- --------------------------------------------------------------------------------
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, 2003
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
(StateState or other jurisdiction of (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)
(325) 574-6300
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report.)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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
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.
80,328,60980,902,663 shares of common stock, $0.01 par value, as of April 30,July 21, 2003
- --------------------------------------------------------------------------------
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
----
PART I - Financial Information PAGE
----
ITEM 1. Financial Statements
Unaudited condensed consolidated balance sheets......................................sheets................................. 3
Unaudited condensed consolidated statements of income................................income........................... 4
Unaudited condensed consolidated statement of changes in stockholders' equity........equity... 5
Unaudited condensed consolidated statements of changes in cash flows.................flows............ 6
Notes to unaudited condensed consolidated financial statements.......................statements.................. 7
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................................... 13Operations........................................................... 14
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.................................. 17Risk...................... 20
ITEM 4. Controls and Procedures..................................................................... 17Procedures......................................................... 20
Forward Looking Statements and Cautionary Statements for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act of 1995................................... 181995....................... 21
PART II - Other Information
ITEM 4. Submission of Matters to a Vote of Security Holders............................. 22
ITEM 6. Exhibits and Reports on Form 8-K............................................................ 19
Signatures................................................................................................. 21
Certifications............................................................................................. 228-K................................................ 23
Signatures..................................................................................... 25
Certifications................................................................................. 26
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, except share data)
MARCH 31,JUNE 30, DECEMBER 31,
2003 2002
------------- ------------------------- ------------
ASSETS
Current assets:
Cash and cash equivalents ................................................................................................................... $ 70,79687,456 $ 82,154
Accounts receivable, net of allowance for doubtful accounts of $3,297$2,635 at
March 31,June 30, 2003 and $3,144 at December 31, 2002 ..................................... 121,605................................. 136,111 99,014
Federal and state income taxes receivable, net ....................................... 23,820.................................. -- 24,719
Inventory ............................................................................ 15,436....................................................................... 15,620 15,323
Deferred tax assets .................................................................. 14,229............................................................. 20,032 15,290
Other ................................................................................ 5,198........................................................................... 5,881 6,515
------------- ------------------------- ------------
Total current assets ............................................................. 251,084........................................................ 265,100 243,015
Property and equipment, at cost, net ..................................................... 641,912................................................ 668,262 627,734
Goodwill and other intangible assets, net ................................................ 51,270........................................... 51,227 51,313
Investment in equity securities .......................................................... 17,882..................................................... 19,673 17,707
Other .................................................................................... 2,593............................................................................... 2,446 2,740
------------- ------------------------- ------------
Total assets ..................................................................................................................................... $ 964,7411,006,708 $ 942,509
============= ========================= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Trade ..................................................................................................................................................... $ 32,42137,454 $ 30,618
Accrued revenue distributions ..................................................... 6,991................................................ 7,028 6,266
Other ............................................................................. 5,201........................................................................ 2,589 2,755
Federal and state income taxes payable, net ..................................... 563 --
Accrued expenses ..................................................................... 39,386................................................................ 45,558 35,513
------------- ------------------------- ------------
Total current liabilities ........................................................ 83,999................................................... 93,192 75,152
Deferred tax liabilities ................................................................. 126,965............................................................ 130,585 127,006
Other .................................................................................... 3,8273,801 2,795
------------- ------------------------- ------------
Total liabilities ................................................................ 214,791........................................................... 227,578 204,953
------------- ------------------------- ------------
Commitments and contingencies ................................................................................................................... -- --
Stockholders' equity:
Preferred stock, par value $.01; authorized 1,000,000 shares, no shares issued ......... -- --
Common stock, par value $.01; authorized 200,000,000 shares with 81,799,66982,407,800
and 81,576,674 issued and 80,293,12180,901,252 and 80,070,126 outstanding at
March 31,June 30, 2003 and December 31, 2002, respectively ................................. 818.......................... 824 816
Additional paid-in capital ........................................................... 492,840...................................................... 504,673 489,201
Retained earnings .................................................................... 266,759............................................................... 278,811 261,003
Accumulated other comprehensive income (loss) ........................................ 1,188................................... 6,477 (1,809)
Treasury stock, at cost, 1,506,548 shares ................................................................................... (11,655) (11,655)
------------- ------------------------- ------------
Total stockholders' equity ....................................................... 749,950.................................................. 779,130 737,556
------------- ------------------------- ------------
Total liabilities and stockholders' equity ......................................................................... $ 964,7411,006,708 $ 942,509
============= ========================= ============
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 INCOME (UNAUDITED)
(in thousands, except per share amounts)
THREE MONTHS ENDED MARCH 31,
------------------------------SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2003 2002 ------------ ------------2003 2002
---------- ---------- ---------- ----------
Operating revenues:
Drilling ................................................................................................................... $ 135,581163,951 $ 101,94098,461 $ 299,532 $ 200,401
Drilling and completion fluids .................................................. 15,848 16,146fluids...................... 16,003 16,189 31,851 32,335
Pressure pumping ................................................................ 8,511 7,428................................... 9,800 6,614 18,311 14,042
Oil and natural gas ............................................................. 5,299 2,709
------------ ------------
165,239 128,223
------------ ------------................................ 5,870 4,099 11,169 6,808
---------- ---------- ---------- ----------
195,624 125,363 360,863 253,586
---------- ---------- ---------- ----------
Operating costs and expenses:
Drilling ........................................................................ 106,428 73,432........................................... 124,309 78,323 230,737 151,755
Drilling and completion fluids .................................................. 14,381 14,723..................... 13,922 13,849 28,303 28,572
Pressure pumping ................................................................ 5,006 4,157................................... 5,800 4,352 10,806 8,509
Oil and natural gas ............................................................. 1,079 980................................ 1,292 1,016 2,371 1,996
Depreciation, depletion and amortization ....................................... 24,136 22,202........... 24,973 23,090 49,109 45,292
General and administrative ...................................................... 6,894 6,343......................... 6,813 6,610 13,707 12,953
Bad debt expense ................................................................ 80 --................................... 82 30 162 30
Other ........................................................................... (2,609) (42)
------------ ------------
155,395 121,795
------------ ------------.............................................. (720) 4,684 (3,329) 4,642
---------- ---------- ---------- ----------
176,471 131,954 331,866 253,749
---------- ---------- ---------- ----------
Operating income .................................................................... 9,844 6,428
------------ ------------(loss) ................................ 19,153 (6,591) 28,997 (163)
---------- ---------- ---------- ----------
Other income (expense):
Interest income ................................................................. 260 225.................................... 285 268 545 493
Interest expense ................................................................ (72) (111)................................... (76) (94) (148) (205)
Other ......................................................................................................................... 77 8 17
------------ ------------
196 131
------------ ------------85 25
---------- ---------- ---------- ----------
286 182 482 313
---------- ---------- ---------- ----------
Income (loss) before income taxes and cumulative
effect of change in accounting principle ....................................................................... 10,040 6,559
------------ ------------........... 19,439 (6,409) 29,479 150
---------- ---------- ---------- ----------
Income tax expense (benefit):
Current ......................................................................... 3,120 (4,557)............................................ 10,642 (6,794) 13,762 (11,351)
Deferred ........................................................................ 695 7,181
------------ ------------
3,815 2,624
------------ ------------........................................... (3,255) 4,230 (2,560) 11,411
---------- ---------- ---------- ----------
7,387 (2,564) 11,202 60
---------- ---------- ---------- ----------
Income (loss) before cumulative effect of change in
accounting principle ................... 6,225 3,935............................... 12,052 (3,845) 18,277 90
Cumulative effect of change in accounting
principle, net of related income tax benefit of
approximately $287 .................................................................................... -- -- (469) --
------------ ---------------------- ---------- ---------- ----------
Net income ..........................................................................(loss) ...................................... $ 5,75612,052 $ 3,935
============ ============(3,845) $ 17,808 $ 90
========== ========== ========== ==========
Net income (loss) per common share:
Basic:
Income (loss) before cumulative effect of
change in accounting principle ........................ $ 0.080.15 $ 0.05(0.05) $ 0.23 $ 0.00
Cumulative effect of change in accounting
principle ........................................................... -- -- (0.01) --
------------ ---------------------- ---------- ---------- ----------
Net income ..................................................................(loss) .............................. $ 0.070.15 $ 0.05
============ ============(0.05) $ 0.22 $ 0.00
========== ========== ========== ==========
Diluted:
Income (loss) before cumulative effect of
change in accounting principle ........................ $ 0.080.15 $ 0.05(0.05) $ 0.22 $ 0.00
Cumulative effect of change in accounting
principle ......................... (0.01).................................. -- ------------ -------------- -- --
---------- ---------- ---------- ----------
Net income ..................................................................(loss) .............................. $ 0.070.15 $ 0.05
============ ============(0.05) $ 0.22 $ 0.00
========== ========== ========== ==========
Weighted average number of common shares outstanding:
Basic ........................................................................... 80,163 77,412
============ ============.............................................. 80,529 78,742 80,347 78,080
========== ========== ========== ==========
Diluted ......................................................................... 82,085 79,894
============ ============............................................ 82,457 78,742 82,109 80,684
========== ========== ========== ==========
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 CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(in thousands)
Common Stock Accumulated
-------------------------------------------- Additional other
Number of paid-in Retained comprehensive Treasury
shares Amount capital earnings income (loss) stock Total
--------- --------- ------------ ------------------- ---------- ---------- ---------- ------------- ------------ ------------------- ----------
Balance, December 31, 2002 .......... 81,577 $ 816 $ 489,201 $ 261,003 $ (1,809) $ (11,655) $737,556$ 737,556
Exercise of stock options and
warrants ........................ 223 2 1,982831 8 9,480 -- -- -- 1,9849,488
Tax benefit related to exercise of
stock options ................... -- -- 1,6575,992 -- -- -- 1,6575,992
Foreign currency translation
adjustment ...................... -- -- -- -- 2,9017,071 -- 2,9017,071
Change in unrealized gain on
equity securities, net of tax ... -- -- -- -- 961,215 -- 961,215
Net income .......................... -- -- -- 5,75617,808 -- -- 5,756
--------- --------- ------------ --------- ------------- ------------ --------17,808
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, March 31,June 30, 2003 ............. 81,800.............. 82,408 $ 818824 $ 492,840504,673 $ 266,759278,811 $ 1,1886,477 $ (11,655) $749,950
========= ========= ============ ========= ============= ============ ========$ 779,130
========== ========== ========== ========== ========== ========== ==========
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 CHANGES IN CASH FLOWS (UNAUDITED)
(in thousands)
THREESIX MONTHS ENDED
MARCH 31,
-----------------------------JUNE 30,
----------------------------
2003 2002
------------ ------------
Cash flows from operating activities:
Net income ............................................................................................................................................. $ 5,75617,808 $ 3,93590
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation, depletion and amortization ............................................. 24,136 22,202........................... 49,109 45,292
Provision for bad debts ............................................................... 80 --............................................ 162 30
Deferred income tax expense ........................................................... 695 7,181(benefit) .............................. (2,560) 11,411
Tax benefit related to exercise of stock options ...................................... 1,657 3,101................... 5,992 8,791
Other ................................................................................. (388) (31).............................................................. (877) (47)
Changes in operating assets and liabilities:
Accounts receivable ...................................................... (21,070) 40,937............................................ (36,457) 47,685
Inventory and other current assets ....................................... 188 (1,762)............................. 359 (108)
Accrued federal income taxes receivable .................................. 1,055 (7,412)........................ 25,708 (21,355)
Accounts payable ......................................................... 2,393 (16,866)............................................... 7,427 (18,192)
Other liabilities ........................................................ 7,156 (5,345).............................................. 10,692 (4,731)
------------ ------------
Net cash provided by operating activities ............................ 21,658 45,940.................. 77,363 68,866
------------ ------------
Cash flows from investing activities:
Acquisitions .......................................................................... (16,500)............................................................... (32,783) --
Purchases of property and equipment ................................................... (19,533) (25,281)........................................ (51,651) (46,194)
Proceeds from sales of property and equipment ......................................... 839 254.............................. 1,859 632
Purchase of investment equity securities ................................... -- (12,659)
Change in other assets ................................................................ 124 243..................................................... 271 803
------------ ------------
Net cash used in investing activities ................................ (35,070) (24,784)activities....................... (82,304) (57,418)
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants .................................. 1,984 3,614....................... 9,488 7,385
------------ ------------
Net cash provided by financing activities ............................ 1,984 3,614.................. 9,488 7,385
------------ ------------
Net increase (decrease) in cash and cash equivalents ................. (11,428) 24,770.................. 4,547 18,833
Foreign currency translation adjustment .............................. 70 3.................... 755 452
Cash and cash equivalents at beginning of period .......................................................................... 82,154 33,584
------------ ------------
Cash and cash equivalents at end of period ...................................................................................... $ 70,79687,456 $ 58,35752,869
============ ============
Supplemental disclosure of cash flow information:
Net cash received (paid) during the period for:
Interest ........................................................................................................................................... $ (72)(145) $ (111)(205)
Income taxes ................................................................................................................................... $ --18,530 $ 263(218)
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
The consolidated financial statements include the accounts of Patterson-UTI
Energy, Inc. ("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, 2002, as presented herein, was derived from the audited
balance sheet of the Company. These unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes included in the annual report on Form 10-K for the
year ended December 31, 2002.
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 (loss), which is a separate component of
stockholders' equity (see Note 4).
In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," ("SFAS No.
115"), investments in Available-for-Sale equity securities are recorded at fair
value. Unrealized gains and losses of such investments, net of tax, are included
in accumulated other comprehensive income (loss) in our consolidated balance
sheet as of March 31,June 30, 2003 and are shown as 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 and six months ended March 31,June 30, 2003 and for the six months ended June
30, 2002, dilutive securities included in the calculation of Diluted EPS were
1.9 million shares.shares, 1.8 million shares, and 2.6 million shares, respectively.
For the three months ended March 31,June 30, 2002, potentially dilutive securities of 2.5
million shares were included inexcluded from the calculation of Diluted EPS.EPS as a result of
the Company's net loss for that period. For the threesix month periods ended March 31,June 30,
2003 and 2002, there were 15,000 and 470,000,55,000, respectively, potentially dilutive
options and warrants which were excluded from the calculation of Diluted EPS as
their exercise price was greater than the average market price for the period.
The results of operations for the three and six months ended March 31,June 30, 2003,
are not necessarily indicative of the results to be expected for the full year.
Certain reclassifications have been made to the 2002 consolidated financial
statements in order for them to conform with the 2003 presentation.
2. RECENT ACQUISITIONS
SEI Drilling Company -- In January 2003, the Company acquired four land-based drilling rigs and
related equipment from SEI Drilling Company for a
purchase price of $6.0 million in cash. The transaction was accounted for as a
purchase and the related
purchase price was allocated among the rigsassets acquired based on their estimated
fair values.
7
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-
CONTINUED
2. RECENT ACQUISITIONS - (CONTINUED)
Mesa Drilling, Inc. -- In February 2003, the Company acquired three land-based drilling rigs, a
yard, top drive, inventory and other related equipment from Mesa Drilling, Inc. and related entities
for a purchase price of
$10.5 million in cash. The transaction was accounted for as a purchase and the
related purchase price was allocated among the rigsassets
acquired based on their estimated fair values.
In April 2003, the Company acquired two land-based drilling rigs for $3.9
million in cash. The purchase price was allocated among the assets acquired
based on their estimated fair values.
In May 2003, the Company completed the acquisition of seven land-based
drilling rigs and related equipment from Hexadyne Drilling Corporation for $10.1
million in cash. The purchase price was allocated among the assets acquired
based on their estimated fair values.
On May 26, 2003, the Company, Patterson-UTI Acquisition, LLC, a Texas
limited liability company and wholly-owned subsidiary of the Company ("Sub"),
and TMBR/Sharp Drilling, Inc., a Texas corporation ("TMBR"), entered into an
Agreement and Plan of Merger (the "Merger Agreement") pursuant to which, upon
the satisfaction and completion of the conditions to the merger contained in the
Merger Agreement, including approval of the Merger Agreement by at least
two-thirds of the shareholders of TMBR, TMBR will merge with and into Sub with
Sub being the surviving company. If the merger is completed, each issued and
outstanding share of common stock, $.10 par value per share, of TMBR not owned
directly or indirectly by the Company or TMBR or held by TMBR shareholders who
validly exercise their dissenters' rights under Texas law, will be converted
into the right to receive $9.09 in cash from the Company and 0.312166 of a share
of common stock, $0.01 par value per share, of the Company (the "Company Common
Stock"), for a total of approximately $45.6 million in cash and approximately
1.57 million shares of Company Common Stock. The Company currently intends to
pay the cash portion of the merger consideration to TMBR shareholders out of
funds available on hand and existing financing facilities.
In addition to the above mentioned acquisitions, the Company spent
approximately $2.3 million on other acquisitions and costs associated with the
acquisitions completed during the six months ended June 30, 2003.
3. STOCK-BASED COMPENSATION
At March 31,June 30, 2003, the Company hashad seven stock-based employee compensation
plans, of which three arewere active. The Company accounts for those plans under
the recognition and measurement principles of APB Opinion No. 25, "Accounting
for Stock Issued to Employees," and related Interpretations. No stock-based
employee compensation cost is reflected in net income (loss), as all options
granted under those plans had an exercise price equal to the market value of the
underlying common stock on the date of grant. The following table illustrates
the effect on net income (loss) and earningsnet income (loss) per share if the Company
had applied the fair value recognition provisions of Financial Accounting
Standards Board Statement No. 123, "Accounting for Stock-Based Compensation," to
stock-based employee compensation (in thousands, except per share amounts):
THREE MONTHS ENDED MARCH 31,
----------------------------SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2003 2002 ------------ ------------2003 2002
---------- ---------- ---------- ----------
Net income (loss), as reported ......................................................................... $ 5,75612,052 $ 3,935(3,845) $ 17,808 $ 90
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects ................................................ (2,264) (1,465)
------------ ------------.. (4,348) (2,320) (8,000) (4,683)
---------- ---------- ---------- ----------
Pro forma net income ...................................................(loss) ............................ $ 3,4927,704 $ 2,470
============ ============(6,165) $ 9,808 $ (4,593)
========== ========== ========== ==========
Net income (loss) per common share:
Basic, as reported .................................................................................. $ 0.070.15 $ 0.05
============ ============(0.05) $ 0.22 $ 0.00
========== ========== ========== ==========
Basic, pro forma ...................................................................................... $ 0.040.10 $ 0.03
============ ============(0.08) $ 0.12 $ (0.06)
========== ========== ========== ==========
Diluted, as reported .............................................................................. $ 0.070.15 $ 0.05
============ ============(0.05) $ 0.22 $ 0.00
========== ========== ========== ==========
Diluted, pro forma .................................................................................. $ 0.040.09 $ 0.03
============ ============(0.08) $ 0.12 $ (0.06)
========== ========== ========== ==========
8
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
4. COMPREHENSIVE INCOME (LOSS) 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, 2003 and 2002 (in thousands):
THREE MONTHS ENDED MARCH 31,
----------------------------SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2003 2002 ------------ ------------2003 2002
---------- ---------- ---------- ----------
Net income .............................................................(loss) ........................................ $ 5,75612,052 $ 3,935(3,845) $ 17,808 $ 90
Other comprehensive income (loss):income:
Foreign currency translation adjustment related to
our Canadian operations ........................................... 2,901 (101).......................... 4,170 2,180 7,071 2,079
Change in unrealized gain on equity securities, net
of tax ...... 96........................................... 1,119 -- ------------ ------------1,215 --
---------- ---------- ---------- ----------
Comprehensive income ...................................................(loss) .............................. $ 8,75317,341 $ 3,834
============ ============(1,665) $ 26,094 $ 2,169
========== ========== ========== ==========
8
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-
CONTINUED
5. SETTLEMENT OF MEXICO RECEIVABLE
In March 2003, the Company received approximately $2.5 million in cash
as settlement for contract drilling services previously provided in Mexico by
Norton Drilling Company Mexico, Inc., a wholly-owned subsidiary. The Company has
been party to a lawsuit for a number of years in an effort to collect the
underlying receivable. As the collectibility of the receivable was not certain,
a reserve for the full amount of the receivable was recorded at the time of the
Company's acquisition of Norton Drilling Company Mexico, Inc. in 1999. The
amount is reflected as a credit to Other Expensesreduction of other expenses and included as a component
of Operating Income.operating income (loss).
9
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 four industry segments: contract drilling of oil and natural gas
wells, provision of drilling and completion fluid services and pressure pumping
services to operators in the oil and natural gas industry, and the exploration,
development, acquisition and production of oil and natural gas. Separate
financial data for each of our four business segments is provided below (in
thousands).
THREE MONTHS ENDED MARCH 31,
-----------------------------SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2003 2002 ------------ ------------2003 2002
---------- ---------- ---------- ----------
Revenues:
Contract drilling ..........................................Drilling .................................... $ 135,581163,951 $ 101,94098,461 $ 299,532 $ 200,401
Drilling and completion fluids ............................. 15,848 16,146.............. 16,003 16,189 31,851 32,335
Pressure pumping ........................................... 8,511 7,428............................ 9,800 6,614 18,311 14,042
Oil and natural gas ........................................ 5,299 2,709
------------ ------------......................... 5,870 4,099 11,169 6,808
---------- ---------- ---------- ----------
Total operating revenues ............................................................... $ 165,239195,624 $ 128,223
============ ============125,363 $ 360,863 $ 253,586
========== ========== ========== ==========
Income (loss) before income taxes:
Contract drilling ..........................................Drilling .................................... $ 7,51217,571 $ 7,327(920) $ 25,083 $ 6,407
Drilling and completion fluids ............................. (894) (842).............. (263) 23 (1,157) (819)
Pressure pumping ........................................... 1,185 1,481............................ 1,897 613 3,082 2,094
Oil and natural gas ........................................ 1,675 293
------------ ------------
9,478 8,259......................... 1,811 1,056 3,486 1,349
---------- ---------- ---------- ----------
21,016 772 30,494 9,031
Corporate and other ...................................... (2,086) (1,831)......................... (1,863) (7,363) (1,497) (9,194)
Interest income .......................................... 260 225............................. 285 268 545 493
Interest expense ......................................... (72) (111)............................ (76) (94) (148) (205)
Other .................................................... 2,460 17
------------ ------------....................................... 77 8 85 25
---------- ---------- ---------- ----------
Income (loss) before income taxes and
cumulative effect of change in accounting
principle ..................................................................... $ 10,04019,439 $ 6,559
============ ============(6,409) $ 29,479 $ 150
========== ========== ========== ==========
MARCH 31,JUNE 30, DECEMBER 31,
2003 2002
---------------------- ------------
Identifiable assets:
Drilling ............................................................................................. $ 717,561744,587 $ 694,020
Drilling and completion fluids .......... 30,753fluids........................................ 32,511 34,687
Pressure pumping ........................ 36,594pumping...................................................... 38,859 35,084
Oil and natural gas ..................... 23,697gas................................................... 26,643 20,854
Corporate and other (a) ................. 156,136.............................................. 164,108 157,864
------------ ------------
$ 964,741---------- ----------
$1,006,708 $ 942,509
============ ====================== ==========
- ----------
(a) Corporate assets primarily include cash on hand managed by the parent
corporation and certain deferred federal income tax assets.
9
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-
CONTINUED
7. RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations," ("SFAS No. 143") in June 2001. SFAS No. 143 addresses financial
accounting requirements for retirement obligations associated with tangible
long-lived assets. The Company adopted SFAS No. 143 in January 2003. As a
result, a charge of $469,000 (net of tax) was recorded as a cumulative effect of
a change in accounting principle for the quarter ended March 31, 2003. The
change relates to the cost associated with the future abandonment of oil and
natural gas properties. The related effect to both basic and
10
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-
CONTINUED
7. RECENTLY ISSUED ACCOUNTING STANDARDS - (CONTINUED)
diluted earnings per share as a result of the change in accounting principle was
a decrease of $0.01 per share.
The FASB issued Statement of Financial Accounting Standards No. 146,
"Accountingshare and $0.00 per share, respectively, for Costs Associated with Exit or Disposal Activities," ("SFAS No.
146") inthe six
months ended June 2002. SFAS No. 146 is effective for exit or disposal activities
that are initiated after December 31, 2002. The provisions of SFAS No. 146,
which the Company adopted on January 1, 2003, did not have a material impact on
the Company's consolidated financial statements.30, 2003.
The FASB issued Statement of Financial Accounting Standards No. 148,
"Accounting for Stock-Based Compensation," ("SFAS No. 148") in December 2002.
SFAS No. 148 amends the disclosure requirements of Statement of Financial
Accounting Standards No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
provisions of SFAS No. 148, which the Company adopted on January 1, 2003, did
not have a material impact on the Company's consolidated financial statements
(see Note 3).
The FASB issued Statement of Financial Accounting Standards No. 149,
"Amendment of Statement 133 on Derivative Instruments and Hedging Activities,"
("SFAS No. 149") in April 2003. SFAS No. 149 amends and clarifies financial
accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities
under Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 149 is effective for
existing contracts and new contracts entered into after June 30, 2003. The
provisions of SFAS No. 149 are not expected to have a material impact on the
Company's consolidated financial statements.
The FASB issued Statement of Financial Accounting Standards No. 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity," ("SFAS No. 150") in May 2003. SFAS No. 150 establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31, 2003.
The provisions of SFAS No. 150, which the Company adopted on June 1, 2003, did
not have a material impact on the Company's consolidated financial statements.
The FASB issued Interpretation No. 45, "Guarantor's Accounting and
Disclosure Requirements, Including Guarantees of Indebtedness of Others," ("FIN
45"), which the Company adopted effective January 1, 2003. FIN 45 requires that
upon issuance of certain types of guarantees, a guarantor recognize and account
for the fair value of the guarantee as a liability. FIN 45 contains exclusions
to this requirement, including the exclusion of a parent's guarantee of its
subsidiaries' debt to a third party. UponThe adoption this new accounting
pronouncementof FIN 45 had no material
impact on the Company's consolidated financial position, results of operations
or cash flows.
The FASB issued Interpretation No. 46, "Consolidation of Variable Interest
Entities," ("FIN 46"), which the Company adopted effective January 31, 2003.
This statement addresses the consolidation of variable interest entities
("VIEs") by business enterprises that are the primary beneficiaries. A VIE is an
entity that does not have sufficient equity investment at risk to permit it to
finance its activities without additional subordinated financial support, or
whose equity investors lack the characteristics of a controlling financial
interest. The primary beneficiary of a VIE is the enterprise that has the
majority of the risks or rewards associated with the VIE. The Company believes
it has no material interests in VIEs that will require disclosure or
consolidation under FIN 46.
11
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-
CONTINUED
8. GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill and
covenants-not-to-compete arising from business combinations. In accordance with
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets," all of our intangible assets that have definite lives are
being amortized on a straight-line basis over their estimated useful lives and
goodwill is evaluated to determine if fair value of the asset has decreased
below its carrying value. At December 31, 2002, we performed the annual goodwill
evaluation and determined no adjustment to impair goodwill was necessary.
Goodwill and other intangible assets as of March 31,June 30, 2003 and December 31, 2002
are as follows (in thousands):
10
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-
CONTINUED
8. GOODWILL AND OTHER INTANGIBLE ASSETS - (CONTINUED)
MARCH 31,JUNE 30, DECEMBER 31,
2003 2002
------------- ----------------------- ------------
Goodwill ........................................................................... $ 69,860 $ 69,860
Accumulated amortization ........................................... (19,661) (19,661)
------------- ----------------------- ----------
Goodwill, net ................................................................. 50,199 50,199
------------- ----------------------- ----------
Covenants-not-to-compete and other ....................... 1,956 1,956
Accumulated amortization .............................. (885)............. (928) (842)
------------- ----------------------- ----------
Other intangible assets, net .......................... 1,071......... 1,028 1,114
------------- ----------------------- ----------
Intangible assets, net ............................................... $ 51,27051,227 $ 51,313
============= ======================= ==========
Change in the net carrying amount of goodwill for the threesix months ended March 31,June
30, 2003 is as follows (in thousands):
DRILLING &
COMPLETION
DRILLING FLUIDS TOTAL
------------ ------------ ---------------------- ---------- ----------
Balance at December 31, 2002 .............. $ 40,265 $ 9,934 $ 50,199
Changes to goodwill ................................ -- -- --
------------ ------------ ---------------------- ---------- ----------
Balance at March 31,June 30, 2003 ..................... $ 40,265 $ 9,934 $ 50,199
============ ============ ====================== ========== ==========
Amortization expense for the three and six months ended March 31,June 30, 2003 and
2002 consists of the following (in thousands):
THREE MONTHS ENDED MARCH 31,
----------------------------SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2003 2002 ------------ ------------2003 2002
---------- ---------- ---------- ----------
Goodwill ............................................................ $ -- $ -- $ -- $ --
Covenants-not-to-compete and other ........ 43 127
------------ ------------98 86 225
---------- ---------- ---------- ----------
$ 43 $ 127
============ ============98 $ 86 $ 225
========== ========== ========== ==========
Our weighted average amortization period for other 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):
2004 ....................................... $ 97
2005 ....................................... $ 97
2006 ....................................... $ 97
2007 ....................................... $ 97
2008 ....................................... $ 97
12
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-
CONTINUED
9. INVESTMENT IN EQUITY SECURITIES
In 2002, the Company purchased 1,058,673 shares of the common stock of
TMBR/Sharp Drilling, Inc. ("TMBR"),TMBR, $.10 par value per share, for an aggregate cash purchase price of $17.6
million, or $16.60 per share plus approximately $84,000 of additional costs
incurred to acquire the shares. The Company owns approximately 19.5%19.4% of the
outstanding shares of TMBR based on its shares outstanding as reported in its 10-QTMBR's
Annual Report on Form 10-K for the three-monthtwelve-month period ended DecemberMarch 31, 2002.
11
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-
CONTINUED
9. INVESTMENT IN EQUITY SECURITIES (CONTINUED)2003.
The accounting treatment of shares representing the Company's investment in
the common stock of TMBR is affected by the Company's ability to sell shares
within one year. As of March 31,June 30, 2003, the Company has restrictions on its
ability to sell 838,547131,994 of the TMBR shares within one year. These shares are
reflected in the balance sheet at cost under the cost method of accounting in
accordance with Accounting Principles Board Opinion No. 18, "The Equity Method
of Accounting for Investment in Common Stock," ("APB 18"). The remaining 220,126926,679
TMBR shares are not restricted from sale within one year. These shares are
classified as Available-for-Sale and are reflected in the balance sheet at fair
value in accordance with SFAS No. 115. Fair value is determined from publicly
quoted market prices as of the balance sheet date. In accordance with SFAS No.
115, unrealized gains and losses recorded as a result of the adjustment to fair
value are reflected directly in stockholders' equity.
The following table summarizes the Company's unrealized gain on its
investment in equity securities as of March 31,June 30, 2003 (in thousands, except share
amounts):
COMMON UNREALIZED
TMBR/Sharp Drilling, Inc.: SHARES COST GAIN TOTAL
------------ ------------ ------------ ---------------------- ---------- ---------- ----------
TMBR/Sharp Drilling, Inc.:
Cost method .................. 838,547.............. 131,994 $ 13,9542,197 $ -- $ 13,9542,197
Available-for-Sale ........... 220,126 3,727 201 3,928
------------ ------------ ------------ ------------....... 926,679 15,484 1,992 17,476
---------- ---------- ---------- ----------
1,058,673 $ 17,681 $ 2011,992 $ 17,882
============ ============ ============ ============19,673
========== ========== ========== ==========
On May 26, 2003, the Company entered into a merger agreement with TMBR
pursuant to which TMBR will merge with and into a wholly-owned subsidiary of the
Company (see Note 2 of these Notes to Unaudited Condensed Consolidated Financial
Statements).
10. LEGAL MATTER
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 haveThe Westfort lawsuit has been no significant developmentsdismissed without prejudice. Westfort filed
for bankruptcy in these
proceedings since year-end 2002.May of 2003. The Company continues to assert claims against
Westfort, including the monies owed Patterson Petroleum LP under the letter
agreement in the amount of approximately $5,075,000.
In thisits lawsuit, Westfort allegesalleged breach of contract, fraud, and negligence
causes of action. Westfort seekssought alleged monetary damages, the return of shares
of Westfort stock, unspecified damages from alleged lost profits, lost use of
income stream, and additional operating expenses, along with alleged punitive
damages to be determined by the jury, but not less than 25% of Patterson's net
worth. The Company intends to vigorously contest the allegations
madethese claims if reasserted by
Westfort and asserts claims against Westfort, including the monies owed
Patterson Petroleum LP under the letter agreement in the amount of approximately
$5,075,000.
In addition to the Westfort lawsuit, weWestfort.
We are also party to various legal proceedings arising in the normal course
of our business. We do not believe that the outcome of these proceedings, either
individually or in the aggregate, will have a material adverse effect on our
financial condition.
1213
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CRITICAL ACCOUNTING POLICIES
In addition to established accounting policies, our consolidated financial
statements are impacted by certain estimates and assumptions made by management.
The following is a discussion of our critical accounting policies pertaining to
property and equipment, oil and natural gas properties, impairment, revenue
recognition, and the use of estimates.
Property and equipment -- Property and equipment, including betterments
which extend the useful life of the asset, are stated at cost. Maintenance and
repairs are charged to expense when incurred. We provide for the depreciation of
our property and equipment using the straight-line method over the estimated
useful lives. No provision for salvage value is considered in determining
depreciation of our property and equipment. We review our assets, including
intangible assets, for impairment when events or changes in circumstances
indicate that the carrying values of certain assets either exceed their
respective fair values or may not be recovered over their estimated remaining
useful lives. Provisions for asset impairment are charged to income when
estimated future cash flows, on an undiscounted basis, are less than the asset's
net book value. Impairment charges are recorded based on discounted cash flows.
There were no impairment charges during the periods ended March 31,June 30, 2003 or 2002.
Oil and natural gas properties -- We follow the successful efforts method
of accounting, using the field as the accumulation center, for our oil and
natural gas properties. Exploration and development costs which result directly
in the discovery of oil and natural gas reserves are capitalized. Exploration
costs which do not result directly in the discovery of oil and natural gas
reserves are charged to expense. Capitalized costs, consisting of lease and well
equipment, lease acquisition costs, and intangible development costs, are
depreciated, depleted, and amortized on the units-of-production method, based on
petroleum engineer estimates of recoverable oil and natural gas reserves of each
respective field. Impairment of proved oil and natural gas properties is
periodically assessed based on estimated future net cash flows at a field level
as determined by an independent reserve engineer. Impairment expense is included
in depreciation, depletion and amortization in the accompanying financial
statements.
Revenue recognition -- Generally, revenues are recognized when services
are performed. The Company follows the percentage-of-completion method of
accounting for footage contract drilling arrangements. Under this method,
drilling revenues and costs related to a well in progress are recognized
proportionately over the time it takes to drill the well. Due to the nature of
turnkey contract drilling arrangements and risks therein, the Company follows
the completed contract method of accounting for such arrangements. Under this
method, all drilling advances and costs (including maintenance and repairs)
related to a well in progress are deferred and recognized as revenues and
expenses in the period the well is completed. Provisions for losses on
incomplete or in-process wells are made when estimated total costs are expected
to exceed estimated total revenues.
In accordance with Emerging Issues Task Force No. 00-14, the Company
recognizes reimbursements received for out-of-pocket expenses incurred as
revenues and accounts for out-of-pocket expenses as direct costs.
Use of estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
certain estimates and assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities, the disclosures of contingent assets
and liabilities at the balance sheet date and the amounts of revenues and
expenses recognized during the reporting period. Actual results could differ
from such estimates.
Key estimates used by management include:
o allowance for doubtful accounts,
o depreciation, depletion, and amortization,
o asset impairment,
o reserves for self-insured levels of insurance coverages, and
1314
o fair values of assets and liabilities assumed.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31,June 30, 2003, we had working capital of approximately $167.1$171.9 million
including cash and cash equivalents of $70.8$87.5 million. For the threesix months ended
March 31,June 30, 2003, our significant sources of cash flow were:
o $21.7$77.4 million provided by operations,
o $2.0$9.5 million from the exercise of stock options and warrants, and
o $839,000$1.9 million from the sale of certain property and equipment.
Correspondingly, we used approximately $16.5$32.8 million to acquire seven16
land-based drilling rigs and other related equipment (see Note 2 of Notes to
Unaudited Condensed Consolidated Financial Statements included as part of Item 1
to this report) and approximately $19.5$51.7 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 capital expenditures for our drilling and completion fluids
and pressure pumping divisions, and
o to fund leasehold acquisition and exploration and development of oil
and natural gas properties.
In January 2003, the Company purchasedacquired four land-based drilling rigs and
related equipment from SEI Drilling Company for a purchase price of $6.0 million in cash. The transaction was accounted for as a purchase and the related
purchase price was allocated among the assets acquired based on their estimated
fair values.
In February 2003, the Company purchasedacquired three land-based drilling rigs, a
yard, and other related equipment from Mesa Drilling, Inc. and related entities
for $10.5 million in cash. The transaction was accounted for as a purchase and the related
purchase price was allocated among the assets
acquired based on their estimated fair values.
In April 2003, the Company acquired two land-based drilling rigs for $3.9
million in cash. The purchase price was allocated among the assets acquired
based on their estimated fair values.
In May 2003, the Company has entered into an agreement to acquirecompleted the acquisition of seven land-based
drilling rigs and related equipment from Hexadyne Drilling Corporation for $10.0$10.1
million in cash. The transaction
is expectedpurchase price was allocated among the assets acquired
based on their estimated fair values.
On May 26, 2003, the Company, Patterson-UTI Acquisition, LLC, a Texas
limited liability company and wholly-owned subsidiary of the Company ("Sub"),
and TMBR/Sharp Drilling, Inc., a Texas corporation ("TMBR"), entered into an
Agreement and Plan of Merger (the "Merger Agreement") pursuant to be completedwhich, upon
the satisfaction and completion of the conditions to the merger contained in the
second quarterMerger Agreement, including approval of 2003.the Merger Agreement by at least
two-thirds of the shareholders of TMBR, TMBR will merge with and into Sub with
Sub being the surviving company. If the merger is completed, each issued and
outstanding share of common stock, $.10 par value per share, of TMBR not owned
directly or indirectly by the Company or TMBR or held by TMBR shareholders who
validly exercise their dissenters' rights under Texas law, will be converted
into the right to receive $9.09 in cash from the Company and 0.312166 of a share
of common stock, $0.01 par value per share, of the Company (the "Company Common
Stock"), for a total of approximately $45.6 million in cash and approximately
1.57 million shares of Company Common Stock. The Company completedcurrently intends to
pay the cash portion of the merger consideration to TMBR shareholders out of
funds available on hand and existing financing facilities. Subsequent to the
close of the acquisition, Patterson will consolidate 100% of two additional land-based drilling rigsthe operations of
TMBR in April 2003 for
$3.9its statement of operations.
In addition to the above mentioned acquisitions, the Company spent
approximately $2.3 million in cash.on other acquisitions and costs associated with the
acquisitions completed during the six months ended June 30, 2003.
We believe that the current level of cash and short-term investments,
together with cash generated from operations, should be sufficient to meet our
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. Over 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.
15
COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
The Company maintains letters of credit in the aggregate amount of $24.2$31.0
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. These letters of credit expire
variously during each calendar year. No amounts have been drawn under the
letters of credit.
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 haveThe Westfort lawsuit has been no significant developmentsdismissed without prejudice. Westfort filed
for bankruptcy in these
proceedings since year-end 2002.May of 2003. The Company continues to assert claims against
Westfort including the monies owed Patterson Petroleum LP under the letter
agreement in the amount of approximately $5,075,000.
In thisits lawsuit, Westfort allegesalleged breach of contract, fraud,and negligence
causes of action. Westfort seekssought alleged monetary damages, the return of shares
of Westfort stock, unspecified damages from alleged lost profits, lost use of
income stream, and additional operating expenses, along with alleged punitive
damages to be determined by the jury, but not less than 25% of Patterson's net
worth. The Company intends to vigorously contest the allegations madethese claims if reasserted by
Westfort and asserts claims against Westfort, including the monies owed
Patterson Petroleum LP under the letter agreement in the amount of approximately
$5,075,000.
In addition to the Westfort lawsuit, weWestfort.
We are also party to various legal proceedings arising in the normal course
of our business. We do not believe that the outcome of these proceedings, either
individually or in the aggregate, will have a material adverse effect on our
financial condition.
14
RESULTS OF OPERATIONS
The following tables summarize operations by business segment for the three
months ended March 31,June 30, 2003 and 2002:
CONTRACT DRILLING 2003 2002 % CHANGE
------------ ------------ ---------- ----------------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
Revenues ........................................................................................ $ 135,581163,951 $ 101,940 33.0%98,461 66.5%
Direct operating costs ............................................................ $ 106,428124,309 $ 73,432 44.9%78,323 58.7%
Selling, general and administrative .................................. $ 1,1351,094 $ 1,183 (4.1)%974 12.3%
Depreciation and amortization .............................................. $ 20,50620,977 $ 19,998 2.5%20,084 4.4%
Operating income ........................................................................ $ 7,51217,571 $ 7,327 2.5%(920) N/A%
Operating days ........................................ 15,869 10,550 50.4%.................................... 17,742 10,846 63.6%
Average revenue per operating day ...................................... $ 8.549.24 $ 9.66 (11.6)%9.08 1.8%
Average direct operating cost per operating day .......... $ 6.717.01 $ 6.96 (3.6)7.22 (2.9)%
Average margin per operating day ........................................ $ 1.832.23 $ 2.70 (32.2)%1.86 19.9%
Number of owned rigs at end of period ................. 331............. 340 324 2.2%4.9%
Average number of rigs owned during period ............ 329 320 2.8%........ 334 324 3.1%
Average rigs operating ................................ 176 117 50.4%............................ 195 119 63.9%
Rig utilization percentage ............................ 54%........................ 58% 37% 45.9%56.8%
Capital expenditures ................................................................ $ 13,53927,400 $ 21,667 (37.5)%16,599 65.1%
Our rig count began to decline inincreased from 119 average rigs operating during the thirdsecond
quarter of 2001 and continued
until March 2002 when our rig count bottomed at 103to 195 average rigs (90 rigsoperating in the U.S.
and 13 rigs in Canada). The deterioration in our rig count was2003 primarily theas a result of
weakeninghigher natural gas prices through mid-February 2002. As natural gas
prices improved through most of 2002 and the first quarter of 2003, our rig
count also improved.prices. Average natural gas prices increased from $2.51$3.41 per
Mcf in the firstsecond quarter of 2002 to $5.91$5.70 per Mcf in the first quarter of 2003.
Accordingly, our rig count continued to improve and averaged 176 rigs (161 in
the U.S. and 15 rigs in Canada) in the firstsecond quarter of
2003.
Increased operating results in 2003 were reflective of increased demand for
our contract drilling services as evidenced by increases in the number of
operating days and average rig utilization. Increased revenues and direct
operating costs are attributable to increases in demand as noted above, however,
increased competition for available jobs due to the weakened industry conditions
experienced in 2002 resulted in downward pricing pressure and decreases in
revenue per operating day and average margin per operating day.above.
Decreased operating costs per day resulted primarily from efficiencies in
payroll expenses. Payroll expenses were high on a per day basis in 2002 as
experienced field personnel were retained despite the low level of rig
utilization.
16
DRILLING AND COMPLETION FLUIDS 2003 2002 % CHANGE
------------ ------------ ------------- ------------------------------ ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
Revenues .................................................................... $ 15,84816,003 $ 16,146 (1.8)16,189 (1.1)%
Direct operating costs ........................................ $ 14,38113,922 $ 14,723 (2.3)%13,849 0.5%
Selling, general and administrative .............. $ 1,7771,771 $ 1,727 2.9%1,761 0.6%
Depreciation and amortization .......................... $ 584573 $ 538 8.6%556 3.1%
Operating loss ........................................................ $ (894)(263) $ (842) (6.2)%23 N/A%
Total jobs .................................. 486 321 51.4%.............................. 515 352 46.3%
Average revenue per job ...................................... $ 32.6131.07 $ 50.30 (35.2)45.99 (32.4)%
Average costs per job .......................................... $ 29.5927.03 $ 45.87 (35.5)39.34 (31.3)%
Average margin per job ........................................ $ 3.024.04 $ 4.43 (31.8)6.65 (39.2)%
Capital expenditures ............................................ $ 131146 $ 663 (80.2)278 (47.5)%
Decreases in revenues and expenses despite a significant increase in total jobs for our
drilling and completion fluids operations resulted from work on significantly
smaller jobs in the 2003 quarter compared to the 2002 quarter. This is further
evidenced by the reduced average revenue and costs per job for the 2003 quarter
compared to the 2002 quarter. The continued slow downslow-down of activity in the Gulf of Mexico
was largely attributable to this shift in job mix for our drilling and
completion fluids operations.
15
PRESSURE PUMPING 2003 2002 % CHANGE
------------ ------------ ------------- ---------------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
Revenues .................................................................... $ 8,5119,800 $ 7,428 14.6%6,614 48.2%
Direct operating costs ........................................ $ 5,0065,800 $ 4,157 20.4%4,352 33.3%
Selling, general and administrative .............. $ 1,5111,245 $ 1,181 27.9%980 27.0%
Depreciation ............................................................ $ 809858 $ 609 32.8%669 28.3%
Operating income .................................................... $ 1,1851,897 $ 1,481 (20.0)%613 209.5%
Total jobs .................................. 1,061 839 26.5%.............................. 1,246 777 60.4%
Average revenue per job ...................................... $ 8.027.87 $ 8.85 (9.4)8.51 (7.5)%
Average costs per job .......................................... $ 4.724.65 $ 4.95 (4.6)5.60 (17.0)%
Average margin per job ........................................ $ 3.303.22 $ 3.90 (15.4)%2.91 10.7%
Capital expenditures ............................................ $ 3,7132,406 $ 936 296.7%1,438 67.3%
The increases in revenues and expenses for our pressure pumping operations
were attributable to improved industry conditions, as discussed in Contract
Drilling above. Expansionabove, and expansion of our pressure pumping services in 2002 into the
Appalachian regions of Kentucky and West VirginiaVirginia. This expansion also resulted
in increased depreciation and capital expenditures in the 2003 quarter compared
to the 2002 quarter. Selling, general and administrative expense increased as a
result of the expansion in operations as discussed above as well as increased payroll and related
expenses during the firstsecond quarter of 2003. The decrease in average revenue per
job was attributable to an approximate 17% declinechanges in average
revenue received on cement jobs, which comprised approximately 73% of total jobs
for our pressure pumping operations in the first quarter of 2003. This decline
resulted fromjob mix as well as a more competitive
pricing environment in the industry. Operating costs per job decreased as a
result of the changes in our job mix, as well as an approximate 60% increase in
total jobs and a portion of our operating costs being fixed in nature.
OIL AND NATURAL GAS PRODUCTION AND EXPLORATION 2003 2002 % CHANGE
------------ ------------ ------------- ---------------------------------------------- ---------- ---------- --------
(IN THOUSANDS)
Revenues ......................................................................... $ 5,2995,870 $ 2,709 95.6%4,099 43.2%
Direct operating costs ............................................. $ 1,0791,292 $ 980 10.1%1,016 27.2%
Selling, general and administrative ................... $ 382350 $ 453 (15.7)394 (11.2)%
Depreciation and depletion ................... $ 2,417 $ 1,633 48.0%
Operating income ............................. $ 1,811 $ 1,056 71.5%
Capital expenditures ......................... $ 2,166 $ 1,385 56.4%
Average net daily oil production (Bbls) ...... 797 865 (7.9)%
Average net daily gas production (Mcf) ....... 6,469 5,947 8.8%
Average oil sales price (per Bbl) ............ $ 29.27 $ 25.19 16.2%
Average gas sales price (per Mcf) ............ $ 5.52 $ 2.78 98.6%
Increased revenues and operating income are primarily attributable to
increased prices received from sales of oil and natural gas as well as marginal
increases in production.
17
CORPORATE AND OTHER 2003 2002 % CHANGE
- ------------------- ---------- ---------- --------
(IN THOUSANDS)
Selling, general and administrative ........ $ 2,353 $ 2,501 (5.9)%
Bad debt expense ........................... $ 82 $ 30 173.3%
Depreciation, depletion and amortization ... $ 148 $ 148 0.0%
Other ...................................... $ (720) $ 4,684 N/A%
In the second quarter of 2002, Other reflects a $4.7 million charge due to
the financial failure of a workers' compensation insurance carrier we used from
1992 until March of 2001.
The following tables summarize operations by business segment for the six months
ended June 30, 2003 and 2002:
CONTRACT DRILLING 2003 2002 % CHANGE
- ----------------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
Revenues .......................................... $ 299,532 $ 200,401 49.5%
Direct operating costs ............................ $ 230,737 $ 151,755 52.0%
Selling, general and administrative ............... $ 2,229 $ 2,157 3.3%
Depreciation and amortization ..................... $ 41,483 $ 40,082 3.5%
Operating income .................................. $ 25,083 $ 6,407 291.5%
Operating days .................................... 33,611 21,396 57.1%
Average revenue per operating day ................. $ 8.91 $ 9.36 (4.8)%
Average direct operating cost per operating day ... $ 6.87 $ 7.09 (3.1)%
Average margin per operating day .................. $ 2,1632.04 $ 983 120.0%2.27 (10.1)%
Number of owned rigs at end of period ............. 340 324 4.9%
Average number of rigs owned during period ........ 331 322 2.8%
Average rigs operating ............................ 186 118 57.6%
Rig utilization percentage ........................ 56% 37% 51.4%
Capital expenditures .............................. $ 40,939 $ 38,266 7.0%
Our rig count increased from 118 average rigs operating during the first
six months of 2002 to 186 average rigs operating in 2003 primarily as a result
of higher natural gas prices. Average natural gas prices increased from $2.99
per Mcf in the first six months of 2002 to $5.80 per Mcf in the first six months
of 2003.
Increased operating results in 2003 were reflective of increased demand for
our contract drilling services as evidenced by increases in the number of
operating days and average rig utilization. Decreased operating costs per day
resulted primarily from efficiencies in payroll expenses. Payroll expenses were
high on a per day basis in 2002 as experienced field personnel were retained
despite the low level of rig utilization.
DRILLING AND COMPLETION FLUIDS 2003 2002 % CHANGE
- ------------------------------ ---------- ---------- --------
(DOLLARS IN THOUSANDS)
Revenues ................................ $ 31,851 $ 32,335 (1.5)%
Direct operating costs .................. $ 28,303 $ 28,572 (0.9)%
Selling, general and administrative ..... $ 3,548 $ 3,488 1.7%
Depreciation and amortization ........... $ 1,157 $ 1,094 5.8%
Operating loss .......................... $ (1,157) $ (819) N/A%
Total jobs .............................. 1,001 673 48.7%
Average revenue per job ................. $ 31.82 $ 48.05 (33.8)%
Average costs per job ................... $ 28.27 $ 42.45 (33.4)%
Average margin per job .................. $ 3.55 $ 5.60 (36.6)%
Capital expenditures .................... $ 277 $ 941 (70.6)%
Decreases in revenues and expenses despite a significant increase in total
jobs for our drilling and completion fluids operations resulted from work on
significantly smaller jobs in the 2003 period compared to the 2002 period.
18
This is further evidenced by the reduced average revenue and costs per job for
the 2003 period compared to the 2002 period. The continued slow-down of activity
in the Gulf of Mexico was largely attributable to this shift in job mix for our
drilling and completion fluids operations.
PRESSURE PUMPING 2003 2002 % CHANGE
- ---------------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
Revenues ................................ $ 18,311 $ 14,042 30.4%
Direct operating costs .................. $ 10,806 $ 8,509 27.0%
Selling, general and administrative ..... $ 2,756 $ 2,161 27.5%
Depreciation ............................ $ 1,667 $ 1,278 30.4%
Operating income .................................................... $ 1,6753,082 $ 293 471.7%2,094 47.2%
Total jobs .............................. 2,307 1,616 42.8%
Average revenue per job ................. $ 7.94 $ 8.69 (8.6)%
Average costs per job ................... $ 4.68 $ 5.27 (11.2)%
Average margin per job .................. $ 3.26 $ 3.42 (4.7)%
Capital expenditures ............................................ $ 2,1506,119 $ 3,042 (29.3)2,374 157.8%
The increases in revenues and expenses for our pressure pumping operations
were attributable to improved industry conditions, as discussed in Contract
Drilling above, and expansion of our pressure pumping services into the
Appalachian regions of Kentucky and West Virginia. This expansion also resulted
in increased depreciation and capital expenditures in 2003 compared to 2002.
Selling, general and administrative expense increased as a result of the
expansion in operations as well as increased payroll and related expenses during
the second quarter of 2003. The decrease in average revenue per job was
attributable to changes in our job mix as well as a more competitive pricing
environment in the industry. Operating costs per job decreased as a result of
the changes in our job mix, as well as an approximate 43% increase in total jobs
and a portion of our operating costs being fixed in nature.
OIL AND NATURAL GAS PRODUCTION AND EXPLORATION 2003 2002 % CHANGE
- ---------------------------------------------- ---------- ---------- --------
(IN THOUSANDS)
Revenues ..................................... $ 11,169 $ 6,808 64.1%
Direct operating costs ....................... $ 2,371 $ 1,996 18.8%
Selling, general and administrative .......... $ 732 $ 847 (13.6)%
Depreciation and depletion ................... $ 4,580 $ 2,616 75.1%
Operating income ............................. $ 3,486 $ 1,349 158.4%
Capital expenditures ......................... $ 4,316 $ 4,427 (2.5)%
Average net daily oil production (Bbls) ..... 755 725 4.1%...... 776 796 (2.5)%
Average net daily gas production (Mcf) ...... 5,410 4,887 10.7%....... 5,943 5,811 2.3%
Average oil sales price (per Bbl) ....................... $ 33.6031.36 $ 19.72 70.4%22.71 38.1%
Average gas sales price (per Mcf) ....................... $ 5.165.35 $ 1.96 163.3%2.50 114.0%
Increased revenues and operating income are primarily attributable to
increased prices received from sales of oil and natural gas as well as marginal
increases in production.
CORPORATE AND OTHER 2003 2002 % CHANGE
------------ ------------ ------------- ------------------- ---------- ---------- --------
(IN THOUSANDS)
Selling, general and administrative ................. $ 2,0894,442 $ 1,799 16.1%4,300 3.3%
Bad debt expense ....................................................... $ 80162 $ -- N/A%30 440.0%
Depreciation, depletion and amortization ....... $ 74222 $ 74222 0.0%
Other ............................................................................. $ (2,609)(3,329) $ (42)4,642 N/A%
Increased selling, general, and administrative expenses relate primarily
to an increase in insurance premiums.
In 2003, Other primarily reflects a payment received in the first quarter
of 2003 of approximately $2.5 million as settlement for contract drilling
services previously provided in Mexico by Norton Drilling Company Mexico, Inc.,
a wholly-owned subsidiary. The underlying accounts receivable balance had been
reserved as uncollectible at the time of the Company's acquisition of Norton
Drilling Company Mexico, Inc. in 1999. In 2002, Other primarily reflects 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 2001.
19
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. 16
Any
significant or extended decline in oil and/or natural gas prices would have a
material adverse effect on our financial condition and results of operations.
TheOver the last 10 years, the contract drilling business has previously experienced
increased demand for drilling services from 1995 through most of 1997 and from
mid-1999 through the second quarter of 2001. However, except for those periods and other
occasional upturns, generally,Generally, there have been
substantially more drilling rigs available than necessary to meet demand in
most operational and geographic segments of the North American land drilling
industry. As a result, drilling contractors have had difficulty sustaining
profit margins.
IMPACT OF INFLATION
We believe that inflation will not have a significant near-term impact on
our financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We currently have no significant 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 exposure associated with the
floating rate of the interest charged on that balance. The revolving credit
facility calls for periodic interest payments at a floating rate ranging from
LIBOR plus 1.75 %1.75% to 2.75%. The applicable rate above LIBOR (1.75% at March 31,June 30,
2003) is based upon our trailing twelve-month EBITDA (earnings before interest
expense, income taxes, and depreciation, depletion, and amortization expense).
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.
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days before filing this report, we evaluated the effectiveness of
the design and operation of our disclosure controls and procedures. Our
disclosure controls and procedures are the controls and other procedures that we
designed to ensure that we record, process, summarize and report in a timely
manner the information we must disclose in reports that we file with or submit
to the SEC. Our disclosure controls and procedures include our internal
accounting controls. Based on our evaluation, our disclosure controls and
procedures were effective.
There were no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of
our evaluation.
1720
----------
FORWARD LOOKING STATEMENTS AND CAUTIONARY STATEMENTS 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 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 Changes in prices and demand for oil and natural gas;
o Changes 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 "Forward Looking Statements and Cautionary Statements 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,
2002, 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.
----------
1821
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On April 30, 2003, the Company held its Annual Meeting of Stockholders.
At the meeting, the stockholders voted on the following matters:
1. The election of nine persons to serve as directors of the
Company.
2. An amendment to the Company's Amended and Restated 1997 Long-Term
Incentive Plan to increase the number of shares available for
issuance under such plan.
3. An amendment to the Company's Amended and Restated Non-Employee
Director Stock Option Plan to increase the number of options that
would be issued to new directors and the number of options that
would be issued to directors annually.
4. Ratification of the appointment of PricewaterhouseCoopers LLP as
the independent accountants of the Company for the fiscal year
ending December 31, 2003.
The nine nominees to the Board of Directors of the Company were elected
at the meeting, and the other proposals received the affirmative vote required
for approval. The number of votes cast for, against or withheld, as well as the
number of abstentions and broker non-votes, were as follows:
Votes For Votes Withheld
--------- --------------
1. Election of Directors
Mark S. Siegel 58,945,299 10,873,995
Cloyce A. Talbott 59,117,573 10,701,721
A. Glenn Patterson 59,112,683 10,706,611
Kenneth N. Berns 59,110,963 10,708,331
Robert C. Gist 68,969,619 849,675
Curtis W. Huff 68,985,843 833,451
Terry H. Hunt 68,985,455 833,839
Kenneth R. Peak 68,971,628 847,666
Nadine C. Smith 68,978,047 841,247
Broker
Votes For Votes Against Abstentions Non-votes
--------- ------------- ----------- ---------
2. Amendment to the Company's
Amended and Restated 1997
Long-Term Incentive Plan 57,567,192 11,773,302 478,800 0
Broker
Votes For Votes Against Abstentions Non-votes
--------- ------------- ----------- ---------
3. Amendment to the Company's
Amended and Restated
Non-Employee Director Stock
Option Plan 67,054,913 2,285,276 479,105 0
Broker
Votes For Votes Against Abstentions Non-votes
--------- ------------- ----------- ---------
4. Ratification of
PricewaterhouseCoopers LLP as
the Company's Independent
Accountants 67,512,386 2,305,170 1,738 0
22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
The following exhibits are filed herewith or incorporated by reference,
as indicated:
2.1 Agreement and Plan of Merger dated March 10, 2002, among Patterson-UTI
Energy, Inc., Patterson-UTI Drilling Company LP, LLLP and Odin
Drilling, Inc.(1)
2.2 Stock Purchase Agreement dated as of June 11, 2002 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.(2)
2.3 Stock Purchase Agreement dated as of October 28, 2002 by and between
Patterson-UTI Energy, Inc. and J. Mark Roper.(3)
2.4 Agreement and Plan of Merger, dated as of May 26, 2003, by and among
Patterson-UTI Energy, Inc., Patterson-UTI Acquisition, LLC and
TMBR/Sharp Drilling, Inc.(4)
3.1 Restated Certificate of Incorporation.(4)
3.1.1 Certificate of Correction of Restated Certificate of Incorporation.(5)Incorporation, as amended.
3.2 Amended and Restated Bylaws.(5)
3.34.1 Rights Agreement dated January 2, 1997, between Patterson Energy, Inc.
and Continental Stock Transfer & Trust Company.(6)
3.3.14.2 Amendment to Rights Agreement dated as of October 23, 2001.(7)
4.1 Excerpt from4.3 Restated Certificate of Incorporation, of Patterson-UTI
Energy, Inc. regarding authorized Common Stock and Preferred Stock.(8)
4.2 Certificate of Designation.(9)
4.2.1 Amendment to Certificate of Designation.(5)
4.3as amended (see Exhibit 3.1).
4.4 Registration Rights Agreement with Bear, Stearns and Co. Inc., dated
March 25, 1994, as assigned to REMY Capital Partners III, L.P.(5)
4.44.5 Patterson-UTI Energy, Inc. 1993 Stock Incentive Plan, as amended.(10)(8)*
4.54.6 Patterson-UTI Energy, Inc. Non-Employee Directors' Stock Option Plan,
as amended.(11)(9)*
4.64.7 Patterson-UTI Energy, Inc. Amended and Restated 1997 Long-Term
Incentive Plan.(12)*
4.74.8 Amended and Restated Patterson-UTI Energy, Inc. Non-Employee Director
Stock Option Plan of
Patterson-UTI Energy, Inc.(13)Plan.*
4.84.9 Amended and Restated Patterson-UTI Energy, Inc. 1996 Employee Stock
Option Plan.(13)(10)*
4.94.10 1997 Stock Option Plan of DSI Industries, Inc.(12)(11)*
4.104.11 Stock Option Agreement dated July 20, 2001 between Patterson-UTI
Energy, Inc. and Kenneth R. Peak (a non-employee director of
Patterson-UTI Energy, Inc.).(5)*
19
4.11 Stock Option Agreement dated July 20, 2001 between Patterson-UTI
Energy, Inc. and Stephen J. DeGroat (a non-employee director of
Patterson-UTI Energy, Inc.).(5)*
10.1 For additional material contracts, see Exhibits 4.34.1, 4.2 and 4.4
through 4.11.
10.2 Amended and Restated Loan and Security Agreement, dated July 26,
2002.(8)
10.3 Revolving Loan Promissory Note, dated July 26, 2002.(8)(12)
10.4 Amended and Restated Guaranty Agreement, dated July 26, 2002.(8)(12)
23
10.5 Amended and Restated Pledge Agreement, dated July 26, 2002.(8)(12)
10.6 Model Form Operating Agreement.(14)(13)
10.7 Form of Drilling Bid Proposal and Footage Drilling Contract.(14)(13)
10.8 Form of Turnkey Drilling Agreement.(14)(13)
99.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 USC Section 1350, as Adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
- ----------
(1) 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.
(2) Incorporated herein by reference to Item 7, "Material to be Filed as
Exhibits" to Amendment No. 1 to Schedule 13D filed on October 31,
2002.
(3) 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, 2002.
(4) Incorporated herein by reference to Item 7, "Financial Statements and
Exhibits"Exhibit 2.1 to Form 8-K dated andof
TMBR/Sharp Drilling, Inc. filed on May 8, 2001.27, 2003.
(5) Incorporated herein by reference to Item 14, "Exhibits, Financial
Statement Schedules and Reports on Form 8-K" to Annual Report on Form
10-K for the fiscal year ended December 31, 2001.
(6) Incorporated by reference to Item 2, "Exhibits" to Registration
Statement on Form 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 September 30,
2001, filed on October 31, 2001.
(8) Incorporated herein by reference to Item 8, "Exhibits" to Registration
Statement on Form S-8 (File No. 33-39471) filed on March 13, 1998.
(9) Incorporated herein by reference to Item 8, "Exhibits" to Registration
Statement on Form S-8 (File No. 33-39471) filed on November 4, 1997.
(10) Incorporated herein by reference to Item 8, "Exhibits" to
Post-Effective Amendment No. 1 to Registration Statement on Form S-8
(File No. 333-60466) filed on July 25, 2001.
(11) Incorporated herein by reference to Item 8, "Exhibits" to
Post-Effective Amendment No. 1 to Registration Statement on Form S-8
(File No. 333-60470) filed on July 25, 2001.
(12) 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.
(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 8, "Exhibits" to Registration
Statement on Form S-8 (File No. 33-39471) filed on March 13, 1998.
(11) Incorporated herein by reference to Item 8, "Exhibits" to Registration
Statement on Form S-8 (File No. 33-39471) filed on November 4, 1997.
(12) Incorporated herein by reference to Item 8, "Exhibits" to
Post-Effective Amendment No. 1 to Registration Statement on Form S-8
(file No. 333-60470) filed on July 25, 2001.
(13) Incorporated herein by reference to Item 8, "Exhibits" to
Post-Effective Amendment No.1 to Registration Statement on Form S-8
(file No. 333-60466) filed on July 25, 2001.
(14) Incorporated by reference to Item 27, "Exhibits" to Registration
Statement on Form SB-2 (File No. 33-68058-FW) filed on August 30,
1993.
* Management Contract or Compensatory Plan identified as required by
Item 15(a)(3) of Form 10-K.
(b) Reports on Form 8-K.
There were no reports(1) On May 1, 2003, the Company furnished a Current Report on Form
8-K, dated April 30, 2003, furnishing the Company's public
announcement of its first quarter 2003 results from
operations, including the Condensed Consolidated Statements of
Income and Additional Financial and Operating Data.
(2) On May 27, 2003, the Company filed duringa Current Report on Form
8-K, dated may 26, 2003, announcing the three months ended
March 31, 2003.
20Company's definitive
merger agreement with TMBR/Sharp Drilling, Inc.
24
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 1,July 28, 2003
2125
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Cloyce A. Talbott, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of Patterson-UTI Energy,
Inc.;
(2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
(4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weakness in
internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
(6) The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weakness.
Date: May 1,July 28, 2003
/s/ Cloyce A. Talbott
-----------------------------------------------------------
Cloyce A. Talbott
Chief Executive Officer
2226
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Jonathan D. Nelson, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of Patterson-UTI Energy,
Inc.;
(2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
(4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weakness in
internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
(6) The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weakness.
Date: May 1,July 28, 2003
/s/ Jonathan D. Nelson
--------------------------------------------------------------
Jonathan D. Nelson
Vice President, Chief Financial Officer,
Secretary and Treasurer
27
EXHIBIT INDEX
TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
- ------- -----------
2.1 Agreement and Plan of Merger dated March 10, 2002, among Patterson-UTI
Energy, Inc., Patterson-UTI Drilling Company LP, LLLP and Odin
Drilling, Inc.(1)
2.2 Stock Purchase Agreement dated as of June 11, 2002 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.(2)
2.3 Stock Purchase Agreement dated as of October 28, 2002 by and between
Patterson-UTI Energy, Inc. and J. Mark Roper.(3)
3.1 Restated Certificate of Incorporation.(4)
3.1.1 Certificate of Correction of Restated Certificate of Incorporation.(5)2.1 Agreement and Plan of Merger dated March 10, 2002, among Patterson-UTI
Energy, Inc., Patterson-UTI Drilling Company LP, LLLP and Odin
Drilling, Inc.(1)
2.2 Stock Purchase Agreement dated as of June 11, 2002 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.(2)
2.3 Stock Purchase Agreement dated as of October 28, 2002 by and between
Patterson-UTI Energy, Inc. and J. Mark Roper.(3)
2.4 Agreement and Plan of Merger, dated as of May 26, 2003, by and among
Patterson-UTI Energy, Inc., Patterson-UTI Acquisition, LLC and
TMBR/Sharp Drilling, Inc.(4)
3.1 Restated Certificate of Incorporation, as amended.
3.2 Amended and Restated Bylaws.(5)
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.(7)
4.1 Excerpt from Restated Certificate of Incorporation of Patterson-UTI
Energy, Inc. regarding authorized Common Stock and Preferred Stock.(8)
4.2 Certificate of Designation.(9)
4.2.1 Amendment to Certificate of Designation.(5)
4.3 Registration Rights Agreement with Bear, Stearns and Co. Inc., dated
March 25, 1994, as assigned to REMY Capital Partners III, L.P.(5)
4.1 Rights Agreement dated January 2, 1997, between Patterson Energy, Inc.
and Continental Stock Transfer & Trust Company.(6)
4.2 Amendment to Rights Agreement dated as of October 23, 2001.(7)
4.3 Restated Certificate of Incorporation, as amended (see Exhibit 3.1).
4.4 Registration Rights Agreement with Bear, Stearns and Co. Inc., dated
March 25, 1994, as assigned to REMY Capital Partners III, L.P.(5)
4.5 Patterson-UTI Energy, Inc. 1993 Stock Incentive Plan, as amended.(8)*
4.6 Patterson-UTI Energy, Inc. Non-Employee Directors' Stock Option Plan,
as amended.(9)*
4.7 Patterson-UTI Energy, Inc. Amended and Restated 1997 Long-Term
Incentive Plan.*
4.8 Amended and Restated Patterson-UTI Energy, Inc. Non-Employee Director
Stock Option Plan.*
4.9 Amended and Restated Patterson-UTI Energy, Inc. 1996 Employee Stock
Option Plan.(10)*
4.5 Patterson-UTI Energy, Inc. Non-Employee Directors' Stock Option Plan,
as amended.(11)*
4.6 Patterson-UTI Energy, Inc. Amended and Restated 1997 Long-Term
Incentive Plan.(12)*
4.7 Amended and Restated Non-Employee Director Stock Option Plan of
Patterson-UTI Energy, Inc.(13)*
4.8 Amended and Restated Patterson-UTI Energy, Inc. 1996 Employee Stock
Option Plan.(13)*
4.9 1997 Stock Option Plan of DSI Industries, Inc.(12)*
4.10 1997 Stock Option Plan of DSI Industries, Inc.(11)*
4.11 Stock Option Agreement dated July 20, 2001 between Patterson-UTI
Energy, Inc. and Kenneth R. Peak (a non-employee director of
Patterson-UTI Energy, Inc.).(5)*
10.1 For additional material contracts, see Exhibits 4.1, 4.2 and 4.4
through 4.11.
10.2 Amended and Restated Loan and Security Agreement, dated July 26,
2002.(8)
10.3 Revolving Loan Promissory Note, dated July 26, 2002.(12)
10.4 Amended and Restated Guaranty Agreement, dated July 26, 2002.(12)
28
EXHIBIT
NO. DESCRIPTION
- ------- -----------
4.11 Stock Option Agreement dated July 20, 2001 between Patterson-UTI
Energy, Inc. and Stephen J. DeGroat (a non-employee director of
Patterson-UTI Energy, Inc.).(5)*
10.1 For additional material contracts, see Exhibits 4.3 through 4.11.
10.2 Amended and Restated Loan and Security Agreement, dated July 26,
2002.(8)
10.3 Revolving Loan Promissory Note, dated July 26, 2002.(8)
10.4 Amended and Restated Guaranty Agreement, dated July 26, 2002.(8)
10.5 Amended and Restated Pledge Agreement, dated July 26, 2002.(8)
10.6 Model Form Operating Agreement.(14)
10.7 Form of Drilling Bid Proposal and Footage Drilling Contract.(14)
10.8 Form of Turnkey Drilling Agreement.(14)10.5 Amended and Restated Pledge Agreement, dated July 26, 2002.(12)
10.6 Model Form Operating Agreement.(13)
10.7 Form of Drilling Bid Proposal and Footage Drilling Contract.(13)
10.8 Form of Turnkey Drilling Agreement.(13)
99.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 USC Section 1350, as Adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
- ----------
(1) 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.
(2) Incorporated herein by reference to Item 7, "Material to be Filed as
Exhibits" to Amendment No. 1 to Schedule 13D filed on October 31,
2002.
(3) 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, 2002.
(4) Incorporated herein by reference to Item 7, "Financial Statements and
Exhibits"Exhibit 2.1 to Form 8-K dated andof
TMBR/Sharp Drilling, Inc. filed on May 8, 2001.27, 2003.
(5) Incorporated herein by reference to Item 14, "Exhibits, Financial
Statement Schedules and Reports on Form 8-K" to Annual Report on Form
10-K for the fiscal year ended December 31, 2001.
(6) Incorporated by reference to Item 2, "Exhibits" to Registration
Statement on Form 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 September 30,
2001, filed on October 31, 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 June 30, 2001,
filed on August 1, 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 8, "Exhibits" to Registration
Statement on Form S-8 (File No. 33-39471) filed on March 13, 1998.
(11)(9) Incorporated herein by reference to Item 8, "Exhibits" to Registration
Statement on Form S-8 (File No. 33-39471) filed on November 4, 1997.
(12)(10) Incorporated herein by reference to Item 8, "Exhibits" to
Post-Effective Amendment No. 1 to Registration Statement on Form S-8
(file No. 333-60466) filed on July 25, 2001.
(11) Incorporated herein by reference to Item 8, "Exhibits" to
Post-Effective Amendment No. 1 to Registration Statement on Form S-8
(file No. 333-60470) filed on July 25, 2001.
(13)(12) Incorporated herein by reference to Item 8, "Exhibits" to
Post-Effective Amendment No.1 to Registration Statement6, "Exhibits and Reports on
Form S-8
(file No. 333-60466)8-K" to Form 10-Q for the quarterly period ended June 30, 2001,
filed on July 25,August 1, 2001.
(14)(13) Incorporated by reference to Item 27, "Exhibits" to Registration
Statement on Form SB-2 (File No. 33-68058-FW) filed on August 30,
1993.
* Management Contract or Compensatory Plan identified as required by
Item 15(a)(3) of Form 10-K.
29