Segment Information

6 Months Ended

Mar. 31, 2014

Segment Information

Segment Information

11. Segment Information

We operate principally in the contract drilling industry. Our contract drilling business includes the following reportable operating segments: U.S. Land, Offshore and International Land.  The contract drilling operations consist mainly of contracting Company-owned drilling equipment primarily to large oil and gas exploration companies.  To provide information about the different types of business activities in which we operate, we have included Offshore and International Land, along with our U.S. Land reportable operating segment, as separate reportable operating segments.  Additionally, each reportable operating segment is a strategic business unit that is managed separately.  Our primary international areas of operation include Colombia, Ecuador, Argentina, Tunisia, Bahrain, U.A.E. and other South American countries.  Other includes additional non-reportable operating segments.  Revenues included in Other consist primarily of rental income.  Consolidated revenues and expenses reflect the elimination of all material intercompany transactions.

We evaluate segment performance based on income or loss from continuing operations (segment operating income) before income taxes which includes:

· revenues from external and internal customers

· direct operating costs

· depreciation and

· allocated general and administrative costs

but excludes corporate costs for other depreciation, income from asset sales and other corporate income and expense.

General and administrative costs are allocated to the segments based primarily on specific identification and, to the extent that such identification is not practical, on other methods which we believe to be a reasonable reflection of the utilization of services provided.

Segment operating income for all segments is a non-GAAP financial measure of our performance, as it excludes certain general and administrative expenses, corporate depreciation, income from asset sales and other corporate income and expense.  We consider segment operating income to be an important supplemental measure of operating performance by presenting trends in our core businesses.  We use this measure to facilitate period-to-period comparisons in operating performance of our reportable segments in the aggregate by eliminating items that affect comparability between periods.  We believe that segment operating income is useful to investors because it provides a means to evaluate the operating performance of the segments on an ongoing basis using criteria that are used by our internal decision makers.  Additionally, it highlights operating trends and aids analytical comparisons.  However, segment operating income has limitations and should not be used as an alternative to operating income or loss, a performance measure determined in accordance with GAAP, as it excludes certain costs that may affect our operating performance in future periods.

Summarized financial information of our reportable segments for the six months ended March 31, 2014 and 2013 is shown in the following tables:

									Segment
	External		Inter-			Total			Operating
(in thousands)	Sales		Segment			Sales			Income (Loss)
March 31, 2014
Contract Drilling:
U.S. Land	$	1,473,465	$	—		$	1,473,465		$	496,014
Offshore	122,330		—			122,330			37,841
International Land	180,874		—			180,874			23,919
	1,776,669		—			1,776,669			557,774
Other	5,913		431			6,344			(5,249		)
	1,782,582		431			1,783,013			552,525
Eliminations	—		(431		)	(431		)	—
Total	$	1,782,582	$	—		$	1,782,582		$	552,525

									Segment
	External		Inter-			Total			Operating
(in thousands)	Sales		Segment			Sales			Income (Loss)
March 31, 2013
Contract Drilling:
U.S. Land	$	1,381,740	$	—		$	1,381,740		$	460,386
Offshore	113,323		—			113,323			28,656
International Land	181,359		—			181,359			22,280
	1,676,422		—			1,676,422			511,322
Other	6,459		429			6,888			(4,174		)
	1,682,881		429			1,683,310			507,148
Eliminations	—		(429		)	(429		)	—
Total	$	1,682,881	$	—		$	1,682,881		$	507,148

Summarized financial information of our reportable segments for the three months ended March 31, 2014 and 2013 is shown in the following tables:

									Segment
	External		Inter-			Total			Operating
(in thousands)	Sales		Segment			Sales			Income (Loss)
March 31, 2014
Contract Drilling:
U.S. Land	$	741,791	$	—		$	741,791		$	245,062
Offshore	63,276		—			63,276			19,343
International Land	85,533		—			85,533			11,168
	890,600		—			890,600			275,573
Other	2,830		211			3,041			(2,244		)
	893,430		211			893,641			273,329
Eliminations	—		(211		)	(211		)	—
Total	$	893,430	$	—		$	893,430		$	273,329

									Segment
	External		Inter-			Total			Operating
(in thousands)	Sales		Segment			Sales			Income (Loss)
March 31, 2013
Contract Drilling:
U.S. Land	$	685,710	$	—		$	685,710		$	225,998
Offshore	55,605		—			55,605			13,650
International Land	94,092		—			94,092			13,169
	835,407		—			835,407			252,817
Other	2,902		214			3,116			(2,539		)
	838,309		214			838,523			250,278
Eliminations	—		(214		)	(214		)	—
Total	$	838,309	$	—		$	838,309		$	250,278

The following table reconciles segment operating income per the table above to income from continuing operations before income taxes as reported on the Consolidated Condensed Statements of Income.

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2014			2013			2014			2013
	(in thousands)						(in thousands)
Segment operating income	$	273,329		$	250,278		$	552,525		$	507,148
Income from asset sales	4,098			5,313			9,762			10,532
Corporate general and administrative costs and corporate depreciation	(22,085		)	(22,671		)	(42,914		)	(44,213		)
Operating income	255,342			232,920			519,373			473,467
Other income (expense):
Interest and dividend income	490			315			943			741
Interest expense	(1,725		)	(1,186		)	(2,919		)	(2,494		)
Gain on sale of investment securities	21,352			—			21,352			8,752
Other	(32		)	103			(377		)	(1,981		)
Total other income (expense)	20,085			(768		)	18,999			5,018
Income from continuing operations before income taxes	$	275,427		$	232,152		$	538,372		$	478,485

The following table presents total assets by reportable segment.

	March 31,		September 30,
	2014		2013
	(in thousands)
Total assets
U.S. Land	$	4,880,865	$	4,743,644
Offshore	132,504		149,128
International Land	476,812		486,914
Other	35,628		32,789
	5,525,809		5,412,475
Investments and corporate operations	955,493		848,647
Total assets from continued operations	6,481,302		6,261,122
Discontinued operations	6,979		3,705
	$	6,488,281	$	6,264,827

The following table presents revenues from external customers by country based on the location of service provided.

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2014		2013		2014		2013
	(in thousands)				(in thousands)
Operating revenues
United States	$	800,775	$	742,635	$	1,589,466	$	1,499,120
Argentina	26,695		17,572		53,054		31,168
Colombia	21,064		24,069		47,794		51,474
Ecuador	16,822		15,611		34,622		32,241
Other foreign	28,074		38,422		57,646		68,878
Total	$	893,430	$	838,309	$	1,782,582	$	1,682,881