Helmerich & Payne, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS HELMERICH & PAYNE, INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS December 31, September 30, (in thousands except share data and share amounts) 2021 2021 ASSETS Current Assets: Cash and cash equivalents $ 234,196 $ 917,534 Short-term investments 207,068 198,700 Accounts receivable, net of allowance of $ 1,730 and $ 2,068 , respectively 282,381 228,894 Inventories of materials and supplies, net 87,272 84,057 Prepaid expenses and other, net 80,956 85,928 Assets held-for-sale 62,821 71,453 Total current assets 954,694 1,586,566 Investments 193,624 135,444 Property, plant and equipment, net 3,066,326 3,127,287 Other Noncurrent Assets: Goodwill 45,653 45,653 Intangible assets, net 72,042 73,838 Operating lease right-of-use assets 47,356 49,187 Other assets, net 12,559 16,153 Total other noncurrent assets 177,610 184,831 Total assets $ 4,392,254 $ 5,034,128 LIABILITIES & SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 109,032 $ 71,996 Dividends payable 26,819 27,332 Current portion of long-term debt, net — 483,486 Accrued liabilities 263,125 283,492 Total current liabilities 398,976 866,306 Noncurrent Liabilities: Long-term debt, net 542,236 541,997 Deferred income taxes 545,869 563,437 Other 126,551 147,757 Noncurrent liabilities - discontinued operations 2,031 2,013 Total noncurrent liabilities 1,216,687 1,255,204 Commitments and contingencies (Note 13) Shareholders' Equity: Common stock, $ .10 par value, 160,000,000 shares authorized, 112,222,865 shares issued as of both December 31, 2021 and September 30, 2021, and 105,731,795 and 107,898,859 shares outstanding as of December 31, 2021 and September 30, 2021, respectively 11,222 11,222 Preferred stock, no par value, 1,000,000 shares authorized, no shares issued — — Additional paid-in capital 514,969 529,903 Retained earnings 2,495,206 2,573,375 Accumulated other comprehensive loss ( 19,850 ) ( 20,244 ) Treasury stock, at cost, 6,491,070 shares and 4,324,006 shares as of December 31, 2021 and September 30, 2021, respectively ( 224,956 ) ( 181,638 ) Total shareholders’ equity 2,776,591 2,912,618 Total liabilities and shareholders' equity $ 4,392,254 $ 5,034,128 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 Table of Contents HELMERICH & PAYNE, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended December 31, (in thousands, except per share amounts) 2021 2020 OPERATING REVENUES Drilling services $ 407,534 $ 244,781 Other 2,248 1,596 409,782 246,377 OPERATING COSTS AND EXPENSES Drilling services operating expenses, excluding depreciation and amortization 299,652 198,689 Other operating expenses 1,182 1,362 Depreciation and amortization 100,437 106,861 Research and development 6,527 5,583 Selling, general and administrative 43,715 39,303 Asset impairment charge 4,363 — Restructuring charges 742 138 Gain on reimbursement of drilling equipment ( 5,254 ) ( 2,191 ) Other (gain) loss on sale of assets 1,029 ( 10,145 ) 452,393 339,600 OPERATING LOSS FROM CONTINUING OPERATIONS ( 42,611 ) ( 93,223 ) Other income (expense) Interest and dividend income 2,589 1,879 Interest expense ( 6,114 ) ( 6,139 ) Gain on investment securities 47,862 2,924 Loss on extinguishment of debt ( 60,083 ) — Other ( 542 ) ( 1,480 ) ( 16,288 ) ( 2,816 ) Loss from continuing operations before income taxes ( 58,899 ) ( 96,039 ) Income tax benefit ( 7,568 ) ( 18,115 ) Loss from continuing operations ( 51,331 ) ( 77,924 ) Income (loss) from discontinued operations before income taxes ( 31 ) 7,493 Income tax provision — — Income (loss) from discontinued operations ( 31 ) 7,493 NET LOSS $ ( 51,362 ) $ ( 70,431 ) Basic earnings (loss) per common share: Loss from continuing operations $ ( 0.48 ) $ ( 0.73 ) Income from discontinued operations — 0.07 Net loss $ ( 0.48 ) $ ( 0.66 ) Diluted earnings (loss) per common share: Loss from continuing operations $ ( 0.48 ) $ ( 0.73 ) Income from discontinued operations — 0.07 Net loss $ ( 0.48 ) $ ( 0.66 ) Weighted average shares outstanding: Basic 107,571 107,617 Diluted 107,571 107,617 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 Table of Contents HELMERICH & PAYNE, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Three Months Ended December 31, (in thousands) 2021 2020 Net loss $ ( 51,362 ) $ ( 70,431 ) Other comprehensive income, net of income taxes: Net change related to employee benefit plans, net of income taxes of $( 0.1 ) million for the three months ended December 31, 2021 and 2020 394 457 Other comprehensive income 394 457 Comprehensive loss $ ( 50,968 ) $ ( 69,974 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 Table of Contents HELMERICH & PAYNE, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Three Months Ended December 31, 2021 and 2020 (in thousands, except per share amounts) Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Shares Amount Shares Amount Total Balance, September 30, 2021 112,222 $ 11,222 $ 529,903 $ 2,573,375 $ ( 20,244 ) 4,324 $ ( 181,638 ) $ 2,912,618 Comprehensive income (loss): Net loss — — — ( 51,362 ) — — — ( 51,362 ) Other comprehensive income — — — — 394 — — 394 Dividends declared ($ 0.25 per share) — — — ( 26,807 ) — — — ( 26,807 ) Vesting of restricted stock awards, net of shares withheld for employee taxes — — ( 21,152 ) — — ( 381 ) 17,040 ( 4,112 ) Stock-based compensation — — 6,218 — — — — 6,218 Share repurchases — — — — — 2,548 ( 60,358 ) ( 60,358 ) Balance, December 31, 2021 112,222 $ 11,222 $ 514,969 $ 2,495,206 $ ( 19,850 ) 6,491 $ ( 224,956 ) $ 2,776,591 (in thousands, except per share amounts) Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Shares Amount Shares Amount Total Balance, September 30, 2020 112,151 $ 11,215 $ 521,628 $ 3,010,012 $ ( 26,188 ) 4,663 $ ( 198,153 ) $ 3,318,514 Comprehensive income: Net loss — — — ( 70,431 ) — — — ( 70,431 ) Other comprehensive income — — — — 457 — — 457 Dividends declared ($ 0.25 per share) — — — ( 27,324 ) — — — ( 27,324 ) Vesting of restricted stock awards, net of shares withheld for employee taxes 72 7 ( 16,742 ) — — ( 295 ) 14,618 ( 2,117 ) Stock-based compensation — — 7,451 — — — — 7,451 Cumulative effect adjustment for adoption of ASU No. 2016-13 — — — ( 1,251 ) — — — ( 1,251 ) Other — — ( 381 ) — — — ( 381 ) Balance, December 31, 2020 112,223 $ 11,222 $ 511,956 $ 2,911,006 $ ( 25,731 ) 4,368 $ ( 183,535 ) $ 3,224,918 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 6 Table of Contents HELMERICH & PAYNE, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended December 31, (in thousands) 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: NET LOSS $ ( 51,362 ) $ ( 70,431 ) Adjustment for (income) loss from discontinued operations 31 ( 7,493 ) Loss from continuing operations ( 51,331 ) ( 77,924 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 100,437 106,861 Asset impairment charge 4,363 — Amortization of debt discount and debt issuance costs 239 460 Loss on extinguishment of debt 60,083 — Provision for credit loss ( 112 ) ( 465 ) Provision for obsolete inventory ( 708 ) 216 Stock-based compensation 6,218 7,451 Gain on investment securities ( 47,862 ) ( 2,924 ) Gain on reimbursement of drilling equipment ( 5,254 ) ( 2,191 ) Other (gain) loss on sale of assets 1,029 ( 10,145 ) Deferred income tax benefit ( 17,750 ) ( 15,016 ) Other ( 3,781 ) 1,458 Change in assets and liabilities: Accounts receivable ( 54,641 ) ( 32,586 ) Inventories of materials and supplies ( 2,507 ) 4,612 Prepaid expenses and other 4,099 ( 5,935 ) Other noncurrent assets 3,930 1,629 Accounts payable 36,041 9,738 Accrued liabilities ( 17,592 ) ( 6,674 ) Deferred income tax liability 69 16 Other noncurrent liabilities ( 18,675 ) 1,818 Net cash used in operating activities from continuing operations ( 3,705 ) ( 19,601 ) Net cash used in operating activities from discontinued operations ( 13 ) ( 3 ) Net cash used in operating activities ( 3,718 ) ( 19,604 ) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 44,014 ) ( 13,985 ) Other capital expenditures related to assets held-for-sale ( 3,877 ) — Purchase of short-term investments ( 47,083 ) ( 94,151 ) Purchase of long-term investments ( 9,015 ) ( 1,000 ) Proceeds from sale of short-term investments 37,777 37,097 Proceeds from asset sales 21,483 6,836 Net cash used in investing activities ( 44,729 ) ( 65,203 ) CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid ( 27,320 ) ( 26,918 ) Payments for employee taxes on net settlement of equity awards ( 4,113 ) ( 2,119 ) Payment of contingent consideration from acquisition of business ( 250 ) ( 250 ) Payments for early extinguishment of long-term debt ( 487,148 ) — Make-whole premium payment ( 56,421 ) — Share repurchases ( 60,358 ) — Net cash used in financing activities ( 635,610 ) ( 29,287 ) Net decrease in cash and cash equivalents and restricted cash ( 684,057 ) ( 114,094 ) Cash and cash equivalents and restricted cash, beginning of period 936,716 536,747 Cash and cash equivalents and restricted cash, end of period $ 252,659 $ 422,653 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period: Interest paid $ 2,673 $ 77 Income tax paid (received), net 97 ( 190 ) Cash paid for amounts included in the measurement of lease liabilities: Payments for operating leases 3,657 3,986 Non-cash operating and investing activities: Changes in accounts payable and accrued liabilities related to purchases of property, plant and equipment ( 1,820 ) ( 369 ) Changes in accounts receivable, property, plant and equipment and other noncurrent assets related to the sale of equipment — 9,290 Cumulative effect adjustment for adoption of ASU No. 2016-13 — ( 1,251 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 7 Table of Contents HELMERICH & PAYNE, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 NATURE OF OPERATIONS Helmerich & Payne, Inc. (“H&P,” which, together with its subsidiaries, is identified as the “Company,” “we,” “us,” or “our,” except where stated or the context requires otherwise) through its operating subsidiaries provides performance-driven drilling solutions and technologies that are intended to make hydrocarbon recovery safer and more economical for oil and gas exploration and production companies. Our drilling services operations are organized into the following reportable operating business segments: North America Solutions, Offshore Gulf of Mexico and International Solutions. Our real estate operations, our incubator program for new research and development projects and our wholly-owned captive insurance companies are included in "Other." Refer to Note 14—Business Segments and Geographic Information for further details on our reportable segments. Our North America Solutions operations are primarily located in Colorado, Louisiana, Montana, New Mexico, North Dakota, Nevada, Ohio, Oklahoma, Pennsylvania, Texas, Utah, West Virginia and Wyoming. Additionally, our Offshore Gulf of Mexico operations are conducted in Louisiana and in U.S. federal waters in the Gulf of Mexico and in our International Solutions we have operations in four international locations: Argentina, Bahrain, Colombia and United Arab Emirates. We also own and operate limited commercial real estate properties. Our real estate assets, which are located exclusively within Tulsa, Oklahoma, include a shopping center and undeveloped real estate. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, RISKS AND UNCERTAINTIES Interim Financial Information The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) pertaining to interim financial information. Accordingly, these interim financial statements do not include all information or footnote disclosures required by GAAP for complete financial statements and, therefore, should be read in conjunction with the Consolidated Financial Statements and notes thereto in our 2021 Annual Report on Form 10-K and other current filings with the SEC. In the opinion of management, all adjustments, consisting of those of a normal recurring nature, necessary to present fairly the results of the periods presented have been included. The results of operations for the interim periods presented may not necessarily be indicative of the results to be expected for the full year. Principles of Consolidation The Unaudited Condensed Consolidated Financial Statements include the accounts of Helmerich & Payne, Inc. and its domestic and foreign subsidiaries. Consolidation of a subsidiary begins when the Company gains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the fiscal year are included in the Unaudited Condensed Consolidated Statements of Operations and Unaudited Condensed Consolidated Statements of Comprehensive Loss from the date the Company gains control until the date when the Company ceases to control the subsidiary. All intercompany accounts and transactions have been eliminated upon consolidation. 8 Table of Contents COVID-19 and OPEC+ Production Impacts The ongoing COVID-19 pandemic has resulted in significant global economic disruption, including North America and many of the other geographic areas where we operate, or where our customers are located, or suppliers or vendors operate. As the global economy and demand for crude oil continues to recover from the global impact of the COVID-19 pandemic, the persistent effects from new variants, including Delta and Omicron, have further constrained recovery of global economic activity and levels of crude oil demand. In addition, the reinstatement of travel restrictions in certain countries where we operate, including the temporary closure of some international borders, has resulted in periodic travel delays and cancellations for some of our staff and rotator personnel. To date, these personnel delays have not impacted our ability to fulfill our contractual obligations under contracts with customers, but could potentially impact these contracts in the future. While many governmental authorities have implemented multi-step policies towards the goal of reopening their economies, certain jurisdictions have experienced reinstated certain restrictions due to a rise in COVID-19 cases. Overall this impact has been uneven, as other jurisdictions have not adjusted reopening initiatives and have completed the reopening process despite increases in COVID-19 cases. Despite the increased availability of vaccines in most jurisdictions, the COVID-19 pandemic is predicted to continue through the upcoming months, specifically as a result of the proliferation of the Omicron variant and its high transmission rate. Vaccine hesitancy by some portions of the population and a full return to pre-pandemic business and social activities, may cause some governmental authorities in highly impacted areas to further reconsider restrictions on business and social activities. In the event that some governmental authorities increase or reinstate restrictions, the successful reopening of the economy may be curtailed. We have experienced, and expect to continue to experience, some periodic disruptions to our business operations, as these government restrictions have significantly impacted, and may continue to impact, many sectors of the economy. Depressed economic conditions exacerbated by COVID-19 restrictions in several foreign jurisdictions where we operate have led to an increase in community protests and labor strikes that have interrupted transportation or other services, which have resulted in periodic short-term suspensions of our operations. With the global spread of the Omicron variant, this type of temporary impact may continue to occur from time to time as a result of persistent social unrest and reaction to governmental restrictions. In addition, the risk of infection and associated health risks with the new variants of COVID-19, has altered and will continue to alter behaviors of consumers and policies of companies around the world. Such altered behaviors and policies have many of the same effects intended by governmental authorities to stop the spread of COVID-19, such as self-imposed or voluntary social distancing, quarantining, and remote work policies. We work to comply with all regulations of governmental authorities in the jurisdictions where our operations reside. In some cases, policies and procedures are more stringent in our foreign operations than in our North America operations. In early March 2020, the increase in crude oil supply resulting from production escalations from the Organization of the Petroleum Exporting Countries and other oil producing nations (“OPEC+”) combined with a decrease in crude oil demand stemming from the global response and uncertainties surrounding the COVID-19 pandemic resulted in a sharp decline in crude oil prices. Consequently, we saw a significant decrease in customer 2020 capital budgets and a corresponding dramatic decline in the demand for land rigs. Although OPEC+ agreed in April 2020 to cut oil production, OPEC+ has been gradually reducing such cuts and in July 2021, agreed to further reduce such cuts on a monthly basis with a goal of phasing out all production cuts towards the end of 2022. There is no assurance that the most recent OPEC+ agreement will be observed by its parties and OPEC+ may change its agreement depending upon market conditions. Although crude oil prices have recovered since March 2020, oil and natural gas prices are expected to continue to be volatile as a result of near-term production instability, the ongoing COVID-19 pandemic, changes in oil and natural gas inventories, industry demand, global and national economic performance, and the actions of OPEC+. These events have had, and could continue to have, an adverse impact on numerous aspects of our business, financial condition and results of operations. The ultimate extent of the impact of COVID-19 on our business, financial condition and results of operations will depend largely on future developments, including the duration and spread of COVID-19 within the United States and the parts of the world in which we operate and the related impact on the oil and gas industry, the impact of governmental actions designed to prevent the spread of COVID-19 and the development, availability, timely distribution and acceptance of effective treatments and vaccines worldwide, all of which are highly uncertain and cannot be predicted with certainty at this time. At December 31, 2021, the Company had cash and cash equivalents and short-term investments of $ 441.3 million. The 2018 Credit Facility (as defined within Note 6—Debt) has $ 750.0 million in aggregate availability with a maximum of $ 75.0 million available for use as letters of credit. As of December 31, 2021, there were no borrowings or letters of credit outstanding, leaving $ 750.0 million available to borrow under the 2018 Credit Facility. We currently do not anticipate the need to draw on the 2018 Credit Facility. Furthermore, the Company 2031 Notes (as defined within Note 6—Debt) do not mature until September 29, 2031. 9 Table of Contents On September 27, 2021, the Company delivered a conditional notice of optional full redemption for all of the outstanding 4.65 percent unsecured senior notes due 2025 (the "2025 Notes") at a redemption price calculated in accordance with the indenture governing the 2025 Notes, plus accrued and unpaid interest on the 2025 Notes to be redeemed. On September 29, 2021, we issued $ 550.0 million aggregate principal amount of the 2.90 percent unsecured senior notes due 2031 (the "2031 Notes"). The Company’s obligation to redeem the 2025 Notes was conditioned upon the prior consummation of the issuance of the 2031 Notes, which was satisfied on September 29, 2021. The 2031 Notes mature on September 29, 2031. On October 27, 2021, we redeemed all of the outstanding 2025 Notes. As a result, these notes were included in the current portion of long-term debt on our Consolidated Balance Sheets as of September 30, 2021. The associated make-whole premium of $ 56.4 million and the write off of the unamortized discount and debt issuance costs of $ 3.7 million were recognized during the first fiscal quarter of 2022 contemporaneously with the October 27, 2021 debt extinguishment. These amounts were recorded in Loss on Extinguishment of Debt in our Unaudited Condensed Consolidated Statements of Operations during the three months ended December 31, 2021. Refer to Note 6—Debt for further details. Cash, Cash Equivalents, and Restricted Cash Cash and cash equivalents include cash on hand, demand deposits with banks and all highly liquid investments with original maturities of three months or less. Our cash, cash equivalents and short-term investments are subject to potential credit risk, and certain of our cash accounts carry balances greater than the federally insured limits. We had restricted cash of $ 18.5 million and $ 48.7 million at December 31, 2021 and 2020, respectively, and $ 19.2 million and $ 48.9 million at September 30, 2021 and 2020, respectively. Of the total restricted cash at December 31, 2021 and September 30, 2021, $ 1.1 million and $ 1.5 million, respectively, is related to the acquisition of drilling technology companies, and $ 17.4 million and $ 17.7 million, respectively, represents an amount management has elected to restrict for the purpose of potential insurance claims in our wholly-owned captive insurance companies. The restricted amounts are primarily invested in short-term money market securities. The cash, cash equivalents, and restricted cash are reflected within the following line items on the Unaudited Condensed Consolidated Balance Sheets: December 31, September 30, (in thousands) 2021 2020 2021 2020 Cash and cash equivalents $ 234,196 $ 373,980 $ 917,534 $ 487,884 Restricted cash Prepaid expenses and other, net 17,681 45,688 18,350 45,577 Other assets, net 782 2,985 832 3,286 Total cash, cash equivalents, and restricted cash $ 252,659 $ 422,653 $ 936,716 $ 536,747 During the three months ended December 31, 2021, our cash, cash equivalents, and restricted cash balance decreased approximately $ 684.1 million compared to our balance at September 30, 2021. This change was primarily driven by the redemption of all the outstanding 2025 Notes, resulting in a cash outflow of $ 487.1 million. Additionally, the associated make-whole premium of $ 56.4 million was paid during the first fiscal quarter of 2022 contemporaneously with the October 27, 2021 debt extinguishment. 10 Table of Contents Recently Issued Accounting Updates Changes to U.S. GAAP are established by the Financial Accounting Standards Board ("FASB") in the form of Accounting Standards Updates ("ASUs") to the FASB Accounting Standards Codification ("ASC"). We consider the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable, clarifications of ASUs listed below, immaterial, or already adopted by the Company. The following table provides a brief description of a recently adopted accounting pronouncement and our analysis of the effects on our financial statements: Standard Description Date of Adoption Effect on the Financial Statements or Other Significant Matters ASU No. 2019-12, Financial Instruments – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes This ASU simplifies the accounting for income taxes by removing certain exceptions related to Topic 740. The ASU also improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This update is effective for annual and interim periods beginning after December 15, 2020. Early adoption of the amendment is permitted, including adoption in any interim period for public entities for periods for which financial statements have not yet been issued. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period. Upon adoption, the amendments addressed in this ASU will be applied either prospectively, retrospectively or on a modified retrospective basis through a cumulative effect adjustment to retained earnings. This update is effective for annual periods beginning after December 15, 2020. October 1, 2021 We adopted this ASU during the first quarter of fiscal year 2022. The adoption did not have a material effect on our Unaudited Condensed Consolidated Financial Statements and disclosures. Self-Insurance Our wholly-owned insurance captives ("Captives") incurred direct operating costs consisting primarily of $( 2.2 ) million and $ 0.5 million in adjustments to accruals for estimated losses allocated to the Captives and rig casualty insurance premiums of $ 8.8 million and $ 2.5 million during the three months ended December 31, 2021 and 2020, respectively, and were recorded within drilling services operating expenses in our Unaudited Condensed Consolidated Statement of Operations. Intercompany premium revenues recorded by the Captives during the three months ended December 31, 2021 and 2020 amounted to $ 13.6 million and $ 7.1 million, respectively, which were eliminated upon consolidation. These intercompany insurance premiums are reflected as segment operating expenses within the North America Solutions, Offshore Gulf of Mexico, and International Solutions reportable operating segments and are reflected as intersegment sales within "Other." The Company self-insures employee health plan exposures in excess of employee deductibles. Starting in the second quarter of fiscal year 2020, the Captives' insurer issued a stop-loss program that will reimburse the Company's health plan for claims that exceed $ 50,000 . This program is reviewed at the end of each policy year by an outside actuary. Our medical stop loss operating expenses for the three months ended December 31, 2021 and 2020 were $ 3.2 million and $ 2.3 million, respectively. International Solutions Drilling Risks International Solutions drilling operations may significantly contribute to our revenues and net operating income (loss). There can be no assurance that we will be able to successfully conduct such operations, and a failure to do so may have an adverse effect on our financial position, results of operations, and cash flows. Also, the success of our International Solutions operations will be subject to numerous contingencies, some of which are beyond management’s control. These contingencies include general and regional economic conditions, fluctuations in currency exchange rates, modified exchange controls, changes in international regulatory requirements and international employment issues, risk of expropriation of real and personal property and the burden of complying with foreign laws. Additionally, in the event that extended labor strikes occur or a country experiences significant political, economic or social instability, we could experience shortages in labor and/or material and supplies necessary to operate some of our drilling rigs, thereby potentially causing an adverse material effect on our business, financial condition and results of operations. 11 Table of Contents We have also experienced certain risks specific to our Argentine operations. In Argentina, while our dayrate is denominated in U.S. dollars, we are paid in Argentine pesos. The Argentine branch of one of our second-tier subsidiaries remits U.S. dollars to its U.S. parent by converting the Argentine pesos into U.S. dollars through the Argentine Foreign Exchange Market and repatriating the U.S. dollars. Argentina also has a history of implementing currency controls which restrict the conversion and repatriation of U.S. dollars. From September 2019 through 2021, Argentina implemented additional currency controls in an effort to preserve Argentina's U.S. dollar reserves. As a result of these currency controls, our ability to remit funds from our Argentine subsidiary to its U.S. parent has been limited. In the past, the Argentine government has also instituted price controls on crude oil, diesel and gasoline prices and instituted an exchange rate freeze in connection with those prices. These price controls and an exchange rate freeze could be instituted again in the future. Further, there are additional concerns regarding Argentina's debt burden, notwithstanding Argentina's restructuring deal with international bondholders in August 2020, as Argentina attempts to manage its substantial sovereign debt issues. These concerns could further negatively impact Argentina's economy and adversely affect our Argentine operations. Argentina’s economy is considered highly inflationary, which is defined as cumulative inflation rates exceeding 100 percent in the most recent three-year period based on inflation data published by the respective governments. Nonetheless, all of our foreign subsidiaries use the U.S. dollar as the functional currency and local currency monetary assets and liabilities are remeasured into U.S. dollars with gains and losses resulting from foreign currency transactions included in current results of operations. For the three months ended December 31, 2021 and 2020, we recorded aggregate foreign currency losses of $ 1.0 million and $ 1.8 million , respectively. In the future, we may incur larger currency devaluations, foreign exchange restrictions or other difficulties repatriating U.S. dollars from Argentina or elsewhere, which could have a material adverse impact on our business, financial condition and results of operations. As of December 31, 2021, our cash balance in Argentina was $ 39.6 million. Because of the impact of local laws, our future operations in certain areas may be conducted through entities in which local citizens own interests and through entities (including joint ventures) in which we hold only a minority interest or pursuant to arrangements under which we conduct operations under contract to local entities. While we believe that neither operating through such entities nor pursuant to such arrangements would have a material adverse effect on our operations or revenues, there can be no assurance that we will in all cases be able to structure or restructure our operations to conform to local law (or the administration thereof) on terms acceptable to us. Although we attempt to minimize the potential impact of such risks by operating in more than one geographical area, during the three months ended December 31, 2021, approximately 9.3 percent of our operating revenues were generated from international locations in our drilling business compared to 4.4 percent during the three months ended December 31, 2020. During the three months ended December 31, 2021, approximately 77.1 percent of operating revenues from international locations were from operations in South America, compared to 18.1 percent during the three months ended December 31, 2020. 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 DISCONTINUED OPERATIONS Noncurrent liabilities from discontinued operations include an uncertain tax liability related to the country of Venezuela. Expenses incurred for in-country obligations are reported as discontinued operations within our Unaudited Condensed Consolidated Statements of Operations. The activity for the three months ended December 31, 2021 and 2020 was primarily due to the remeasurement of an uncertain tax liability 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 4,597,200 Bolivars per United States dollar at December 31, 2021, compared to 4,181,782 and 1,107,199 Bolivars per United States dollar at September 30, 2021, and December 31, 2020, respectively. The DICOM floating rate might not reflect the barter market exchange rates. 12 Table of Contents NOTE 4 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment as of December 31, 2021 and September 30, 2021 consisted of the following: (in thousands) Estimated Useful Lives December 31, 2021 September 30, 2021 Drilling services equipment 4 - 15 years $ 6,256,764 $ 6,229,011 Tubulars 4 years 568,273 573,900 Real estate properties 10 - 45 years 43,303 43,302 Other 2 - 23 years 421,091 459,741 Construction in progress (1) 53,481 47,587 7,342,912 7,353,541 Accumulated depreciation ( 4,276,586 ) ( 4,226,254 ) Property, plant and equipment, net $ 3,066,326 $ 3,127,287 Assets held-for-sale $ 62,821 $ 71,453 (1) Included in construction in progress are costs for projects in progress to upgrade or refurbish certain rigs in our existing fleet. Additionally, we include other capital maintenance purchase orders that are open/in process. As these various projects are completed, the costs are then classified to their appropriate useful life category. Depreciation Depreciation expense in the Unaudited Condensed Consolidated Statements of Operations was $ 98.6 million and $ 105.1 million, including $ 1.3 million and $ 0.3 million in abandonments, for the three months ended December 31, 2021 and 2020, respectively. Assets Held-for-Sale The following table summarizes the balance (in thousands) of our assets held-for-sale at the dates indicated below: Balance at September 30, 2021 $ 71,453 Plus: Asset additions 1,025 Less: Sale of assets held-for-sale ( 9,657 ) Balance at December 31, 2021 $ 62,821 In March 2021, the Company's leadership continued the execution of the current strategy, which was initially introduced in 2019, focusing on operating various types of highly capable upgraded rigs and phasing out the older, less capable fleet. As a result, the Company has undertaken a plan to sell 71 Domestic non-super-spec rigs, all within our North America Solutions segment, the majority of which were previously decommissioned, written down and/or held as capital spares. The book values of those assets were written down to $ 13.5 million, which represents their fair value less estimated costs to sell, and were reclassified as held-for-sale in the second and third quarters of fiscal year 2021. During the three months ended December 31, 2021, we completed the sale of a portion of the assets with a net book value of $ 0.9 million that were classified as held-for-sale as September 30, 2021. During September 2021, the Company agreed to sell eight FlexRig ® land rigs with an aggregate net book value of $ 55.6 million to ADNOC Drilling Company P.J.S.C. ("ADNOC Drilling") for $ 86.5 million. Two of the eight rigs were already located in the U.A.E where ADNOC Drilling is domiciled with the remaining six rigs to be shipped from the United States. We received the $ 86.5 million in cash consideration in advance of delivering the rigs. As part of the sales agreement, the rigs will be delivered and commissioned in stages over a twelve-month period subject to acceptance upon successful completion of final inspection on customary terms and conditions. No rigs have been delivered to ADNOC Drilling as of December 31, 2021 and, therefore, the total cash proceeds of $ 86.5 million are recorded in Accrued Liabilities within our Unaudited Condensed Consolidated Balance Sheets as of December 31, 2021. As a result, these rigs are classified as held-for-sale in the Unaudited Condensed Consolidated Balance Sheets until each rig is delivered, at which time any related gain/loss on the sale will be recognized in the Unaudited Condensed Consolidated Statement of Operations. The rigs' fair value less estimated cost to sell of $ 29.0 million, including approximately $ 24.0 million of cash costs to be incurred, approximated their net book values at December 31, 2021. Of the estimated $ 24.0 million of cash costs to be incurred, we paid approximately $ 3.9 million in cash charges during the three months ended December 31, 2021. 13 Table of Contents During the fiscal year ended September 30, 2021, we formalized a plan to sell assets related to two of our lower margin service offerings, trucking and casing running assets, which contributed approximately 2.8 percent to our consolidated revenue during fiscal year 2021, all within our North America Solutions segment. The combined net book values of these assets of $ 23.2 million were written down to their combined fair value less estimated cost to sell of $ 8.8 million, and were reclassified as held-for-sale during the fourth quarter of fiscal year 2021. During the three months ended December 31, 2021, we closed on the sale of these assets in two separate transactions. The sale of our trucking assets was completed on November 3, 2021 while the sale of our casing running assets was completed on November 15, 2021 for total consideration less costs to sell of $ 6.0 million, in addition to the possibility of future earnout revenue, resulting in a loss of $ 3.4 million. Losses related to the sale of these assets are recorded in Other (Gain) Loss on Sale of Assets within our Unaudited Condensed Consolidated Statements of Operations. During the three months ended December 31, 2021, we identified two partial rig substructures and two international FlexRig ® drilling rigs that met the asset held-for-sale criteria and were reclassified as assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets. The combined net book value of the rig substructures of $ 2.0 million were written down to their estimated scrap value of $ 0.1 million, resulting in a non-cash impairment charge of $ 1.9 million within our North America Solutions segment during the three months ended December 31, 2021 in the Unaudited Condensed Consolidated Statement of Operations. In conjunction with establishing a plan to sell the two international FlexRig ® drilling rigs, we recognized a non-cash impairment charge of $ 2.5 million within our International Solutions segment during the three months ended December 31, 2021 in the Unaudited Condensed Consolidated Statement of Operations, as the rigs aggregate net book value of $ 3.4 million exceeded the fair value of the rigs less estimated cost to sell of $ 0.9 million. The significant assumptions utilized in the valuation were based on our intended method of disposal, historical sales of similar assets, and market quotes and are classified as Level 2 and Level 3 inputs by ASC Topic 820, Fair Value Measurement and Disclosures. Although we believe the assumptions used in our analysis are reasonable and appropriate, different assumptions and estimates could materially impact the analysis and our resulting conclusion. Gain/Loss on Sale of Assets During the three months ended December 31, 2021, we had a gain of $ 5.3 million related to customer reimbursement for the replacement value of lost or damaged drill pipe. Gains related to these asset sales are recorded in Gain on Reimbursement of Drilling Equipment within our Unaudited Condensed Consolidated Statements of Operations. During the same fiscal period, we also closed on the sale of our trucking and casing running assets as mentioned above. During the three months ended December 31, 2020, completed the sale of an offshore platform rig within our Offshore Gulf of Mexico operating segment for total consideration of $ 12.0 million with an aggregate net book value of $ 2.8 million, resulting in a gain of $ 9.2 million and recorded in Other (Gain) Loss on Sale of Assets within our Unaudited Condensed Consolidated Statements of Operations. We also had a gain of $ 2.2 million on asset sales related to customer reimbursement for the replacement value of drill pipe damaged or lost in drilling operations. Gains related to these asset sales are recorded in Gain on Reimbursement of Drilling Equipment within our Unaudited Condensed Consolidated Statements of Operations. NOTE 5 GOODWILL AND INTANGIBLE ASSETS Goodwill Goodwill represents the excess of the purchase price over the fair values of the assets acquired and liabilities assumed in a business combination, at the date of acquisition. Goodwill is not amortized but is tested for potential impairment at the reporting unit level, at a minimum on an annual basis, or when indications of potential impairment exist. All of our goodwill is within our North America Solutions reportable segment. During the three months ended December 31, 2021, we had no additions or impairments to goodwill. As of December 31, 2021 and September 30, 2021, the goodwill balance was $ 45.7 million . 14 Table of Contents Intangible Assets Finite-lived intangible assets are amortized using the straight-line method over the period in which these assets contribute to our cash flows and are evaluated for impairment in accordance with our policies for valuation of long-lived assets. All of our intangible assets are within our North America Solutions reportable segment. Intangible assets consist of the following: December 31, 2021 September 30, 2021 (in thousands) Weighted Average Estimated Useful Lives Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net Finite-lived intangible asset: Developed technology 15 years $ 89,096 $ 23,671 $ 65,425 $ 89,096 $ 22,182 $ 66,914 Intellectual property 13 years 1,500 244 1,256 1,500 216 1,284 Trade name 20 years 5,865 1,237 4,628 5,865 1,158 4,707 Customer relationships 5 years 4,000 3,267 733 4,000 3,067 933 $ 100,461 $ 28,419 $ 72,042 $ 100,461 $ 26,623 $ 73,838 Amortization expense in the Unaudited Condensed Consolidated Statements of Operations was $ 1.8 million for both the three months ended December 31, 2021 and 2020. A mortization is estimated to be approximately $ 5.4 million for the remainder of fiscal year 2022, approximately $ 6.5 million for fiscal year 2023, and approximately $ 6.4 million for fiscal years 2024, 2025 and 2026. NOTE 6 DEBT We had the following unsecured long-term debt outstanding with maturities shown in the following table: December 31, 2021 September 30, 2021 (in thousands) Face Amount Unamortized Discount and Debt Issuance Cost Book Value Face Amount Unamortized Discount and Debt Issuance Cost Book Value Unsecured senior notes: Due March 19, 2025 $ — $ — $ — $ 487,148 $ ( 3,662 ) $ 483,486 Due September 29, 2031 550,000 ( 7,764 ) 542,236 550,000 ( 8,003 ) 541,997 550,000 ( 7,764 ) 542,236 1,037,148 ( 11,665 ) 1,025,483 Less long-term debt due within one year — — — ( 487,148 ) 3,662 ( 483,486 ) Long-term debt $ 550,000 $ ( 7,764 ) $ 542,236 $ 550,000 $ ( 8,003 ) $ 541,997 Senior Notes 2.90 % Senior Notes due 2031 On September 29, 2021, we issued $ 550.0 million aggregate principal amount of 2.90 percent 2031 Notes in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A under the Securities Act (“Rule 144A”) and to certain non-U.S. persons in transactions outside the United States pursuant to Regulation S under the Securities Act (“Regulation S”). Interest on the 2031 Notes is payable semi-annually on March 29 and September 29 of each year, commencing on March 29, 2022. The 2031 Notes will mature on September 29, 2031 and bear interest at a rate of 2.90 percent per annum. The indenture governing the 2031 Notes contains certain covenants that, among other things and subject to certain exceptions, limit the ability of the Company and its subsidiaries to incur certain liens; engage in sale and lease-back transactions; and consolidate, merge or transfer all or substantially all of the assets of the Company. The indenture governing the 2031 Notes also contains customary events of default with respect to the 2031 Notes. 4.65 % Senior Notes due 2025 On December 20, 2018, we issued approximately $ 487.1 million in aggregate principal amount of the 2025 Notes. Interest on the 2025 Notes was payable semi-annually on March 15 and September 15 of each year, commencing on March 15, 2019. The debt issuance cost was being amortized straight-line over the stated life of the obligation, which approximated the effective interest method. On September 27, 2021, the Company delivered a conditional notice of optional full redemption for all of the outstanding 2025 Notes at a redemption price calculated in accordance with the indenture governing the 2025 Notes, plus accrued and unpaid interest on the 2025 Notes to be redeemed. The Company financed the redemption of the 2025 Notes with the net proceeds from the offering of the 2031 Notes, together with cash on hand. The Company’s obligation to redeem the 2025 Notes was conditioned upon the prior consummation of the issuance of the 2031 Notes, which was satisfied on September 29, 2021. 15 Table of Contents On October 27, 2021, we redeemed all of the outstanding 2025 Notes. As a result, the associated make-whole premium of $ 56.4 million and the write off of the unamortized discount and debt issuance costs of $ 3.7 million were recognized during the first fiscal quarter of 2022 contemporaneously with the October 27, 2021 debt extinguishment and recorded in Loss on Extinguishment of Debt on our Unaudited Condensed Consolidated Statements of Operations. Credit Facilities On November 13, 2018, we entered into a credit agreement by and among the Company, as borrower, Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto, which was amended on November 13, 2019, providing for an unsecured revolving credit facility (as amended, the “2018 Credit Facility”), that was set to mature on November 13, 2024. On April 16, 2021, lenders with $ 680.0 million of commitments under the 2018 Credit Facility exercised their option to extend the maturity of the 2018 Credit Facility from November 13, 2024 to November 12, 2025. No other terms of the 2018 Credit Facility were amended in connection with this extension. The remaining $ 70.0 million of commitments under the 2018 Credit Facility will expire on November 13, 2024, unless extended by the applicable lender before such date. The 2018 Credit Facility has $ 750.0 million in aggregate availability with a maximum of $ 75.0 million available for use as letters of credit. As of December 31, 2021, there were no borrowings or letters of credit outstanding, leaving $ 750.0 million available to borrow under the 2018 Credit Facility. For a full description of the 2018 Credit Facility, see Note 7—Debt to the Consolidated Financial Statements in our 2021 Annual Report on Form 10-K. As of December 31, 2021, we had five separate bi-lateral credit facilities with banks with an aggregate outstanding balance of $ 30.4 million. As of December 31, 2021, we also had a $ 20.0 million unsecured standalone line of credit facility, for the purpose of obtaining the issuance of international letters of credit, bank guarantees, and performance bonds. Of the $ 20.0 million, $ 5.8 million of financial guarantees were outstanding as of December 31, 2021. The applicable agreements for all unsecured debt contain additional terms, conditions and restrictions that we believe are usual and customary in unsecured debt arrangements for companies that are similar in size and credit quality. At December 31, 2021, we were in compliance with all debt covenants. NOTE 7 INCOME TAXES We use an estimated annual effective tax rate for purposes of determining the income tax provision during interim reporting periods. In calculating our estimated annual effective tax rate, we consider forecasted annual pre-tax income and estimated permanent book versus tax differences. Adjustments to the effective tax rate and estimates could occur during the year as information and assumptions change which could include, but are not limited to, changes to forecasted amounts, estimates of permanent book versus tax differences, and changes to tax laws and rates. Our income tax benefit from continuing operations for the three months ended December 31, 2021 and 2020 was $ 7.6 million and $ 18.1 million, respectively, resulting in effective tax rates of 12.8 percent and 18.9 percent, respectively. Effective tax rates differ from the U.S. federal statutory rate of 21.0 percent for the three months ended December 31, 2021 and 2020 primarily due to state and foreign income taxes, permanent non-deductible items and discrete adjustments. Additionally, the effective tax rate for the three months ended December 31, 2021 includes a federal tax benefit from the foreign-derived intangible income deduction. The discrete adjustments for the three months ended December 31, 2021 and 2020 are primarily due to tax expense related to equity compensation of $ 3.5 million and $ 4.1 million, respectively. For the next 12 months, we cannot predict with certainty whether we will achieve ultimate resolution of any uncertain tax positions associated with our U.S. and international operations that could result in increases or decreases of our unrecognized tax benefits. However, we do not expect the increases or decreases to have a material effect on our results of continuing operations or financial position. NOTE 8 SHAREHOLDERS’ EQUITY The Company has an evergreen 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 the three months ended December 31, 2021, we repurchased 2.5 million common shares at an aggregate cost of $ 60.4 million, which are held as treasury shares. We had no repurchases of common shares during the three months ended December 31, 2020. A cash dividend of $ 0.25 per share was declared on September 1, 2021 for shareholders of record on November 23, 2021, and was paid on December 1, 2021. An additional cash dividend of $ 0.25 per share was declared on December 10, 2021 for shareholders of record on February 11, 2022, payable on February 28, 2022. As a result, we recorded a dividend payable of $ 26.8 million within Dividends Payable on our Unaudited Condensed Consolidated Balance Sheets as of December 31, 2021. 16 Table of Contents Accumulated Other Comprehensive Loss Components of accumulated other comprehensive loss were as follows: (in thousands) December 31, 2021 September 30, 2021 Pre-tax amounts: Unrecognized net actuarial loss $ ( 25,761 ) $ ( 26,268 ) ( 25,761 ) ( 26,268 ) After-tax amounts: Unrecognized net actuarial loss ( 19,850 ) ( 20,244 ) $ ( 19,850 ) $ ( 20,244 ) The following is a summary of the changes in accumulated other comprehensive loss, net of tax, related to the defined benefit pension plan for the three months ended December 31, 2021: (in thousands) Defined Benefit Pension Plan Balance at beginning of period $ ( 20,244 ) Activity during the period Amounts reclassified from accumulated other comprehensive loss 394 Net current-period other comprehensive income 394 Balance at December 31, 2021 $ ( 19,850 ) NOTE 9 REVENUE FROM CONTRACTS WITH CUSTOMERS Drilling Services Revenue The releases for rigs under term contracts result in early termination compensation owed to us, while releases for rigs under well-to-well contracts given outside the notification window provided for in the contract result in notification fees owed to us. During the three months ended December 31, 2021, we recognized no early termination revenue associated with term contracts compared to $ 5.8 million during the three months ended December 31, 2020. 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. For any contracts that include a provision for pooled term days at contract inception, followed by the assignment of days to specific rigs throughout the contract term, we have elected, as a practical expedient, to recognize revenue in the amount to which the entity has a right to invoice, as permitted by ASC 606. On November 12, 2021, we settled a drilling contract dispute related to drilling services provided from fiscal years 2016 through 2019 with YPF S.A. (Argentina) ("YPF"). The settlement required that YPF make a one-time cash payment to H&P in the amount of $ 11.0 million and enter into drilling service contracts for three drilling rigs, each with multi-year terms. In addition, both parties were released of all outstanding claims against each other, and as a result, H&P recognized $ 5.4 million in revenue primarily due to accrued disputed amounts. Total revenue recognized as a result of the settlement in the amount of $ 16.4 million is included in Drilling Services Revenue within the International Solutions segment on our Unaudited Condensed Consolidated Statements of Operations for the three months ended December 31, 2021. Contract Costs We had capitalized fulfillment costs of $ 7.0 million and $ 4.3 million as of December 31, 2021 and September 30, 2021, respectively. 17 Table of Contents Remaining Performance Obligations The total aggregate transaction price allocated to the unsatisfied performance obligations, commonly referred to as backlog, as of December 31, 2021 was approximately $ 723.5 million, of which approximately $ 499.6 million is expected to be recognized during the remainder of fiscal year 2022, approximately $ 168.7 million during fiscal year 2023, and approximately $ 74.9 million during fiscal year 2024 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. However, the impact of the COVID-19 pandemic is inherently uncertain, and, as a result, the Company is unable to reasonably estimate the duration and ultimate impacts of the pandemic, including the effect it may have on our contractual obligations with our customers. Subsequent to December 31, 2021, we received notice from an International Solutions customer of their intent to early terminate a fixed-term drilling services contract. Due to the notification being received subsequent to December 31, 2021, the backlog as of December 31, 2021 includes approximately $ 22.0 million of future dayrate revenue related to this contract. Contract Assets and Liabilities The following tables summarize the balances of our contract assets (net of allowance for estimated credit losses) and liabilities at the dates indicated below: (in thousands) December 31, 2021 September 30, 2021 Contract assets, net $ 4,784 $ 4,513 (in thousands) December 31, 2021 Contract liabilities balance at September 30, 2021 $ 9,286 Payment received/accrued and deferred 14,218 Revenue recognized during the period ( 11,073 ) Contract liabilities balance at December 31, 2021 $ 12,431 NOTE 10 STOCK-BASED COMPENSATION A summary of compensation cost for stock-based payment arrangements recognized in drilling services operating expense, research and development expense and selling, general and administrative expense on our Unaudited Condensed Consolidated Statements of Operations is as follows: Three Months Ended December 31, (in thousands) 2021 2020 Stock-based compensation expense Drilling services operating $ 1,240 $ 1,763 Research and development 353 335 Selling, general and administrative 4,625 5,353 $ 6,218 $ 7,451 Restricted Stock A summary of the status of our restricted stock awards as of December 31, 2021 and changes in non-vested restricted stock outstanding during the three months then ended is presented below: (in thousands, except per share amounts) Shares (1) Weighted Average Grant Date Fair Value per Share Non-vested restricted stock outstanding at September 30, 2021 1,412 $ 37.36 Granted 689 24.87 Vested (2) ( 535 ) 41.25 Forfeited ( 3 ) 28.70 Non-vested restricted stock outstanding at December 31, 2021 1,563 $ 30.54 (1) Restricted stock shares include restricted phantom stock units under our Director Deferred Compensation Plan. These phantom stock units confer the economic benefits of owning company stock without the actual ownership, transfer or issuance of any shares. During the three months ended December 31, 2021, no restricted phantom stock units were granted or vested. (2) The number of restricted stock awards vested includes shares that we withheld on behalf of our employees to satisfy the statutory tax withholding requirements. 18 Table of Contents Performance Units A summary of the status of our performance-vested restricted share units ("performance units") as of December 31, 2021 and changes in non-vested performance units outstanding during the three months ended is presented below: (in thousands, except per share amounts) Performance Units Weighted Average Grant Date Fair Value per Performance Unit Non-vested performance units outstanding at September 30, 2021 699 $ 41.55 Granted 227 30.12 Dividend equivalent right performance units credited 9 41.55 Non-vested performance units outstanding at December 31, 2021 (1) 935 $ 38.77 (1) Of the total non-vested performance units at the end of the period, specified performance criteria has been achieved with respect to 291,786 performance units which is calculated based on the payout percentage for the completed performance period. The vesting and number of the remainder of non-vested performance units reflected at the end of the period is contingent upon our achievement of specified target performance criteria. If we meet the specified maximum performance criteria, approximately 341,233 additional performance units could vest or become eligible to vest. Subject to the terms and conditions set forth in the applicable performance share unit award agreements and the 2020 Plan, grants of performance units are subject to a vesting period of three years (the “Vesting Period”) that is dependent on the achievement of certain performance goals. Such performance unit grants consist of two separate components. Performance units that comprise the first component are subject to a three-year performance cycle. Performance units that comprise the second component are further divided into three separate tranches, each of which is subject to a separate one-year performance cycle within the full three-year performance cycle. The vesting of the performance units is generally dependent on (i) the achievement of the Company’s total shareholder return (“TSR”) performance goals relative to the TSR achievement of a peer group of companies (the “Peer Group”) over the applicable performance cycle, and (ii) the continued employment of the recipient of the performance unit award throughout the Vesting Period. The vesting period for the performance share units granted in December 2018 ended on December 31, 2021 and the performance units eligible to vest were settled in shares of common stock in January 2022. Stock-based compensation expense related to these grants has been fully recognized as of December 31, 2021. NOTE 11 EARNINGS (LOSSES) PER COMMON SHARE ASC 260, Earnings per Share, requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividends or dividend equivalents as a separate class of securities in calculating earnings per share. We have granted and expect to continue to grant to employees restricted stock grants that contain non-forfeitable rights to dividends. Such grants are considered participating securities under ASC 260. As such, we are required to include these grants in the calculation of our basic earnings per share and calculate basic earnings per share using the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Basic earnings per share is computed utilizing the two-class method and is calculated based on the weighted-average number of common shares outstanding during the periods presented. Diluted earnings per share is computed using the weighted-average number of common and common equivalent shares outstanding during the periods utilizing the two-class method for stock options, non-vested restricted stock and performance units. Under the two-class method of calculating earnings per share, dividends paid and a portion of undistributed net income, but not losses, are allocated to unvested restricted stock grants that receive dividends, which are considered participating securities. 19 Table of Contents The following table sets forth the computation of basic and diluted earnings (loss) per share: Three Months Ended December 31, (in thousands, except per share amounts) 2021 2020 Numerator: Loss from continuing operations $ ( 51,331 ) $ ( 77,924 ) Income (loss) from discontinued operations ( 31 ) 7,493 Net loss ( 51,362 ) ( 70,431 ) Adjustment for basic earnings (loss) per share Earnings allocated to unvested shareholders ( 374 ) ( 361 ) Numerator for basic earnings (loss) per share: From continuing operations ( 51,705 ) ( 78,285 ) From discontinued operations ( 31 ) 7,493 ( 51,736 ) ( 70,792 ) Numerator for diluted earnings (loss) per share: From continuing operations ( 51,705 ) ( 78,285 ) From discontinued operations ( 31 ) 7,493 $ ( 51,736 ) $ ( 70,792 ) Denominator: Denominator for basic earnings (loss) per share - weighted-average shares 107,571 107,617 Effect of dilutive shares from stock options, restricted stock and performance units — — Denominator for diluted earnings (loss) per share - adjusted weighted-average shares 107,571 107,617 Basic earnings (loss) per common share: Loss from continuing operations $ ( 0.48 ) $ ( 0.73 ) Income from discontinued operations — 0.07 Net loss $ ( 0.48 ) $ ( 0.66 ) Diluted earnings (loss) per common share: Loss from continuing operations $ ( 0.48 ) $ ( 0.73 ) Income from discontinued operations — 0.07 Net loss $ ( 0.48 ) $ ( 0.66 ) We had a net loss for all periods presented above. Accordingly, our diluted loss per share calculation was equivalent to our basic loss per share calculation since diluted loss 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 potentially dilutive average shares attributable to outstanding equity awards were excluded from the calculation of diluted earnings (loss) per share because their inclusion would have been anti-dilutive: Three Months Ended December 31, (in thousands, except per share amounts) 2021 2020 Potentially dilutive shares excluded as anti-dilutive 2,891 4,494 Weighted-average price per share $ 58.22 $ 55.61 20 Table of Contents NOTE 12 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 Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Recurring Fair Value Measurements The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis and indicate the level in the fair value hierarchy in which we classify the fair value measurement. December 31, 2021 (in thousands) Fair Value Level 1 Level 2 Level 3 Assets Short-term investments: Corporate debt securities $ 203,401 $ — $ 203,401 $ — U.S. government and federal agency securities 3,667 3,667 — — Total short-term investments 207,068 3,667 203,401 — Investments: Non-qualified supplemental savings plan 19,455 19,455 — — Equity and debt securities 17,502 14,002 — 3,500 Equity investment in ADNOC Drilling 147,786 147,786 — — Total investments 184,743 181,243 — 3,500 Liabilities Contingent consideration $ 3,096 $ — $ — $ 3,096 September 30, 2021 (in thousands) Fair Value Level 1 Level 2 Level 3 Assets Short-term investments: Corporate debt securities $ 192,950 $ — $ 192,950 $ — U.S. government and federal agency securities 5,750 5,750 — — Total short-term investments 198,700 5,750 192,950 — Investments: Non-qualified supplemental savings plan 18,221 18,221 — — Equity and debt securities 14,358 13,858 — 500 Cornerstone investment in ADNOC Drilling 100,000 100,000 — — Total investments 132,579 132,079 — 500 Liabilities Contingent consideration $ 2,996 $ — $ — $ 2,996 21 Table of Contents 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 Unaudited Condensed Consolidated Statements of Operations. The securities are recorded at fair value. Level 1 inputs include U.S. agency issued debt securities with active markets and money market funds. For these items, quoted current market prices are readily available. Level 2 inputs included corporate bonds measured using broker quotations that utilize observable market inputs. Our long-term investments include debt and equity securities and assets held in a Non-Qualified Supplemental Savings Plan ("Savings Plan"). Our assets that we hold in the Savings Plan are comprised of mutual funds that are measured using Level 1 inputs. Additionally we hold equity securities in Schlumberger, Ltd., which is classified as Level 1 and based on the quoted stock price. Our long-term debt securities are classified as available-for-sale and considered a Level 3 input based on the absence of market activity. During September 2021, the Company made a $ 100.0 million cornerstone investment in ADNOC Drilling in advance of its announced IPO, representing 159.7 million shares of ADNOC Drilling, equivalent to a one percent ownership stake and subject to a three-year lockup period. ADNOC Drilling's IPO was completed on October 3, 2021 and its shares are listed and traded on the Abu Dhabi Securities Exchange (ADX). Our investment is classified as a long-term equity investment within Investments in our Unaudited Condensed Consolidated Balance Sheets. We have applied the guidance in Topic 820, Fair Value Measurement, in the initial accounting of the transaction and the subsequent revaluation of the investment balance, concluding that a contractual restriction on the sale of an equity security that is publicly traded is not considered in measuring fair value. During the three months ended December 31, 2021, we recognized a gain of $ 47.8 million in our Unaudited Condensed Consolidated Statement of Operations. As of December 31, 2021, this investment is classified as a Level 1 investment and based on the quoted stock price on the Abu Dhabi Securities Exchange, without applying a discount factor. Our financial liabilities measured using Level 3 unobservable inputs primarily consist of potential earnout payments associated with our business acquisitions in fiscal year 2019. The contingent considerations are recorded in Accrued Liabilities and Other Noncurrent Liabilities in the Unaudited Condensed Consolidated Balance Sheets based on the expected timing of the milestone achievement. The following table reconciles changes in the fair value for the periods presented below: Three Months Ended December 31, (in thousands) 2021 2020 Liabilities at beginning of period $ 2,996 $ 9,123 Additions 500 — Total gains or losses: Included in earnings ( 150 ) 100 Settlements 1 ( 250 ) ( 250 ) Liabilities at end of period $ 3,096 $ 8,973 (1) Settlements represent earnout payments that have been paid or earned during the period. Nonrecurring Fair Value Measurements We have certain assets that are subject to measurement at fair value on a nonrecurring basis. For these nonfinancial assets, measurement at fair value in periods subsequent to their initial recognition is applicable if they are determined to be impaired. These assets generally include assets held-for-sale, property, plant and equipment, goodwill, intangible assets, and operating lease right-of-use assets. If measured at fair value in the Unaudited Condensed Consolidated Balance Sheets, these would generally be classified within Level 2 or 3 of the fair value hierarchy. Further details on any changes in valuation of these assets is provided in their respective footnotes. We also hold various other equity securities without readily determinable fair values that are classified as Level 3. These equity securities are measured at cost, less any impairments on a nonrecurring basis. As of December 31, 2021, the carrying value of these assets were equal to their fair value as no impairments have been taken to date. The following tables summarize our financial assets measured at fair value on a non-recurring basis: December 31, 2021 (in thousands) Fair Value Level 1 Level 2 Level 3 Investments: Equity securities $ 8,881 $ — $ — $ 8,881 September 30, 2021 (in thousands) Fair Value Level 1 Level 2 Level 3 Investments: Equity securities $ 2,865 $ — $ — $ 2,865 22 Table of Contents As of December 31, 2021 and September 30, 2021 the aggregate balance of our debt and equity security investments in geothermal was $ 11.8 million and $ 2.7 million, respectively. These investments include assets measured on both a recurring and nonrecurring basis. The following table reconciles changes in the fair value for our equity securities without readily determinable fair values that are classified as Level 3 for the periods presented below: Three Months Ended December 31, (in thousands) 2021 2020 Assets at beginning of period $ 2,865 $ — Purchases 6,016 1,000 Assets at end of period $ 8,881 $ 1,000 Other Financial Instruments The carrying amount of cash and cash equivalents and restricted cash approximates fair value due to the short-term nature of these items. 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. Government and in federally insured deposit accounts. The carrying value of accounts receivables, other current and noncurrent assets, accounts payable, accrued liabilities and other liabilities approximated fair value at December 31, 2021 and September 30, 2021. The following information presents the supplemental fair value information about long-term fixed-rate debt at December 31, 2021 and September 30, 2021: (in millions) December 31, 2021 1 September 30, 2021 Current portion of long-term debt Carrying value $ — $ 483.5 Fair value — 541.6 Long-term debt, net Carrying value 542.2 542.0 Fair value 542.5 554.3 (1) On October 27, 2021 we redeemed the outstanding 2025 Notes. See Note 6—Debt to our Consolidated Financial Statements The fair values of the current and long-term fixed-rate debt is based on broker quotes as of December 31, 2021 and September 30, 2021. The notes are classified within Level 2 of the fair value hierarchy as they are not actively traded in markets. NOTE 13 COMMITMENTS AND CONTINGENCIES Purchase Commitments Equipment, parts and supplies are ordered in advance to promote efficient construction and capital improvement progress. At December 31, 2021, we had purchase commitments for equipment, parts and supplies of approximately $ 62.9 million. Guarantee Arrangements We are contingently liable to sureties in respect of bonds issued by the sureties in connection with certain commitments entered into by us in the normal course of business. We have agreed to indemnify the sureties for any payments made by them in respect of such bonds. 23 Table of Contents Contingencies 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. Our wholly-owned subsidiaries, HPIDC and Helmerich & Payne de Venezuela, C.A., filed a lawsuit in the United States District Court for the District of Columbia on September 23, 2011 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 and for breach of contract. 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. The Company and its subsidiaries are parties to various other pending legal actions arising in the ordinary course of our business. We maintain insurance against certain business risks subject to certain deductibles. 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. When we determine a loss is probable of occurring and is reasonably estimable, we accrue an undiscounted liability for such contingencies based on our best estimate using information available at that time. If the estimated loss is a range of potential outcomes and there is no better estimate within the range, we accrue the amount at the low end of the range. We disclose contingencies where an adverse outcome may be material, or in the judgment of management, we conclude the matter should otherwise be disclosed. NOTE 14 BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION Description of the Business We are a performance-driven drilling solutions and technologies company based in Tulsa, Oklahoma with operations in all major U.S. onshore oil and gas producing basins as well as South America and the Middle East. Our drilling operations consist mainly of contracting Company-owned drilling equipment primarily to large oil and gas exploration companies. We believe we are the recognized industry leader in drilling as well as technological innovation. We focus on offering our customers an integrated solutions-based approach by combining proprietary rig technology, automation software, and digital expertise into our rig operations rather than a product-based offering, such as a rig or separate technology package. Our drilling services operations are organized into the following reportable operating business segments: North America Solutions, Offshore Gulf of Mexico and International Solutions. 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. Our real estate operations, our incubator program for new research and development projects, and our wholly-owned captive insurance companies are included in "Other." External 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 (loss)) 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 • Restructuring charges but excludes gain on reimbursement of drilling equipment, other (gain) loss on sale of assets, corporate selling, general and administrative costs, corporate depreciation, and corporate restructuring charges. General and administrative costs are allocated to the segments based primarily on specific identification and, to the extent that such identification is not practical, other methods may be used which we believe to be a reasonable reflection of the utilization of services provided. 24 Table of Contents Summarized financial information of our reportable segments for the three months ended December 31, 2021 and 2020 is shown in the following tables: Three Months Ended December 31, 2021 (in thousands) North America Solutions Offshore Gulf of Mexico International Solutions Other Eliminations Total External sales $ 341,034 $ 29,314 $ 37,159 $ 2,275 $ — $ 409,782 Intersegment — — — 13,648 ( 13,648 ) — Total sales 341,034 29,314 37,159 15,923 ( 13,648 ) 409,782 Segment operating income (loss) ( 28,893 ) 5,466 8,049 3,929 ( 1,282 ) ( 12,731 ) Three Months Ended December 31, 2020 (in thousands) North America Solutions Offshore Gulf of Mexico International Solutions Other Eliminations Total External sales $ 201,990 $ 32,273 $ 10,518 $ 1,596 $ — $ 246,377 Intersegment — — — 7,122 ( 7,122 ) — Total sales 201,990 32,273 10,518 8,718 ( 7,122 ) 246,377 Segment operating income (loss) ( 72,928 ) 2,742 ( 8,357 ) 4,111 ( 2,126 ) ( 76,558 ) The following table reconciles segment operating loss per the tables above to loss from continuing operations before income taxes as reported on the Unaudited Condensed Consolidated Statements of Operations: Three Months Ended December 31, (in thousands) 2021 2020 Segment operating loss $ ( 12,731 ) $ ( 76,558 ) Gain on reimbursement of drilling equipment 5,254 2,191 Other gain (loss) on sale of assets ( 1,029 ) 10,145 Corporate selling, general and administrative costs, corporate depreciation, and corporate restructuring charges ( 34,105 ) ( 29,001 ) Operating loss from continuing operations ( 42,611 ) ( 93,223 ) Other income (expense) Interest and dividend income 2,589 1,879 Interest expense ( 6,114 ) ( 6,139 ) Gain on investment securities 47,862 2,924 Loss on extinguishment of debt ( 60,083 ) — Other ( 542 ) ( 1,480 ) Total unallocated amounts ( 16,288 ) ( 2,816 ) Loss from continuing operations before income taxes $ ( 58,899 ) $ ( 96,039 ) The following table reconciles segment total assets as reported on the Unaudited Condensed Consolidated Balance Sheets: (in thousands) December 31, 2021 September 30, 2021 Total assets 1 North America Solutions $ 3,399,211 $ 3,418,569 Offshore Gulf of Mexico 84,661 84,580 International Solutions 341,553 269,820 Other 85,409 95,398 3,910,834 3,868,367 Investments and corporate operations 481,420 1,165,761 $ 4,392,254 $ 5,034,128 (1) Assets by segment exclude investments in subsidiaries and intersegment activity. 25 Table of Contents The following table presents revenues from external customers by country based on the location of service provided: Three Months Ended December 31, (in thousands) 2021 2020 Operating revenues United States $ 371,488 $ 235,444 Argentina 29,152 1,553 Bahrain 7,632 7,549 United Arab Emirates — 990 Colombia 375 429 Other Foreign 1,135 412 Total $ 409,782 $ 246,377 Refer to Note 9—Revenue from Contracts with Customers for additional information regarding the recognition of revenue. NOTE 15 SUBSEQUENT EVENTS Subsequent to December 31, 2021, we received notice from an International Solutions customer of their intent to early terminate a fixed-term drilling services contract. Due to the notification being received subsequent to December 31, 2021, the backlog as of December 31, 2021 includes approximately $ 22.0 million of future dayrate revenue related to this contract. From January 1, 2022 through January 28, 2022, the Company repurchased approximately 600 thousand common shares at an aggregate cost of approximately $ 16.4 million, which are held as treasury shares. Under our evergreen authorization from the Board of Directors we are authorized to repurchase up to four million common shares in any calendar year. 26 Table of Contents