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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended
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Sep. 30, 2015
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Helmerich & Payne, Inc. and its wholly-owned subsidiaries. Fiscal years of our foreign operations end on August 31 to facilitate reporting of consolidated results. There were no significant intervening events that materially affected the financial statements. BASIS OF PRESENTATION We classified our former Venezuelan operation as a discontinued operation in the third quarter of fiscal 2010, as more fully described in Note 2. Unless indicated otherwise, the information in the Notes to Consolidated Financial Statements relates only to our continuing operations. FOREIGN CURRENCIES The functional currency for all our foreign operations is the U.S. dollar. Nonmonetary assets and liabilities are translated at historical rates and monetary assets and liabilities are translated at exchange rates in effect at the end of the period. Income statement accounts are translated at average rates for the year. Gains and losses from remeasurement of foreign currency financial statements and foreign currency translations into U.S. dollars are included in direct operating costs. Included in direct operating costs are aggregate foreign currency remeasurement and a transaction gain of $2.8 million in fiscal 2015, a transaction loss of $0.8 million in fiscal 2014 and a transaction gain of $0.7 million in fiscal 2013. USE OF ESTIMATES The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America ("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. RECENTLY ADOPTED ACCOUNTING STANDARDS In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-03 "Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs". ASU No. 2015-03 amends the FASB Accounting Standards Codifications ("ASC") to require that debt issuance cost be presented in the balance sheet as a direct deduction from the carrying amount of the related liability. Prior to the amendment, debt issuance costs were reported in the balance sheet as an asset. The amended guidance is effective for financial statements issued for fiscal years beginning after December 15, 2015, however, we elected to early adopt effective January 1, 2015. The election requires retrospective application and represents a change in accounting principle. The ASU provides that debt issuance costs are similar to debt discounts and in effect reduce the proceeds of borrowing. As a result of the adoption, the September 30, 2014 Consolidated Balance Sheet has been restated as follows:
|  | September 30, 2014 |
|  | Previously Reported |  | Effect of Accounting Principle Adoption |  | Adjusted |
|  | (in thousands) |
Consolidated Balance Sheet |  |  |  |  |  |  |  |  |  |
Prepaid expenses and other |  | $ | 81,277 |  | $ | (365 | ) | $ | 80,912 |
Total current assets |  |  | 1,277,366 |  |  | (365 | ) |  | 1,277,001 |
Other assets |  |  | 19,307 |  |  | (498 | ) |  | 18,809 |
Total assets |  |  | 6,721,861 |  |  | (863 | ) |  | 6,720,998 |
Long-term debt due within one year less unamortized discount and debt issuance costs |  |  | 40,000 |  |  | (365 | ) |  | 39,635 |
Total current liabilities |  |  | 507,526 |  |  | (365 | ) |  | 507,161 |
Long-term debt less unamortized discount and debt issuance costs |  |  | 40,000 |  |  | (498 | ) |  | 39,502 |
Total noncurrent liabilities |  |  | 1,323,358 |  |  | (498 | ) |  | 1,322,860 |
Total liabilities and shareholders' equity |  |  | 6,721,861 |  |  | (863 | ) |  | 6,720,998 |
Amortization of debt discount and debt issuance costs has been reclassified in the accompanying Consolidated Statements of Cash Flow for September 30, 2014 and 2013 to conform to current year presentation. The amortization was previously included as a change in assets. CASH AND CASH EQUIVALENTS Cash equivalents consist of investments in short-term, highly liquid securities having original maturities of three months or less. The carrying values of these assets approximate their fair values. We primarily utilize a cash management system with a series of separate accounts consisting of lockbox accounts for receiving cash, concentration accounts, and several "zero-balance" disbursement accounts for funding payroll and accounts payable. As a result of our cash management system, checks issued, but not presented to the banks for payment, may create negative book cash balances. RESTRICTED CASH AND CASH EQUIVALENTS We had restricted cash and cash equivalents of $32.0 million and $30.2 million at September 30, 2015 and 2014, respectively. The cash is restricted for the purpose of potential insurance claims in our wholly-owned captive insurance company. Of the total at September 30, 2015, $2.0 million is from the initial capitalization of the captive company and management has elected to restrict an additional $30.0 million. The restricted amounts are primarily invested in short-term money market securities. The restricted cash and cash equivalents are reflected in the balance sheet as follows:
|  | September 30, |
|  | 2015 |  | 2014 |
|  | (in thousands) |
Prepaid expenses and other |  | $ | 29,998 |  | $ | 28,244 |
Other assets |  | $ | 2,000 |  | $ | 2,000 |
INVENTORIES AND SUPPLIES Inventories and supplies are primarily replacement parts and supplies held for use in our drilling operations. Inventories and supplies are valued at the lower of cost (moving average or actual) or market value. INVESTMENTS We maintain investments in equity securities of certain publicly traded companies. The cost of securities used in determining realized gains and losses is based on the average cost basis of the security sold. We regularly review investment securities for impairment based on criteria that include the extent to which the investment's carrying value exceeds its related fair value, the duration of the market decline and the financial strength and specific prospects of the issuer of the security. Unrealized losses that are other than temporary are recognized in earnings. 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 (contract drilling equipment, 4-15 years; real estate buildings and equipment, 10-45 years; and other, 2-23 years). Depreciation in the Consolidated Statements of Income includes abandonments of $43.6 million, $23.0 million and $9.1 million for fiscal 2015, 2014 and 2013, respectively. During fiscal 2015 and 2014, we decommissioned 23 and nine idle rigs, respectively. The cost of maintenance and repairs is charged to direct operating cost, while betterments and refurbishments are capitalized. We lease office space and equipment for use in operations. Leases are evaluated at inception or at 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. We do not have significant capital leases. CAPITALIZATION OF INTEREST We capitalize interest on major projects during construction. Interest is capitalized based on the average interest rate on related debt. Capitalized interest for fiscal 2015, 2014 and 2013 was $7.0 million, $7.7 million and $8.8 million, respectively. VALUATION OF LONG-LIVED ASSETS 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 utilization, changes in market demand for a specific asset, obsolescence, completion of specific contracts and/or overall general market conditions. If a review of the long-lived assets indicates that the carrying value of certain of these assets is more than the estimated undiscounted future cash flows, an impairment charge is made to adjust the carrying value down to the estimated fair value of the asset. The fair value of drilling rigs is determined based upon an income approach using estimated discounted future cash flows or a market approach, if available. Cash flows are estimated by management considering factors such as prospective market demand, recent changes in rig technology and its effect on each rig's marketability, any cash investment required to make a rig marketable, suitability of rig size and make up to existing platforms, and competitive dynamics including industry utilization. Fair value is estimated, if applicable, considering factors such as recent market sales of rigs of other companies and our own sales of rigs, appraisals and other factors. Beginning in the first fiscal quarter of this year, domestic and international oil prices have declined significantly. This decline in pricing has resulted in lower demand for our drilling services. As a result, we have performed an impairment evaluation of all our long-lived drilling assets in accordance with ASC 360, Property, Plant, and Equipment. In order to estimate our future undiscounted cash flows from the use and eventual disposal, we developed probability weighted cash flow projections for our rig fleets. The most significant assumptions used in our analysis are expected margin per day, utilization and expected value upon disposal. We believe the assumptions and estimates used in our impairment analysis, including the development of probability weighted cash flow projections, are reasonable and appropriate; however, different assumptions and estimates could materially impact the analysis and resulting conclusions in some cases. Our evaluation resulted in $39.2 million of impairment charges to reduce the carrying value of seven SCR land rigs within our International Land segment to their estimated fair value of $20.6 million which was based on a discounted cash flow analysis. Our discounted cash flow analysis consisted of creating projected cash flows that a market participant would reasonably develop and then applying an appropriate risk adjusted rate. No additional impairments were identified for any other rigs in our domestic, international or offshore fleets. SELF-INSURANCE ACCRUALS We have accrued a liability for estimated worker's compensation and other casualty claims incurred. DRILLING REVENUES Contract drilling revenues are comprised of daywork drilling contracts for which the related revenues and expenses are recognized as services are performed and collection is reasonably assured. For certain contracts, we receive payments contractually designated for the mobilization of rigs and other drilling equipment. Mobilization payments received, and direct costs incurred for the mobilization, are deferred and recognized on a straight-line basis over the term of the related drilling contract. Costs incurred to relocate rigs and other drilling equipment to areas in which a contract has not been secured are expensed as incurred. Reimbursements received for out-of-pocket expenses are recorded as both revenues and direct costs. Reimbursements for fiscal 2015, 2014 and 2013 were $302.2 million, $328.9 million and $332.5 million, respectively. For contracts that are terminated prior to the specified term, early termination payments received by us are recognized as revenues when all contractual requirements are met. 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 Income. Our rent revenues are as follows:
|  | Years Ended September 30, |
|  | 2015 |  | 2014 |  | 2013 |
|  | (in thousands) |
Minimum rents |  | $ | 9,608 |  | $ | 9,400 |  | $ | 9,009 |
Overage and percentage rents |  | $ | 1,030 |  | $ | 1,090 |  | $ | 1,384 |
At September 30, 2015, minimum future rental income to be received on noncancelable operating leases was as follows:
Fiscal Year |  | Amount |
|  | (in thousands) |
2016 |  | $ | 7,395 |
2017 |  |  | 6,116 |
2018 |  |  | 4,440 |
2019 |  |  | 3,238 |
2020 |  |  | 2,391 |
Thereafter |  |  | 3,985 |
​ | ​ | ​ | ​ | ​
Total |  | $ | 27,565 |
​ | ​ | ​ | ​ | ​
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Leasehold improvement allowances are capitalized and amortized over the lease term. At September 30, 2015 and 2014, the cost and accumulated depreciation for real estate properties were as follows:
|  | September 30, |
|  | 2015 |  | 2014 |
|  | (in thousands) |
Real estate properties |  | $ | 65,466 |  | $ | 64,812 |
Accumulated depreciation |  |  | (43,326 | ) |  | (42,754 | )
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
|  | $ | 22,140 |  | $ | 22,058 |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
INCOME TAXES Current income tax expense is the amount of income taxes expected to be payable for the current 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 ASC 740, Income Taxes, which is more fully discussed in Note 4. 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 Income. EARNINGS PER 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. STOCK-BASED COMPENSATION We record compensation expense associated with stock options in accordance with ASC 718, Compensation—Stock Compensation. Compensation expense is determined using a fair-value-based measurement method for all awards granted. In computing the impact, the fair value of each option is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain 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 share-based payment awards represent management's best estimates, but these estimates involve inherent uncertainties and the application of management judgment. 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 related to stock options is recorded as a component of general and administrative expenses in the Consolidated Statements of Income. 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. 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. NEW ACCOUNTING STANDARDS In April 2014, FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in ASU 2014-08 change the criteria for reporting discontinued operations while enhancing disclosures in this area. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization's operations and financial results. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The pronouncement is effective for fiscal years beginning on or after December 15, 2014 and interim periods within those years. The adoption of this pronouncement is not expected to have a material impact on our financial statements. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which supersedes virtually all existing revenue recognition guidance. The new standard requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. This update also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The provisions of ASU 2014-09 are effective for interim and annual periods beginning after December 15, 2017, and we have the option of using either a full retrospective or a modified retrospective approach when adopting this new standard. We are currently evaluating the alternative transition methods and the potential effects of the adoption of this update on our financial statements. In July 2015, the FASB issued ASU No 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. This update simplifies the subsequent measurement of inventory. It replaces the current lower of cost or market test with the lower of cost or net realizable value test. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new standard should be applied prospectively and is effective for annual reporting periods beginning after December 15, 2016 and interim periods within those annual periods, with early adoption permitted. We do not expect the adoption of this standard to have a material impact on our financial statements.

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