- --------------------------------------------------------------------------------================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to
____________------------ ------------
Commission file number 0-22664
PATTERSON-UTI ENERGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2504748
(State or other jurisdiction of 75-2504748
incorporation or organization) (I.R.S. Employer Identification No.)
incorporation or organization)
P. O. BOX 1416, 4510 LAMESA HIGHWAY, SNYDER, TEXAS, 79550
(Address of principal executive offices) (Zip Code)
(915) 574-6300
(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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
78,880,05678,946,371 shares of common stock, $0.01 par value, as of May 13,July 23, 2002
- --------------------------------------------------------------------------------================================================================================
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
INDEXTABLE OF CONTENTS
Part I - Financial Information PAGE
----
Item 1. Financial Statements
Unaudited condensed consolidated balance sheets................................sheets............................ 3
Unaudited condensed consolidated statements of income..........................operations.................. 4
Unaudited condensed consolidated statement of stockholders' equity.............equity......... 5
Unaudited condensed consolidated statements of cash flows......................flows.................. 6
Notes to unaudited condensed consolidated financial statements.................statements............. 7
Item 2. Changes in Securities and Use of Proceeds...................................... 12
Item 3. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................................... 13Operations...................................................... 12
Item 4.3. Quantitative and Qualitative Disclosures About Market Risk..................... 16
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995................................................... 17
Part II - Other Information
Item 1. Legal Proceedings..............................................................2. Changes in Securities and Use of Proceeds...................................... 18
Item 6. Exhibits and Reports on Form 8-K............................................... 18
Signatures....................................................................................... 20
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE FOLLOWING UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INCLUDE ALL ADJUSTMENTS WHICH, IN THE OPINION OF MANAGEMENT, ARE NECESSARY
IN ORDER TO MAKE SUCH FINANCIAL STATEMENTS NOT MISLEADING.
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands)
MARCH 31,JUNE 30, DECEMBER 31,
2002 2001
--------------------- ------------
ASSETS
Current assets:
Cash and cash equivalents ................................................................................................................ $ 58,35752,869 $ 33,584
Accounts receivable, net of allowance for doubtful accounts of $3,632$3,547 at
March 31,June 30, 2002 and $4,021 at December 31, 2001 ............................ 92,931..................................... 86,248 133,837
Federal and state income taxes receivable, net ...................................... 21,901 1,673
Inventory ..................................................................... 17,162........................................................................... 16,796 16,272
Deferred tax assets ........................................................... 17,625 10,420................................................................. 11,842 8,747
Other ......................................................................... 6,217............................................................................... 4,936 5,345
--------------------- ------------
Total current assets ...................................................... 192,292............................................................ 194,592 199,458
Property and equipment, at cost, net .............................................. 638,316.................................................... 637,857 614,420
Goodwill and intangible assets, net ............................................... 51,501..................................................... 51,403 51,634
Investment in equity securities ......................................................... 12,659 --
Other ............................................................................. 3,894................................................................................... 3,333 4,130
--------------------- ------------
Total assets ..............................................................assets..................................................................... $ 886,003899,844 $ 869,642
===================== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Trade .................................................................................................................................................. $ 31,07929,824 $ 47,945
Other ...................................................................... 6,207............................................................................ 3,132 4,833
Accrued expenses .............................................................. 29,918.................................................................... 31,082 36,508
--------------------- ------------
Total current liabilities ................................................. 67,204....................................................... 64,038 89,286
Deferred tax liabilities .......................................................... 103,883................................................................ 110,520 92,859
Other ............................................................................. 285................................................................................... 2,859 355
--------------------- ------------
Total liabilities ......................................................... 171,372............................................................... 177,417 182,500
--------------------- ------------
Commitments and contingencies ................................................................................................................ -- --
Stockholders' equity:
Preferred stock, par value $.01; authorized 1,000 shares, no shares issued .............. -- --
Common stock, par value $.01; authorized 200,000 shares with 79,80180,432 and
and 78,463 issued and 78,29478,925 and 76,956 outstanding at March 31,June 30, 2002
and December 31, 2001, respectively ...................................... 798............................................ 804 784
Additional paid-in capital .................................................... 465,116.......................................................... 474,571 441,475
Retained earnings ............................................................. 262,769................................................................... 258,924 258,834
Accumulated other comprehensive loss .......................................... (2,397)................................................ (217) (2,296)
Treasury stock, at cost, 1,507 shares ........................................................................................ (11,655) (11,655)
--------------------- ------------
Total stockholders' equity ................................................ 714,631...................................................... 722,427 687,142
--------------------- ------------
Total liabilities and stockholders' equity ...................................................................... $ 886,003899,844 $ 869,642
===================== ============
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
3
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS (UNAUDITED)
(in thousands, except per share amounts)
THREE MONTHS ENDED MARCH 31,
------------------------------SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2002 2001 ------------ ------------2002 2001
--------- --------- --------- ---------
Operating revenues:
Drilling ............................................................................ $ 101,94098,461 $ 206,059247,173 $ 200,401 $ 453,232
Drilling and completion fluids .................... 16,146 19,670............ 16,189 27,516 32,335 47,186
Pressure pumping .................................. 7,428 7,337.......................... 6,614 8,750 14,042 16,087
Other ............................................. 2,709 5,520
------------ ------------
128,223 238,586
------------ ------------..................................... 4,099 4,125 6,808 9,645
--------- --------- --------- ---------
125,363 287,564 253,586 526,150
--------- --------- --------- ---------
Operating costs and expenses:
Drilling .......................................... 73,432 130,197.................................. 78,323 137,724 151,755 267,921
Drilling and completion fluids .................... 14,723 16,365............ 13,849 23,210 28,572 39,575
Pressure pumping .................................. 4,157 4,395.......................... 4,352 4,755 8,509 9,150
Depreciation, depletion and amortization .......... 22,202 19,320amortization... 23,090 19,381 45,292 38,701
General and administrative ........................ 6,343 7,662................ 6,610 7,704 12,953 15,366
Bad debt expense ............................................................ 30 1,053 30 1,453
Merger costs .............................. -- 4005,943 -- 5,943
Restructuring and other charges ........... 4,700 7,202 4,700 7,202
Other ............................................. 938 1,087
------------ ------------
121,795 179,426
------------ ------------..................................... 1,000 1,343 1,938 2,430
--------- --------- --------- ---------
131,954 208,315 253,749 387,741
--------- --------- --------- ---------
Operating income ...................................... 6,428 59,160
------------ ------------(loss) ....................... (6,591) 79,249 (163) 138,409
--------- --------- --------- ---------
Other income (expense):
Interest income ................................... 225 851........................... 268 665 493 1,516
Interest expense .................................. (111) (1,530).......................... (94) (1,192) (205) (2,722)
Other ............................................. 17 68
------------ ------------..................................... 8 63 25 131
(611)
------------ --------------------- --------- --------- ---------
182 (464) 313 (1,075)
--------- --------- --------- ---------
Income (loss) before income taxes ............................ 6,559 58,549
------------ ------------............. (6,409) 78,785 150 137,334
--------- --------- --------- ---------
Income tax expense (benefit):
Current ........................................... (4,557) 14,929................................... (6,794) 21,388 (11,351) 36,429
Deferred .......................................... 7,181 7,009
------------ ------------
2,624 21,938
------------ ------------.................................. 4,230 8,931 11,411 15,828
--------- --------- --------- ---------
(2,564) 30,319 60 52,257
--------- --------- --------- ---------
Net income ............................................(loss) ............................. $ 3,935(3,845) $ 36,611
============ ============48,466 $ 90 $ 85,077
========= ========= ========= =========
Net income (loss) per common share:
Basic .................................................................................. $ 0.05(0.05) $ 0.48
============ ============0.63 $ 0.00 $ 1.12
========= ========= ========= =========
Diluted .............................................................................. $ 0.05(0.05) $ 0.46
============ ============0.61 $ 0.00 $ 1.07
========= ========= ========= =========
Weighted average number of common shares
outstanding:
Basic ............................................. 77,412 75,894
============ ============..................................... 78,742 76,350 78,080 76,123
========= ========= ========= =========
Diluted ........................................... 79,894 79,058
============ ============................................... 78,742 79,152 80,684 79,158
========= ========= ========= =========
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
4
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
(in thousands)
Common Stock Accumulated
---------------------------------------------- Additional other
Number of paid-in Retained comprehensive Treasury
of shares Amount capital earnings loss stock Total
------------ ------------ ------------ ------------ ------------ ------------ --------------------- ------ ---------- --------- ------------- ---------- ---------
Balance, December 31, 2001 ........... 78,463 $ 784 $ 441,475 $ 258,834 $ (2,296) $ (11,655) $ 687,142
Issuance of common stock ............... 650 7 16,933 -- -- -- 16,940
Exercise of stock options ..... 688 7 3,607........ 1,319 13 7,372 -- -- -- 3,6147,385
Tax benefit related to exercise
of stock options ................ -- -- 3,1018,791 -- -- -- 3,1018,791
Foreign currency translation ....... -- -- -- -- (101)2,079 -- (101)2,079
Net income ........................................... -- -- -- 3,93590 -- -- 3,935
------------ ------------ ------------ ------------ ------------ ------------ ------------90
--------- ------ ---------- --------- ------------- ---------- ---------
Balance, March 31,June 30, 2002 ....... 79,801........... 80,432 $ 798804 $ 465,116474,571 $ 262,769258,924 $ (2,397)(217) $ (11,655) $ 714,631
============ ============ ============ ============ ============ ============ ============722,427
========= ====== ========== ========= ============= ========== =========
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
5
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
THREESIX MONTHS ENDED
MARCH 31,
------------------------------JUNE 30,
------------------------
2002 2001
------------ --------------------- ---------
Cash flows from operating activities:
Net income ........................................................................................................................................... $ 3,93590 $ 36,61185,077
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization .................................. 22,202 19,320.......................................... 45,292 38,701
Bad debt expense .......................................................... -- 400.................................................................. 30 1,453
Deferred income tax expense ............................................... 7,181 7,009....................................................... 11,411 16,626
Tax benefit related to stock options ...................................... 3,101 1,962.............................................. 8,791 2,120
Other ..................................................................... (31) (130)............................................................................. (47) 1,316
Changes in operating assets and liabilities:
Accounts receivable ................................................. 40,937 (27,229).................................................... 47,685 (53,848)
Inventory and other current assets .................................. (1,762) 3,470..................................... (108) 1,217
Accrued federal income taxes receivable ............................. (7,412) 6,004................................ (21,355) 24,269
Accounts payable .................................................... (16,866) 22,142....................................................... (18,192) (3,268)
Other liabilities ................................................... (5,345) (2,090)
------------ ------------...................................................... (4,731) 12,884
--------- ---------
Net cash provided by operating activities ................ 45,940 67,469
------------ ------------.......................... 68,866 126,547
--------- ---------
Cash flows from investing activities:
Acquisitions ...................................................................................................................................... -- (27,045)
Purchases of property and equipment ....................................... (25,281) (48,228)................................................. (46,194) (86,429)
Proceeds from sales of property and equipment ............................. 254 426....................................... 632 816
Purchase of investment equity securities ............................................ (12,659) --
Change in other assets .................................................... 243 (2,842)
------------ ------------.............................................................. 803 (143)
--------- ---------
Net cash used in investing activities ......................... (24,784) (77,689)
------------ ------------................................... (57,418) (112,801)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of notes payable ................................................................................ -- 9,760
Payments of notes payable ............................................................................................................ -- (1,980)(69,177)
Proceeds from exercise of stock options ................................... 3,614 1,784
------------ ------------............................................. 7,385 4,825
--------- ---------
Net cash provided by (used in) financing activities ................ 3,614 9,564
------------ ------------7,385 (54,592)
--------- ---------
Net increase (decrease) in cash and cash equivalents ..... 24,770 (656)............... 18,833 (40,846)
Foreign currency translation adjustment .................. 3 139............................ 452 (55)
Cash and cash equivalents at beginning of period ........................................................................ 33,584 66,916
------------ --------------------- ---------
Cash and cash equivalents at end of period .................................................................................... $ 58,35752,869 $ 66,399
============ ============26,015
========= =========
Supplemental disclosure of cash flow information:
Net cash received (paid)paid during the period for:
Interest .......................................................................................................................................... $ (111)205 $ (1,530)3,247
Income taxes .................................................................................................................................. $ 263218 $ (3,850)7,150
Non-cash investing and financing activities:
In March 2002, the Company acquired five SCR Electric land-based
drilling rigs through the acquisition of Odin Drilling, Inc., for a purchase
price of $16.9 million. The purchase price consisted of 650,000 shares of common
stock valued at $26.06 per share. A deferred tax liability of $4.1 million was
recorded as a result of the transaction.
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
6
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF CONSOLIDATION AND PRESENTATION
Patterson Energy, Inc. ("Patterson") and UTI Energy Corp. ("UTI")
consummated a merger on May 8, 2001, with Patterson as the surviving entity,
which was treated as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended, and accounted for as a pooling of
interests for financial accounting purposes. Historical financial statements as
presented herein, have been restated to provide for the retroactive effect of
the merger. At the time of the merger, the name of Patterson Energy, Inc. was
changed to "Patterson-UTI Energy, Inc." ("Patterson-UTI").
The consolidated financial statements include the accounts of Patterson-UTI
("Patterson-UTI") and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
The interim condensed consolidated financial statements have been prepared
by management of the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations, although the Company believes the
disclosures included herein are adequate to make the information presented not
misleading. In the opinion of management, all adjustments (consisting of only
normal recurring accruals) considered necessary for presentation of the
information have been included. The unaudited condensed consolidated balance
sheet as of December 31, 2001, as presented herein, was derived from the audited
balance sheet of the Company, but does not include all disclosures required by
generally accepted accounting principles.
The U.S. dollar is the functional currency for all of the Company's
operations except for its Canadian operations, which use the Canadian dollar as
functional currency. The effects of exchange rate changes are reflected in
accumulated other comprehensive income, which is a separate component of
stockholders' equity (See Note 4).
The Company provides a dual presentation of its earnings per share in its
Consolidated Statements of Income: Basic Earnings per Share ("Basic EPS") and
Diluted Earnings per Share ("Diluted EPS"). Basic EPS is computed using the
weighted average number of shares outstanding during the periods presented.
Diluted EPS includes common stock equivalents, generally stock options and
warrants that are "in the money", which are dilutive to earnings per share. For
the three months ended March 31,June 30, 2002, and 2001,potentially dilutive securities of 2.5
million shares were excluded from the calculation of Diluted EPS as a result of
the Company's net loss for that period. For the six months ended June 30, 2002,
dilutive securities included in the calculation of Diluted EPS were 2.52.6 million
shares. For the three and six months ended June 30, 2001, dilutive securities of
2.8 million shares and 3.23.0 million shares, respectively.respectively, were included in the
calculation of diluted EPS. There are 470,00015,000 and 55,000 potentially dilutive
options and warrants outstanding at March 31,June 30, 2002 which have been excluded from
the calculation of Diluted EPS as their exercise price is greater than the
average market priceprices for the three-month periodthree and six month periods ended March 31, 2002.June 30, 2002,
respectively.
The results of operations for the three and six months ended March 31,June 30, 2002,
are not necessarily indicative of the results to be expected for the full year.
Certain reclassifications have been made to the 2001 consolidated financial
statements in order for them to conform with the 2002 presentation.
2. RECENT ACQUISITION
Odin Drilling, Inc. -- In March 2002, the Company acquired five SCR
Electric land-based drilling rigs through the acquisition of Odin Drilling,
Inc., for a purchase price of $16.9 million. The purchase price consisted of
650,000 shares of common stock valued at $26.06 per share. A deferred tax
liability of $4.1 million was recorded as a result of the transaction. The
transaction was accounted for as a purchase and the related purchase price was
allocated among the rigs based on their estimated fair values.
7
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
2. RECENT ACQUISITION - (CONTINUED)
This transaction was accounted for as a purchase. Odin Drilling, Inc. had conducted no operations prior to its acquisition by the Company.
No goodwill was recorded in connection with this acquisition.
3. STOCKHOLDERS' EQUITY
In March 2002, the Company issued 650,000 shares of its common stock as
consideration for the acquisition of Odin Drilling, Inc. (see Note 2). The
common stock was valued at $26.06 per share, its fair market value on the date
the terms of the transaction were agreed upon.
4. COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table illustrates the Company's comprehensive income (loss)
including the effects of foreign currency translation adjustments for the three
and six months ended March 31,June 30, 2002 and 2001 (in thousands):
THREE MONTHS ENDED MARCH 31,
------------------------------SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ---------------------
2002 2001 ------------ ------------2002 2001
-------- -------- -------- --------
Net income .......................................(loss) ...................................... $ 3,935(3,845) $ 36,61148,466 $ 90 $ 85,077
Other comprehensive loss:income (loss):
Foreign currency translation adjustment ..... (101) (1,622)
------------ ------------......... 2,180 1,268 2,079 (354)
-------- -------- -------- --------
Comprehensive income .............................(loss) ............................ $ 3,834(1,665) $ 34,989
============ ============49,734 $ 2,169 $ 84,723
======== ======== ======== ========
All accumulated other comprehensive income (loss) at March 31,June 30, 2002 and
December 31, 2001 consists of foreign currency translation adjustments.
5. PRO FORMA FINANCIAL INFORMATIONRESTRUCTURING AND OTHER CHARGES
The mergerCompany recognized an expense of $4.7 million in the second quarter of
2002 due to the financial failure of a workers' compensation insurance carrier
that had provided coverage for the Company between Patterson1992 and UTI was treated asMarch of 2001. As a
reorganization within
the meaning of Section 368(a)result of the Internal Revenue Codefinancial failure of 1986, as amended,
and was accounted for as a pooling of interests for financial accounting
purposes.this insurance carrier, the Company expects
to incur cash outlays related to workers' compensation claims involving
incidents that occurred during the coverage period. The consolidated financial statements give retroactive effect toamount recorded during
the merger, whichquarter ended June 30, 2002, includes combining the companies' historical consolidated
financial statementsestimates for the period ended March 31, 2001. Certain adjustments
were made in that period to conform the previous accounting policiescosts of UTI with
those of Patterson.
Selected unaudited pro forma information related to the operations of
Patterson and UTI for the three months ended March 31, 2001 follows (in
thousands):
PATTERSON UTI ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
Revenues ................ $ 129,936 $ 108,390 $ 260 $ 238,586
Operating income ........ $ 32,702 $ 26,431 $ 27 $ 59,160
Net Income .............. $ 20,544 $ 16,050 $ 17 $ 36,611
these
claims.
8
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
6. BUSINESS SEGMENTS
Our revenues, operating profits and identifiable assets are primarily
attributable to three industry segments: contract drilling, drilling and
completion fluid services and pressure pumping services. Separate financial data
for each of our three business segments is provided below.below (in thousands).
THREE MONTHS ENDED MARCH 31,
------------------------------SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2002 2001 ------------ ------------
(IN THOUSANDS)2002 2001
---------- ---------- ---------- ----------
Revenues:
Contract drilling ......................Drilling .................................................. $ 101,94098,461 $ 206,059247,173 $ 200,401 $ 453,232
Drilling and completion fluids ......... 16,146 19,670............................ 16,189 27,516 32,335 47,186
Pressure pumping ....................... 7,428 7,337.......................................... 6,614 8,750 14,042 16,087
Corporate and other .................... 2,709 5,520
------------ ------------....................................... 4,099 4,125 6,808 9,645
---------- ---------- ---------- ----------
Total operating revenues ......................................................... $ 128,223125,363 $ 238,586
============ ============287,564 $ 253,586 $ 526,150
========== ========== ========== ==========
Income (loss) from operations:
Contract drilling ......................Drilling .................................................. $ 7,327(920) $ 57,56389,763 $ 6,407 $ 147,326
Drilling and completion fluids ......... (842) 1,006............................ 23 1,596 (819) 2,602
Pressure pumping ....................... 1,481 1,647.......................................... 613 2,646 2,094 4,293
Corporate and other .................... (1,538) (1,056)
------------ ------------
6,428 59,160....................................... 1,607) (1,611) (3,145) (2,667)
Merger costs, restructuring and other charges ............. (4,700) (13,145) (4,700) (13,145)
---------- ---------- ---------- ----------
(6,591) 79,249 (163) 138,409
Interest income ............................ 225 851............................................... 268 665 493 1,516
Interest expense ........................... (111) (1,530).............................................. (94) (1,192) (205) (2,722)
Other ...................................... 17 68
------------ ------------......................................................... 8 63 25 131
---------- ---------- ---------- ----------
Income (loss) before income taxes .............................................. $ 6,559(6,409) $ 58,549
============ ============78,785 $ 150 $ 137,334
========== ========== ========== ==========
MARCH 31,JUNE 30, DECEMBER 31,
2002 2001
---------- ------------ ------------
(IN THOUSANDS)
Identifiable assets:
Contract drilling ......................Drilling ................................................... $ 693,478691,177 $ 681,700
Drilling and completion fluids ......... 35,560............................. 33,265 41,724
Pressure pumping ....................... 30,493........................................... 30,691 29,473
Corporate and other (a) ................ 126,472.................................... 144,711 116,745
---------------------- ------------
$ 886,003899,844 $ 869,642
====================== ============
- ----------
(a) Corporate and other assets primarily includes cash on hand managed by the parent and
oil and natural gas properties.
7. RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board (the "FASB") issued Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets," ("SFAS No. 142") in June 2001. SFAS No. 142 addresses financial
accounting and reporting for acquired goodwill and other intangible assets and
supersedes APB Opinion No. 17, "Intangible Assets." The provisions of SFAS No.
142, which the Company adopted on January 1, 2002, are not expected to have a
material impact on the Company's consolidated financial statements.
Approximately $944,000 in amortization expenses recognized during the first
quarter of 2001 would not have been recognized under SFAS No. 142.
9
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
7. RECENTLY ISSUED ACCOUNTING STANDARDS - (CONTINUED)
The FASB issued Statement of Financial Accounting Standards No. 143,
"Accounting for Asset Retirement Obligations," ("SFAS No. 143") in July 2001.
SFAS No. 143 addresses financial accounting requirements for retirement
obligations associated with tangible long-lived assets. SFAS No. 143 is
effective beginning June 15, 2002. The provisions of SFAS No. 143 are not
expected to have a material impact on the Company's consolidated financial
statements.
The FASB issued Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," (SFAS No. 144)
in August 2001. SFAS No. 144 addresses financial accounting and reporting for
the impairment or disposal of long-lived assets. The provisions of SFAS No. 144,
which the Company adopted on January 1, 2002, did not have an impact on the
Company's consolidated financial statements.
9
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
8. GOODWILL AND INTANGIBLE ASSETS
Effective January 1, 2002 we adopted Statement of Financial Accounting
Standards 142, "Goodwill and Other Intangible Assets". This accounting
pronouncement requires that the Company cease amortization of all intangible
assets having indefinite useful economic lives. Such assets, including goodwill,
are not to be amortized until their lives are determined to be finite, however,
a recognized intangible asset with an indefinite useful life should be tested
for impairment annually or on an interim basis if events or circumstances
indicatedindicate that the fair value of the asset has decreased below its carrying
value. AsDuring the second quarter of March 31, 2002, the Company had not completed a transitional
test forof its goodwill impairment, but it intendsimpairment. As a result, no change to complete such test during the second
quarter 2002.valuation of
goodwill was determined to be necessary.
Other intangible assets include covenants-not-to-compete and other
agreements. All of our intangible assets, having definite lives, are being
amortized on a straight-line basis over their estimated useful lives. SFAS Nos.
141 and 142 also require disclosure of the following information related to
goodwill and other intangible assets (in thousands):
MARCH 31,JUNE 30, DECEMBER 31,
2002 2001
---------------------- ------------
Goodwill ........................................................................ $ 69,860 $ 69,860
Accumulated amortization ........................................ (19,661) (19,661)
---------------------- ------------
Goodwill, net .............................................................. 50,199 50,199
---------------------- ------------
Covenants-not-to-compete and other .................... $ 3,629 $ 3,635
Accumulated amortization ................... (2,327)..................... (2,425) (2,200)
---------------------- ------------
Other intangible assets, net ............... 1,302................. 1,204 1,435
---------------------- ------------
Total goodwill and intangible assets, net...net .... $ 51,50151,403 $ 51,634
====================== ============
Change in the net carrying amount of goodwill for the quartersix months ended March
31,June
30, 2002 is as follows (in thousands):
DRILLING &
COMPLETION
DRILLING FLUIDS TOTAL
------------ ------------ -------------------- ---------- --------
Balance at December 31, 2001 ...............2001..................... $ 40,265 $ 9,934 $ 50,199
Changes to goodwill ........................goodwill............................... -- -- --
------------ ------------ -------------------- ---------- --------
Balance at March 31, 2002 ..................June 30, 2002......................... $ 40,265 $ 9,934 $ 50,199
============ ============ ==================== ========== ========
Amortization expense of approximately $817,000 and $1.8 million, recognized
during the three and six months ended June 30, 2001, respectively, would not
have been recognized under SFAS No. 142. Amortization expense consists of the
following (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
2002 2001 2002 2001
------ ------ ------ ------
Goodwill ................................... $ -- $ 817 $ -- $1,761
Covenants-not-to-compete and other ......... 98 120 225 334
------ ------ ------ ------
$ 98 $ 937 $ 225 $2,095
====== ====== ====== ======
10
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
8. GOODWILL AND INTANGIBLE ASSETS - (CONTINUED)
Amortization expense consists of the following (in thousands):
THREE MONTHS ENDED MARCH 31,
-----------------------------
2002 2001
------------ ------------
Goodwill ................................... $ -- $ 944
Covenants-not-to-compete and other ......... 127 214
------------ ------------
$ 127 $ 1,158
============ ============
Our weighted average amortization period for intangible assets is
approximately 10 years. The following table shows the estimated amortization
expense for these assets for each of the five succeeding fiscal years (in
thousands):
2003...................$ 134
2004...................$ 97
2005...................$ 97
2006...................$ 97
2007...................$ 97
Had SFAS No. 142 been in effect prior to January 1, 2002, our reported net
income and net income (loss) per share would have been as follows (in thousands,
except per share amounts):
THREE MONTHS ENDED MARCH 31,
-----------------------------SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -----------------------
Net income (loss): 2002 2001 ------------ ------------2002 2001
-------- ---------- -------- ----------
Net income:
Reported ............................................................. $ 3,935(3,845) $ 36,61148,466 $ 90 $ 85,077
Goodwill amortization ................................... -- 944
------------ ------------817 -- 1,761
-------- ---------- -------- ----------
Adjusted ............................................................. $ 3,935(3,845) $ 37,555
============ ============49,283 $ 90 $ 86,838
======== ========== ======== ==========
Basic net income (loss) per common share:
Reported ............................................................. $ 0.05(0.05) $ 0.480.63 $ 0.00 $ 1.12
Effect of goodwill amortization ............... -- 0.01 ------------ -------------- 0.02
-------- ---------- -------- ----------
Adjusted ............................................................. $ 0.05(0.05) $ 0.49
============ ============0.64 $ 0.00 $ 1.14
======== ========== ======== ==========
Diluted net income (loss) per common share:
Reported ............................................................. $ 0.05(0.05) $ 0.460.61 $ 0.00 $ 1.07
Effect of goodwill amortization ............... -- 0.01 ------------ -------------- 0.02
-------- ---------- -------- ----------
Adjusted ............................................................. $ 0.05(0.05) $ 0.47
============ ============0.62 $ 0.00 $ 1.09
======== ========== ======== ==========
9. INVESTMENT IN EQUITY SECURITIES
On June 11, 2002, the Company entered into an agreement to purchase 762,597
shares of the common stock of TMBR/Sharp Drilling, Inc., $.10 par value per
share, for an aggregate cash purchase price of $12.7 million, or $16.60 per
share. The purchase of these shares was completed on June 14, 2002. The
agreement also includes (i) an option for the Company to purchase and (ii) an
option for the sellers to require the Company to purchase up to an additional
195,000 shares of common stock at $16.60 per share. These options expire on
December 16, 2002. The investment was recorded using the equity method of
accounting.
10. Legal Matters
Westfort Energy LTD and Westfort Energy (US) LTD f/k/a Canadian Delta, Inc.
("Westfort"), filed a lawsuit against two Patterson-UTI subsidiaries, Patterson
Petroleum LP and Patterson Drilling Company LP, in the Circuit Court, Rankin
County, Mississippi, Case No. 2002-18. The lawsuit relates to a letter agreement
entered into in July 2000 between Patterson Petroleum and Westfort concerning
the drilling of a daywork well in Mississippi. This lawsuit was filed by
Westfort after Patterson Petroleum made demand on Westfort for payment of the
contract drilling services. There have been no significant developments in these
proceedings since year-end 2001.
11
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Since year-end 2001, the Company has issued 650,000 shares of common stock
that were not registered under the Securities Act of 1993, as amended, at the
time of issuance. The securities were issued in March 2002 as consideration for
the acquisition of Odin Drilling, Inc. The common stock was valued at $26.06 per
share.
No underwriter was involved in the transaction and no sales commissions,
fees or similar compensation were paid to any person in connection with the
issuance of the shares. The Company believes that the issuance of the securities
was exempt from the registration requirements of Section 5 of the Securities Act
by virtue of Section 4(2) of the Securities Act and/or under Rule 506 of
Regulation D promulgated thereunder.
12
ITEM 3. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING SUMMARY OF LIQUIDITY AND CAPITAL RESOURCES AND RESULTS OF
OPERATIONS IS BASED ON CONSOLIDATED FINANCIAL INFORMATION THAT HAS BEEN RESTATED
TO REFLECT THE MERGER OF UTI INTO PATTERSON-UTI ON MAY 8, 2001, UNDER THE
POOLING OF INTERESTS METHOD OF ACCOUNTING.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31,June 30, 2002, we had working capital of approximately $125.1$130.6 million
including cash and cash equivalents of $58.4$52.9 million. For the threesix months ended
March 31,June 30, 2002, our primary sources and uses of cash flow were:
o $45.9$68.9 million provided by operations, including a $3.3 million
net decrease in related working capital accounts, and
o $3.6$7.4 million from the exercise of stock options.
Correspondingly, we used approximately $25.3$12.7 million for the acquisition of
approximately 18% of the shares outstanding of TMBR/Sharp Drilling, Inc. (see
Note 9), and approximately $46.2 million:
o to make capital expenditures for the betterment and refurbishment
of our drilling rigs,
o for the acquisition and procurement of drilling equipment,
o to fund leasehold acquisition and exploration and development of
oil and natural gas properties and
o to fund capital expenditures for our drilling and completion
fluids and pressure pumping divisions.
In March 2002, the Company acquired five SCR Electric land-based drilling
rigs through the acquisition of Odin Drilling, Inc., for a purchase price of
$16.9 million. The purchase price consisted of 650,000 shares of common stock
valued at $26.06 per share. A deferred tax liability of $4.1 million was
recorded as a result of the transaction. The purchase price was allocated among
the rigs based on their estimated fair values.
The shares were not registered
under the Securities Act of 1993 in reliance on a private placement exemption
pursuant to Section 4(2) of that Act (See ITEM 2).
As of March 31,June 30, 2002, there were no amounts drawn under the Company's $100.0
million revolving line of credit. The line of credit carries a floating interest
rate of LIBOR plus 1.75% to 2.75% based on twelve-month trailing EBITDA. The
facility has no financial covenants unless availability under the facility is
less than $20.0 million. At June 30, 2002, the Company had letters of credit in
the aggregate amount of $22.3 million for the benefit of various insurance
companies as collateral for retrospective premiums and retained losses which
could become payable under the terms of the underlying insurance contracts.
We believe that the current level of cash and short-term investments,
together with cash generated from operations should be sufficient to meet our
immediate
capital needs. From time to time, acquisition opportunities are reviewed. The
timing, size or success of any acquisition and the associated capital
commitments are unpredictable. ShouldOver the longer term, should further
opportunities for growth requiring capital arise, we believe we would be able to
satisfy these needs through a combination of working capital, cash generated
from operations, and either debt or equity financing. However, there can be no
assurance that such capital would be available.
13CRITICAL ACCOUNTING POLICIES
There have been no changes in the Company's critical accounting policies
since year-end 2001.
COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Westfort Energy LTD and Westfort Energy (US) LTD f/k/a Canadian Delta, Inc.
("Westfort"), filed a lawsuit against two Patterson-UTI subsidiaries, Patterson
Petroleum LP and Patterson Drilling Company LP, in the Circuit Court, Rankin
County, Mississippi, Case No. 2002-18. The lawsuit relates to a letter agreement
entered into in July 2000 between Patterson Petroleum and Westfort concerning
the drilling of a daywork well in Mississippi. This lawsuit was filed by
Westfort after Patterson Petroleum made demand on Westfort for payment of the
contract drilling services. There have been no significant developments in these
proceedings since year-end 2001.
On June 11, 2002, the Company entered into an agreement to purchase 762,597
shares of the common stock of TMBR/Sharp Drilling, Inc., $.10 par value per
share, for an aggregate cash purchase price of $12.7 million, or $16.60 per
share. The purchase of these shares was completed on June 14, 2002. The
agreement also includes (i) an option for the Company to purchase and (ii) an
option for the sellers to require the Company to purchase up to an additional
195,000 shares of common stock at $16.60 per share. These options expire on
December 16, 2002. The investment was recorded using the equity method of
accounting.
12
RESULTS OF OPERATIONS
The following tables summarize operations by business segment for the three
months ended March 31,June 30, 2002 and 2001:
CONTRACT DRILLING 2002 2001 % CHANGE
------------ ------------ ------------
(IN- ----------------- -------- -------- --------
(DOLLARS IN THOUSANDS)
Revenues ....................................................................................... $ 101,940 $ 206,059 (50.5)98,461 $247,173 (60.2)%
Direct operating costs ........................................................... $ 73,432 $ 130,197 (43.6)78,323 $137,724 (43.1)%
Selling, general and administrative ................................. $ 1,183974 $ 1,737 (31.9)1,895 (48.6)%
Depreciation and amortization ............................................. $ 19,99820,084 $ 16,562 20.7%17,791 12.9%
Operating income ......................................(loss) .......................... $ 7,327(920) $ 57,563 (87.3)%89,763 N/A%
Operating days ........................................ 10,550 20,753 (49.2)................................... 10,846 22,560 (51.9)%
Average revenue per operating day ..................................... $ 9.669.08 $ 9.93 (2.7)10.95 (17.1)%
Average direct operating cost per operating day ......... $ 6.967.22 $ 6.27 11.0%6.10 18.4%
Average margin per operating day ....................................... $ 2.701.86 $ 3.66 (26.2)4.85 (61.7)%
Number of owned rigs at end of period ............................. 324 302 7.3%
Average number of rigs owned during period ............ 320 299 7.0%....... 324 302 7.3%
Average rigs operating ................................ 117 231 (49.4)........................... 119 248 (52.0)%
Rig utilization percentage ................................................... 37% 77% (51.9)82% (54.9)%
Capital expenditures ............................................................... $ 21,66716,599 $ 42,829 (49.4)32,124 (48.3)%
Deteriorating industry conditions, which began in the third quarter of 2001
and continued into the second quarter of 2002 have had an adverse impact on the
market prices of oil and natural gas. Accordingly, the demand for our contract
drilling services has been negatively impacted. Natural gas prices fell from an
average of $4.41 per Mcf during the second quarter of 2001 to an average of
$3.41 per Mcf for the same three-month period in 2002. We have recently begun to
see improvements in rig utilization as oil and natural gas prices have
increased. Oil prices in the first quarter of 2002 were $21.72 per barrel as
compared to $26.19 per barrel during the second quarter of 2002 and average
natural gas prices have improved to $3.42 per Mcf from $2.51 per Mcf for the
same comparative period. We expect demand for our contract drilling services to
continue to increase as industrial demand for oil and natural gas improves and
the economy strengthens.
The decreased operating results were reflective of a significant decline in
demand for our contract drilling services as evidenced by:
o decreases in average rig utilization and the number of operating days and
o decreases in average daily margins due to declines in day rates and
increases in average costs per day.
The increased costs as a percentage of revenues are largely attributable to
our efforts to maintain our most experienced field personnel despite the
significant decline in rig utilization.
DRILLING AND COMPLETION FLUIDS 2002 2001 % CHANGE
- ------------------------------ -------- -------- --------
(DOLLARS IN THOUSANDS)
Revenues............................................. $ 16,189 $ 27,516 (41.2)%
Direct operating costs............................... $ 13,849 $ 23,210 (40.3)%
Selling, general and administrative.................. $ 1,761 $ 2,075 (15.1)%
Depreciation and amortization........................ $ 556 $ 635 (12.4)%
Operating income..................................... $ 23 $ 1,596 (98.6)%
Total jobs........................................... 352 487 (27.7)%
Average revenue per job.............................. $ 45.99 $ 56.50 (18.6)%
Average costs per job................................ $ 39.34 $ 47.66 (17.5)%
Average margin per job............................... $ 6.65 $ 8.84 (24.8)%
Capital expenditures................................. $ 278 $ 1,528 (81.8)%
The decreases noted were primarily attributable to deteriorating industry
conditions, as noted above, and the resulting decline in demand for our drilling
and completion fluid services, which is further illustrated by the 27.7% decline
in the number of jobs completed in the 2002 quarter versus the 2001 quarter. The
recent increases in oil and natural gas prices noted above have contributed to
improvements in our drilling and completion fluids operations from our first
quarter results. Total jobs have risen from 321 in the first quarter of 2002 to
352 in the second quarter, a 9.7% increase. As commodity prices improve, we
expect to begin to see increases in the demand for our drilling and completion
fluids services.
13
PRESSURE PUMPING 2002 2001 % CHANGE
- ---------------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Revenues ................................. $ 6,614 $ 8,750 (24.4)%
Direct operating costs ................... $ 4,352 $ 4,755 (8.5)%
Selling, general and administrative ...... $ 980 $ 876 11.9%
Depreciation ............................. $ 669 $ 473 41.4%
Operating income ......................... $ 613 $ 2,646 (76.8)%
Total jobs ............................... 777 1,052 (26.1)%
Average revenue per job .................. $ 8.51 $ 8.32 2.3%
Average costs per job .................... $ 5.60 $ 4.52 23.9%
Average margin per job ................... $ 2.91 $ 3.80 (23.4)%
Capital expenditures ..................... $ 1,438 $ 2,004 (28.2)%
Decreased revenues are primarily due to deteriorating industry conditions
as evidenced by the 26.1% decline in number of jobs. Increased general and
administrative expense and depreciation for our pressure pumping operations can
be attributed to significant growth of the pressure pumping segment during 2001,
with additions to personnel as well as equipment and facilities.
CORPORATE AND OTHER 2002 2001 % CHANGE
- ------------------- ------------ ------------ ------------
(IN THOUSANDS)
Revenues ..................................... $ 4,099 $ 4,125 (0.6)%
Selling, general and administrative .......... $ 2,895 $ 2,858 1.3%
Bad debt expense ............................. $ 30 $ 1,053 (97.2)%
Depreciation, depletion and amortization ..... $ 1,781 $ 482 269.5%
Other expenses ............................... $ 1,000 $ 1,343 (25.5)%
Operating loss ............................... $ (1,607) $ (1,611) 0.2%
Merger costs ................................. $ -- $ 5,943 (100.0)%
Restructuring and other charges .............. $ 4,700 $ 7,202 (34.7)%
Capital expenditures ......................... $ 1,385 $ 2,550 (45.7)%
Merger costs and restructuring and other charges reflect a $4.7 million
charge taken in the second quarter of 2002 due to the financial failure of a
workers' compensation insurance carrier we used from 1992 until March of 2001
and expenses in the second quarter of 2001 related to the UTI Energy Corp.
merger.
The following tables summarize by business segment operations for the six months
ended June 30, 2002 and 2001:
CONTRACT DRILLING 2002 2001 % CHANGE
- ----------------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Revenues ........................................... $ 200,401 $ 453,232 (55.8)%
Direct operating costs ............................. $ 151,755 $ 267,921 (43.4)%
Selling, general and administrative ................ $ 2,157 $ 3,632 (40.6)%
Depreciation and amortization ...................... $ 40,082 $ 34,353 16.7%
Operating income ................................... $ 6,407 $ 147,326 (95.7)%
Operating days ..................................... 21,396 43,313 (50.6)%
Average revenue per operating day .................. $ 9.36 $ 10.46 (10.5)%
Average direct operating cost per operating day .... $ 7.09 $ 6.18 14.7%
Average margin per operating day ................... $ 2.27 $ 4.28 (47.0)%
Number of owned rigs at end of period .............. 324 302 7.3%
Average number of rigs owned during period ......... 322 301 7.0%
Average rigs operating ............................. 118 239 (50.6)%
Rig utilization percentage ......................... 37% 79% (53.2)%
Capital expenditures ............................... $ 38,266 $ 74,939 (48.9)%
Deteriorating industry conditions, which began in the third quarter of 2001
and continued into the second quarter of 2002 have had an adverse impact on the
market prices of oil and natural gas. Accordingly, the demand for our contract
drilling services has been negatively impacted. Market prices for oil fell from
an average of $29.12$28.02 per barrel during the first quartersix months of 2001 to an
average of $21.72$24.11 per barrel during the first quartersix months of 2002 and natural gas
prices fell from an average of $6.23$5.32 per Mcf during the first quartersix months of 2001
to an average of $2.51$2.99
14
per Mcf for the same three-month period in 2002. We expect demand for our contract drilling
services to increase as industrial demand for oil and natural gas improves and
the economy strengthens.
The decreased operating results were reflective of a significant decline in
demand for our contract drilling services as evidenced by:
o decreases in average rig utilization and in the number of
operating days and
o decreases in average daily margin due to declines in day rates
and increases in average costs per day.
The increased costs as a percentage of revenues are largely attributable to
our efforts to maintain our most experienced field personnel despite the
significant decline in rig utilization.
DRILLING AND COMPLETION FLUIDS 2002 2001 % CHANGE
------------ ------------ ------------
(IN- ------------------------------ ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Revenues ..................................................................... $ 16,14632,335 $ 19,670 (17.9)47,186 (31.5)%
Direct operating costs ......................................... $ 14,72328,572 $ 16,365 (10.0)39,575 (27.8)%
Selling, general and administrative ............... $ 1,7273,488 $ 1,713 0.8%3,788 (7.9)%
Depreciation and amortization ........................... $ 5381,094 $ 586 (8.2)1,221 (10.4)%
Operating income (loss) ....................................... $ (842)(819) $ 1,006 (183.7)%2,602 N/A%
Total jobs .................................. 321 484 (33.7)............................... 673 971 (30.7)%
Average revenue per job ....................................... $ 50.3048.05 $ 40.64 23.8%48.60 (1.1)%
Average costs per job ........................................... $ 45.8742.45 $ 33.81 35.7%40.76 4.1%
Average margin per job ......................................... $ 4.435.60 $ 6.83 (35.1)7.84 (28.6)%
Capital expenditures ............................................. $ 663941 $ 929 (28.6)2,471 (61.9)%
The decreases noted were primarily attributable to deteriorating industry
conditions, as noted above, and the resulting decline in demand for our drilling
and completion fluid services, which is further illustrated by the 33.7%30.7% decline
in the number of jobs completed in the 2002 quarter versus the
2001 quarter.2001. As commodity prices
improve, we expect to begin to see increases in the demand for our contract drilling and
completion fluids services.
14
PRESSURE PUMPING 2002 2001 % CHANGE
------------ ------------ ------------
(IN- ---------------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Revenues ..................................................................... $ 7,42814,042 $ 7,337 1.2%16,087 (12.7)%
Direct operating costs ......................................... $ 4,1578,509 $ 4,395 (5.4)9,150 (7.0)%
Selling, general and administrative ............... $ 1,1812,161 $ 918 28.6%1,794 20.5%
Depreciation ............................................................. $ 6091,278 $ 377 61.5%850 50.4%
Operating income ..................................................... $ 1,4812,094 $ 1,647 (10.1)4,293 (51.2)%
Total jobs .................................. 839 968 (13.3)............................... 1,616 2,020 (20.0)%
Average revenue per job ....................................... $ 8.858.69 $ 7.58 16.8%7.96 9.1%
Average costs per job ........................................... $ 4.955.27 $ 4.54 9.0%4.53 16.2%
Average margin per job ......................................... $ 3.903.42 $ 3.04 28.3%3.43 (0.3)%
Capital expenditures ............................................. $ 9362,374 $ 1,734 (46.0)3,738 (36.5)%
Decreased revenues are primarily due to deteriorating industry conditions
as evidenced by the 20.0% decrease in number of jobs. Increased general and
administrative expense and depreciation for our pressure pumping operations can
be attributed to significant growth of the pressure pumping segment during 2001,
with additions to personnel as well as equipment and facilities.
CORPORATE AND OTHER 2002 2001 % CHANGE
------------ ------------ ------------- ------------------- ----------- ----------- -----------
(IN THOUSANDS)
Revenues ............................................................................. $ 2,7096,808 $ 5,520 (50.9)%
Other expenses ................................... $ 938 $ 1,087 (13.7)%
Bad debt expense ................................. $ -- $ 400 (100.0)9,645 (29.4)%
Selling, general and administrative ....................... $ 2,2525,147 $ 3,294 (31.6)6,152 (16.3)%
Bad debt expense ............................ $ 30 $ 1,453 (97.9)%
Depreciation, depletion and amortization ............. $ 1,0572,838 $ 1,795 (41.1)2,277 24.6%
Other expenses .............................. $ 1,938 $ 2,430 (20.2)%
Operating loss ................................................................. $ (1,538)(3,145) $ (1,056) (45.6)(2,667) 17.9%
Merger costs ................................ $ -- $ 5,943 (100.0)%
Restructuring and other charges ............. $ 4,700 $ 7,202 (34.7)%
Capital expenditures ..................................................... $ 3,0424,427 $ 2,722 11.8%5,286 (16.3)%
15
The decrease in revenues in Corporate and Other is largely attributable to
the impact of the weakened commodity prices on our oil and natural gas
operations. Merger costs and restructuring and other charges reflect a $4.7
million charge taken in the second quarter of 2002 due to the financial failure
of a workers' compensation insurance carrier we used from 1992 until March of
2001 and expenses in the second quarter of 2001 related to the UTI Energy Corp.
merger.
The following table summarizes certain industry data for the three and six
months ended March 31,June 30, 2002 and 2001:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
INDUSTRY DATA 2002 2001 % CHANGE
------------ ------------ ------------CHG. 2002 2001 % CHG.
- ------------- ---------- ---------- ---------- ---------- ---------- ----------
Average US natural gas spot price per Mcf (a) ......... $ 2.513.41 $ 6.23 (59.7)4.41 (22.7)% $ 2.99 $ 5.32 (43.8)%
Average West Texas intermediate crude oil spot
Price per BBL (a) ................................. $ 21.7226.19 $ 29.12 (25.4)26.91 (2.7)% $ 24.11 $ 28.02 (14.0)%
Average weekly US land rig count (b) .................. 814 1,141 (28.7)701 1,072 (34.6)% 697 1,023 (31.9)%
Average weekly Canadian land rig count (b) ............ 371 504 (26.4)137 253 (45.8)% 254 379 (33.0)%
- ------------------------
(a) Source: 2002-Raymond James; 2001-Market Energy
(b) Source: Baker Hughes
VOLATILITY OF OIL AND NATURAL GAS PRICES AND ITS IMPACT ON OPERATIONS
Our revenue, profitability and future rate of growth are substantially
dependent upon prevailing prices for oil and natural gas, with respect to all of
our operating segments. Historically, oil and natural gas prices and markets
have been volatile. Prices are affected by market supply and demand factors as
well as actions of state and local agencies, the United States and foreign
governments and international cartels. All of these are beyond our control. AnyAn
extended or further significant or extended decline in oil and/or natural gas prices would
have a further material adverse effect on our financial condition and results of
operations.
Due to a decline in oil and natural gas prices beginning in the second
quarter of 2001, demand for drilling rigs declined beginning in the third
quarter of 2001 and continued into the firstsecond quarter of 2002. This decline in
demand has resulted in a steep decline in drilling rig utilization and day
rates, which in turn has adversely impacted our operations. 15
An extended or
further significant decline in oil and/or natural gas prices would have a
further material adverse effect on our financial condition and results of
operations.
IMPACT OF INFLATION
We believe that inflation will not have a significant near-term impact on
our financial position.
ITEM 4.3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We currently have no exposure to interest rate market risk because we have
no outstanding balance under our credit facility. Should we incur a balance in
the future, we would have some exposure associated with the floating rate of the
interest charged on that balance. The credit facility, which expires on June 29,
2005, bears interest at LIBOR plus 1.75 % to 2.75% based on the Company's
twelve-month trailing EBITDA. Our exposure to interest rate risk due to changes
in LIBOR is not expected to be material.
We conduct some business in Canadian dollars through our Canadian
land-based drilling operations. The exchange rate between Canadian dollars and
U.S. dollars has fluctuated over the last ten years. If the value of the
Canadian dollar against the U.S. dollar weakens, revenues and earnings of our
Canadian operations will be reduced when they are translated to U.S. dollars.
Also, the value of our Canadian net assets in U.S. dollars may decline.
16
-------------------------
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in Item 2 of this Report contains forward-looking
statements which are made pursuant to the "safe harbor" provisions of The
Private Securities Litigation Reform Act of 1995. These statements include,
without limitation, statements relating to: liquidity; financing of operations;
continued volatility of oil and natural gas prices; source and sufficiency of
funds required for immediate capital needs and additional rig acquisitions (if
further opportunities arise); and such other matters. The words "believes,"
"plans," "intends," "expected," "estimates" or "budgeted" and similar
expressions identify forward-looking statements. The forward-looking statements
are based on certain assumptions and analyses we make in light of our experience
and our perception of historical trends, current conditions, expected future
developments and other factors we believe are appropriate in the circumstances.
We do not undertake to update, revise or correct any of the forward-looking
information. Factors that could cause actual results to differ materially from
our expectations expressed in the forward-looking statements include, but are
not limited to, the following:
o SwingsChanges in prices and demand for oil and natural gas;
o SwingsChanges in demand for contract drilling, pressure pumping and drilling
and completion fluids services;
o Shortages of drill pipe and other drilling equipment;
o Labor shortages, primarily qualified drilling personnel;
o Effects of competition from other drilling contractors and providers
of pressure pumping and drilling and completion fluids services;
o Occurrence of operating hazards and uninsured losses inherent in our
business operations; and
o Environmental and other governmental regulation.
For a more complete explanation of these various factors and others, see
"Cautionary Statement for Purposes of the 'Safe Harbor' Provisions of the
Private Securities Litigation Reform Act of 1995" included in our Annual Report
on Form 10-K for the year ended December 31, 2001, beginning on page 13.
You are cautioned not to place undue reliance on any of our forward-looking
statements, which speak only as of the date of the document or in the case of
documents incorporated by reference, the date of those documents.
-------------------------
17
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Westfort Energy LTD and Westfort Energy (US) LTD f/k/a Canadian Delta,2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Since year-end 2001, the Company has issued 650,000 shares of common stock
that were not registered under the Securities Act of 1933, as amended, at the
time of issuance. The securities were issued in March 2002 as consideration for
the acquisition of Odin Drilling, Inc. ("Westfort"), filed a lawsuit against two Patterson-UTI subsidiaries,
Patterson Petroleum LP and Patterson Drilling Company LP,The common stock was valued at $26.06 per
share.
No underwriter was involved in the Circuit Court,
Rankin County, Mississippi, Case No. 2002-18. The lawsuit relatestransaction and no sales commissions,
fees or similar compensation were paid to a letter
agreement entered intoany person in July 2000 between Patterson Petroleum and Westfort
concerningconnection with the
drilling of a daywork well in Mississippi. This lawsuit was filed
by Westfort after Patterson Petroleum made demand on Westfort for paymentissuance of the contract drilling services. There have been no significant developments in these
proceedings since year-end 2001.shares. The Company believes that the issuance of the securities
was exempt from the registration requirements of Section 5 of the Securities Act
by virtue of Section 4(2) of the Securities Act and/or under Rule 506 of
Regulation D promulgated thereunder.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
The following exhibits are filed herewith or incorporated by reference:
2.1 Plan and Agreement of Merger dated October 14, 1993, between Patterson
Energy, Inc., a Texas corporation, and Patterson Energy, Inc., a
Delaware corporation, together with related Certificates of Merger.(1)
2.2 Agreement and Plan of Merger, dated April 22, 1996 among Patterson
Energy, Inc., Patterson Drilling Company and Tucker Drilling Company,
Inc.(2)
2.2.1 Amendment to Agreement and Plan of Merger, dated May 16, 1996 among
Patterson Energy, Inc., Patterson Drilling Company and Tucker Drilling
Company, Inc.(3)
2.3 Agreement and Plan of Merger, dated February 4, 2001, by and between
UTI Energy Corp. and Patterson Energy, Inc.(4)
2.4 Agreement and Plan of Merger, dated March 10, 2002 among Patterson-UTI
Energy, Inc., Patterson-UTI Drilling Company LP, LLLP and Odin
Drilling, Inc. (11)
2.5 Stock Purchase Agreement by and among Patterson-UTI Energy, Inc. and
Roper Family Properties, LTD., Estate of Joe G. Roper, Patricia R.
Elledge, Judy Kathleen Roper Davis, Jeanie Elisabeth Cornelius and J.
Mark Roper.
3.1 Restated Certificate of Incorporation.(5)
3.1.1 Certificate of Correction of Restated Certificate of Incorporation.(10)
3.2 Amended and Restated Bylaws.(10)
3.3 Rights Agreement dated January 2, 1997, between Patterson Energy, Inc.
and Continental Stock Transfer & Trust Company.(6)
3.3.1 Amendment to Rights Agreement dated as of October 23, 2001.(8)
4.1 Excerpt from Restated Certificate of Incorporation of Patterson-UTI
Energy, Inc. regarding authorized Common Stock and Preferred Stock.(7)
4.2 Certificate of Designation.(9)
4.2.1 Amendment to Certificate of Designation.(10)
18
4.3 Registration Rights Agreement with Bear, Stearns and Co. Inc., dated
March 25, 1994, as assigned to REMY Capital Partners III, L.P.(10)
- ----------
(1) Incorporated herein by reference to Item 27, "Exhibits" to Amendment
No. 2 to Registration Statement on Form SB-2 (File No. 33-68058-FW)
filed on October 28, 1993.
(2) Incorporated by reference to Item 7, "Financial Statements and
Exhibits" to Form 8-K dated April 22, 1996 and filed on April 30, 1996.
18
(3) Incorporated by reference to Item 7, "Financial Statements and
Exhibits" to Form 8-K dated May 16, 1996 and filed on May 22, 1996.
(4) Incorporated herein by reference to Joint Proxy Statement/Prospectus
filed on March 14, 2001.
(5) Incorporated herein by reference to Item 7, "Financial Statements and
Exhibits" to Form 8-K dated and filed on May 8, 2001.
(6) Incorporated by reference to Item 2, "Exhibits" to Registration
Statement on ForForm 8-A filed on January 14, 1997.
(7) Incorporated herein by reference to Item 6, "Exhibits and Reports on
Form 8-K" to Form 10-Q for the quarterly period ended June 30, 2001,
filed on August 1, 2001.
(8) Incorporated herein by reference to Item 6, "Exhibits and Reports on
Form 8-K" to Form 10-Q for the quarterly period ended September 30,
2001, filed on October 31, 2001.
(9) Incorporated herein by reference to Item 2, "Exhibits" to Registration
Statement on Form 8-A (File No. 000-22664) filed on January 14, 1997.
(10) Incorporated herein by reference to Item 14, "Exhibits, Financial
Statement Schedules and Reports on Form 8-K" to Form 10-K dated
December 31, 2001.
(11) Incorporated herein by reference to Item 6, "Exhibits and Reports on
Form 8-K" to Form 10-Q for the quarterly period ended March 31, 2002,
filed on May 14, 2002.
(b) REPORTS ON FORM 8-K.
There were no reportsThe following report on Form 8-K was filed during the three months
ended March 31,June 30, 2002:
(1) Report dated January 1, 2002, announcing the Company's
adoption of Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets", filed June 13,
2002.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PATTERSON-UTI ENERGY, INC.
By: /s/ Cloyce A. Talbott
------------------------------------------------------------------------------
Cloyce A. Talbott
Chief Executive Officer
By: /s/ Jonathan D. Nelson
------------------------------------------------------------------------------
Jonathan D. Nelson
Vice President, Chief Financial Officer,
Secretary and Treasurer
DATED: May 14,July 24, 2002
20
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------------- -----------
2.42.5 Stock Purchase Agreement by and Plan of Merger, dated March 10, 2002 among Patterson-UTI Energy,
Inc. and Roper Family Properties, LTD., Patterson-UTI Drilling Company LP,
LLLPEstate of Joe G.
Roper, Patricia R. Elledge, Judy Kathleen Roper Davis, Jeanie
Elisabeth Cornelius and Odin Drilling, Inc.J. Mark Roper.
21