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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended
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Sep. 30, 2016
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. Prior to October 1, 2015, for financial reporting purposes, fiscal years of our foreign operations ended on August 31 to facilitate reporting of consolidated results, resulting in a one-month reporting lag when compared to the remainder of the Company. Starting October 1, 2015, the reporting year-end of these foreign operations was changed from August 31 to September 30. The previously existing one-month reporting lag was eliminated as it is no longer required to achieve a timely consolidation due to our investments in technology, ERP systems and personnel to enhance our financial statement close process. We believe this change is preferable because the financial information of all operating segments is now reported based on the same period-end, which improves overall financial reporting to investors by providing the most current information available. In accordance with Accounting Standards Codification ("ASC") 810-10-50-2, "A Change in the Difference Between Parent and Subsidiary Fiscal Year-Ends," the elimination of this previously existing reporting lag is considered a voluntary change in accounting principle in accordance with ASC 250-10-50 "Change in Accounting Principle." Voluntary changes in accounting principles are to be reported through retrospective application of the new principle to all prior financial statement periods presented. Accordingly, our financial statements for periods prior to fiscal 2016 have been changed to reflect the period-specific effects of applying this accounting principle. This change resulted in a cumulative effect of an accounting change of $2.3 million, net of income tax effect, to retained earnings as of October 1, 2013. Net loss from continuing operations for fiscal 2016 would have been approximately $1.4 million higher absent the accounting change. The impact of this change in accounting principle to eliminate the one-month lag for foreign subsidiaries is summarized below for significant items. Other accounts were minimally impacted.
|  | As Reported |  | Adjustments |  | After Voluntary Change in Accounting Principle |
|  | Year Ended September 30, 2015 |
|  | (in thousands) |
Operating revenues |  | $ | 3,165,441 |  | $ | (3,739 | ) | $ | 3,161,702 |
Operating costs, excluding depreciation |  |  | 1,704,163 |  |  | (687 | ) |  | 1,703,476 |
Net income |  |  | 422,225 |  |  | (1,798 | ) |  | 420,427 |
Diluted earnings per common share |  |  | 3.87 |  |  | (0.02 | ) |  | 3.85 |
|  | Year Ended September 30, 2014 |
|  | (in thousands) |
Operating revenues |  | $ | 3,719,707 |  | $ | (3,739 | ) | $ | 3,715,968 |
Operating costs, excluding depreciation |  |  | 2,009,912 |  |  | (3,197 | ) |  | 2,006,715 |
Net income |  |  | 708,719 |  |  | (2,156 | ) |  | 706,563 |
Diluted earnings per common share |  |  | 6.46 |  |  | (0.02 | ) |  | 6.44 |
|  | September 30, 2015 |
|  | (in thousands) |
Total assets |  | $ | 7,152,012 |  | $ | (4,770 | ) | $ | 7,147,242 |
Total liabilities |  |  | 2,254,560 |  |  | (3,164 | ) |  | 2,251,396 |
Total shareholders' equity |  |  | 4,897,452 |  |  | (1,606 | ) |  | 4,895,846 |
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 period presented. Foreign currency 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 is an aggregate foreign currency loss of $9.3 million in fiscal 2016, a transaction gain of $1.6 million in fiscal 2015 and a transaction loss of $0.4 million in fiscal 2014. 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 November 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-17, Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes requiring all deferred tax assets and liabilities be classified as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2016, however, we elected to early adopt effective October 1, 2015 prospectively. As a result of the adoption, we will no longer have deferred income taxes as a current asset in our Consolidated Balance Sheet. Prior year balances were not retrospectively adjusted. 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 $29.6 million and $32.0 million at September 30, 2016 and 2015, 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, 2016, $2.0 million is from the initial capitalization of the captive company and management has elected to restrict an additional $27.6 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, |
|  | 2016 |  | 2015 |
|  | (in thousands) |
Prepaid expenses and other |  | $ | 27,631 |  | $ | 29,998 |
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 weighted average cost 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 Operations includes abandonments of $39.3 million, $43.6 million and $23.0 million for fiscal 2016, 2015 and 2014, respectively. During fiscal 2016, we abandoned used drilling equipment removed from service. During 2015 and 2014, we decommissioned 23 idle rigs and 9 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 2016, 2015 and 2014 was $2.8 million, $7.0 million and $7.7 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. Long-lived assets that are held for sale are recorded at the lower of carrying value or the fair value less costs to sell. 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 fiscal 2015 and continuing into fiscal 2016, domestic and international oil prices declined significantly. This decline in pricing resulted in lower demand for our drilling services. As a result, we 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. During fiscal 2016, we recorded an asset impairment charge in the U.S. Land segment of $6.3 million to reduce the carrying value in rig and rig related equipment classified as held for sale to their estimated fair values, based on expected sales prices. The rig equipment is from rigs that were decommissioned from service in prior fiscal years and written down to their estimated recoverable value at the time of decommissioning. During fiscal 2016, we began actively marketing the equipment. We believe the equipment will be disposed of in under a year. No additional impairments were identified for any other rigs or rig related equipment in our domestic, international or offshore fleets. During fiscal 2015, our valuation of long-lived assets 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. Six of these rigs along with other rig related assets have been classified as held for sale at September 30, 2016. We plan to sell these assets in their current condition and it is probable the sale will occur within one year. SELF-INSURANCE ACCRUALS We have accrued a liability for estimated worker's compensation and other casualty claims incurred based upon case reserves plus an estimate of loss development and incurred but not reported claims. The estimate is based upon historical trends. Insurance recoveries related to such liability are recorded when considered probable. 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 2016, 2015 and 2014 were $125.9 million, $302.2 million and $326.7 million, respectively. For contracts that are terminated by customers prior to the expirations of their fixed terms, contractual provisions customarily require early termination amounts to be paid to us. Revenues from early terminated contracts are recognized when all contractual requirements have been met. Early termination revenue for fiscal 2016, 2015 and 2014 was approximately $219.0 million, $222.3 million and $11.7 million, respectively. RENT REVENUES We enter into leases with tenants in our rental properties consisting primarily of retail and multi-tenant warehouse space. The lease terms of tenants occupying space in the retail centers and warehouse buildings generally range from three to ten years. Minimum rents are recognized on a straight-line basis over the term of the related leases. Overage and percentage rents are based on tenants' sales volume. Recoveries from tenants for property taxes and operating expenses are recognized in other operating revenues in the Consolidated Statements of Operations. Our rent revenues are as follows:
|  | Years Ended September 30, |
|  | 2016 |  | 2015 |  | 2014 |
|  | (in thousands) |
Minimum rents |  | $ | 9,196 |  | $ | 9,608 |  | $ | 9,400 |
Overage and percentage rents |  | $ | 1,211 |  | $ | 1,030 |  | $ | 1,090 |
At September 30, 2016, minimum future rental income to be received on noncancelable operating leases was as follows:
Fiscal Year |  | Amount |
|  | (in thousands) |
2016 |  | $ | 7,763 |
2017 |  |  | 6,076 |
2018 |  |  | 4,594 |
2019 |  |  | 4,007 |
2020 |  |  | 2,379 |
Thereafter |  |  | 4,642 |
​ | ​ | ​ | ​ | ​
Total |  | $ | 29,461 |
​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​
Leasehold improvement allowances are capitalized and amortized over the lease term. At September 30, 2016 and 2015, the cost and accumulated depreciation for real estate properties were as follows:
|  | September 30, |
|  | 2016 |  | 2015 |
|  | (in thousands) |
Real estate properties |  | $ | 62,929 |  | $ | 65,466 |
Accumulated depreciation |  |  | (40,777 | ) |  | (43,326 | )
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
|  | $ | 22,152 |  | $ | 22,140 |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
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 Operations. 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 Stock-based 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 stock-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 Operations. 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 (Loss). NEW ACCOUNTING STANDARDS In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which supersedes virtually all existing revenue recognition guidance. In May 2016, accounting guidance was issued to clarify the not yet effective revenue recognition guidance issued in May 2014. This additional guidance does not change the core principle of the revenue recognition guidance issued by the FASB in May 2014. Rather, it provides clarification of accounting for collections of sales taxes as well as recognition of revenue (i) associated with contract modifications, (ii) for noncash consideration, and (iii) based on the collectability of the consideration from the customer. The ASU provides for full retrospective, modified retrospective, or use of the cumulative effect method during the period of adoption. We have not yet determined which adoption method we will employ. In July 2015, the FASB extended the effective date of this standard to interim and annual periods beginning on or after December 15, 2017. We are currently evaluating the potential effects of the adoption of this update on our consolidated 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 consolidated financial statements. In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The standard requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income. The provisions of ASU 2016-01 are effective for interim and annual periods starting after December 15, 2017. At adoption, a cumulative-effect adjustment to beginning retained earnings will be recorded. We will adopt this standard on October 1, 2018. Subsequent to adoption, changes in the fair value of our available-for-sale investments will be recognized in net income and the effect will be subject to stock market fluctuations. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU 2016-02 will require organizations that lease assets—referred to as "lessees"—to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Under ASU 2016-02, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Lessor accounting remains substantially similar to current GAAP. In addition, disclosures of leasing activities are to be expanded to include qualitative along with specific quantitative information. For public entities, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. ASU 2016-02 mandates a modified retrospective transition method. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements. In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses. The ASU sets forth a "current expected credit loss" (CECL) model which requires companies to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This standard is effective for interim and annual periods beginning after December 15, 2019. We are currently assessing the impact this standard will have on our consolidated financial statements and disclosures. In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). The ASU is intended to reduce diversity in practice in presentation and classification of certain cash receipts and cash payments by providing guidance on eight specific cash flow issues. The ASU is effective for interim and annual periods beginning after December 15, 2017 and early adoption is permitted, including adoption during an interim period. We are currently assessing the impact this standard will have on our consolidated statement of cash flows.

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