Back to GetFilings.com
================================================================================
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 September 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-22664
PATTERSON-UTI ENERGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of 75-2504748
incorporation or organization) (I.R.S. Employer Identification No.)
P. O. BOX 1416, 4510 LAMESA HIGHWAY, SNYDER, TEXAS, 79550
(Address of principal executive offices) (Zip Code)
(915) 574-6300
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
79,181,019 shares of common stock, $0.01 par value, as of October 22, 2002
================================================================================
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Part I - Financial Information PAGE
----
Item 1. Financial Statements
Unaudited condensed consolidated balance sheets............................ 3
Unaudited condensed consolidated statements of operations.................. 4
Unaudited condensed consolidated statement of stockholders' equity......... 5
Unaudited condensed consolidated statements of cash flows.................. 6
Notes to unaudited condensed consolidated financial statements............. 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................... 18
Item 4. Controls and Procedures........................................................ 18
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995................................................... 19
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds...................................... 20
Item 6. Exhibits and Reports on Form 8-K............................................... 20
Signatures....................................................................................... 22
Certifications................................................................................... 23
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)
SEPTEMBER 30, DECEMBER 31,
2002 2001
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents .............................................................. $ 63,618 $ 33,584
Accounts receivable, net of allowance for doubtful accounts of $3,620 at
September 30, 2002 and $4,021 at December 31, 2001 ................................... 92,417 133,837
Federal and state income taxes receivable, net ......................................... 28,791 1,673
Inventory .............................................................................. 15,057 16,272
Deferred tax assets .................................................................... 11,924 8,747
Other .................................................................................. 5,105 5,345
----------- -----------
Total current assets ............................................................... 216,912 199,458
Property and equipment, at cost, net ....................................................... 629,601 614,420
Goodwill and other intangible assets, net .................................................. 51,356 51,634
Investment in equity securities ............................................................ 12,544 --
Other ...................................................................................... 2,291 4,130
----------- -----------
Total assets........................................................................ $ 912,704 $ 869,642
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Trade ............................................................................... $ 32,323 $ 47,945
Other ............................................................................... 2,428 4,833
Accrued expenses ....................................................................... 35,939 36,508
----------- -----------
Total current liabilities .......................................................... 70,690 89,286
Deferred tax liabilities ................................................................... 121,319 92,859
Other ...................................................................................... 2,826 355
----------- -----------
Total liabilities .................................................................. 194,835 182,500
----------- -----------
Commitments and contingencies .............................................................. -- --
Stockholders' equity:
Preferred stock, par value $.01; authorized 1,000 shares, no shares issued ............. -- --
Common stock, par value $.01; authorized 200,000 shares with 80,534 and
and 78,463 issued and 79,027 and 76,956 outstanding at
September 30, 2002 and December 31, 2001, respectively ............................ 805 784
Additional paid-in capital ............................................................. 471,772 441,475
Retained earnings ...................................................................... 259,173 258,834
Accumulated other comprehensive loss ................................................... (2,226) (2,296)
Treasury stock, at cost, 1,507 shares .................................................. (11,655) (11,655)
----------- -----------
Total stockholders' equity ......................................................... 717,869 687,142
----------- -----------
Total liabilities and stockholders' equity.......................................... $ 912,704 $ 869,642
=========== ===========
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
3
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Operating revenues:
Drilling .......................................... $ 100,267 $ 248,942 $ 300,668 $ 702,174
Drilling and completion fluids .................... 19,714 24,369 52,049 71,555
Pressure pumping .................................. 9,649 12,144 23,691 28,231
Other ............................................. 3,865 3,649 10,673 13,294
----------- ----------- ----------- -----------
133,495 289,104 387,081 815,254
----------- ----------- ----------- -----------
Operating costs and expenses:
Drilling .......................................... 80,374 131,573 232,129 399,494
Drilling and completion fluids .................... 16,393 20,903 44,965 60,478
Pressure pumping .................................. 5,618 6,231 14,127 15,381
Depreciation, depletion and amortization .......... 23,178 23,211 68,470 61,912
General and administrative ........................ 6,186 7,510 19,139 22,876
Bad debt expense .................................. 165 113 195 1,566
Merger costs ...................................... -- -- -- 5,943
Restructuring and other charges ................... -- -- 4,700 7,202
Other ............................................. 898 691 2,836 3,121
----------- ----------- ----------- -----------
132,812 190,232 386,561 577,973
----------- ----------- ----------- -----------
Operating income ...................................... 683 98,872 520 237,281
----------- ----------- ----------- -----------
Other income (expense):
Interest income ................................... 261 267 754 1,783
Interest expense .................................. (93) (365) (298) (3,087)
Other ............................................. (135) 27 (110) 158
----------- ----------- ----------- -----------
33 (71) 346 (1,146)
----------- ----------- ----------- -----------
Income before income taxes ............................ 716 98,801 866 236,135
----------- ----------- ----------- -----------
Income tax expense (benefit):
Current ........................................... (9,868) 36,760 (21,219) 73,189
Deferred .......................................... 10,335 1,659 21,746 17,487
----------- ----------- ----------- -----------
467 38,419 527 90,676
----------- ----------- ----------- -----------
Net income ............................................ $ 249 $ 60,382 $ 339 $ 145,459
=========== =========== =========== ===========
Net income per common share:
Basic ............................................. $ 0.00 $ 0.79 $ 0.00 $ 1.91
=========== =========== =========== ===========
Diluted ........................................... $ 0.00 $ 0.77 $ 0.00 $ 1.84
=========== =========== =========== ===========
Weighted average number of common shares
outstanding:
Basic ............................................. 78,964 76,567 78,378 76,272
=========== =========== =========== ===========
Diluted ........................................... 80,963 78,332 80,782 79,123
=========== =========== =========== ===========
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
4
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
(in thousands)
Common Stock Accumulated
------------------------- Additional other
Number of paid-in Retained comprehensive
shares Amount capital earnings loss Treasury stock Total
----------- ----------- ----------- ----------- ------------- -------------- -----------
Balance, December 31, 2001 ....... 78,463 $ 784 $ 441,475 $ 258,834 $ (2,296) $ (11,655) $ 687,142
Issuance of common stock ......... 650 7 16,933 -- -- -- 16,940
Exercise of stock options......... 1,421 14 8,597 -- -- -- 8,611
Tax benefit related to exercise of
stock options ................ -- -- 4,767 -- -- -- 4,767
Foreign currency translation ..... -- -- -- -- 362 -- 362
Change in unrealized losses on
securities, net of tax.......... -- -- -- -- (292) -- (292)
Net income ....................... -- -- -- 339 -- -- 339
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, September 30, 2002 ...... 80,534 $ 805 $ 471,772 $ 259,173 $ (2,226) $ (11,655) $ 717,869
=========== =========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
5
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
2002 2001
----------- -----------
Cash flows from operating activities:
Net income .......................................................................... $ 339 $ 145,459
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization ............................................ 68,470 61,912
Bad debt expense .................................................................... 195 1,566
Deferred income tax expense ......................................................... 21,746 17,487
Tax benefit related to exercise of stock options .................................... 4,767 3,195
Other ............................................................................... (145) (323)
Changes in operating assets and liabilities:
Accounts receivable .................................................... 41,300 (79,147)
Inventory and other current assets ..................................... 1,456 1,913
Accrued federal income taxes receivable ................................ (27,423) 49,727
Accounts payable ....................................................... (15,642) (23,155)
Other liabilities ...................................................... (1,077) 18,211
----------- -----------
Net cash provided by operating activities .......................... 93,986 196,845
----------- -----------
Cash flows from investing activities:
Acquisitions ........................................................................ -- (27,045)
Purchases of property and equipment ................................................. (62,435) (131,624)
Proceeds from sales of property and equipment ....................................... 824 668
Purchase of investment equity securities, net of market value adjustments ........... (12,698) --
Change in other assets .............................................................. 1,845 (799)
----------- -----------
Net cash used in investing activities .............................. (72,464) (158,800)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable ............................................. -- 9,760
Payments of notes payable ........................................................... -- (89,176)
Proceeds from exercise of stock options ............................................. 8,611 5,078
----------- -----------
Net cash provided by (used in) financing activities ................ 8,611 (74,338)
----------- -----------
Net increase (decrease) in cash and cash equivalents ............... 30,133 (36,293)
Foreign currency translation adjustment ............................ (99) (104)
Cash and cash equivalents at beginning of period ......................................... 33,584 66,916
----------- -----------
Cash and cash equivalents at end of period ............................................... $ 63,618 $ 30,519
=========== ===========
Supplemental disclosure of cash flow information:
Net cash paid during the period for:
Interest .......................................................................... $ 298 $ 3,612
Income taxes ...................................................................... $ 294 $ 18,150
Non-cash investing and financing activities:
In March 2002, the Company acquired five SCR Electric land-based
drilling rigs through the acquisition of Odin Drilling, Inc., for a purchase
price of $16.9 million. The purchase price consisted of 650,000 shares of common
stock valued at $26.06 per share. A deferred tax liability of $4.1 million was
recorded as a result of the transaction.
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
6
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF CONSOLIDATION AND PRESENTATION
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, 2001, 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, 2001.
The U.S. dollar is the functional currency for all of the Company's
operations except for its Canadian operations, which use the Canadian dollar as
functional currency. The effects of exchange rate changes are reflected in
accumulated other comprehensive income, which is a separate component of
stockholders' equity (See Note 4).
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 loss in our consolidated balance sheet as of
September 30, 2002 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 Operations: 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 nine months ended September 30, 2002, dilutive securities included
in the calculation of Diluted EPS were 2.0 million shares and 2.4 million
shares, respectively. For the three and nine months ended September 30, 2001,
dilutive securities of 1.8 million shares and 2.9 million shares, respectively,
were included in the calculation of Diluted EPS. For the three and nine month
periods ended September 30, 2002, there were 2.3 million and 2.2 million,
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 prices for the respective periods.
The results of operations for the three and nine months ended September 30,
2002, are not necessarily indicative of the results to be expected for the full
year.
Certain reclassifications have been made to the 2001 consolidated financial
statements in order for them to conform with the 2002 presentation.
2. RECENT ACQUISITION
Odin Drilling, Inc. -- In March 2002, the Company acquired five SCR
Electric land-based drilling rigs through the acquisition of Odin Drilling,
Inc., for a purchase price of $16.9 million. The purchase price consisted of
650,000 shares of common stock valued at $26.06 per share. A deferred tax
liability of $4.1 million was recorded as a result of the transaction. The
transaction was accounted for as a purchase and the related purchase price was
allocated among the rigs based on their estimated fair values.
7
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
2. RECENT ACQUISITION - (CONTINUED)
Odin Drilling, Inc. had no operations prior to its acquisition by the
Company. No goodwill was recorded in connection with this acquisition.
3. STOCKHOLDERS' EQUITY
In March 2002, the Company issued 650,000 shares of its common stock as
consideration for the acquisition of Odin Drilling, Inc. (see Note 2). The
common stock was valued at $26.06 per share, its fair market value on the date
the terms of the transaction were agreed upon.
4. COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table illustrates the Company's comprehensive income (loss)
including the effects of foreign currency translation adjustments for the three
and nine months ended September 30, 2002 and 2001 (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- -----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net income ....................................... $ 249 $ 60,382 $ 339 $ 145,459
Other comprehensive income (loss):
Foreign currency translation adjustment ... (1,717) (1,628) 362 (1,982)
Unrealized losses on equity
securities, net of tax ................ (292) -- (292) --
------------ ------------ ------------ ------------
Comprehensive income (loss) ...................... $ (1,760) $ 58,754 $ 409 $ 143,477
============ ============ ============ ============
5. RESTRUCTURING AND OTHER CHARGES
The Company recognized an expense of $4.7 million in the second quarter of
2002 due to the financial failure of a workers' compensation insurance carrier
that had provided coverage for the Company between 1992 and March of 2001. As a
result of the financial failure of this insurance carrier, the Company expects
to incur cash outlays related to workers' compensation claims involving
incidents that occurred during the coverage period. The amount recorded includes
estimates for the costs of these claims.
8
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
6. BUSINESS SEGMENTS
Our revenues, operating profits and identifiable assets are primarily
attributable to three industry segments: contract drilling, drilling and
completion fluid services and pressure pumping services. Separate financial data
for each of our three business segments is provided below (in thousands).
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenues:
Drilling .......................................... $ 100,267 $ 248,942 $ 300,668 $ 702,174
Drilling and completion fluids .................... 19,714 24,369 52,049 71,555
Pressure pumping .................................. 9,649 12,144 23,691 28,231
Corporate and other ............................... 3,865 3,649 10,673 13,294
------------ ------------ ------------ ------------
Total operating revenues .............................. $ 133,495 $ 289,104 $ 387,081 $ 815,254
============ ============ ============ ============
Income (loss) from operations:
Drilling .......................................... $ (1,031) $ 98,013 $ 5,376 $ 245,339
Drilling and completion fluids .................... 982 706 163 3,308
Pressure pumping .................................. 2,376 4,425 4,470 8,718
Corporate and other ............................... (1,644) (4,272) (4,789) (6,939)
Merger costs, restructuring and other charges ..... -- -- (4,700) (13,145)
------------ ------------ ------------ ------------
683 98,872 520 237,281
Interest income ....................................... 261 267 754 1,783
Interest expense ...................................... (93) (365) (298) (3,087)
Other ................................................. (135) 27 (110) 158
------------ ------------ ------------ ------------
Income before income taxes ............................ $ 716 $ 98,801 $ 866 $ 236,135
============ ============ ============ ============
SEPTEMBER 30, DECEMBER 31,
2002 2001
--------------- ---------------
Identifiable assets:
Drilling ........................................ $ 692,038 $ 681,700
Drilling and completion fluids .................. 34,276
41,724
Pressure pumping ................................ 33,642
29,473
Corporate and other (a) ......................... 152,748 116,745
--------------- ---------------
$ 912,704 $ 869,642
=============== ===============
(a) Corporate and other assets primarily includes cash managed by the parent and
oil and natural gas properties.
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. SFAS No. 143 is effective for fiscal years beginning after
June 15, 2002. The provisions of SFAS No. 143 are not expected to have a
material impact on the Company's consolidated financial statements.
The FASB issued Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," ("SFAS No.
144") in August 2001. SFAS No. 144 addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. The provisions of SFAS No.
144, which the Company adopted on January 1, 2002, did not have an impact on the
Company's consolidated financial statements.
9
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
7. RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)
The FASB issued Statement of Financial Accounting Standards No. 145,
"Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No.
13, and Technical Corrections," ("SFAS No. 145") in April 2002. SFAS No. 145
amends existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions. The provisions of SFAS No. 145 are not expected to have a material
impact on the Company's consolidated financial statements.
The FASB issued Statement of Financial Accounting Standards No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities," ("SFAS No.
146") in June 2002. SFAS No. 146 addresses financial accounting and reporting
for costs associated with exit or disposal activities. SFAS No. 146 is effective
for exit or disposal activities that are initiated after December 31, 2002. The
provisions of SFAS No. 146 are not expected to have a material impact on the
Company's consolidated financial statements.
8. GOODWILL AND OTHER INTANGIBLE ASSETS
Effective January 1, 2002 we adopted Statement of Financial Accounting
Standards 142, "Goodwill and Other Intangible Assets". This accounting
pronouncement requires that the Company cease amortization of all intangible
assets having indefinite useful economic lives. Such assets, including goodwill,
are not to be amortized until their lives are determined to be finite, however,
a recognized intangible asset with an indefinite useful life should be tested
for impairment annually or on an interim basis if events or circumstances
indicate that the fair value of the asset has decreased below its carrying
value. During the second quarter of 2002, the Company completed a transitional
test of its goodwill impairment. As a result, no change to the valuation of
goodwill was determined to be necessary.
Other intangible assets include covenants-not-to-compete and other
agreements. All of our intangible assets that have definite lives are being
amortized on a straight-line basis over their estimated useful lives. SFAS Nos.
141 and 142 also require disclosure of the following information related to
goodwill and other intangible assets (in thousands):
SEPTEMBER 30, DECEMBER 31,
2002 2001
----------- -----------
Goodwill .......................................... $ 69,860 $ 69,860
Accumulated amortization .......................... (19,661) (19,661)
----------- -----------
Goodwill, net ..................................... 50,199 50,199
----------- -----------
Covenants-not-to-compete and other ................ 3,629 3,635
Accumulated amortization .......................... (2,472) (2,200)
----------- -----------
Other intangible assets, net ...................... 1,157 1,435
----------- -----------
Total goodwill and other intangible assets, net ... $ 51,356 $ 51,634
=========== ===========
Change in the net carrying amount of goodwill for the nine months ended
September 30, 2002 is as follows (in thousands):
DRILLING &
COMPLETION
DRILLING FLUIDS TOTAL
----------- ----------- -----------
Balance at December 31, 2001 ............ $ 40,265 $ 9,934 $ 50,199
Changes to goodwill ..................... -- -- --
----------- ----------- -----------
Balance at September 30, 2002 ........... $ 40,265 $ 9,934 $ 50,199
=========== =========== ===========
10
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
8. GOODWILL AND INTANGIBLE ASSETS - (CONTINUED)
Amortization expense of approximately $944,000 and $2.7 million, recognized
during the three and nine months ended September 30, 2001, respectively, would
not have been recognized under SFAS No. 142. Amortization expense consists of
the following (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Goodwill .............................................. $ -- $ 944 $ -- $ 2,705
Covenants-not-to-compete and other .................... 47 136 272 470
---------- ---------- ---------- ----------
$ 47 $ 1,080 $ 272 $ 3,175
========== ========== ========== ==========
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):
2003................... $ 134
2004................... $ 97
2005................... $ 97
2006................... $ 97
2007................... $ 97
Had SFAS No. 142 been in effect prior to January 1, 2002, our reported net
income and net income per share would have been as follows (in thousands, except
per share amounts):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
Net income: 2002 2001 2002 2001
------------ ------------ ------------ ------------
Reported .......................... $ 249 $ 60,382 $ 339 $ 145,459
Goodwill amortization ............. -- 944 -- 2,705
------------ ------------ ------------ ------------
Adjusted .......................... $ 249 $ 61,326 $ 339 $ 148,164
============ ============ ============ ============
Basic net income per common share:
Reported .......................... $ 0.00 $ 0.79 $ 0.00 $ 1.91
Effect of goodwill amortization ... -- 0.01 -- 0.03
------------ ------------ ------------ ------------
Adjusted .......................... $ 0.00 $ 0.80 $ 0.00 $ 1.94
============ ============ ============ ============
Diluted net income per common share:
Reported .......................... $ 0.00 $ 0.77 $ 0.00 $ 1.84
Effect of goodwill amortization ... -- 0.01 -- 0.03
------------ ------------ ------------ ------------
Adjusted .......................... $ 0.00 $ 0.78 $ 0.00 $ 1.87
============ ============ ============ ============
9. INVESTMENT IN EQUITY SECURITIES
On June 11, 2002, the Company entered into an agreement to purchase 762,597
shares of the common stock of TMBR/Sharp Drilling, Inc. ("TMBR"), $.10 par value
per share, for an aggregate cash purchase price of $12.7 million, or $16.60 per
share including approximately $39,000 of additional costs incurred to acquire
the shares. The purchase of these unregistered shares was completed on June 14,
2002. The agreement also includes (i) an option for the Company to purchase, and
(ii) an option for the sellers to require the Company to purchase, up to an
additional 195,000 shares of common stock at $16.60 per share. These options
expire on December 16, 2002. The fair value of the net option liability using
the Black-Scholes model, was estimated to be approximately $500,000. The option
liability and related net deferred tax asset of approximately $187,000 were
recorded as a component
11
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
9. INVESTMENT IN EQUITY SECURITIES (CONTINUED)
of the Company's original purchase of the TMBR common stock. The change, which
was an increase of approximately $146,000 for the period ended September 30,
2002, in the fair value of the net option liability is recognized in other
income (expense) in the accompanying unaudited condensed consolidated statement
of operations.
The accounting treatment of shares representing the Company's investment in
the common stock of TMBR is effected by the Company's ability to sell shares
within one year. As of September 30, 2002, the Company has restrictions on its
ability to sell 650,861 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 Investments in Common Stock," ("APB 18"). The remaining
111,736 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 loss on its
investment in equity securities as of September 30, 2002 (in thousands, except
share amount):
COMMON UNREALIZED
TMBR/Sharp Drilling, Inc.: SHARES COST LOSS TOTAL
----------- ----------- ----------- -----------
Cost method ................................. 650,861 $ 11,104 $ -- $ 11,104
Available-for-Sale .......................... 111,736 1,906 (466) 1,440
----------- ----------- ----------- -----------
762,597 $ 13,010 $ (466) $ 12,544
=========== =========== =========== ===========
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 have been no significant developments in these
proceedings since year-end 2001.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2002, we had working capital of approximately $146.2
million including cash and cash equivalents of $63.6 million. For the nine
months ended September 30, 2002, our primary sources of cash flow were:
o $93.9 million provided by operations, including a $1.4 million net
decrease in related working capital accounts, and
o $8.6 million from the exercise of stock options.
Correspondingly, we used approximately $12.7 million for the acquisition of
approximately 18% of the shares outstanding of TMBR/Sharp Drilling, Inc. (see
Note 9), and approximately $62.4 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 March 2002, the Company acquired five SCR Electric land-based drilling
rigs through the acquisition of Odin Drilling, Inc., for $16.9 million. The
purchase price consisted of 650,000 shares of our common stock valued at $26.06
per share. A deferred tax liability of $4.1 million was recorded as a result of
the transaction. The purchase price was allocated among the rigs based on their
estimated fair values.
As of September 30, 2002, there were no amounts drawn under the Company's
$100.0 million revolving line of credit. The line of credit carries a floating
interest rate of LIBOR plus 1.75% to 2.75% based on twelve-month trailing
EBITDA. The facility has no financial covenants unless availability under the
facility is less than $20.0 million. At September 30, 2002, the Company had
letters of credit in the aggregate amount of $22.3 million for the benefit of
various insurance companies as collateral for retrospective premiums and
retained losses which could become payable under the terms of the underlying
insurance contracts.
We believe that the current level of cash and short-term investments,
together with cash generated from operations should be sufficient to meet our
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.
COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Westfort Energy LTD and Westfort Energy (US) LTD f/k/a Canadian Delta, Inc.
("Westfort"), filed a lawsuit against two Patterson-UTI subsidiaries, Patterson
Petroleum LP and Patterson Drilling Company LP, in the Circuit Court, Rankin
County, Mississippi, Case No. 2002-18. The lawsuit relates to a letter agreement
entered into in July 2000 between Patterson Petroleum and Westfort concerning
the drilling of a daywork well in Mississippi. This lawsuit was filed by
Westfort after Patterson Petroleum made demand on Westfort for payment of the
contract drilling services. There have been no significant developments in these
proceedings since year-end 2001.
On June 11, 2002, the Company entered into an agreement to purchase 762,597
shares of the common stock of TMBR/Sharp Drilling, Inc., $.10 par value per
share, for an aggregate cash purchase price of $12.7 million, or $16.60 per
share. The purchase of these shares was completed on June 14, 2002. The
agreement also includes (i) an option for the Company to purchase, and (ii) an
option for the sellers to require the Company to purchase, up to an additional
195,000 shares of common stock at $16.60 per share. These options expire on
December 16, 2002.
13
RESULTS OF OPERATIONS
The following tables summarize operations by business segment for the three
months ended September 30, 2002 and 2001:
CONTRACT DRILLING 2002 2001 % CHANGE
- ----------------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Revenues .............................................. $ 100,267 $ 248,942 (59.7)%
Direct operating costs ................................ $ 80,374 $ 131,573 (38.9)%
Selling, general and administrative ................... $ 918 $ 764 20.2%
Depreciation and amortization ......................... $ 20,006 $ 18,592 7.6%
Operating income (loss) ............................... $ (1,031) $ 98,013 N/A%
Operating days ........................................ 11,656 20,688 (43.7)%
Average revenue per operating day ..................... $ 8.60 $ 12.03 (28.5)%
Average direct operating cost per operating day ....... $ 6.90 $ 6.36 8.5%
Average margin per operating day ...................... $ 1.70 $ 5.67 (70.0)%
Number of owned rigs at end of period ................. 324 302 7.3%
Average number of rigs owned during period ............ 324 302 7.3%
Average rigs operating ................................ 127 225 (43.6)%
Rig utilization percentage ............................ 39% 74% (47.3)%
Capital expenditures .................................. $ 10,713 $ 40,013 (73.2)%
Industry conditions deteriorated significantly beginning in the third
quarter of 2001 until the second quarter of 2002 with the market price of
natural gas declining. As a result of these deteriorating industry conditions,
the Company's average rig utilization declined from 74% in the third quarter of
2001 to 37% in the second quarter of 2002. The market price for natural gas,
however, began to improve in the third quarter of 2002 as the price for natural
gas increased from $3.25 per Mcf at the end of the second quarter of 2002 to
$4.14 per Mcf at September 30, 2002. With the strengthening market price for
natural gas, the Company's average rig utilization increased marginally to 39%
in the third quarter of 2002 as compared to 37% in the second quarter of 2002.
The decreased operating results compared to the third quarter of 2001 were
reflective of a significant decline in demand for our contract drilling services
as evidenced by:
o decreases in average rig utilization and the number of operating
days and
o decreases in average daily margins due to declines in day rates
and increases in average costs per day.
The increased average cost per day is largely attributable to our efforts
to maintain our most experienced field personnel despite the significant decline
in rig utilization. Management believes this strategy is beneficial as it (1)
retains experienced personnel and (2) facilitates the Company's response to
increased demand levels as industry conditions improve.
DRILLING AND COMPLETION FLUIDS 2002 2001 % CHANGE
- ------------------------------ ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Revenues .................................... $ 19,714 $ 24,369 (19.1)%
Direct operating costs ...................... $ 16,393 $ 20,903 (21.6)%
Selling, general and administrative ......... $ 1,783 $ 2,067 (13.7)%
Depreciation and amortization ............... $ 556 $ 693 (19.8)%
Operating income ............................ $ 982 $ 706 39.1%
Total jobs .................................. 383 495 (22.6)%
Average revenue per job ..................... $ 51.47 $ 49.23 4.6%
Average costs per job ....................... $ 42.80 $ 42.23 1.3%
Average margin per job ...................... $ 8.67 $ 7.00 23.9%
Capital expenditures ........................ $ 154 $ 1,008 (84.7)%
The decreases in revenues and expenses for our drilling and completion
fluids operations were attributable to industry conditions, as discussed in
Contract Drilling above, and the resulting 22.6% decline in the number of jobs
completed in the 2002 quarter versus the 2001 quarter. The 13.7% decrease in
selling, general and administrative expenses is the result of decreases in
employee incentive compensation. Recent increases in drilling by customers,
primarily in the Gulf of Mexico, has resulted in improvements in our drilling
and completion fluids operations as
14
compared to the second quarter of 2002. This is evidenced by the recent rise in
total jobs from 352 in the second quarter of 2002 to 383 in the third quarter of
2002.
PRESSURE PUMPING 2002 2001 % CHANGE
- ---------------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Revenues .................................... $ 9,649 $ 12,144 (20.5)%
Direct operating costs ...................... $ 5,618 $ 6,231 (9.8)%
Selling, general and administrative ......... $ 975 $ 983 (0.8)%
Depreciation ................................ $ 680 $ 505 34.7%
Operating income ............................ $ 2,376 $ 4,425 (46.3)%
Total jobs .................................. 1,137 1,341 (15.2)%
Average revenue per job ..................... $ 8.49 $ 9.06 (6.3)%
Average costs per job ....................... $ 4.94 $ 4.65 6.2%
Average margin per job ...................... $ 3.55 $ 4.41 (19.5)%
Capital expenditures ........................ $ 2,018 $ 1,304 54.8%
The decreases in revenues and expenses for our pressure pumping operations
were attributable to industry conditions, as discussed in Contract Drilling
above. The number of jobs declined 15.2% and margin per job declined 19.5% as a
result of the more competitive pricing environment. Increased depreciation for
our pressure pumping operations can be attributed to expansion of our pressure
pumping operations during 2001 and 2002 into the Appalachian regions of Kentucky
and West Virginia. Capital expenditures increased as equipment and support
facilities were provided to facilitate servicing the new markets. A portion of
direct operating costs does not fluctuate with activity levels, therefore,
average costs per job increased for the third quarter ended 2002 compared to
2001.
CORPORATE AND OTHER 2002 2001 % CHANGE
- ------------------- ---------- ---------- ----------
(IN THOUSANDS)
Revenues ......................................... $ 3,865 $ 3,649 5.9%
Selling, general and administrative .............. $ 2,510 $ 3,696 (32.1)%
Bad debt expense ................................. $ 165 $ 113 46.0%
Depreciation, depletion and amortization ......... $ 1,936 $ 3,421 (43.4)%
Other expenses ................................... $ 898 $ 691 30.0%
Operating loss ................................... $ (1,644) $ (4,272) 61.5%
Merger costs ..................................... $ -- $ -- (0.0)%
Restructuring and other charges .................. $ -- $ -- (0.0)%
Capital expenditures ............................. $ 3,542 $ 2,865 23.6%
Increased revenues for the third quarter of 2002 compared to the third
quarter of 2001 are largely attributable to higher prices received from sales of
oil and natural gas. The decrease in selling, general and administrative expense
of 32.1% from the third quarter of 2001 relates to incentive bonuses accrued
during the third quarter of 2001. The decrease in depreciation, depletion and
amortization from the third quarter of 2001 to the third quarter of 2002 is due
to an approximate $2 million oil and natural gas property impairment taken in
the 2001 quarter.
15
The following tables summarize operations by business segment for the nine
months ended September 30, 2002 and 2001:
CONTRACT DRILLING 2002 2001 % CHANGE
- ----------------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Revenues .............................................. $ 300,668 $ 702,174 (57.2)%
Direct operating costs ................................ $ 232,129 $ 399,494 (41.9)%
Selling, general and administrative ................... $ 3,075 $ 4,396 (30.1)%
Depreciation and amortization ......................... $ 60,088 $ 52,945 13.5%
Operating income ...................................... $ 5,376 $ 245,339 (97.8)%
Operating days ........................................ 33,052 64,001 (48.4)%
Average revenue per operating day ..................... $ 9.09 $ 10.97 (17.1)%
Average direct operating cost per operating day ....... $ 7.02 $ 6.24 12.5%
Average margin per operating day ...................... $ 2.07 $ 4.73 (56.2)%
Number of owned rigs at end of period ................. 324 302 7.3%
Average number of rigs owned during period ............ 322 301 7.0%
Average rigs operating ................................ 121 234 (48.3)%
Rig utilization percentage ............................ 38% 78% (51.3)%
Capital expenditures .................................. $ 48,979 $ 114,952 (57.4)%
Industry conditions deteriorated significantly beginning in the third
quarter of 2001 until the second quarter of 2002 with the market price of
natural gas declining. As a result of these deteriorating industry conditions,
the Company's average rig utilization declined to 38% for the nine months ended
September 2002 from 78% for the comparable 2001 period.
The decreased operating results compared to the nine months ended 2001 were
reflective of a significant decline in demand for our contract drilling services
as evidenced by:
o decreases in average rig utilization and the number of operating
days and
o decreases in average daily margins due to declines in day rates
and increases in average costs per day.
The increased average cost per day is largely attributable to our efforts
to maintain our most experienced field personnel despite the significant decline
in rig utilization. Management believes this strategy is beneficial as it (1)
retains experienced personnel and (2) facilitates the Company's response to
increased demand levels as industry conditions improve. The decrease in general
and administrative expense is primarily the result of reduced incentive
compensation for the 2002 period.
DRILLING AND COMPLETION FLUIDS 2002 2001 % CHANGE
- ------------------------------ ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Revenues .................................... $ 52,049 $ 71,555 (27.3)%
Direct operating costs ...................... $ 44,965 $ 60,478 (25.7)%
Selling, general and administrative ......... $ 5,271 $ 5,855 (10.0)%
Depreciation and amortization ............... $ 1,650 $ 1,914 (13.8)%
Operating income (loss) ..................... $ 163 $ 3,308 (95.1)%
Total jobs .................................. 1,056 1,466 (28.0)%
Average revenue per job ..................... $ 49.29 $ 48.81 1.0%
Average costs per job ....................... $ 42.58 $ 41.25 3.2%
Average margin per job ...................... $ 6.71 $ 7.56 (11.2)%
Capital expenditures ........................ $ 1,095 $ 3,479 (68.5)%
The decreases in revenues and expenses for our drilling and completion
fluids operations were attributable to industry conditions, as discussed in
Contract Drilling above, and the resulting 28.0% decline in the number of jobs
completed in the nine months ended September 2002 versus the comparable period
in 2001. The 10.0% decrease in selling, general and administrative expenses is
the result of decreases in employee incentive compensation.
16
PRESSURE PUMPING 2002 2001 % CHANGE
- ---------------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Revenues .................................... $ 23,691 $ 28,231 (16.1)%
Direct operating costs ...................... $ 14,127 $ 15,381 (8.2)%
Selling, general and administrative ......... $ 3,136 $ 2,777 12.9%
Depreciation ................................ $ 1,958 $ 1,355 44.5%
Operating income ............................ $ 4,470 $ 8,718 (48.7)%
Total jobs .................................. 2,753 3,361 (18.1)%
Average revenue per job ..................... $ 8.61 $ 8.40 2.5%
Average costs per job ....................... $ 5.13 $ 4.58 12.0%
Average margin per job ...................... $ 3.48 $ 3.82 (8.9)%
Capital expenditures ........................ $ 4,392 $ 5,042 (12.9)%
The decreases in revenues and expenses for our pressure pumping operations
were attributable to industry conditions, as discussed in Contract Drilling
above. The number of jobs declined 18.1% and margin per job declined 8.9%.
Increased depreciation for our pressure pumping operations can be attributed to
expansion of our pressure pumping operations during 2001 and 2002 into the
Appalachian regions of Kentucky and West Virginia. Selling, general and
administrative expenses increased primarily as a result of our expansion into
these new markets. A portion of direct operating costs does not fluctuate with
activity levels, therefore, average costs per job increased for 2002 compared to
2001.
CORPORATE AND OTHER 2002 2001 % CHANGE
- ------------------- ---------- ---------- ----------
(IN THOUSANDS)
Revenues .................................... $ 10,673 $ 13,294 (19.7)%
Selling, general and administrative ......... $ 7,657 $ 9,848 (22.2)%
Bad debt expense ............................ $ 195 $ 1,566 (87.5)%
Depreciation, depletion and amortization .... $ 4,774 $ 5,698 (16.2)%
Other expenses .............................. $ 2,836 $ 3,121 (9.1)%
Operating loss .............................. $ (4,789) $ (6,939) 31.0%
Merger costs ................................ $ -- $ 5,943 (100.0)%
Restructuring and other charges ............. $ 4,700 $ 7,202 (34.7)%
Capital expenditures ........................ $ 7,969 $ 8,151 (2.2)%
Decreased revenues for the nine months ended September 2002 versus the
comparable period in 2001 are largely attributable to lower average prices
received from sales of oil and natural gas. The decrease in selling, general and
administrative expense of 22.2% primarily relates to incentive bonuses accrued
during 2001. Restructuring and other charges reflect a $4.7 million charge taken
in the second quarter of 2002 due to the financial failure of a workers'
compensation insurance carrier we used from 1992 until March of 2001. Merger
costs, restructuring and other charges in 2001 include costs related to the
merger with UTI Energy Corp.
The following table summarizes certain industry data for the three and nine
months ended September 30, 2002 and 2001:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------ ------------------------------------
INDUSTRY DATA 2002 2001 % CHG. 2002 2001 % CHG.
- ------------- ---------- ---------- ---------- ---------- ---------- ----------
Average US natural gas spot price per Mcf(a) ..... $ 3.20 $ 2.78 15.1% $ 3.06 $ 4.47 (31.5)%
Average West Texas intermediate crude oil
Price per BBL(a) ............................. $ 28.20 $ 26.58 6.1% $ 25.55 $ 27.54 (7.2)%
Average weekly US land rig count(b) .............. 740 1,093 (32.3)% 712 1,046 (31.9)%
Average weekly Canadian land rig count(b) ........ 242 315 (23.2)% 250 357 (30.0)%
- ----------
(a) Source: 2002-Raymond James; 2001-Market Energy
(b) Source: Baker Hughes
17
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. An
extended or further significant decline in oil and/or natural gas prices would
have a further material adverse effect on our financial condition and results of
operations.
Due to a decline in oil and natural gas prices beginning in the second
quarter of 2001, demand for drilling rigs declined beginning in the third
quarter of 2001 and continued into the second quarter of 2002. This decline in
demand has resulted in a steep decline in drilling rig utilization and day
rates, which in turn has adversely impacted our operations. An extended or
further significant decline in oil and/or natural gas prices would have a
further material adverse effect on our financial condition and results of
operations.
IMPACT OF INFLATION
We believe that inflation will not have a significant near-term impact on
our financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We currently have no exposure to interest rate market risk because we have
no outstanding balance under our credit facility. Should we incur a balance in
the future, we would have some exposure associated with the floating rate of the
interest charged on that balance. The credit facility, which expires on June 29,
2005, bears interest at LIBOR plus 1.75 % to 2.75% based on the Company's
twelve-month trailing EBITDA. Our exposure to interest rate risk due to changes
in LIBOR is not expected to be material.
We conduct some business in Canadian dollars through our Canadian
land-based drilling operations. The exchange rate between Canadian dollars and
U.S. dollars has fluctuated over the last ten years. If the value of the
Canadian dollar against the U.S. dollar weakens, revenues and earnings of our
Canadian operations will be reduced when they are translated to U.S. dollars.
Also, the value of our Canadian net assets in U.S. dollars may decline.
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.
18
----------
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in Item 2 of this Report contains
forward-looking statements which are made pursuant to the "safe harbor"
provisions of The Private Securities Litigation Reform Act of 1995. These
statements include, without limitation, statements relating to: liquidity;
financing of operations; continued volatility of oil and natural gas prices;
source and sufficiency of funds required for immediate capital needs and
additional rig acquisitions (if further opportunities arise); and 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
"Cautionary Statement for Purposes of the 'Safe Harbor' Provisions of the
Private Securities Litigation Reform Act of 1995" included in our Annual Report
on Form 10-K for the year ended December 31, 2001, beginning on page 13.
You are cautioned not to place undue reliance on any of our
forward-looking statements, which speak only as of the date of the document or
in the case of documents incorporated by reference, the date of those documents.
----------
19
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Since year-end 2001, the Company has issued 650,000 shares of common stock
that were not registered under the Securities Act of 1933, as amended, at the
time of issuance. The securities were issued in March 2002 as consideration for
the acquisition of Odin Drilling, Inc. The common stock was valued at $26.06 per
share.
No underwriter was involved in the transaction and no sales commissions,
fees or similar compensation were paid to any person in connection with the
issuance of the shares. The Company believes that the issuance of the securities
was exempt from the registration requirements of Section 5 of the Securities Act
by virtue of Section 4(2) of the Securities Act and/or under Rule 506 of
Regulation D promulgated thereunder.
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 Plan and Agreement of Merger dated October 14, 1993, between Patterson
Energy, Inc., a Texas corporation, and Patterson Energy, Inc., a
Delaware corporation, together with related Certificates of Merger.(1)
2.2 Agreement and Plan of Merger, dated April 22, 1996 among Patterson
Energy, Inc., Patterson Drilling Company and Tucker Drilling Company,
Inc.(2)
2.2.1 Amendment to Agreement and Plan of Merger, dated May 16, 1996 among
Patterson Energy, Inc., Patterson Drilling Company and Tucker Drilling
Company, Inc.(3)
2.3 Agreement and Plan of Merger, dated February 4, 2001, by and between
UTI Energy Corp. and Patterson Energy, Inc.(4)
2.4 Agreement and Plan of Merger, dated March 10, 2002 among Patterson-UTI
Energy, Inc., Patterson-UTI Drilling Company LP, LLLP and Odin
Drilling, Inc.(11)
2.5 Stock Purchase Agreement by and among Patterson-UTI Energy, Inc. and
Roper Family Properties, LTD., Estate of Joe G. Roper, Patricia R.
Elledge, Judy Kathleen Roper Davis, Jeanie Elisabeth Cornelius and J.
Mark Roper.
3.1 Restated Certificate of Incorporation.(5)
3.1.1 Certificate of Correction of Restated Certificate of Incorporation.(10)
3.2 Amended and Restated Bylaws.(10)
3.3 Rights Agreement dated January 2, 1997, between Patterson Energy, Inc.
and Continental Stock Transfer & Trust Company.(6)
3.3.1 Amendment to Rights Agreement dated as of October 23, 2001.(8)
4.1 Excerpt from Restated Certificate of Incorporation of Patterson-UTI
Energy, Inc. regarding authorized Common Stock and Preferred Stock.(7)
4.2 Certificate of Designation.(9)
4.2.1 Amendment to Certificate of Designation.(10)
20
4.3 Registration Rights Agreement with Bear, Stearns and Co. Inc., dated
March 25, 1994, as assigned to REMY Capital Partners III, L.P.(10)
10.1 Amended and Restated Loan and Security Agreement, dated as of July 26,
2002.
10.2 Revolving Loan Promissory Note, dated July 26, 2002.
10.3 Amended and Restated Pledge Agreement, dated as of July 26, 2002.
10.4 Amended and Restated Guaranty Agreement, dated as of July 26, 2002.
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 27, "Exhibits" to Amendment
No. 2 to Registration Statement on Form SB-2 (File No. 33-68058-FW)
filed on October 28, 1993.
(2) Incorporated by reference to Item 7, "Financial Statements and
Exhibits" to Form 8-K dated April 22, 1996 and filed on April 30, 1996.
(3) Incorporated by reference to Item 7, "Financial Statements and
Exhibits" to Form 8-K dated May 16, 1996 and filed on May 22, 1996.
(4) Incorporated herein by reference to Joint Proxy Statement/Prospectus
filed on March 14, 2001.
(5) Incorporated herein by reference to Item 7, "Financial Statements and
Exhibits" to Form 8-K dated and filed on May 8, 2001.
(6) Incorporated by reference to Item 2, "Exhibits" to Registration
Statement on 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 June 30, 2001,
filed on August 1, 2001.
(8) Incorporated herein by reference to Item 6, "Exhibits and Reports on
Form 8-K" to Form 10-Q for the quarterly period ended September 30,
2001, filed on October 31, 2001.
(9) Incorporated herein by reference to Item 2, "Exhibits" to Registration
Statement on Form 8-A (File No. 000-22664) filed on January 14, 1997.
(10) Incorporated herein by reference to Item 14, "Exhibits, Financial
Statement Schedules and Reports on Form 8-K" to Form 10-K dated
December 31, 2001.
(11) Incorporated herein by reference to Item 6, "Exhibits and Reports on
Form 8-K" to Form 10-Q for the quarterly period ended March 31, 2002,
filed on May 14, 2002.
(b) REPORTS ON FORM 8-K.
There were no reports on Form 8-K filed during the three months ended
September 30, 2002.
21
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: October 22, 2002
22
CERTIFICATIONS
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: October 22, 2002
/s/ Cloyce A. Talbott
-----------------------
Cloyce A. Talbott
Chief Executive Officer
23
CERTIFICATIONS
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: October 22, 2002
/s/ Jonathan D. Nelson
----------------------------------------
Jonathan D. Nelson
Vice President, Chief Financial Officer,
Secretary and Treasurer
24
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.1 Amended and Restated Loan and Security Agreement, dated as of
July 26, 2002.
10.2 Revolving Loan Promissory Note, dated July 26, 2002.
10.3 Amended and Restated Pledge Agreement, dated as of July 26,
2002.
10.4 Amended and Restated Guaranty Agreement, dated as of July 26,
2002.
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.
25