Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

For quarterly period ended:  June 30, 2016

 

OR

 

 

For the transition period from                          to                         

 

Commission File Number: 1-4221

 

HELMERICH & PAYNE, INC.

(Exact name of registrant as specified in its charter)

 

 

1437 South Boulder Avenue, Tulsa, Oklahoma, 74119

(Address of principal executive office)(Zip Code)

 

(918) 742-5531

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year,

if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer x		Accelerated filer o
Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

 

 

 

 

Table of Contents

 

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

 

TABLE OF CONTENTS

 

		Page No.
PART  I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Condensed Balance Sheets as of June 30, 2016 and September 30, 2015	3
	Consolidated Condensed Statements of Operations for the Three and Nine Months Ended June 30, 2016 and 2015	4
	Consolidated Condensed Statements of Comprehensive Income for the Three and Nine Months Ended June 30, 2016 and 2015	5
	Consolidated Condensed Statements of Cash Flows for the Nine Months Ended June 30, 2016 and 2015	6
	Consolidated Condensed Statement of Shareholders’ Equity for the Nine Months Ended June 30, 2016	7
	Notes to Consolidated Condensed Financial Statements	8-33
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34-42
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	43
Item 4.	Controls and Procedures	43
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44-46
Item 6.	Exhibits	47
Signatures		48

 

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PART I. FINANCIAL INFORMATION

HELMERICH & PAYNE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)

(in thousands, except share and per share amounts)

 

ITEM 1. FINANCIAL STATEMENTS

 

					September 30,
		June 30, 2016			2015 (as adjusted)
ASSETS
Current assets:
Cash and cash equivalents		$	907,032		$	729,384
Short-term investments		49,565			45,543
Accounts receivable, less reserve of $1,828 at June 30, 2016 and $6,181 at September 30, 2015		351,317			445,948
Inventories		128,885			128,541
Deferred income taxes		—			17,206
Prepaid expenses and other		79,021			64,475
Assets held for sale		21,772			—
Current assets of discontinued operations		80			8,097
Total current assets		1,537,672			1,439,194
Investments		99,898			104,354
Property, plant and equipment, net		5,306,434			5,563,170
Other assets		32,515			40,524
Total assets		$	6,976,519		$	7,147,242
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Long-term debt due within one year less unamortized debt issuance costs		$	39,234		$	39,094
Accounts payable		92,692			108,169
Accrued liabilities		194,645			197,557
Current liabilities of discontinued operations		38			3,377
Total current liabilities		326,609			348,197
Noncurrent liabilities:
Long-term debt less unamortized discount and debt issuance costs		493,150			492,443
Deferred income taxes		1,358,093			1,295,916
Other		93,221			110,120
Noncurrent liabilities of discontinued operations		3,984			4,720
Total noncurrent liabilities		1,948,448			1,903,199
Shareholders’ equity:
Common stock, $.10 par value, 160,000,000 shares authorized, 111,383,982 shares and 110,987,546 shares issued as of June 30, 2016 and September 30, 2015, respectively and 108,063,579 shares and 107,767,915 shares outstanding as of June 30, 2016 and September 30, 2015, respectively		11,138			11,099
Preferred stock, no par value, 1,000,000 shares authorized, no shares issued		—			—
Additional paid-in capital		442,883			420,141
Retained earnings		4,438,748			4,648,346
Accumulated other comprehensive loss		(3,156		)	(1,377		)
Treasury stock, at cost		(188,151		)	(182,363		)
Total shareholders’ equity		4,701,462			4,895,846
Total liabilities and shareholders’ equity		$	6,976,519		$	7,147,242

 

The accompanying notes are an integral part of these statements.

 

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HELMERICH & PAYNE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share data)

 

		Three Months Ended						Nine Months Ended
		June 30,						June 30,
		2016			2015 (as adjusted)			2016			2015 (as adjusted)
Operating revenues:
Drilling — U.S. Land		$	285,028		$	494,615		$	1,004,116		$	2,103,125
Drilling — Offshore		30,492			57,071			106,697			189,386
Drilling — International Land		47,983			106,551			171,529			304,262
Other		2,983			3,208			10,182			11,129
		366,486			661,445			1,292,524			2,607,902
Operating costs and other:
Operating costs, excluding depreciation		186,146			350,640			684,401			1,377,202
Depreciation		138,690			144,965			422,336			433,445
Asset impairment charge		6,250			—			6,250			—
General and administrative		46,496			29,253			112,381			96,984
Research and development		2,707			3,329			7,941			12,344
Income from asset sales		(547		)	(1,791		)	(7,820		)	(8,819		)
		379,742			526,396			1,225,489			1,911,156
Operating income (loss) from continuing operations		(13,256		)	135,049			67,035			696,746
Other income (expense):
Interest and dividend income		778			1,588			2,310			4,447
Interest expense		(6,407		)	(6,136		)	(16,652		)	(9,326		)
Other		534			(281		)	926			88
		(5,095		)	(4,829		)	(13,416		)	(4,791		)
Income (loss) from continuing operations before income taxes		(18,351		)	130,220			53,619			691,955
Income tax provision		2,842			39,321			33,740			243,891
Income (loss) from continuing operations		(21,193		)	90,899			19,879			448,064
Income (loss) from discontinued operations before income taxes		2,193			(27		)	2,241			(118		)
Income tax provision		2,200			—			6,113			(77		)
Loss from discontinued operations		(7		)	(27		)	(3,872		)	(41		)
NET INCOME (LOSS)		$	(21,200	)	$	90,872		$	16,007		$	448,023
Basic earnings per common share:
Income (loss) from continuing operations		$	(0.20	)	$	0.84		$	0.18		$	4.13
Loss from discontinued operations		—			—			(0.04		)	—
Net income (loss)		$	(0.20	)	$	0.84		$	0.14		$	4.13
Diluted earnings per common share:
Income (loss) from continuing operations		$	(0.20	)	$	0.83		$	0.17		$	4.10
Loss from discontinued operations		—			—			(0.04		)	—
Net income (loss)		$	(0.20	)	$	0.83		$	0.13		$	4.10
Weighted average shares outstanding:
Basic		108,047			107,652			107,970			107,759
Diluted		108,047			108,469			108,523			108,571
Dividends declared per common share		$	0.7000		$	0.6875		$	2.0750		$	2.0625

 

The accompanying notes are an integral part of these statements.

 

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HELMERICH & PAYNE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands, except per share data)

 

		Three Months Ended						Nine Months Ended
		June 30,						June 30,
		2016			2015 (as adjusted)			2016			2015 (as adjusted)
Net income (loss)		$	(21,200	)	$	90,872		$	16,007		$	448,023
Other comprehensive income (loss), net of income taxes:
Unrealized appreciation (depreciation) on securities, net of income taxes of $6.1 million and ($1.7) million at June 30, 2016 and ($2.1) million and ($29.5) million at June 30, 2015		9,744			(3,307		)	(2,719		)	(46,754		)
Minimum pension liability adjustments, net of income taxes of $0.1 million and $0.5 million at June 30, 2016 and $0.1 million and $0.3 million at June 30, 2015		314			197			940			590
Other comprehensive income (loss)		10,058			(3,110		)	(1,779		)	(46,164		)
Comprehensive income (loss)		$	(11,142	)	$	87,762		$	14,228		$	401,859

 

The accompanying notes are an integral part of these statements.

 

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HELMERICH & PAYNE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

		Nine Months Ended
		June 30,
		2016			2015 (as adjusted)
OPERATING ACTIVITIES:
Net income		$	16,007		$	448,023
Adjustment for loss from discontinued operations		3,872			41
Income from continuing operations		19,879			448,064
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		422,336			433,445
Asset impairment charge		6,250			—
Amortization of debt discount and debt issuance costs		879			485
Recovery of bad debt		(3,067		)	—
Stock-based compensation		19,661			19,120
Pension settlement charge		3,343			1,200
Other		255			—
Income from asset sales		(7,820		)	(8,819		)
Deferred income tax expense		77,886			145,986
Change in assets and liabilities:
Accounts receivable		97,698			229,837
Inventories		(344		)	(22,026		)
Prepaid expenses and other		(6,537		)	(30,362		)
Accounts payable		(13,643		)	(41,134		)
Accrued liabilities		14,632			(64,975		)
Deferred income taxes		2,673			317
Other noncurrent liabilities		(18,741		)	40,459
Net cash provided by operating activities from continuing operations		615,340			1,151,597
Net cash provided by (used in) operating activities from discontinued operations		70			(41		)
Net cash provided by operating activities		615,410			1,151,556
INVESTING ACTIVITIES:
Capital expenditures		(219,549		)	(971,602		)
Purchase of short-term investments		(36,958		)	—
Proceeds from sales of short-term investments		32,681			—
Proceeds from asset sales		12,804			17,757
Net cash used in investing activities		(211,022		)	(953,845		)
FINANCING ACTIVITIES:
Proceeds from senior notes, net of discount		—			497,125
Debt issuance costs		(32		)	(5,202		)
Net increase in bank overdraft		—			10,824
Proceeds on short-term debt		—			1,002
Payments on short-term debt		—			(1,002		)
Dividends paid		(224,040		)	(223,827		)
Repurchase of common stock		—			(59,654		)
Exercise of stock options, net of tax withholding		483			(609		)
Tax withholdings related to net share settlements of restricted stock		(3,912		)	(5,104		)
Excess tax benefit from stock-based compensation		761			2,969
Net cash provided by (used in) financing activities		(226,740		)	216,522
Net increase in cash and cash equivalents		177,648			414,233
Cash and cash equivalents, beginning of period		729,384			360,307
Cash and cash equivalents, end of period		$	907,032		$	774,540

 

The accompanying notes are an integral part of these statements.

 

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HELMERICH & PAYNE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS’ EQUITY

NINE MONTHS ENDED JUNE 30, 2016

(Unaudited)

(in thousands, except per share amounts)

 

													Accumulated
							Additional						Other								Total
		Common Stock					Paid-In			Retained			Comprehensive			Treasury Stock					Shareholders’
		Shares		Amount			Capital			Earnings			Income			Shares		Amount			Equity
Balance, September 30, 2015, as adjusted		110,987		$	11,099		$	420,141		$	4,648,346		$	(1,377	)	3,220		$	(182,363	)	$	4,895,846
Net income										16,007											16,007
Other comprehensive loss													(1,779		)						(1,779		)
Dividends declared ($2.075 per share)										(225,605		)									(225,605		)
Exercise of stock options, net of tax withholding		204		20			6,263									97		(5,800		)	483
Tax benefit of stock-based awards							761														761
Stock issued for vested restricted stock, net of shares withheld for employee taxes		193		19			(3,943		)							3		12			(3,912		)
Stock-based compensation							19,661														19,661
Balance, June 30, 2016		111,384		$	11,138		$	442,883		$	4,438,748		$	(3,156	)	3,320		$	(188,151	)	$	4,701,462

 

The accompanying notes are an integral part of these statements.

 

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HELMERICH & PAYNE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

1.               Basis of Presentation

 

Unless the context otherwise requires, the use of the terms “the Company”, “we”, “us” and “our” in these Notes to Consolidated Condensed Financial Statements refers to Helmerich & Payne, Inc. and its consolidated subsidiaries.

 

The accompanying unaudited Consolidated Condensed 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 “Commission”) 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 2015 Annual Report on Form 10-K and other current filings with the Commission.  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.

 

The Consolidated Condensed Financial Statements include the accounts of Helmerich & Payne, Inc. and its wholly-owned subsidiaries.  Prior to September 30, 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 $1.6 million, net of income tax effect, to retained earnings as of October 1, 2015.  Net loss from continuing operations for the third quarter of fiscal 2016 would have been approximately $2.4 million lower absent the accounting change.  Net income from continuing operations for the nine months ended June 30, 2016 would have been approximately $0.8 million higher absent the accounting change.  Net loss from discontinued operations would have been approximately $4.0 million more in the three months ended June 30, 2016 absent the accounting change due to a currency devaluation recognized in the quarter ending March 31, 2016, as opposed to the third quarter of fiscal 2016.  There was no significant difference in discontinued operations for the nine months ended June 30, 2016 from 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.

 

								After Voluntary
								Change in
								Accounting
		As Reported			Adjustments			Principle
		Three Months Ended June 30, 2015
		(in thousands)
Operating revenues		$	659,694		$	1,751		$	661,445
Operating costs, excluding depreciation		351,670			(1,030		)	350,640
Net income		90,860			12			90,872
Diluted earnings per common share		0.83			—			0.83

 

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		Nine Months Ended June 30, 2015
		(in thousands)
Operating revenues		$	2,599,331		$	8,571		$	2,607,902
Operating costs, excluding depreciation		1,375,241			1,961			1,377,202
Net income		443,439			4,584			448,023
Diluted earnings per common share		4.06			0.04			4.10

 

		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

 

In November 2015, the Financial Account 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 have 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 Condensed Balance Sheet.

 

As more fully described in our 2015 Annual Report on Form 10-K, our contract drilling revenues are comprised of daywork drilling contracts for which the related revenues and expenses are recognized as services are performed.  For contracts that are terminated by customers prior to the expirations of their fixed terms, contractual provisions customarily require early termination amounts to be paid to us. Revenues from early terminated contracts are recognized when all contractual requirements have been met.  During the three and nine months ended June 30, 2016, early termination revenue was approximately $80.7 million and $189.2 million, respectively.  We had $93.0 million and $188.8 million, respectively, of early termination revenue for the three and nine months ended June 30, 2015.

 

Depreciation in the Consolidated Condensed Statements of Operations includes abandonments of $0.9 million for the nine months ended June 30, 2016 compared to $1.2 million and $13.5 million, respectively, for the three and nine months ended June 30, 2015.

 

During the three months ended June 30, 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 the three months ended June 30, 2016, we began actively marketing the equipment.  We believe the equipment will be disposed of in under a year.

 

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 are aggregate foreign currency losses of $1.1 million and $9.4 million, respectively, for the three and nine months ended June 30, 2016.  The losses are primarily the result of a sharp devaluation of the Argentine peso in December 2015.  For the three and nine months ended June 30, 2015, we had aggregate currency losses of $0.3 million and gains of $1.5 million, respectively.

 

2.               Discontinued Operations

 

Current assets of discontinued operations consist of restricted cash to meet remaining current obligations within the country of Venezuela.  Current and noncurrent liabilities consist of municipal and income taxes payable and social obligations due within the country of Venezuela.  Expenses incurred for in-country obligations are reported as discontinued operations.

 

In March 2016, the Venezuelan government implemented the previously announced plans for a new foreign currency exchange system.  The implementation of this system resulted in a reported loss from discontinued operations of $3.9 million in the first nine months of fiscal 2016, all of which corresponds to the Company’s former operations in Venezuela.

 

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3.               Earnings per 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 and nonvested restricted stock.

 

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.

 

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

 

		Three Months Ended						Nine Months Ended
		June 30,						June 30,
		2016			2015 (as adjusted)			2016			2015 (as adjusted)
		(in thousands, except per share amounts)
Numerator:
Income (loss) from continuing operations		$	(21,193	)	$	90,899		$	19,879		$	448,064
Loss from discontinued operations		(7		)	(27		)	(3,872		)	(41		)
Net income (loss)		(21,200		)	90,872			16,007			448,023
Adjustment for basic earnings per share:
Earnings allocated to unvested shareholders		(451		)	(558		)	(1,410		)	(2,801		)
Numerator for basic earnings per share:
From continuing operations		(21,644		)	90,341			18,469			445,263
From discontinued operations		(7		)	(27		)	(3,872		)	(41		)
		(21,651		)	90,314			14,597			445,222
Adjustment for diluted earnings per share:
Effect of reallocating undistributed earnings of unvested shareholders		—			1			—			10
Numerator for diluted earnings per share:
From continuing operations		(21,644		)	90,342			18,469			445,273
From discontinued operations		(7		)	(27		)	(3,872		)	(41		)
		$	(21,651	)	$	90,315		$	14,597		$	445,232
Denominator:
Denominator for basic earnings per share — weighted-average shares		108,047			107,652			107,970			107,759
Effect of dilutive shares from stock options and restricted stock		—			817			553			812
Denominator for diluted earnings per share — adjusted weighted-average shares		108,047			108,469			108,523			108,571
Basic earnings per common share:
Income (loss) from continuing operations		$	(0.20	)	$	0.84		$	0.18		$	4.13
Loss from discontinued operations		—			—			(0.04		)	—
Net income (loss)		$	(0.20	)	$	0.84		$	0.14		$	4.13
Diluted earnings per common share:
Income (loss) from continuing operations		$	(0.20	)	$	0.83		$	0.17		$	4.10
Loss from discontinued operations		—			—			(0.04		)	—
Net income (loss)		$	(0.20	)	$	0.83		$	0.13		$	4.10

 

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Table of Contents

 

We had a net loss for the three months ended June 30, 2016.  Accordingly, our diluted earnings per share calculation for the three months ended June 30, 2016 was equivalent to our basic earnings per share calculation since diluted earnings per share excluded any assumed exercise of equity awards.  These were excluded because they were deemed to be anti-dilutive, meaning their inclusion would have reduced the reported net loss per share in the applicable period.

 

Shares attributable to outstanding equity awards were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive are as follows:

 

		Three Months Ended						Nine Months Ended
		June 30,						June 30,
		2016			2015			2016			2015
		(in thousands, except per share amounts)
Shares excluded from calculation of diluted earnings per share		3,409			592			1,861			667
Weighted-average price per share		$	51.94		$	73.36		$	63.70		$	72.85

 

4.               Financial Instruments and Fair Value Measurement

 

The estimated fair value of our available-for-sale securities, reflected on our Consolidated Condensed Balance Sheets as Investments, is based on market quotes.  The following is a summary of available-for-sale securities, which excludes assets held in a Non-qualified Supplemental Savings Plan:

 

					Gross			Gross			Estimated
					Unrealized			Unrealized			Fair
		Cost			Gains			Losses			Value
		(in thousands)
Equity securities June 30, 2016		$	64,462		$	33,257		$	10,669		$	87,050
Equity securities September 30, 2015		$	64,462		$	28,530		$	1,509		$	91,483

 

On an ongoing basis we evaluate the marketable equity securities to determine if any decline in fair value below cost is other-than-temporary.  If a decline in fair value below cost is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis established.  We review several factors to determine whether a loss is other-than-temporary.  These factors include, but are not limited to, (i) the length of time a security is in an unrealized loss position, (ii) the extent to which fair value is less than cost, (iii) the financial condition and near-term prospects of the issuer and (iv) our intent and ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value. The cost of securities used in determining realized gains and losses is based on the average cost basis of the security sold.  One of our securities was in an unrealized loss position for under 30 days at September 30, 2015 and then dropped below cost again in December 2015 and continued to be in a loss position through August 4, 2016.  The security is in the international offshore drilling industry which is cyclical and has been impacted by the downturn in the energy sector.  Considering the factors above including the limited time that the security was in an unrealized position and based on our ability and intent to hold these investments until the fair value recovers, impairment was not considered other-than-temporary at June 30, 2016.

 

The assets held in the Non-qualified Supplemental Savings Plan are carried at fair value which totaled $12.8 million at June 30, 2016 and $12.9 million at September 30, 2015.  The assets are comprised of mutual funds that are measured using Level 1 inputs.

 

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

 

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.

 

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