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BUSINESS COMBINATIONS | 12 Months Ended
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Sep. 30, 2018
BUSINESS COMBINATIONS |
BUSINESS COMBINATIONS | NOTE 3 BUSINESS COMBINATIONS Fiscal Year 2018 Acquisitions On December 8, 2017, we completed an acquisition (“MagVAR Acquisition”) of an unaffiliated company, Magnetic Variation Services, LLC (“MagVAR”), which is now a wholly-owned subsidiary of the Company. The operations for MagVAR are included with our other non-reportable business segments. At the effective time of the MagVAR Acquisition, MagVAR shareholders received aggregate cash consideration of $47.9 million, net of customary closing adjustments, and certain management members received restricted stock awards covering 213,904 shares of Helmerich & Payne, Inc. common stock. The grant date fair value of the restricted stock of $13.1 million is being amortized to expense over the three year vesting period. At closing, $6.0 million of the cash consideration was placed in escrow, to be released to the sellers twelve months after the acquisition closing date. The amount placed in escrow is classified as restricted cash and is included in prepaid expenses and other in the Consolidated Balance Sheet at September 30, 2018. Transaction costs related to the MagVAR Acquisition incurred during the fiscal year ended September 30, 2018 were approximately $1.2 million and are recorded in the Consolidated Statements of Operations within general and administrative expense. We recorded revenue of $11.6 million and a net loss of $3.0 million related to MagVAR during the fiscal year ended September 30, 2018. Through comprehensive 3D geomagnetic reference modeling, MagVAR provides measurement while drilling (“MWD”) survey corrections by identifying and quantifying MWD tool measurement errors in real-time, greatly improving directional drilling performance and wellbore placement. MagVAR technology has been successfully deployed in both onshore and offshore fields in North America, South America, Europe, Africa, Australia and Asia. The MagVAR Acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations, which requires the assets acquired and liabilities assumed to be recorded at their acquisition date fair values. The following table summarizes the purchase price and the fair values of assets acquired and liabilities assumed at the acquisition date (in thousands):
Purchase Price |  |  |
Consideration given |  |  |
Cash consideration |  | $ | 48,485
Allocation of Purchase Price |  |  |
Fair value of assets acquired |  |  |
Current assets |  | $ | 2,286
Property, plant and equipment |  |  | 13
Intangible assets, net |  |  | 28,700
Goodwill |  |  | 17,791
Total assets acquired |  | $ | 48,790
Fair value of liabilities assumed |  |  |
Current liabilities |  | $ | 305
Fair value of total assets acquired and liabilities assumed |  | $ | 48,485
Intangible assets acquired consist of developed technology, a trade name and customer relationships. The intangible assets are being amortized under a straight-line method over their estimated useful lives ranging from five to 20 years. The methodologies used in valuing the intangible assets include the multi-period excess earnings method for developed technology, the with and without method for customer relationships and the relief-from-royalty method for the trade name. The excess of the purchase price over the total net identifiable assets has been recorded as goodwill. Factors comprising goodwill include the synergies expected from the expanded service capabilities as well as the value of the assembled workforce. The goodwill is reported within our other non-reportable business segments and was allocated to our MagVAR reporting unit. The goodwill is not subject to amortization, but is evaluated at least annually for impairment in the fourth quarter of each fiscal year, or more frequently if impairment indicators are present. The intangible assets and goodwill are amortized straight-line over 15 years for income tax purposes. The following unaudited pro forma combined financial information is provided for the fiscal year ended September 30, 2018 and 2017, as though the MagVAR Acquisition had been completed as of October 1, 2016. These pro forma combined results of operations have been prepared by adjusting our historical results to include the historical results of MagVAR and reflect pro forma adjustments based on available information and certain assumptions that we believe are reasonable, including application of an appropriate income tax to MagVAR’s pre-tax loss. Additionally, pro forma earnings for the fiscal year ended September 30, 2018 were adjusted to exclude $0.5 million of after-tax transaction costs. The unaudited pro forma combined financial information is provided for illustrative purposes only and is not necessarily indicative of the actual results that would have been achieved by the combined company for the periods presented or that may be achieved by the combined company in the future. Future results may vary significantly from the results reflected in this pro forma financial information.
|  | Pro Forma
|  | 2018 |  | 2017
|  | (unaudited, in thousands)
Revenues |  | $ | 2,490,955 |  | $ | 1,814,215
Net income (loss) |  | $ | 480,423 |  | $ | (126,355)
Fiscal Year 2017 Acquisitions On June 2, 2017, we completed a merger transaction (“MOTIVE Merger”) pursuant to which an unaffiliated drilling technology company, MOTIVE Drilling Technologies, Inc., a Delaware corporation (“MOTIVE”), was merged with and into our wholly-owned subsidiary Spring Merger Sub, Inc., a Delaware corporation. MOTIVE survived the transaction and is now a wholly-owned subsidiary of the Company. The operations for MOTIVE are included within our other non-reportable business segments. At the effective time of the MOTIVE Merger, MOTIVE shareholders received aggregate cash consideration of $74.3 million, net of customary closing adjustments, and may receive up to an additional $25.0 million in potential earnout payments based on future performance. At closing, $9.4 million of the cash consideration was placed in escrow, with one-half to be released to the seller on each of the twelve and eighteen month anniversaries of the merger completion date. Transaction costs related to the MOTIVE Merger incurred during fiscal year 2017 were $3.2 million and are recorded in the Consolidated Statement of Operations within the general and administrative expense line item. We recorded revenue of $12.9 million and $3.3 million and a net loss of $20.1 million and $2.2 million related to MOTIVE during the fiscal years ended September 30, 2018 and 2017, respectively. MOTIVE has a proprietary Bit Guidance System™ that is an algorithm-driven system that considers the total economic consequences of directional drilling decisions and is designed to consistently lower drilling costs through more efficient drilling and increase hydrocarbon production through smoother wellbores and more accurate well placement. Given our strong and longstanding technology and innovation focus, we believe the technology will continue to advance and provide further benefits for the industry. The MOTIVE Merger was accounted for as a business combination in accordance with ASC 805, Business Combinations, which requires the assets acquired and liabilities assumed to be recorded at their acquisition date fair values. The following table summarizes the purchase price and the allocation of the fair values of assets acquired and liabilities assumed and separately identifiable intangible assets at the acquisition date (in thousands):
Purchase Price |  |  |
Consideration given |  |  |
Cash consideration |  | $ | 74,275
Long-term contingent earnout liability (Other noncurrent liabilities) |  |  | 14,509
Total consideration given |  | $ | 88,784
Allocation of Purchase Price |  |  |
Fair value of assets acquired |  |  |
Current assets |  | $ | 4,425
Property, plant and equipment |  |  | 300
Intangible assets, net |  |  | 51,000
Goodwill |  |  | 46,987
Total assets acquired |  | $ | 102,712
Fair value of liabilities assumed |  |  |
Current liabilities |  | $ | 25
Deferred income taxes |  |  | 13,903
Total liabilities acquired |  | $ | 13,928
Fair value of total assets acquired and liabilities assumed |  | $ | 88,784
Contingent consideration paid during fiscal year 2018 was $10.6 million. The fair value of the contingent consideration of $11.2 million and $14.9 million at September 30, 2018 and 2017, respectively, was calculated using a Monte Carlo simulation, which evaluates numerous potential earnings and pay out scenarios and is considered a Level 3 measurement under the fair value hierarchy. The change in the fair value of the contingent consideration of $6.9 million and $0.4 million during the fiscal year ended September 30, 2018 and 2017, respectively, was recorded in expenses applicable to other revenues in the Consolidated Statement of Operations. The developed technology is an intangible asset that will be amortized on a straight-line basis over an estimated 15-year life. The developed technology intangible asset was valued using an income approach, considering the estimated discounted future cash flows expected to be realized over the life of the asset, which is considered a Level 3 measurement under the fair value hierarchy. Goodwill represents the residual of the purchase price paid and consists largely of the synergies and economies of scale expected from the drilling technology providing more efficient drilling and directional drilling services, the first mover advantage obtained through the acquisition and expected future developments resulting from the assembled workforce. The goodwill is reported within our other non-reportable business segments and was allocated to our MOTIVE reporting unit. The goodwill is not subject to amortization but will be evaluated at least annually for impairment in the fourth quarter of each fiscal year or more frequently if impairment indicators are present. The developed technology and goodwill are not deductible for income tax purposes. An associated deferred tax liability has been recorded in regards to the developed technology.

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