’s future spending levels.

This volatility, along with the difficulty in predicting future prices, can lead many exploration and production companies to base their capital spending on more conservative estimates of commodity prices.

As a result, demand for contract drilling services is not always purely a function of the movement of commodity prices.

In addition, customers may finance their exploration activities through cash flow from operations, the incurrence of debt or the issuance of equity.

Any deterioration in the credit and capital markets may cause difficulty for customers to obtain funding for their capital needs.

A reduction of cash flow resulting from declines in commodity prices or a reduction of available financing may result in a reduction in customer spending and the demand for our services.

This reduction in spending could have a material adverse effect on our operations.

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, historical experience and statistical methods commonly used within the insurance industry that we believe are reliable.

We have also engaged a third-party 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 Operations

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.

Argentina also has a history of implementing currency controls, which restrict the conversion and repatriation of U.S.

dollars, including controls which were implemented in September 2019 and are presently in effect.

As a result of these currency controls, our ability to remit funds from our Argentine subsidiary to its U.S.

parent has been limited.

Furthermore, the Argentine government has also instituted price controls on crude oil, diesel and gasoline prices and instituted an exchange rate freeze in connection with those prices.

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.

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 year ended September 30, 2019 , approximately 7.6 percent of our operating revenues were generated from international locations in our contract drilling services business compared to 9.6 percent during the year ended September 30, 2018 .

During the year ended September 30, 2019 , approximately 91.6 percent of operating revenues from international locations were from operations in South America compared to 96.0 percent during the year ended September 30, 2018 .

Substantially all of the South American operating revenues were from Argentina and Colombia.

The future occurrence of one or more international events arising from the types of risks described above could have a material adverse impact on our business, financial condition and results of operations.

NOTE 3 BUSINESS COMBINATIONS

Fiscal Year 2019 Acquisitions

On August 21, 2019, we completed an acquisition of an unaffiliated company, DrillScan Energy SAS and its subsidiaries ("DrillScan"), which is now a wholly-owned subsidiary of the Company, a total consideration of approximately $ 32.7 million , which includes $ 17.7 million of contingent consideration.

The fair value of total assets acquired, and liabilities assumed, as of the acquisition date, were $ 36.3 million and $ 3.6 million , respectively, including goodwill of $ 14.9 million.

Of the total assets acquired, $ 19.1 million was allocated to identifiable intangible assets.

DrillScan is a leading provider of proprietary drilling engineering software, well engineering services and training for the oil and gas industry.

The operations of DrillScan are included in the H&P Technologies reportable business segment.

The acquisition of DrillScan was accounted for as a business combination in accordance with FASB ASC 805, Business Combinations, which requires the assets acquired and liabilities assumed to be recorded at their acquisition date fair values.

In accordance with GAAP, an entity is allowed a reasonable period of time (not to exceed one year) to obtain the information necessary to identify and measure the fair value of the assets acquired and liabilities assumed in a business combination.

This acquisition is still within this measurement period, and as a result, the acquisition date fair values we have recorded for the assets acquired and liabilities assumed are subject to change.

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 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 segment.

The acquisition of AJC has been accounted for as a business combination in accordance with FASB 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 .

Fiscal Year 2018 Acquisition

On December 8, 2017, we completed an acquisition (“MagVAR Acquisition”) of an unaffiliated company, Magnetic Variation Services, LLC (“MagVAR”), which is now a wholly-owned subsidiary of the Company.

At the effective time of the MagVAR Acquisition, MagVAR shareholders received aggregate cash consideration of $ 47.9 million , net of customary closing adjustments, and certain management members received restricted stock awards covering 213,904 shares of Helmerich & Payne, Inc.

common stock.

The grant date fair value of the restricted stock of $ 13.1 million is being amortized to expense over the three -year vesting period.

At closing, $ 6.0 million of the cash consideration was placed in escrow, to be released to the sellers twelve months after the acquisition closing date.

The amount placed in escrow is classified as restricted cash and is included in prepaid expenses and other in the Consolidated Balance Sheet at September 30, 2018.

The amounts placed in escrow as of September 30, 2018 were released to the sellers during the year ended September 30, 2019.

Of the $ 48.5 million total consideration, $ 28.7 million was allocated to identifiable intangible assets and $ 17.8 million was recorded as goodwill.

NOTE 4 DISCONTINUED OPERATIONS

Current and noncurrent liabilities consist of municipal and income taxes payable and social obligations due within the country in Venezuela.

Expenses incurred for in-country obligations are reported as discontinued operations.

The activity for the fiscal year ended September 30, 2019 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 21,028 Bolivars per United States dollar at September 30, 2019 .

The DICOM floating rate might not reflect the barter market exchange rates.

NOTE 5 PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of September 30, 2019 and 2018 consisted of the following:

(in thousands)

Estimated Useful Lives

September 30, 2019

September 30, 2018

Contract drilling services equipment

Real estate properties

10 - 45 years

Construction in progress

Accumulated depreciation

Property, plant and equipment, net

During the third quarter of fiscal year 2019, the Company's management performed a detailed assessment, considering a number of approaches, to maximize the utilization and enhance the margins of the domestic and international FlexRig4 asset groups.

In June 2019, this assessment concluded that marketing a smaller fleet of these two asset groups would provide the best economic outcome.

As such, the decision was made to downsize the number of domestic and international FlexRig4 drilling rigs, to be marketed to our customers, from 71 rigs to 20 domestic rigs and from 10 rigs to 8 international rigs and utilize the major interchangeable components of the decommissioned drilling rigs within these asset groups as capital spares for all of our remaining rig fleet.

This has reduced the aggregate net book values of the FlexRig4 asset groups as of June 30, 2019 from $ 317.8 million to $ 107.5 million for domestic rigs and from $ 55.7 million to $ 47.8 million for international rigs.

Following the downsizing process, we performed a detailed study to optimize the quantities of capital spares and drilling support equipment required to support the future operations of our rig fleet going forward.

These decisions and analysis resulted in a write down of excess capital spares and drilling support equipment, which had an aggregate net book value of $ 235.3 million , to their estimated proceeds to ultimately be received on sale or disposal based on our historical experience with sales and disposals of similar assets, resulting in an impairment of $ 224.3 million ( $ 195.0 million , net of tax, or $ 1.78 per diluted share), which was recorded in our Consolidated Statement of Operations for the year ended September 30, 2019.

Of the $ 224.3 million total impairment charge recorded, $ 216.9 million ( $ 188.6 million , net of tax, or $ 1.72 per diluted share) and $ 7.4 million ( $ 6.4 million , net of tax, or $ 0.06 per diluted share) was recorded in our U.S.

Land and International Land segment, respectively.

The significant assumptions in the valuation are classified as Level 2 inputs by ASC Topic 820, Fair Value Measurement and Disclosures.

Due to the downsizing of our domestic and international FlexRig4 asset groups, at June 30, 2019, we performed impairment testing on these two asset groups.

We concluded that the net book values of the asset groups are recoverable through estimated undiscounted cash flows with a surplus.

The most significant assumptions used in our undiscounted cash flow model include:

timing on awards of future drilling contracts, operating dayrates, operating costs, rig reactivation costs, drilling rig utilization, estimated remaining useful life, and net proceeds received upon future sale/disposition.

The assumptions are consistent with the Company's internal forecasts for future years.

Although we believe the assumptions used in our analysis are reasonable and appropriate and the probability-weighted average of expected future undiscounted net cash flows exceed the net book value for each of the domestic and international FlexRig4 asset groups as of June 30, 2019, different assumptions and estimates could materially impact the analysis and our resulting conclusion.

During the fourth quarter of fiscal year 2018, after ceasing operations in Ecuador, we entered into a sales negotiation with respect to the six conventional rigs, within a separate international conventional rigs’ asset group, with net book values of $ 20.8 million , present in the country, pursuant to which the rigs, together with associated equipment and machinery, were sold to a third party to be recycled.

Certain components of these rigs, with an $ 8.5 million net book value, that were not subject to the sale agreement were transferred to the United States to be utilized on other FlexRigs with high activity and demand.

The sales transaction was completed in November 2018.

We recorded a non-cash impairment charge within our International Land segment of $ 9.2 million ( $ 7.0 million , net of tax, or $ 0.06 per diluted share), which is included in Asset Impairment Charge on the Consolidated Statement of Operations for the fiscal year ended September 30, 2018.

As a result, the remaining rig within the same asset group, not to be disposed of, was written down resulting in an additional impairment charge of $ 1.4 million ( $ 1.0 million , net of tax, or $ 0.01 per diluted share).

The assets were recorded at fair value based on the sales agreement and as such are classified as Level 2 within the fair value hierarchy.

Furthermore, during the fourth quarter of fiscal year 2018, within our U.S.

Land segment, management committed to a plan to auction several previously decommissioned rigs during fiscal year 2019.

As a result, we wrote them down to their estimated fair values.

We recorded a non-cash impairment charge of $ 5.7 million ( $ 4.2 million , net of tax, or $ 0.04 per diluted share), which is included in Asset Impairment Charge on the Consolidated Statements of Operations for the fiscal year ended September 30, 2018.

The assets were recorded at fair value based on the auction price and as such are classified as Level 2 of the fair value hierarchy.

Depreciation in the Consolidated Statements of Operations of $ 556.9 million , $ 578.4 million and $ 584.4 million includes abandonments of $ 11.4 million , $ 27.7 million and $ 42.6 million for fiscal years 2019 , 2018 and 2017 , respectively.

During fiscal year 2019 , we have shortened the estimated useful lives of certain components of rigs planned for conversion, resulting in an increase in depreciation expense during fiscal year 2019 of approximately $ 4.7 million .

This will decrease the depreciation expense for fiscal years 2020 , 2021 , 2022 , 2023 , and 2024 by $ 0.8 million , $ 0.8 million , $ 0.6 million , $ 0.3 million , and $ 0.3 million , respectively, and thereafter by $ 0.5 million .

Gain on Sale of Assets

We had a gain on sales of assets of $ 39.7 million , $ 22.7 million and $ 20.6 million in fiscal years 2019 , 2018 and 2017 , respectively.

These gains were primarily related to customer reimbursement for the replacement value of drill pipe damaged or lost in drilling operations.

NOTE 6 GOODWILL AND INTANGIBLE ASSETS

All of our goodwill is within our H&P Technologies reportable segment.

The following is a summary of changes in goodwill (in thousands):

September 30, 2017

September 30, 2018

September 30, 2019

Intangible Assets

Intangible assets arising from business acquisitions consisted of the following:

September 30, 2019

September 30, 2018

(in thousands)

Weighted Average Estimated Useful Lives

Gross Carrying Amount

Accumulated Amortization

Gross Carrying Amount

Accumulated Amortization

Finite-lived intangible asset:

Developed technology

Customer relationships

Amortization expense in the Consolidated Statements of Operations was $ 5.8 million , $ 5.4 million and $ 1.1 million for fiscal years 2019 , 2018 and 2017 , respectively, and is estimated to be $ 7.0 million for each of the next three succeeding fiscal years, approximately $ 6.4 million for fiscal year 2023 and approximately $ 6.2 million for fiscal year 2024 .

During the fourth quarter of fiscal year 2018, and as part of our annual goodwill impairment test, we performed a detailed assessment of the TerraVici reporting unit, where $ 4.7 million of goodwill was allocated.

We determined that the estimated fair value of this reporting unit was less than its carrying amount and we recorded goodwill impairment losses of $ 4.7 million ( $ 3.5 million , net of tax, or $ 0.03 per diluted share).

In addition, we recorded an intangible assets impairment loss of $ 0.9 million ( $ 0.7 million net of tax, or $ 0.01 per diluted share).

These impairment losses are included in Asset Impairment Charge on the Consolidated Statements of Operations for the fiscal year ended September 30, 2018.

Our goodwill impairment analysis performed on our remaining technology reporting units in the fourth quarter of fiscal year 2018 did not result in an impairment charge.

Beginning October 1, 2018, the goodwill associated with our technology reporting units were combined into one reporting unit, H&P Technologies.

Our goodwill impairment analysis performed in the fourth quarter fiscal year of 2019 indicated that the fair value of the H&P Technologies reporting unit exceeded its carrying value.

Therefore, no goodwill impairment was recognized.

We had the following unsecured long-term debt outstanding at rates and maturities shown in the following table:

September 30, 2019

September 30, 2018

(in thousands)

Unamortized Discount and Debt Issuance Cost

Unsecured senior notes:

Due March 19, 2025

Less long-term debt due within one year

Long-term debt

HPIDC 2025 Notes

On March 19, 2015, we issued $ 500 million of 4.65 percent unsecured senior notes due 2025, which were redeemed in full on September 27, 2019 as described under "––Private Exchange Offer, Consent Solicitation and Redemption." Interest on such notes was payable semi-annually on March 15 and September 15.

The debt discount was being amortized to interest expense using the effective interest method.

The debt issuance costs were being amortized straight-line over the stated life of the obligation, which approximated the effective interest method.

Private Exchange Offer, Consent Solicitation and Redemption

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 million aggregate principal amount of new 4.65 percent unsecured senior notes due 2025 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 debt issuance costs are being amortized straight-line over the stated life of the obligation, which approximates the effective interest method.

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 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 September 27, 2019, we redeemed the remaining approximately $ 12.9 million in aggregate principal amount of HPIDC 2025 Notes for approximately $ 14.6 million , including accrued interest and a prepayment premium .

Simultaneously with the redemption of the HPIDC 2025 Notes, HPIDC was released as a guarantor under the Company 2025 Notes and the 2018 Credit Facility (as defined herein).

As a result of such release, H&P is the only obligor under the Company 2025 Notes and the 2018 Credit Facility .

Registered Exchange Offer

On February 15, 2019, we commenced a registered exchange offer (the “Registered Exchange Offer”) to exchange the Company 2025 Notes for new SEC-registered notes that are substantially identical to the terms of the Company 2025 Notes, except that the offer and issuance of the new notes have been registered under the Securities Act of 1933, as amended (the “Securities Act”), and certain transfer restrictions, registration rights and additional interest provisions relating to the Company 2025 Notes do not apply to the new notes.

The Registered Exchange Offer expired on March 18, 2019, and approximately 99.99 % of the Company 2025 Notes were exchanged.

The Company 2025 Notes that were not exchanged pursuant to the Registered Exchange Offer have not been registered under the Securities Act or any state securities laws and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements or a transaction not subject to the registration requirements of the Securities Act or any state securities law.

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, providing for an unsecured revolving credit facility (the “2018 Credit Facility”), which was originally set to mature on November 13, 2023.

Pursuant to the 2018 Credit Facility Amendment entered into on November 13, 2018, among other things, the maturity date was extended by one year to November 13, 2024.

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 was originally guaranteed by HPIDC, but such guarantee was released simultaneously with the redemption of the HPIDC 2025 Notes and the release of HPIDC as a guarantor under 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, 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 the Company on September 30, 2019 , the spread over LIBOR would have been 1.125 percent had borrowings been outstanding under the facility and commitment fees are 0.125 percent .

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 or equal to 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 September 30, 2019 , there were no borrowings or letters of credit outstanding, leaving $ 750.0 million available to borrow under the 2018 Credit Facility.

In connection with entering into the 2018 Credit Facility , we terminated our $ 300.0 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 Bank, National Association, as administrative agent, and the lenders party thereto.

At September 30, 2019 , we had two outstanding letters of credit with banks under bilateral line of credit agreements, in the amounts of $ 25.5 million and $ 2.1 million , respectively.

Subsequent to our fiscal year end, in October 2019, the balance of the $ 25.5 million outstanding letter of credit was reduced to $ 24.8 million .

At September 30, 2019 , we also had a $ 20.0 million unsecured standalone line of credit facility, for the purpose of obtaining the issuance of bid and performance bonds, as well as other miscellaneous international needs.

Of the $ 20.0 million , $ 11.5 million of letters of credit was outstanding as of September 30, 2019 .

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 September 30, 2019 , we were in compliance with all debt covenants.

At September 30, 2019 , aggregate maturities of long-term debt are as follows (in thousands):

Year ending September 30,

NOTE 8 INCOME TAXES

Income Tax Provision and Rate

The components of the provision (benefit) for income taxes are as follows:

Year Ended September 30,

(in thousands)

Total benefit

The amounts of domestic and foreign income (loss) before income taxes are as follows:

Year Ended September 30,

(in thousands)

Effective income tax rates as compared to the U.S.

Federal income tax rate are as follows:

Year Ended September 30,

Federal income tax rate

Effect of foreign taxes

State income taxes, net of federal tax benefit

domestic production activities

Remeasurement of deferred tax related to Tax Reform Act

Other impact of foreign operations

Non-deductible meals and entertainment (1)

Equity compensation (1)

Excess officer's compensation (1)

Contingent consideration adjustment (1)

Effective income tax rate

For fiscal year 2017, “Other” reflects adjustments for non-deductible meals and entertainment, equity compensation, excess officer’s compensation and contingent consideration.

Effective tax rates differ from the U.S.

federal statutory rate of 21.0 percent due to state and foreign income taxes and the tax effect of non-deductible expenditures (primarily related to certain meals and entertainment, excess officer’s compensation limited pursuant to Section 162(m) of the IRC, and adjustments to the contingent consideration related to our acquisition of MOTIVE Drilling Technologies, Inc.

Deferred Taxes

Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities.

Recoverability of any tax assets are evaluated, and necessary valuation allowances are provided.

The carrying value of the net deferred tax assets is based on management’s judgments using certain estimates and assumptions that we will be able to generate sufficient future taxable income in certain tax jurisdictions to realize the benefits of such assets.

If these estimates and related assumptions change in the future, additional valuation allowances may be recorded against the deferred tax assets resulting in additional income tax expense in the future.

The components of our net deferred tax liabilities are as follows:

September 30,

(in thousands)

Deferred tax liabilities:

Property, plant and equipment

Marketable securities

Total deferred tax liabilities

Deferred tax assets:

Marketable securities

Pension reserves

Self-insurance reserves

Net operating loss, foreign tax credit, and other federal tax credit carryforwards

Financial accruals

Total deferred tax assets

Valuation allowance

Net deferred tax assets

Net deferred tax liabilities

The change in our net deferred tax assets and liabilities is impacted by foreign currency remeasurement.

As of September 30, 2019 , we had federal, state and foreign tax net operating loss carryforwards of $ 8.9 million , $ 14.5 million and $ 62.0 million , respectively, and foreign tax credit carryforwards of approximately $ 24.9 million (of which $ 20.1 million is reflected as a deferred tax asset in our Consolidated Financial Statements prior to consideration of our valuation allowance) which will expire in fiscal years 2020 through 2039.

The valuation allowance is primarily attributable to foreign and certain state net operating loss carryforwards of $ 16.9 million and $ 0.5 million , respectively, and foreign tax credit carryforwards of $ 20.1 million , equity compensation of $ 4.1 million , and foreign minimum tax credit carryforwards of $ 1.9 million which more likely than not will not be utilized.

Unrecognized Tax Benefits

We recognize accrued interest related to unrecognized tax benefits in interest expense, and penalties in other expense in the Consolidated Statements of Operations.

As of September 30, 2019 , and 2018 , we had accrued interest and penalties of $ 2.1 million and $ 2.2 million , respectively.

A reconciliation of the change in our gross unrecognized tax benefits for the fiscal years ended September 30, 2019 and 2018 is as follows:

(in thousands)

Unrecognized tax benefits at October 1,

Gross increases - tax positions in prior periods

Gross decreases - current period effect of tax positions

Gross increases - current period effect of tax positions

Expiration of statute of limitations for assessments

Unrecognized tax benefits at September 30,

As of September 30, 2019 , and 2018 , our liability for unrecognized tax benefits includes $ 15.3 million and $ 14.3 million , respectively, of unrecognized tax benefits related to discontinued operations that, if recognized, would not affect the effective tax rate.

The remaining unrecognized tax benefits would affect the effective tax rate if recognized.

The liabilities for unrecognized tax benefits and related interest and penalties are included in other noncurrent liabilities in our Consolidated Balance Sheets.

For the next 12 months, we cannot predict with certainty whether we will achieve ultimate resolution of any uncertain tax position associated with our U.S.

and international land 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 operations or financial position.

We file a consolidated U.S.

federal income tax return, as well as income tax returns in various states and foreign jurisdictions.

The tax years that remain open to examination by U.S.

federal and state jurisdictions include fiscal years 2015 through 2018, with exception of certain state jurisdictions currently under audit.

The tax years remaining open to examination by foreign jurisdictions include 2003 through 2019.

NOTE 9 SHAREHOLDERS’ EQUITY

The Company has authorization from the Board of Directors for the repurchase of up to four million common shares in any calendar year.

The repurchases may be made using our cash and cash equivalents or other available sources.

During fiscal 2019 , we purchased one million common shares at an aggregate cost of $ 42.8 million , which are held as treasury shares.

We had no purchases of common shares during the fiscal years ended September 30, 2018 and 2017 .

Accumulated Other Comprehensive Income (Loss)

Components of accumulated other comprehensive income (loss) were as follows:

September 30,

(in thousands)

Pre-tax amounts:

Unrealized appreciation on securities (1)

Unrealized actuarial loss

After-tax amounts:

Unrealized appreciation on securities (1)

Unrealized actuarial loss

As disclosed in Note 2—Summary of Significant Accounting Policies, Risks and Uncertainties , we adopted ASU No.

2016-01 on October 1, 2018.

The standard requires that changes in the fair value of our equity investments must be recognized in net income.

The following is a summary of the changes in accumulated other comprehensive income (loss), net of tax, by component for the fiscal year ended September 30, 2019 :

(in thousands)

Unrealized Appreciation on Equity Securities

Defined Benefit Pension Plan

Balance at September 30, 2018

Adoption of ASU No.

Activity during the period

Amounts reclassified from accumulated other comprehensive loss

Net current-period other comprehensive loss

Balance at September 30, 2019

As disclosed in Note 2—Summary of Significant Accounting Policies, Risks and Uncertainties , we adopted ASU No.

2016-01 on October 1, 2018.

The transition provisions enforced upon adoption require any unrealized gains or losses as of October 1, 2018 to be recognized in the beginning balance of equity.

As disclosed in Note 2—Summary of Significant Accounting Policies, Risks and Uncertainties , we adopted ASU No.

2018-02 as of June 30, 2019.

The standard permits the reclassification of certain income tax effects of the Tax Reform Act from Accumulated Other Comprehensive Income (Loss) to Retained Earnings.

NOTE 10 REVENUE FROM CONTRACTS WITH CUSTOMERS

Impact of Adoption

Effective October 1, 2018, we adopted ASU No.

2014-09, "Revenue from Contracts with Customers" and ASC 340-40, “Contracts with Customers.” ASC 606 introduced a five‑step approach to revenue recognition and ASC 340-40 introduced detailed rules for contract revenue related costs.

Details of the new requirements as well as the impact on our Consolidated Financial Statements are described below.

We have applied ASC 606 in accordance with the modified retrospective transitional approach recognizing the cumulative effect of initially applying the revenue standard as an adjustment to the opening balance of retained earnings during this period (October 1, 2018).

Comparative prior year periods were not adjusted.

In applying the modified retrospective approach, we elected practical expedients for (a) completed contracts as described in ASC 606-10-65-c2, and (b) contract modifications as described in ASC 606-10-65-1-f(4), allowing the application of the revenue standard only to contracts that were not completed as of the date of initial application and to reflect the aggregate effect of all modifications that occur before the adoption date in accordance with the new standard when:

(i) identifying the satisfied and unsatisfied performance obligations, (ii) determining the transaction price, and (iii) allocating the transaction price to the satisfied and unsatisfied performance obligations.

We believe that the impact on the opening balance of retained earnings during the period (October 1, 2018) would not have been significantly different had we not elected to use the practical expedients.

Apart from providing more extensive disclosures for our revenue transactions, the application of ASC 606 has not had a significant impact on our financial position and/or financial performance.

Contract Drilling Services Revenue

Substantially all of our drilling services are performed on a “daywork” contract basis, under which we charge a rate per day, with the price determined by the location, depth and complexity of the well to be drilled, operating conditions, the duration of the contract, and the competitive forces of the market.

These contract drilling services represent a series of distinct daily services that are substantially the same, with the same pattern of transfer to the customer.

Because our customers benefit equally throughout the service period and our efforts in providing contract drilling services are incurred relatively evenly over the period of performance, revenue is recognized over time using a time-based input measure as we provide services to the customer.

Contracts generally contain renewal or extension provisions exercisable at the option of the customer at prices mutually agreeable to us and the customer.

For contracts that are terminated by customers prior to the expirations of their fixed terms, contractual provisions customarily require early termination amounts to be paid to us.

Revenues from early terminated contracts are recognized when all contractual requirements have been met.

During the year ended September 30, 2019 and 2018 , early termination revenue was approximately $ 11.3 million and $ 17.1 million , respectively.

We also act as a principal for certain reimbursable services and auxiliary equipment provided by us to our clients, for which we incur costs and earn revenues.

Many of these costs are variable, or dependent upon the activity that is performed each day under the related contract.

Accordingly, reimbursements that we receive for out-of-pocket expenses are recorded as revenues and the out-of-pocket expenses for which they relate are recorded as operating costs during the period to which they relate within the series of distinct time increments.

All of our revenues are recognized net of sales taxes, when applicable.

With most drilling contracts, we also receive payments contractually designated for the mobilization and demobilization of drilling rigs and other equipment to and from the client’s drill site.

Revenues associated with the mobilization and demobilization of our drilling rigs to and from the client’s drill site do not relate to a distinct good or service.

These revenues are deferred and recognized ratably over the related contract term that drilling services are provided.

Demobilization fees expected to be received upon contract completion are estimated at contract inception and recognized on a straight-line basis over the contract term.

The amount of demobilization revenue that we ultimately collect is dependent upon the specific contractual terms, most of which include provisions for reduced or no payment for demobilization when, among other things, the contract is renewed or extended with the same client, or when the rig is subsequently contracted with another client prior to the termination of the current contract.

Since revenues associated with demobilization activity are typically variable, at each period end, they are estimated at the most likely amount, and constrained when the likelihood of a significant reversal is probable.

Any change in the expected amount of demobilization revenue is accounted for with the net cumulative impact of the change in estimate recognized in the period during which the revenue estimate is revised.

Contract Costs

Mobilization costs include certain direct costs incurred for mobilization of contracted rigs.

These costs relate directly to a contract, enhance resources that will be used in satisfying the future performance obligations and are expected to be recovered.

These costs are capitalized when incurred and recorded as current or noncurrent contract fulfillment cost assets (depending on the length of the initial contract term), and are amortized on a systematic basis consistent with the pattern of the transfer of the goods or services to which the asset relates which typically includes the initial term of the related drilling contract or a period longer than the initial contract term if management anticipates a customer will renew or extend a contract, which we expect to benefit from the cost of mobilizing the rig.

Abnormal mobilization costs are fulfillment costs that are incurred from excessive resources, wasted or spoiled materials, and unproductive labor costs that are not otherwise anticipated in the contract price and are expensed as incurred.

As of September 30, 2019 , we had capitalized fulfillment costs of $ 13.9 million .

If capital modification costs are incurred for rig modifications or if upgrades are required for a contract, these costs are considered to be capital improvements.

These costs are capitalized as property, plant and equipment and depreciated over the estimated useful life of the improvement.

Remaining Performance Obligations

The total aggregate transaction price allocated to the unsatisfied performance obligations, commonly referred to as backlog, as of September 30, 2019 was approximately $ 1.2 billion , of which $ 0.9 billion is expected to be recognized during fiscal year 2020 , and approximately $ 0.3 billion in fiscal year 2021 and thereafter.

These amounts do not include anticipated contract renewals.

Additionally, contracts that currently contain month-to-month terms are represented in our backlog as one month of unsatisfied performance obligations.

Our contracts are subject to cancellation or modification at the election of the customer;

however, due to the level of capital deployed by our customers on underlying projects, we have not been materially adversely affected by contract cancellations or modifications in the past.

We do not have material long-term contracts related to our H&P Technologies segment.

Contract Assets and Liabilities

Amounts owed from our customers under our revenue contracts are typically billed on a monthly basis as the service is being provided and are due within 30 days of billing.

Such amounts are classified as accounts receivable on our Consolidated Balance Sheets.

Under certain of our contracts, we recognize revenues in excess of billings, referred to as contract assets, within prepaid expenses and other current assets within our Consolidated Balance Sheets.

Under certain of our contracts, we may be entitled to receive payments in advance of satisfying our performance obligations under the contract.

We recognize a liability for these payments in excess of revenue recognized, referred to as deferred revenue or contract liabilities, within accrued liabilities and other noncurrent liabilities in our Consolidated Balance Sheets.

Contract balances are presented at the net amount at a contract level.

The following table summarizes the balances of our contract assets and liabilities at the dates indicated:

(in thousands)

September 30, 2019

October 1, 2018

Contract assets

(in thousands)

September 30, 2019

Contract liabilities balance at October 1, 2018

Payment received/accrued and deferred

Revenue recognized during the period

September 30, 2019

NOTE 11 STOCK-BASED COMPENSATION

On March 2, 2016, the Helmerich & Payne, Inc.

2016 Omnibus Incentive Plan (the “2016 Plan”) was approved by our stockholders.

The 2016 Plan, among other things, authorizes the Human Resources Committee of the Board to grant non-qualified stock options, restricted stock awards and performance share units to selected employees and to non-employee directors.

Restricted stock may be granted for no consideration other than prior and future services.

The purchase price per share for stock options may not be less than market price of the underlying stock on the date of grant.

Stock options expire 10 years after the grant date.

Awards outstanding under the Helmerich & Payne, Inc.

2005 Long-Term Incentive Plan and the Helmerich & Payne, Inc.

2010 Long-Term Incentive Plan remain subject to the terms and conditions of those plans.

During the fiscal year ended September 30, 2019 , there were no new non-qualified stock options granted, as we have, prospectively and for fiscal year 2019 , replaced stock options with performance share units as a component of our executives’ long-term equity incentive compensation.

We have also eliminated stock options as an element of our director compensation program.

The Board has determined to award stock-based compensation to directors solely in the form of restricted stock.

During the fiscal year ended September 30, 2019 , 474,775 shares of restricted stock awards and 145,153 performance share units were granted under the 2016 Plan.

A summary of compensation cost for stock-based payment arrangements recognized in contract drilling services operating expense and selling, general and administrative expense in fiscal years 2019 , 2018 and 2017 is as follows:

September 30,

(in thousands)

Stock-based compensation expense

Stock options

Restricted stock

Performance share units

Of the total stock-based compensation expense, $ 7.5 million was recorded in contract drilling services operating expense and $ 26.8 million in selling, general and administrative expense for fiscal year 2019 on our Consolidated Statements of Operations.

Stock Options

Vesting requirements for stock options are determined by the Human Resources Committee of our Board of Directors.

Options currently outstanding began vesting one year after the grant date with 25 percent of the options vesting for four consecutive years.

We use the Black-Scholes formula to estimate the fair value of stock options granted to employees.

The fair value of the options is amortized to compensation expense on a straight-line basis over the requisite service periods of the stock awards, which are generally the vesting periods.

Risk-free interest rate (1)

Expected stock volatility (2)

Dividend yield (3)

Expected term (in years) (4)

The risk-free interest rate is based on U.S.

Treasury securities for the expected term of the option.

Expected volatilities are based on the daily closing price of our stock based upon historical experience over a period which approximates the expected term of the option.

The dividend yield is based on our current dividend yield.

The expected term of the options granted represents the period of time that they are expected to be outstanding.

We estimate term of option granted based on historical experience with grants and exercise.

Based on these calculations, the weighted-average fair value per option granted to acquire a share of common stock was $ 13.17 and $ 20.48 per share for fiscal years 2018 and 2017 , respectively.

The following summary reflects the stock option activity for our common stock and related information for fiscal years 2019 , 2018 and 2017 :

(shares in thousands)

Weighted-Average Exercise Price

Outstanding at October 1,

Forfeited/Expired

Outstanding on September 30,

Exercisable on September 30,

Shares available to grant

The following table summarizes information about stock options at September 30, 2019 (shares in thousands):

Outstanding Stock Options

Exercisable Stock Options

Range of Exercise Prices

Weighted-Average Remaining Life

Weighted-Average Exercise Price

$0.00 to $40.00

$40.00 to $55.00

$55.00 to $70.00

$70.00 to $85.00

At September 30, 2019 , the weighted-average remaining life of exercisable stock options was 4.47 years and the aggregate intrinsic value was $ 0.4 million with a weighted-average exercise price of $ 60.38 per share.

The number of options vested or expected to vest at September 30, 2019 was 755,761 with an aggregate intrinsic value of zero and a weighted-average exercise price of $ 62.42 per share.

As of September 30, 2019 , the unrecognized compensation cost related to the stock options was $ 3.2 million .

That cost is expected to be recognized over a weighted-average period of 2 years.

The total intrinsic value of options exercised during fiscal years 2019 , 2018 and 2017 was $ 7.9 million , $ 9.9 million and $ 13.1 million , respectively.

The grant date fair value of shares vested during fiscal years 2019 , 2018 and 2017 was $ 8.0 million , $ 8.8 million and $ 6.7 million , respectively.

Restricted Stock

Restricted stock awards consist of our common stock and are time-vested over four years .

Non-forfeitable dividends are paid on non-vested shares of restricted stock.

We recognize compensation expense on a straight-line basis over the vesting period.

The fair value of restricted stock awards is determined based on the closing price of our shares on the grant date.

As of September 30, 2019 , there was $ 34.9 million of total unrecognized compensation cost related to unvested restricted stock awards.

That cost is expected to be recognized over a weighted-average period of 2.3 years.

A summary of the status of our restricted stock awards as of September 30, 2019 , and of changes in restricted stock outstanding during the fiscal years ended September 30, 2019 , 2018 and 2017 , is as follows:

(shares in thousands)

Weighted-Average Grant Date Fair Value per Share

Outstanding at October 1,

Outstanding on September 30,

The number of restricted stock awards vested includes shares that we withheld on behalf of our employees to satisfy the statutory tax withholding requirements.

Performance Share Units

We have made awards to certain employees that are subject to market-based performance conditions ("performance share units").

Subject to the terms and conditions set forth in the applicable performance share unit award agreements and the 2016 Plan, grants of performance share units are subject to a vesting period of three years (the “Vesting Period”) that is dependent on the achievement of certain performance goals.

Such performance share unit awards consist of two separate components.

Performance share units that comprise the first component are subject to a three -year performance cycle.

Performance share units that comprise the second component are further divided into three separate tranches, each of which is subject to a separate one -year performance cycle within the full three -year performance cycle.

The vesting of the performance share units is generally dependent on (i) the achievement of the Company’s total shareholder return (“TSR”) performance goals relative to the TSR achievement of a peer group of companies (the “Peer Group”) over the applicable performance cycle, and (ii) the continued employment of the recipient of the performance share unit award throughout the Vesting Period.

At the end of the Vesting Period, recipients receive dividend equivalents, if any, with respect to the number of vested performance share units.

The vesting of units ranges from zero to 200 % of the units granted depending on the Company’s TSR relative to the TSR of the Peer Group on the vesting date.

The grant date fair value of performance share units was determined through use of the Monte Carlo simulation method.

The Monte Carlo simulation method requires the use of highly subjective assumptions.

Our key assumptions in the method include the price and the expected volatility of our stock and our self-determined Peer Group's stock, risk free rate of return and cross-correlations between the Company and our Peer Group.

The valuation model assumes dividends are immediately reinvested.

As of September 30, 2019 , there was $ 4.7 million of unrecognized compensation cost related to unvested performance share units.

That cost is expected to be recognized over a weighted-average period of 1.9 years .

A summary of the status of our performance share units as of the fiscal year ended September 30, 2019 is presented below:

Weighted-Average Grant Date Fair Value per Share

Outstanding at October 1,

Outstanding on September 30,

The weighted-average fair value calculations for performance share units granted within the fiscal period are based on the following weighted-average assumptions set forth in the table below.

Risk-free interest rate (1)

Expected stock volatility (2)

Expected term (in years)

The risk-free interest rate is based on U.S.

Treasury securities for the expected term of the performance share units.

Expected volatilities are based on the daily closing price of our stock based upon historical experience over a period which approximates the expected term of the performance share units.

NOTE 12 EARNINGS (LOSSES) PER COMMON SHARE

ASC 260, Earnings per Share, requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividends or dividend equivalents as a separate class of securities in calculating earnings per share.

We have granted and expect to continue to grant to employees restricted stock grants that contain non-forfeitable rights to dividends.

Such grants are considered participating securities under ASC 260.

As such, we are required to include these grants in the calculation of our basic earnings per share and calculate basic earnings per share using the two-class method.

The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings.

Basic earnings per share is computed utilizing the two-class method and is calculated based on the weighted-average number of common shares outstanding during the periods presented.

Under the two-class method of calculating earnings per share, dividends paid and a portion of undistributed net income, but not losses, are allocated to unvested restricted stock grants that receive dividends, which are considered participating securities.

The following table sets forth the computation of basic and diluted earnings per share:

September 30,

(in thousands, except per share amounts)

Income (loss) from continuing operations

Loss from discontinued operations

Net income (loss)

Adjustment for basic earnings per share

Earnings allocated to unvested shareholders

Numerator for basic earnings (loss) per share:

From continuing operations

From discontinued operations

Adjustment for diluted earnings (loss) per share:

Effect of reallocating undistributed earnings of unvested shareholders

Numerator for diluted earnings (loss) per share:

From continuing operations

From discontinued operations

Denominator for basic earnings (loss) per share - weighted-average shares

Effect of dilutive shares from stock options, restricted stock and performance share units

Denominator for diluted earnings (loss) per share - adjusted weighted-average shares

Basic earnings (loss) per common share:

Income (loss) from continuing operations

Loss from discontinued operations

Net income (loss)

Diluted earnings (loss) per common share:

Income (loss) from continuing operations

Loss from discontinued operations

Net income (loss)

We had a net loss for fiscal years 2019 and 2017.

Accordingly, our diluted earnings per share calculation for those years were equivalent to our basic earnings per share calculation since diluted earnings per share excluded any assumed exercise of equity awards.

These were excluded because they were deemed to be anti-dilutive, meaning their inclusion would have reduced the reported net loss per share in the applicable period.

The following average shares attributable to outstanding equity awards were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive:

(in thousands, except per share amounts)

Shares excluded from calculation of diluted earnings (loss) per share

Weighted-average price per share

NOTE 13 FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS

We have certain assets and liabilities that are required to be measured and disclosed at fair value.

Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.

We use the fair value hierarchy established in ASC 820-10 to measure fair value to prioritize the inputs:

Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.

Level 2 — Observable inputs, other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets;

quoted prices for similar assets and liabilities in markets that are not active;

or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

This includes pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The assets held in a Non-Qualified Supplemental Savings Plan are carried at fair value and totaled $ 15.7 million and $ 16.2 million at September 30, 2019 and 2018 , respectively.

The assets are comprised of mutual funds that are measured using Level 1 inputs.

Short-term investments include securities classified as trading securities.

Both realized and unrealized gains and losses on trading securities are included in other income (expense) in the Consolidated Statements of Operations.

The securities are recorded at fair value.

Our non-financial assets, such as intangible assets, goodwill and property, plant and equipment, are recorded at fair value when acquired in a business combination or when an impairment charge is recognized.

If measured at fair value in the Consolidated Balance Sheets, these would generally be classified within Level 2 or 3 of the fair value hierarchy.

The majority of cash equivalents are invested in highly-liquid money-market mutual funds invested primarily in direct or indirect obligations of the U.S.

The carrying amount of cash and cash equivalents approximates fair value due to the short maturity of those investments.

The carrying value of other current assets, accrued liabilities and other liabilities approximated fair value at September 30, 2019 and 2018 .

The following table summarizes our assets measured at fair value presented in our Consolidated Balance Sheet:

September 30, 2019

(in thousands)

Recurring fair value measurements:

Short-term investments:

Certificates of deposit

Corporate and municipal debt securities

government and federal agency securities

Total short-term investments

Cash and cash equivalents

Other current assets

Total assets measured at fair value

Contingent earnout liability

At September 30, 2019 , our financial instruments measured at fair value utilizing Level 1 inputs include cash equivalents, U.S.

Agency issued debt securities, equity securities with active markets, and money market funds that are classified as restricted assets.

The current portion of restricted amounts are included in prepaid expenses and other, and the noncurrent portion is included in other assets.

For these items, quoted current market prices are readily available.

At September 30, 2019 , assets measured at fair value using Level 2 inputs include certificates of deposit, municipal bonds and corporate bonds measured using broker quotations that utilize observable market inputs.

Our financial instruments measured using Level 3 unobservable inputs consist of potential earnout payments associated with the acquisition of DrillScan and AJC in fiscal year 2019 and MOTIVE Drilling Technologies, Inc.

in fiscal year 2017.

As of September 30, 2019 , the fair value of the MOTIVE contingent consideration is zero .

The fair value of the potential earnout payments were calculated using either a Monte Carlo simulation, which evaluates numerous potential earnings and pay out scenarios, or a probability analysis.

The following table presents a reconciliation of changes in the fair value of our financial assets and liabilities classified as Level 3 fair value measurements in the fair value hierarchy for the indicated periods:

(in thousands)

Net liabilities at beginning of period

Total gains or losses:

Included in earnings

Settlements (1)

Net liabilities at end of period

Settlements represent earnout payments that have been earned or paid during the period.

The following table provides quantitative information (in thousands) about our Level 3 unobservable inputs at September 30, 2019 :

Valuation Technique

Unobservable Input

Weighted Average (1)

Monte Carlo simulation

Discount rate

Revenue Volatility

Risk free rate

Probability Analysis

Discount rate

Payment amounts

$3,000 - $7,000

Probabilities

The weighted average of the payment amounts and the probabilities (Level 3 unobservable inputs), associated with the contingent consideration valued using probability analysis, were weighted by the relative undiscounted fair value of payment amounts and of probability payment amounts, respectively.

The above significant unobservable inputs are subject to change based on changes in economic and market conditions .

The use of significant unobservable inputs creates uncertainty in the measurement of fair value as of the reporting date.

The significant unobservable inputs used in the fair value measurement of the contingent consideration using Monte Carlo simulation are (i) discount rate, (ii) revenue volatility and (iii) risk-free rate.

Significant increases or decreases in the discount rate and risk-free rate in isolation would result in a significantly lower or higher fair value measurement.

Significant changes in revenue volatility in isolation would result in a significantly lower or higher fair value measurement.

The significant unobservable inputs used in the fair value measurement of the contingent consideration using probability analysis are (i) discount rate, (ii) payment amounts and (iii) probabilities.

Significant increases or decreases in the discount rate in isolation would result in a significantly lower or higher fair value measurement.

On the contrary, significant increases or decreases in the payment amounts or probabilities in isolation would result in a significantly higher or lower fair value measurement.

It is not possible for us to predict the effect of future economic or market conditions on our estimated fair values.

The following information presents the supplemental fair value information about long-term fixed-rate debt at September 30, 2019 and 2018 .

September 30,

(in millions)

Carrying value of long-term fixed-rate debt

Fair value of long-term fixed-rate debt

The fair value for the $ 487.1 million fixed-rate debt was based on broker quotes at September 30, 2019 .

The notes are classified within Level 2 of the fair value hierarchy as they are not actively traded in markets.

We adopted ASU No.

Previously, we recognized changes in fair value of equity securities in other comprehensive income in the Consolidated Statements of Comprehensive Income (Loss).

There is no longer a requirement to consider whether the decline in fair value is other-than-temporary.

The estimated fair value of our investments, reflected on our Consolidated Balance Sheets as Investments, is based on Level 1 inputs.

In September 2019, we sold our remaining 1.6 million shares in Valaris, previously known as Ensco Rowan plc, for total proceeds of approximately $ 12.0 million .

NOTE 14 EMPLOYEE BENEFIT PLANS

We maintain a domestic noncontributory defined benefit pension plan covering certain U.S.

employees who meet certain age and service requirements.

In July 2003, we revised the Helmerich & Payne, Inc.

Employee Retirement Plan (“Pension Plan”) to close the Pension Plan to new participants effective October 1, 2003, and reduce benefit accruals for current participants through September 30, 2006, at which time benefit accruals were discontinued and the Pension Plan was frozen.

The following table provides a reconciliation of the changes in the pension benefit obligations and fair value of Pension Plan assets over the two-year period ended September 30, 2019 and a statement of the funded status as of September 30, 2019 and 2018 :

(in thousands)

Accumulated Benefit Obligation

Changes in projected benefit obligations

Projected benefit obligation at beginning of year

Interest cost

Actuarial (gain) loss

Benefits paid

Projected benefit obligation at end of year

Change in plan assets

Fair value of plan assets at beginning of year

Actual return on plan assets

Employer contribution

Benefits paid

Fair value of plan assets at end of year

Funded status of the plan at end of year

The amounts recognized in the Consolidated Balance Sheets at September 30, 2019 and 2018 are as follows (in thousands):

Accrued liabilities

Noncurrent liabilities-other

Net amount recognized

The amounts recognized in Accumulated Other Comprehensive Income (Loss) at September 30, 2019 and 2018 , and not yet reflected in net periodic benefit cost, are as follows (in thousands):

Net actuarial loss

The amount recognized in Accumulated Other Comprehensive Income (Loss) and not yet reflected in periodic benefit cost expected to be amortized in next year’s periodic benefit cost is a net actuarial loss of $ 2.7 million .

The weighted average assumptions used for the pension calculations were as follows:

September 30,

Discount rate for net periodic benefit costs

Discount rate for year-end obligations

Expected return on plan assets

The mortality table issued by the Society of Actuaries in October 2018 was used for the September 30, 2019 pension calculation.

We did not make any contributions to the Pension Plan in fiscal year 2019 .

In fiscal year 2020 , we do not expect minimum contributions required by law to be needed.

However, we may make contributions in fiscal year 2020 if needed to fund unexpected distributions in lieu of liquidating pension assets.

Components of the net periodic pension expense (benefit) were as follows:

Year Ended September 30,

(in thousands)

Interest cost

Expected return on plan assets

Recognized net actuarial loss

Net pension expense

We record settlement expense when benefit payments exceed the total annual service and interest costs.

The following table reflects the expected benefits to be paid from the Pension Plan in each of the next five fiscal years, and in the aggregate for the five years thereafter (in thousands).

Year Ended September 30,

Included in the Pension Plan is an unfunded supplemental executive retirement plan.

Investment Strategy and Asset Allocation

Our investment policy and strategies are established with a long-term view in mind.

The investment strategy is intended to help pay the cost of the Pension Plan while providing adequate security to meet the benefits promised under the Pension Plan.

We maintain a diversified asset mix to minimize the risk of a material loss to the portfolio value that might occur from devaluation of any single investment.

In determining the appropriate asset mix, our financial strength and ability to fund potential shortfalls are considered.

Pension Plan assets are invested in portfolios of diversified public-market equity securities and fixed income securities.

The Pension Plan does not directly hold securities of the Company.

The expected long-term rate of return on Pension Plan assets is based on historical and projected rates of return for current and planned asset classes in the Pension Plan’s investment portfolio after analyzing historical experience and future expectations of the return and volatility of various asset classes.

The target allocation for 2020 and the asset allocation for the Pension Plan at the end of fiscal years 2019 and 2018 , by asset category, follows:

Target Allocation

September 30,

Asset Category

International equities

The fair value of Pension Plan assets at September 30, 2019 and 2018 , summarized by level within the fair value hierarchy described in Note 13—Fair Value Measurement of Financial Instruments , are as follows:

September 30, 2019

(in thousands)

Short-term investments

Mutual funds:

Domestic stock funds

Balanced funds

International stock funds

Total mutual funds

Domestic common stock

Oil and gas properties

September 30, 2018

(in thousands)

Short-term investments

Mutual funds:

Domestic stock funds

Balanced funds

International stock funds

Total mutual funds

Domestic common stock

Oil and gas properties

The Pension Plan’s financial assets utilizing Level 1 inputs are valued based on quoted prices in active markets for identical securities.

The Pension Plan’s Level 2 financial assets include domestic common stock.

The Pension Plan’s assets utilizing Level 3 inputs consist of oil and gas properties.

The fair value of oil and gas properties is determined by Wells Fargo Bank, N.A., based upon actual revenue received for the previous twelve-month period and experience with similar assets.

The following table sets forth a summary of changes in the fair value of the Pension Plan’s Level 3 assets for the fiscal years ended September 30, 2019 and 2018 :

Oil and Gas Properties

Year Ended September 30,

(in thousands)

Balance, beginning of year

Unrealized gains (losses) relating to property still held at the reporting date

Balance, end of year

Defined Contribution Plan

Substantially all employees on the U.S.

payroll may elect to participate in our 401(k)/Thrift Plan by contributing a portion of their earnings.

We contribute an amount equal to 100 percent of the first five percent of the participant’s compensation subject to certain limitations.

The annual expense incurred for this defined contribution plan was $ 30.5 million , $ 26.6 million and $ 16.6 million in fiscal years 2019 , 2018 and 2017 , respectively.

NOTE 15 SUPPLEMENTAL BALANCE SHEET INFORMATION

The following reflects the activity in our reserve for bad debt for fiscal years 2019 , 2018 and 2017 :

(in thousands)

Reserve for bad debt:

Balance at October 1,

Provision for bad debt

(Write-off) recovery of bad debt

Balance at September 30,

Accounts receivable, prepaid expenses and other current assets, accrued liabilities and long-term liabilities at September 30, 2019 and 2018 consist of the following:

September 30,

(in thousands)

Accounts receivable, net of reserve:

Trade receivables

Income tax receivable

Total accounts receivable, net of reserve

Prepaid expenses and other current assets:

Restricted cash

Deferred mobilization

Prepaid insurance

Prepaid value added tax

Prepaid maintenance and rent

Prepaid multi-flex rig fabrication

Accrued demobilization

Total prepaid expenses and other current assets

Accrued liabilities:

Accrued operating costs

Payroll and employee benefits

Taxes payable, other than income tax

Self-insurance liabilities

Deferred income

Deferred revenue

Accrued income taxes

Litigation and claims

Contingent earnout liability

Total accrued liabilities

Noncurrent liabilities — Other:

Pension and other non-qualified retirement plans

Self-insurance liabilities

Contingent earnout liability

Deferred revenue

Uncertain tax positions including interest and penalties

Total noncurrent liabilities — other

NOTE 16 COMMITMENTS AND CONTINGENCIES

Purchase Commitments

Equipment, parts and supplies are ordered in advance to promote efficient construction and capital improvement progress.

At September 30, 2019 , we had purchase commitments for equipment, parts and supplies of approximately $ 13.7 million .

Guarantee Arrangements

In the normal course of our business, we enter into agreements with financial institutions to provide letters of credit and surety bonds in connection with certain commitments entered into by us.

We are contingently liable to these financial institutions in respect of such letters of credit and bonds and have agreed to indemnify the financial institutions for any payments made by them in respect of such letters of credit and bonds.

None of these off-balance sheet arrangements either has, or is likely to have, a material effect on our consolidated financial statements.

Lease Obligations

At September 30, 2019 , we were leasing our corporate office headquarters near downtown Tulsa, Oklahoma.

We also lease other office space and equipment for use in operations.

Future minimum rental payments required under operating leases having initial or remaining non-cancelable lease terms in excess of a year at September 30, 2019 (in thousands) are as follows:

Total rent expense was $ 15.5 million , $ 13.7 million and $ 14.0 million for fiscal years 2019 , 2018 and 2017 , respectively.

The future minimum lease payments for our Tulsa corporate office is a material portion of the amounts shown in the table above.

This lease agreement commenced on May 30, 2003 and has subsequently been amended, most recently on March 12, 2018.

The agreement will expire on January 31, 2025;

however, we have two three -year renewal options.

Contingencies

We are party to legal proceedings and regulatory actions from time to time, including a number of cases which are currently pending.

We maintain insurance against certain business risks subject to certain deductibles.

With the exception of the matters discussed below, none of these legal actions are expected to have a material adverse effect on our financial condition, cash flows or results of operations.

During the ordinary course of our business, contingencies arise resulting from an existing condition, situation or set of circumstances involving an uncertainty as to the realization of a possible gain or loss contingency.

We account for gain contingencies in accordance with the provisions of ASC 450, Contingencies, and, therefore, we do not record gain contingencies or recognize income until realized.

The property and equipment of our Venezuelan subsidiary was seized by the Venezuelan government on June 30, 2010.

HPIDC, our wholly-owned subsidiary and the parent company of our Venezuelan subsidiary, has a lawsuit pending in the United States District Court for the District of Columbia against the Bolivarian Republic of Venezuela, Petroleos de Venezuela, S.A.

and PDVSA Petroleo, S.A., seeking damages for the taking of their Venezuelan drilling business in violation of international law.

While there exists the possibility of realizing a recovery, we are currently unable to determine the timing or amounts we may receive, if any, or the likelihood of recovery.

No contingent gains were recognized in our Consolidated Financial Statements during the fiscal years ended September 30, 2019 , 2018 and 2017 .

In January 2018, an employee of HPIDC suffered personal injury and subsequently brought a lawsuit against the operator and H&P.

Pursuant to the terms of the drilling contract between HPIDC and the operator, HPIDC indemnified the operator in the lawsuit, subject to certain limitations.

H&P has settled this matter on behalf of itself and the operator with $ 21.0 million of the settlement amount to be paid by the Company.

The settlement was paid out during the year ended September 30, 2019 .

While we believe we had meritorious defenses to the matter, we determined that settlement was a reasonable alternative to the uncertainty and expense associated with a jury trial.

In October 2017, an employee of HPIDC suffered personal injury and subsequently brought a lawsuit against the operator.

Pursuant to the terms of the drilling contract between HPIDC and the operator, HPIDC indemnified the operator in the lawsuit, subject to certain limitations.

Settlement discussions related to this lawsuit remain ongoing.

As of September 30, 2019, we have accrued $ 9.5 million for this lawsuit.

Although no assurance can be given, we believe, based on our experiences to date and taking into account established reserves and insurance, that the ultimate resolution of such items will not have a material adverse impact on our financial condition, cash flows, or results of operations.

NOTE 17 BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION

Description of the Business

We are a global contract drilling services company based in Tulsa, Oklahoma with operations in all major U.S.

onshore basins as well as South America and the Middle East.

Our contract drilling services operations consist mainly of contracting Company-owned drilling equipment primarily to large oil and gas exploration companies.

We are the recognized industry leader in drilling as well as technological innovation.

Effective October 1, 2018, and during the fourth quarter of fiscal year 2019, we implemented organizational changes, consistent with the manner in which our chief operating decision maker evaluates performance and allocates resources.

Effective October 1, 2018, technology reporting units 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 of fiscal year 2019, our operations are organized into the following reportable business segments:

Land, Offshore, International Land and H&P Technologies.

Additionally, during the fourth quarter of fiscal year 2019, we migrated our FlexApp offerings into our H&P Technologies segment.

The activity of our FlexApps was previously included in our U.S.

Land segment.

Our real estate operations and our incubator program for new research and development projects are included in "Other".

All segment disclosures have been restated, as practicable, for these segment changes.

Consolidated revenues and expenses reflect the elimination of intercompany transactions.

At September 30, 2019 , our contract drilling services business includes the following reportable operating segments:

International Land

H&P Technologies

Each reportable operating segment is a strategic business unit that is managed separately, and consolidated revenues and expenses reflect the elimination of all material intercompany transactions.

Other includes additional non-reportable operating segments.

Revenues included in “Other” primarily consist of rental income.

Segment Performance

We evaluate segment performance based on income or loss from continuing operations (segment operating income) before income taxes which includes:

Revenues from external and internal customers

Direct operating costs

Depreciation and amortization

Allocated general and administrative costs

Asset impairment charges

but excludes corporate costs for other depreciation, income from asset sales, other corporate income and expense, and corporate assets.

General and administrative costs are allocated to the segments based primarily on specific identification and, to the extent that such identification is not practical, on other methods which we believe to be a reasonable reflection of the utilization of services provided.

September 30, 2019

(in thousands)

International Land

H&P Technologies

External Sales

Segment Operating Income (Loss)

Depreciation and Amortization

September 30, 2018

(in thousands)

International Land

H&P Technologies (1) (2)

External Sales

Segment Operating Income (Loss)

Depreciation and Amortization

Prior period information has been restated to reflect the change in operating segments structure.

Prior period information has been restated to reflect the transfer of FlexApp revenue and the related costs from U.S.

Land to H&P Technologies.

Certain FlexApp revenue not separately priced in drilling contracts, and recorded in the U.S.

Land segment, was impracticable to retrospectively quantify, and as such was not restated.

September 30, 2017

(in thousands)

International Land

H&P Technologies (1) (2)

External Sales

Segment Operating Income (Loss)

Depreciation and Amortization

Prior period information has been restated to reflect the change in operating segments structure.

Prior period information has been restated to reflect the transfer of FlexApp revenues and the related costs from U.S.

Land to H&P Technologies.

Certain FlexApp revenue not separately priced in a drilling contract, and recorded in the U.S.

Land segment, was impracticable to retrospectively quantify, and as such was not restated.

The following table reconciles segment operating income (loss) to income from continuing operations before income taxes as reported on the Consolidated Statements of Operations:

Year Ended September 30,

(in thousands)

As adjusted, Note 2

Segment operating income (loss)

Gain on sale of assets

Corporate depreciation

Corporate selling, general and administrative costs

Operating income (loss) from continuing operations

Other income (expense)

Interest and dividend income

Interest expense

Gain (loss) on investment securities

Total unallocated amounts

Income (loss) from continuing operations before income taxes

The following table reconciles segment total assets to total assets as reported on the Consolidated Balance Sheets:

Year Ended September 30,

(in thousands)

Segment assets

Corporate assets

Total consolidated assets

The following table presents revenues from external customers and long-lived assets by country based on the location of service provided:

Year Ended September 30,

(in thousands)

Operating revenues

United States

Other Foreign

Property, plant and equipment, net

United States

Other Foreign

NOTE 18 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Fiscal Year 2019 Quarters Ended

(in thousands, except per share amounts)

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Operating revenues

Operating income (loss)

Income (loss) from continuing operations

Net income (loss)

Basic earnings per common share:

Income (loss) from continuing operations

Net income (loss)

Diluted earnings per common share:

Income (loss) from continuing operations

Net income (loss)

The sum of earnings per share for the four quarters may not equal the total earnings per share for the fiscal year due to changes in the average number of common shares outstanding.

In the first quarter of fiscal year 2019 , net income includes an after-tax gain from the sale of assets of approximately $ 4.2 million , or $ 0.04 per share on a diluted basis.

In the second quarter of fiscal year 2019 , net income includes an after-tax gain from the sale of assets of $ 8.9 million , or $ 0.08 per share on a diluted basis.

In the third quarter of fiscal year 2019 , net loss includes an after-tax gain from the sale of assets of $ 7.7 million , or $ 0.07 per share on a diluted basis and an after-tax loss from asset impairments of approximately $ 173.2 million, or $ 1.58 per share on a diluted basis.

In the fourth quarter of fiscal year 2019 , net income includes an after-tax gain from the sale of assets of $ 9.8 million , or $ 0.09 per share on a diluted basis.

Fiscal Year 2018 Quarters Ended

As adjusted, Note 2

(in thousands, except per share amounts)

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Operating revenues

Operating income (loss)

Income (loss) from continuing operations

Net income (loss)

Basic earnings per common share:

Income (loss) from continuing operations

Net income (loss)

Diluted earnings per common share:

Income (loss) from continuing operations

Net income (loss)

The sum of earnings per share for the four quarters may not equal the total earnings per share for the year due to changes in the average number of common shares outstanding.

In the first quarter of fiscal year 2018 , net income includes a tax benefit of approximately $ 502.1 million , or $ 4.59 per share on a diluted basis, an after-tax gain from the sale of assets of $ 4.2 million , or $ 0.04 per share on a diluted basis.

In the second quarter of fiscal year 2018 , net loss includes an after-tax gain from the sale of assets of $ 3.8 million , or $ 0.04 per share on a diluted basis.

In the third quarter of fiscal year 2018 , net loss includes an after-tax gain from the sale of assets of $ 3.1 million , or $ 0.02 per share on a diluted basis.

In the fourth quarter of fiscal year 2018 , net income includes an after-tax gain from the sale of assets of $ 5.5 million , or $ 0.05 per share on a diluted basis and an after-tax loss from asset impairments of approximately $ 17.2 million , or $ 0.16 per share on a diluted basis.

NOTE 19 SUBSEQUENT EVENTS

On November 13, 2019, we entered into the first amendment to our 2018 Credit Facility by and among the Company, as borrower, Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto (the “2018 Credit Facility Amendment”).

Amongst other things, the 2018 Credit Facility Amendment (i) extended the maturity date of the 2018 Credit Facility by one year to November 13, 2024, (ii) deleted certain negative covenants and (iii) refreshed the number of permissible extensions of the maturity date that require only the consent of extending lenders.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk