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EX-31.1 - EX-31.1 - PATTERSON UTI ENERGY INCpten-ex311_201409307.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

R

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

or

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                     

Commission file number 0-22664

 

Patterson-UTI Energy, Inc.

(Exact name of registrant as specified in its charter)

 

 

DELAWARE

 

75-2504748

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

450 GEARS ROAD, SUITE 500

HOUSTON, TEXAS

 

77067

(Address of principal executive offices)

 

(Zip Code)

(281) 765-7100

(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 R     No ¨

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

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

 

Large accelerated filer

 

R

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

¨

  

Smaller reporting company

 

¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

146,412,860 shares of common stock, $0.01 par value, as of October 22, 2014

 

 

 

 

 


PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

 

 

PART I — FINANCIAL INFORMATION

 

 

 

 

 

 

Page

ITEM 1.

 

Financial Statements

  

 

 

 

Unaudited consolidated condensed balance sheets

  

3

 

 

Unaudited consolidated condensed statements of operations

  

4

 

 

Unaudited consolidated condensed statements of comprehensive income

  

5

 

 

Unaudited consolidated condensed statement of changes in stockholders’ equity

  

6

 

 

Unaudited consolidated condensed statements of cash flows

  

7

 

 

Notes to unaudited consolidated condensed financial statements

  

8

ITEM 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

20

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

  

31

ITEM 4.

 

Controls and Procedures

  

31

 

 

 

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

 

 

 

ITEM 1.

 

Legal Proceedings

  

31

ITEM 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

32

ITEM 6.

 

Exhibits

  

32

Signature  

 

 

  

33

 

 

 

 


PART I  — FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

The following unaudited consolidated condensed financial statements include all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented.

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(unaudited, in thousands, except share data)

 

 

September 30,

 

 

December 31,

 

 

2014

 

 

2013

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

38,594

 

 

$

249,509

 

Accounts receivable, net of allowance for doubtful accounts of $3,665 and $3,674 at September 30, 2014 and December 31, 2013, respectively

 

593,373

 

 

 

451,517

 

Inventory

 

29,162

 

 

 

21,248

 

Deferred tax assets, net

 

32,322

 

 

 

32,952

 

Other

 

54,645

 

 

 

53,424

 

Total current assets

 

748,096

 

 

 

808,650

 

Property and equipment, net

 

3,907,331

 

 

 

3,635,541

 

Goodwill and intangible assets

 

180,223

 

 

 

167,470

 

Deposits on equipment purchases

 

112,288

 

 

 

52,560

 

Other

 

20,411

 

 

 

22,906

 

Total assets

$

4,968,349

 

 

$

4,687,127

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

370,127

 

 

$

173,150

 

Federal and state income taxes payable

 

24,378

 

 

 

10,670

 

Accrued expenses

 

182,944

 

 

 

160,457

 

Current portion of long-term debt

 

10,000

 

 

 

10,000

 

Total current liabilities

 

587,449

 

 

 

354,277

 

Long-term debt

 

675,000

 

 

 

682,500

 

Deferred tax liabilities, net

 

836,404

 

 

 

887,864

 

Other

 

10,036

 

 

 

6,489

 

Total liabilities

 

2,108,889

 

 

 

1,931,130

 

Commitments and contingencies (see Note 9)

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Preferred stock, par value $.01; authorized 1,000,000 shares, no shares issued

 

 

 

 

Common stock, par value $.01; authorized 300,000,000 shares with 189,233,429 and 186,487,246 issued and 146,414,844 and 144,219,189 outstanding at September 30, 2014 and December 31, 2013, respectively

 

1,892

 

 

 

1,865

 

Additional paid-in capital

 

977,425

 

 

 

913,505

 

Retained earnings

 

2,768,868

 

 

 

2,707,439

 

Accumulated other comprehensive income

 

10,310

 

 

 

14,076

 

Treasury stock, at cost, 42,818,585 shares and 42,268,057 shares at September 30, 2014 and December 31, 2013, respectively

 

(899,035

)

 

 

(880,888

)

Total stockholders' equity

 

2,859,460

 

 

 

2,755,997

 

Total liabilities and stockholders' equity

$

4,968,349

 

 

$

4,687,127

 

The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.

 

 

3


PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share data)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Operating revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract drilling

$

482,212

 

 

$

457,871

 

 

$

1,346,698

 

 

$

1,266,944

 

Pressure pumping

 

348,692

 

 

 

259,209

 

 

 

895,530

 

 

 

744,989

 

Oil and natural gas

 

14,724

 

 

 

13,827

 

 

 

38,844

 

 

 

45,329

 

Total operating revenues

 

845,628

 

 

 

730,907

 

 

 

2,281,072

 

 

 

2,057,262

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract drilling

 

278,195

 

 

 

239,768

 

 

 

784,572

 

 

 

729,588

 

Pressure pumping

 

281,016

 

 

 

204,050

 

 

 

722,801

 

 

 

560,486

 

Oil and natural gas

 

3,275

 

 

 

3,602

 

 

 

9,421

 

 

 

9,738

 

Depreciation, depletion, amortization and impairment

 

237,825

 

 

 

140,734

 

 

 

538,573

 

 

 

414,351

 

Selling, general and administrative

 

18,896

 

 

 

19,580

 

 

 

58,117

 

 

 

55,296

 

Net gain on asset disposals

 

(3,870

)

 

 

(1,378

)

 

 

(8,705

)

 

 

(2,286

)

Total operating costs and expenses

 

815,337

 

 

 

606,356

 

 

 

2,104,779

 

 

 

1,767,173

 

Operating income

 

30,291

 

 

 

124,551

 

 

 

176,293

 

 

 

290,089

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

234

 

 

 

293

 

 

 

618

 

 

 

716

 

Interest expense, net of amount capitalized

 

(6,993

)

 

 

(7,503

)

 

 

(21,430

)

 

 

(21,210

)

Other

 

 

 

 

380

 

 

 

3

 

 

 

780

 

Total other expense

 

(6,759

)

 

 

(6,830

)

 

 

(20,809

)

 

 

(19,714

)

Income before income taxes

 

23,532

 

 

 

117,721

 

 

 

155,484

 

 

 

270,375

 

Income tax expense (benefit):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

48,618

 

 

 

25,916

 

 

 

101,233

 

 

 

35,824

 

Deferred

 

(41,062

)

 

 

17,385

 

 

 

(50,830

)

 

 

63,133

 

Total income tax expense

 

7,556

 

 

 

43,301

 

 

 

50,403

 

 

 

98,957

 

Net income

$

15,976

 

 

$

74,420

 

 

$

105,081

 

 

$

171,418

 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.11

 

 

$

0.51

 

 

$

0.72

 

 

$

1.17

 

Diluted

$

0.11

 

 

$

0.51

 

 

$

0.71

 

 

$

1.16

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

144,798

 

 

 

144,446

 

 

 

143,778

 

 

 

144,915

 

Diluted

 

146,991

 

 

 

145,432

 

 

 

146,101

 

 

 

145,840

 

Cash dividends per common share

$

0.10

 

 

$

0.05

 

 

$

0.30

 

 

$

0.15

 

The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.

 

 

 

4


PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in thousands)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Net income

$

15,976

 

 

$

74,420

 

 

$

105,081

 

 

$

171,418

 

Other comprehensive income (loss), net of taxes of $0 for

   all periods:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(4,899

)

 

 

2,383

 

 

 

(3,766

)

 

 

(3,668

)

Total comprehensive income

$

11,077

 

 

$

76,803

 

 

$

101,315

 

 

$

167,750

 

The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.

 

 

 

5


PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited, in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Treasury

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Income

 

 

Stock

 

 

Total

 

Balance, December 31, 2013

 

186,487

 

 

$

1,865

 

 

$

913,505

 

 

$

2,707,439

 

 

$

14,076

 

 

$

(880,888

)

 

 

2,755,997

 

Net income

 

 

 

 

 

 

 

105,081

 

 

 

 

 

 

 

105,081

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

(3,766

)

 

 

 

 

(3,766

)

Issuance of restricted stock

 

1,067

 

 

 

11

 

 

 

(11

)

 

 

 

 

 

 

 

 

Vesting of stock unit awards

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeitures of restricted stock

 

(46

)

 

 

(1

)

 

 

1

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

1,715

 

 

 

17

 

 

 

35,303

 

 

 

 

 

 

 

 

 

35,320

 

Stock-based compensation

 

 

 

 

 

19,945

 

 

 

 

 

 

 

 

 

19,945

 

Tax benefit related to stock-based compensation

 

 

 

 

 

8,682

 

 

 

 

 

 

 

 

 

8,682

 

Payment of cash dividends

 

 

 

 

 

 

 

(43,652

)

 

 

 

 

 

 

(43,652

)

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

(18,147

)

 

 

(18,147

)

Balance, September 30, 2014

 

189,233

 

 

$

1,892

 

 

$

977,425

 

 

$

2,768,868

 

 

$

10,310

 

 

$

(899,035

)

 

$

2,859,460

 

The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.

 

 

 

6


PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

 

 

Nine Months Ended

 

 

September 30,

 

 

2014

 

 

2013

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

$

105,081

 

 

$

171,418

 

Adjustments to reconcile net income to net cash provided

    by operating activities:

 

 

 

 

 

 

 

Depreciation, depletion, amortization and impairment

 

538,573

 

 

 

414,351

 

Dry holes and abandonments

 

337

 

 

 

54

 

Deferred income tax (benefit) expense

 

(50,830

)

 

 

63,133

 

Stock-based compensation expense

 

19,945

 

 

 

19,028

 

Net gain on asset disposals

 

(8,705

)

 

 

(2,286

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

(143,039

)

 

 

(23,662

)

Income taxes payable

 

13,701

 

 

 

(5,586

)

Inventory and other assets

 

(6,419

)

 

 

3,090

 

Accounts payable

 

71,865

 

 

 

22,207

 

Accrued expenses

 

22,414

 

 

 

(4,895

)

Other liabilities

 

3,410

 

 

 

(152

)

Net cash provided by operating activities

 

566,333

 

 

 

656,700

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment and acquisitions

 

(773,791

)

 

 

(483,284

)

Proceeds from disposal of assets

 

22,499

 

 

 

8,282

 

Net cash used in investing activities

 

(751,292

)

 

 

(475,002

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Purchases of treasury stock

 

(13,554

)

 

 

(73,406

)

Dividends paid

 

(43,652

)

 

 

(21,904

)

Tax benefit related to stock-based compensation

 

8,682

 

 

 

4,791

 

Repayment of long-term debt

 

(7,500

)

 

 

(3,750

)

Proceeds from exercise of stock options

 

30,726

 

 

 

6,959

 

Net cash used in financing activities

 

(25,298

)

 

 

(87,310

)

Effect of foreign exchange rate changes on cash

 

(658

)

 

 

(475

)

Net increase (decrease) in cash and cash equivalents

 

(210,915

)

 

 

93,913

 

Cash and cash equivalents at beginning of period

 

249,509

 

 

 

110,723

 

Cash and cash equivalents at end of period

$

38,594

 

 

$

204,636

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Net cash paid during the period for:

 

 

 

 

 

 

 

Interest, net of capitalized interest of $5,268 in 2014 and $6,016 in 2013

$

(13,678

)

 

$

(12,703

)

Income taxes

$

(74,252

)

 

$

(31,361

)

Supplemental non-cash investing and financing information:

 

 

 

 

 

 

 

Net increase (decrease) in current liabilities for

   purchases of property and equipment

$

125,271

 

 

$

(29,818

)

Net (increase) decrease in deposits on equipment

    purchases

$

(59,728

)

 

$

2,749

 

The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.

 

 

 

7


PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

1. Basis of Consolidation and Presentation

The unaudited interim consolidated condensed financial statements include the accounts of Patterson-UTI Energy, Inc. (the “Company”) and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Except for wholly-owned subsidiaries, the Company has no controlling financial interests in any entity which would require consolidation.

The unaudited interim consolidated condensed financial statements have been prepared by management of the Company 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 accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations, although the Company believes the disclosures included either on the face of the financial statements or herein are sufficient to make the information presented not misleading. In the opinion of management, all adjustments which are of a normal recurring nature considered necessary for a fair statement of the information in conformity with accounting principles generally accepted in the United States of America have been included. The Unaudited Consolidated Condensed Balance Sheet as of December 31, 2013, as presented herein, was derived from the audited consolidated balance sheet of the Company, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These unaudited consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013. The results of operations for the nine months ended September 30, 2014 are not necessarily indicative of the results to be expected for the full year.

The U.S. dollar is the functional currency for all of the Company’s operations except for its Canadian operations, which uses the Canadian dollar as its functional currency. The effects of exchange rate changes are reflected in accumulated other comprehensive income, which is a separate component of stockholders’ equity.

The carrying values of cash and cash equivalents, trade receivables and accounts payable approximate fair value.

The Company provides a dual presentation of its net income per common share in its unaudited consolidated condensed statements of operations: Basic net income per common share (“Basic EPS”) and diluted net income per common share (“Diluted EPS”).

Basic EPS excludes dilution and is computed by first allocating earnings between common stockholders and holders of non-vested shares of restricted stock. Basic EPS is then determined by dividing the earnings attributable to common stockholders by the weighted average number of common shares outstanding during the period, excluding non-vested shares of restricted stock.

Diluted EPS is based on the weighted average number of common shares outstanding plus the dilutive effect of potential common shares, including stock options, non-vested shares of restricted stock and restricted stock units. The dilutive effect of stock options and restricted stock units is determined using the treasury stock method. The dilutive effect of non-vested shares of restricted stock is based on the more dilutive of the treasury stock method or the two-class method, assuming a reallocation of undistributed earnings to common stockholders after considering the dilutive effect of potential common shares other than non-vested shares of restricted stock.

8


The following table presents information necessary to calculate net income per share for the three and nine months ended September 30, 2014 and 2013 as well as potentially dilutive securities excluded from the weighted average number of diluted common shares outstanding because their inclusion would have been anti-dilutive (in thousands, except per share amounts):

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

BASIC EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

15,976

 

 

$

74,420

 

 

$

105,081

 

 

$

171,418

 

Adjust for income attributed to holders of non-vested

   restricted stock

 

(160

)

 

 

(808

)

 

 

(1,074

)

 

 

(1,660

)

Income attributed to common stockholders

$

15,816

 

 

$

73,612

 

 

$

104,007

 

 

$

169,758

 

Weighted average number of common shares outstanding,

   excluding non-vested shares of restricted stock

 

144,798

 

 

 

144,446

 

 

 

143,778

 

 

 

144,915

 

Basic net income per common share

$

0.11

 

 

$

0.51

 

 

$

0.72

 

 

$

1.17

 

DILUTED EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income attributed to common stockholders

$

15,816

 

 

$

73,612

 

 

$

104,007

 

 

$

169,758

 

Weighted average number of common shares outstanding,

   excluding non-vested shares of restricted stock

 

144,798

 

 

 

144,446

 

 

 

143,778

 

 

 

144,915

 

Add dilutive effect of potential common shares

 

2,193

 

 

 

986

 

 

 

2,323

 

 

 

925

 

Weighted average number of diluted common shares

   outstanding

 

146,991

 

 

 

145,432

 

 

 

146,101

 

 

 

145,840

 

Diluted net income per common share

$

0.11

 

 

$

0.51

 

 

$

0.71

 

 

$

1.16

 

Potentially dilutive securities excluded as anti-dilutive

 

442

 

 

 

2,897

 

 

 

473

 

 

 

4,043

 

 

 

2. Stock-based Compensation

The Company uses share-based payments to compensate employees and non-employee directors. The Company recognizes the cost of share-based payments under the fair-value-based method. Share-based awards consist of equity instruments in the form of stock options, restricted stock or restricted stock units and have included service and, in certain cases, performance conditions. The Company’s share-based awards have also included both cash-settled and share-settled performance unit awards. Cash-settled performance unit awards are accounted for as liability awards. Share-settled performance unit awards are accounted for as equity awards. The Company issues shares of common stock when vested stock options are exercised, when restricted stock is granted and when restricted stock units and share-settled performance unit awards vest.

On February 21, 2014, the Company’s Board of Directors adopted the Patterson-UTI Energy, Inc. 2014 Long-Term Incentive Plan (the “2014 Plan”), subject to approval by the Company’s stockholders. In addition, on the same date, the Board of Directors approved, subject to and effective upon the approval by the stockholders of the 2014 Plan, the termination of any future grants under all existing equity plans of the Company. On April 17, 2014, the Company’s stockholders approved the 2014 Plan. The aggregate number of shares of Common Stock authorized for grant under the 2014 Plan is 9,100,000, reduced by the number of shares that were subject to awards granted under existing equity plans of the Company during the period commencing on January 1, 2014 and ending on the date the 2014 Plan was approved by the stockholders.

Stock Options — The Company estimates the grant date fair values of stock options using the Black-Scholes-Merton valuation model. Volatility assumptions are based on the historic volatility of the Company’s common stock over the most recent period equal to the expected term of the options as of the date the options are granted. The expected term assumptions are based on the Company’s experience with respect to employee stock option activity. Dividend yield assumptions are based on the expected dividends at the time the options are granted. The risk-free interest rate assumptions are determined by reference to United States Treasury yields. Weighted-average assumptions used to estimate the grant date fair values for stock options granted for the three and nine month periods ended September 30, 2014 and 2013 follow:

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2014

 

 

2013

 

2014

 

 

2013

 

Volatility

 

35.64

%

 

NA

 

 

35.89

%

 

 

41.36

%

Expected term (in years)

 

5.00

 

 

NA

 

 

5.00

 

 

 

5.00

 

Dividend yield

 

1.18

%

 

NA

 

 

1.17

%

 

 

0.89

%

Risk-free interest rate

 

1.62

%

 

NA

 

 

1.76

%

 

 

0.70

%

9


 

Stock option activity from January 1, 2014 to September 30, 2014 follows:

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

Underlying

 

 

Exercise

 

 

Shares

 

 

Price

 

Outstanding at January 1, 2014

 

7,319,695

 

 

$

21.23

 

Granted

 

491,750

 

 

$

32.32

 

Exercised

 

(1,715,195

)

 

$

20.59

 

Cancelled

 

 

 

$

 

Expired

 

 

 

$

 

Outstanding at September 30, 2014

 

6,096,250

 

 

$

22.30

 

Exercisable at September 30, 2014

 

5,117,764

 

 

$

21.48

 

Restricted Stock — For all restricted stock awards to date, shares of common stock were issued when the awards were made. Non-vested shares are subject to forfeiture for failure to fulfill service conditions and, in certain cases, performance conditions. Non-forfeitable dividends are paid on non-vested shares of restricted stock. The Company uses the straight-line method to recognize periodic compensation cost over the vesting period.

Restricted stock activity from January 1, 2014 to September 30, 2014 follows:

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

 

 

 

 

Grant Date

 

 

Shares

 

 

Fair Value

 

Non-vested restricted stock outstanding at January 1, 2014

 

1,496,692

 

 

$

20.84

 

Granted

 

778,100

 

 

$

33.40

 

Vested

 

(713,210

)

 

$

21.75

 

Forfeited

 

(45,616

)

 

$

23.43

 

Non-vested restricted stock outstanding September 30, 2014

 

1,515,966

 

 

$

26.79

 

Restricted Stock Units — For all restricted stock unit awards made to date, shares of common stock are not issued until the units vest. Restricted stock units are subject to forfeiture for failure to fulfill service conditions. Non-forfeitable cash dividend equivalents are paid on certain non-vested restricted stock units. The Company uses the straight-line method to recognize periodic compensation cost over the vesting period.

Restricted stock unit activity from January 1, 2014 to September 30, 2014 follows:

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

 

 

 

 

Grant Date

 

 

Shares

 

 

Fair Value

 

Non-vested restricted stock units outstanding at January 1, 2014

 

20,256

 

 

$

20.67

 

Granted

 

21,550

 

 

$

34.67

 

Vested

 

(9,754

)

 

$

22.13

 

Forfeited

 

(667

)

 

$

21.09

 

Non-vested restricted stock units outstanding September 30, 2014

 

31,385

 

 

$

29.82

 

 

Performance Unit Awards — In 2011, 2012, 2013 and 2014 the Company granted stock-settled performance unit awards to certain executive officers (the “Stock-Settled Performance Units”). The Stock-Settled Performance Units provide for the recipients to receive a grant of shares of stock upon the achievement of certain performance goals established by the Compensation Committee during the performance period. The performance period for the Stock-Settled Performance Units is the three year period commencing on April 1 of the year of grant. For the 2012 and 2013 Stock-Settled Performance Units, the performance period can extend for an additional two years in certain circumstances. The performance goals for the Stock-Settled Performance Units are tied to the Company’s total shareholder return for the performance period as compared to total shareholder return for a peer group determined by the Compensation Committee. These goals are considered to be market conditions under the relevant accounting standards and the market conditions were factored into the determination of the fair value of the performance units. Generally, the recipients will receive a target number of shares if the Company’s total shareholder return is positive and, when compared to the peer group, is at the 50th percentile and two times the target if at the 75th percentile or higher. If the Company’s total shareholder return is positive, and, when

10


compared to the peer group, is at the 25th percentile, the recipients will only receive one-half of the target number of shares. The grant of shares when achievement is between the 25th and 75th percentile will be determined on a pro-rata basis. The target number of shares with respect to the 2011 Stock-Settled Performance Units was 144,375. The performance period for the 2011 Stock-Settled Performance Units ended on March 31, 2014, and the Company’s total shareholder return was at the 94th percentile. In April 2014, 288,750 shares were issued to settle the 2011 Stock-Settled Performance Units.

The total target number of shares with respect to the Stock-Settled Performance Units is set forth below:

 

 

2014

 

 

2013

 

 

2012

 

 

2011

 

 

Performance

 

 

Performance

 

 

Performance

 

 

Performance

 

 

Unit Awards

 

 

Unit Awards

 

 

Unit Awards

 

 

Unit Awards

 

Target number of shares

 

154,000

 

 

 

236,500

 

 

 

192,000

 

 

 

144,375

 

Because the Stock-Settled Performance Units are stock-settled awards, they are accounted for as equity awards and measured at fair value on the date of grant using a Monte Carlo simulation model. The fair value of the Stock-Settled Performance Units is set forth below (in thousands):

 

 

2014

 

 

2013

 

 

2012

 

 

2011

 

 

Performance

 

 

Performance

 

 

Performance

 

 

Performance

 

 

Unit Awards

 

 

Unit Awards

 

 

Unit Awards

 

 

Unit Awards

 

Fair value at date of grant

$

5,388

 

 

$

5,564

 

 

$

3,065

 

 

$

5,569

 

These fair value amounts are charged to expense on a straight-line basis over the performance period. Compensation expense associated with the Stock-Settled Performance Units is shown below (in thousands):

 

 

 

2014

 

 

2013

 

 

2012

 

 

2011

 

 

Performance

 

 

Performance

 

 

Performance

 

 

Performance

 

 

Unit Awards

 

 

Unit Awards

 

 

Unit Awards

 

 

Unit Awards

 

Three months ended September 30, 2013

NA

 

 

$

464

 

 

$

255

 

 

$

464

 

Three months ended September 30, 2014

$

449

 

 

$

464

 

 

$

255

 

 

NA

 

Nine months ended September 30, 2013

NA

 

 

$

927

 

 

$

766

 

 

$

1,392

 

Nine months ended September 30, 2014

$

898

 

 

$

1,391

 

 

$

766

 

 

$

464

 

 

 

3. Property and Equipment

Property and equipment consisted of the following at September 30, 2014 and December 31, 2013 (in thousands):

 

 

September 30,

 

 

December 31,

 

 

2014

 

 

2013

 

Equipment

$

6,361,452

 

 

$

5,749,975

 

Oil and natural gas properties

 

207,340

 

 

 

183,571

 

Buildings

 

83,230