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EXCEL - IDEA: XBRL DOCUMENT - PATTERSON UTI ENERGY INCFinancial_Report.xls

 

 

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 March 31, 2015

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.

146,813,483 shares of common stock, $0.01 par value, as of April 24, 2015

 

 

 

 

 


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

  

21

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

  

31

ITEM 4.

 

Controls and Procedures

  

31

 

 

 

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

 

 

 

ITEM 1.

 

Legal Proceedings

  

32

ITEM 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

32

ITEM 6.

 

Exhibits

  

33

Signature  

 

 

  

34

 

 

 

 


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)

 

 

March 31,

 

 

December 31,

 

 

2015

 

 

2014

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

86,917

 

 

$

43,012

 

Accounts receivable, net of allowance for doubtful accounts of $3,537 and $3,546 at March 31, 2015 and December 31, 2014, respectively

 

484,986

 

 

 

663,404

 

Federal and state income taxes receivable

 

 

 

 

81,726

 

Inventory

 

28,346

 

 

 

32,251

 

Deferred tax assets, net

 

39,926

 

 

 

37,075

 

Other

 

47,445

 

 

 

51,624

 

Total current assets

 

687,620

 

 

 

909,092

 

Property and equipment, net

 

4,222,404

 

 

 

4,131,071

 

Goodwill and intangible assets

 

219,902

 

 

 

220,813

 

Deposits on equipment purchases

 

80,159

 

 

 

112,379

 

Other

 

20,822

 

 

 

20,656

 

Total assets

$

5,230,907

 

 

$

5,394,011

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

315,746

 

 

$

382,438

 

Federal and state income taxes payable

 

30,994

 

 

 

 

Accrued expenses

 

178,876

 

 

 

173,466

 

Current portion of long-term debt

 

35,000

 

 

 

12,500

 

Total current liabilities

 

560,616

 

 

 

568,404

 

Borrowings under revolving credit facility

 

 

 

 

303,000

 

Other long-term debt

 

845,000

 

 

 

670,000

 

Deferred tax liabilities, net

 

914,711

 

 

 

935,660

 

Other

 

12,042

 

 

 

11,137

 

Total liabilities

 

2,332,369

 

 

 

2,488,201

 

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 189,265,286 and 189,262,876 issued and 146,446,701 and 146,444,291 outstanding at March 31, 2015 and December 31, 2014

 

1,893

 

 

 

1,893

 

Additional paid-in capital

 

991,495

 

 

 

984,674

 

Retained earnings

 

2,806,300

 

 

 

2,811,815

 

Accumulated other comprehensive income

 

(2,115

)

 

 

6,463

 

Treasury stock, at cost, 42,818,585 shares at March 31, 2015 and December 31, 2014

 

(899,035

)

 

 

(899,035

)

Total stockholders' equity

 

2,898,538

 

 

 

2,905,810

 

Total liabilities and stockholders' equity

$

5,230,907

 

 

$

5,394,011

 

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

 

 

March 31,

 

 

2015

 

 

2014

 

Operating revenues:

 

 

 

 

 

 

 

Contract drilling

$

401,478

 

 

$

425,903

 

Pressure pumping

 

249,721

 

 

 

240,261

 

Oil and natural gas

 

6,500

 

 

 

12,004

 

Total operating revenues

 

657,699

 

 

 

678,168

 

Operating costs and expenses:

 

 

 

 

 

 

 

Contract drilling

 

212,810

 

 

 

251,059

 

Pressure pumping

 

212,725

 

 

 

199,808

 

Oil and natural gas

 

2,798

 

 

 

3,274

 

Depreciation, depletion, amortization and impairment

 

175,382

 

 

 

147,322

 

Selling, general and administrative

 

32,797

 

 

 

19,673

 

Net gain on asset disposals

 

(2,916

)

 

 

(1,744

)

Total operating costs and expenses

 

633,596

 

 

 

619,392

 

Operating income

 

24,103

 

 

 

58,776

 

Other income (expense):

 

 

 

 

 

 

 

Interest income

 

283

 

 

 

176

 

Interest expense, net of amount capitalized

 

(8,541

)

 

 

(7,188

)

Total other expense

 

(8,258

)

 

 

(7,012

)

Income before income taxes

 

15,845

 

 

 

51,764

 

Income tax expense (benefit):

 

 

 

 

 

 

 

Current

 

30,520

 

 

 

26,935

 

Deferred

 

(23,800

)

 

 

(9,993

)

Total income tax expense

 

6,720

 

 

 

16,942

 

Net income

$

9,125

 

 

$

34,822

 

Net income per common share:

 

 

 

 

 

 

 

Basic

$

0.06

 

 

$

0.24

 

Diluted

$

0.06

 

 

$

0.24

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

Basic

 

144,983

 

 

 

142,892

 

Diluted

 

145,745

 

 

 

145,099

 

Cash dividends per common share

$

0.10

 

 

$

0.10

 

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

 

 

March 31,

 

 

2015

 

 

2014

 

Net income

$

9,125

 

 

$

34,822

 

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

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(8,578

)

 

 

(3,355

)

Total comprehensive income

$

547

 

 

$

31,467

 

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, 2014

 

189,263

 

 

$

1,893

 

 

$

984,674

 

 

$

2,811,815

 

 

$

6,463

 

 

$

(899,035

)

 

 

2,905,810

 

Net income

 

 

 

 

 

 

 

9,125

 

 

 

 

 

 

 

9,125

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

(8,578

)

 

 

 

 

(8,578

)

Issuance of restricted stock

 

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeitures of restricted stock

 

(16

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

6,855

 

 

 

 

 

 

 

 

 

6,855

 

Tax expense related to stock-based compensation

 

 

 

 

 

(34

)

 

 

 

 

 

 

 

 

(34

)

Payment of cash dividends

 

 

 

 

 

 

 

(14,640

)

 

 

 

 

 

 

(14,640

)

Balance, March 31, 2015

 

189,265

 

 

$

1,893

 

 

$

991,495

 

 

$

2,806,300

 

 

$

(2,115

)

 

$

(899,035

)

 

$

2,898,538

 

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)

 

 

Three Months Ended

 

 

March 31,

 

 

2015

 

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

$

9,125

 

 

$

34,822

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation, depletion, amortization and impairment

 

175,382

 

 

 

147,322

 

Tax expense on stock based compensation

 

(34

)

 

 

 

Dry holes and abandonments

 

46

 

 

 

283

 

Deferred income tax (benefit) expense

 

(23,800

)

 

 

(9,993

)

Stock-based compensation expense

 

6,855

 

 

 

6,711

 

Net gain on asset disposals

 

(2,916

)

 

 

(1,744

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

176,672

 

 

 

(35,434

)

Income taxes receivable/payable

 

112,711

 

 

 

14,180

 

Inventory and other assets

 

9,724

 

 

 

2,513

 

Accounts payable

 

(65,196

)

 

 

22,264

 

Accrued expenses

 

5,559

 

 

 

(1,648

)

Other liabilities

 

857

 

 

 

221

 

Net cash provided by operating activities

 

404,985

 

 

 

179,497

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

(241,466

)

 

 

(170,372

)

Proceeds from disposal of assets

 

5,827

 

 

 

6,590

 

Net cash used in investing activities

 

(235,639

)

 

 

(163,782

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Purchases of treasury stock

 

 

 

 

(43

)

Dividends paid

 

(14,640

)

 

 

(14,456

)

Tax benefit related to stock-based compensation

 

 

 

 

1,961

 

Debt issuance costs

 

(1,940

)

 

 

 

Proceeds from long-term debt

 

200,000

 

 

 

 

Repayment of long-term debt

 

(2,500

)

 

 

(2,500

)

Proceeds from borrowings under revolving credit facility

 

54,000

 

 

 

 

Repayment of borrowings under revolving credit facility

 

(357,000

)

 

 

 

Proceeds from exercise of stock options

 

 

 

 

8,033

 

Net cash provided by (used in) financing activities

 

(122,080

)

 

 

(7,005

)

Effect of foreign exchange rate changes on cash

 

(3,361

)

 

 

(473

)

Net increase in cash and cash equivalents

 

43,905

 

 

 

8,237

 

Cash and cash equivalents at beginning of period

 

43,012

 

 

 

249,509

 

Cash and cash equivalents at end of period

$

86,917

 

 

$

257,746

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Net cash (paid) received during the period for:

 

 

 

 

 

 

 

Interest, net of capitalized interest of $1,592 in 2015 and $1,667 in 2014

$

(783

)

 

 

Income taxes

$

83,135

 

 

$

(10,001

)

Non-cash investing and financing activities:

 

 

 

 

 

 

 

Net (decrease) increase in payables for purchases of property and equipment

$

(884

)

 

$

68,802

 

Net decrease (increase) in deposits on equipment purchases

$

32,220

 

 

$

(4,677

)

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, 2014, 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, 2014. The results of operations for the three months ended March 31, 2015 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 months March 31, 2015 and 2014 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

 

 

March 31,

 

 

2015

 

 

2014

 

BASIC EPS:

 

 

 

 

 

 

 

Net income

$

9,125

 

 

$

34,822

 

Adjust for income attributed to holders of non-vested restricted stock

 

(86

)

 

 

(353

)

Income attributed to common stockholders

$

9,039

 

 

$

34,469

 

Weighted average number of common shares outstanding, excluding non-vested shares of restricted stock

 

144,983

 

 

 

142,892

 

Basic net income per common share

$

0.06

 

 

$

0.24

 

DILUTED EPS:

 

 

 

 

 

 

 

Income attributed to common stockholders

$

9,039

 

 

$

34,469

 

Weighted average number of common shares outstanding, excluding non-vested shares of restricted stock

 

144,983

 

 

 

142,892

 

Add dilutive effect of potential common shares

 

762

 

 

 

2,207

 

Weighted average number of diluted common shares outstanding

 

145,745

 

 

 

145,099

 

Diluted net income per common share

$

0.06

 

 

$

0.24

 

Potentially dilutive securities excluded as anti-dilutive

 

5,569

 

 

 

80

 

 

 

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 also included share-settled performance unit 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.

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 month periods ended March 31, 2015 and 2014 follow:

 

 

Three Months Ended

 

 

March 31,

 

 

2015

 

 

2014

 

Volatility

 

38.47

%

 

 

35.91

%

Expected term (in years)

 

5.00

 

 

 

5.00

 

Dividend yield

 

2.41

%

 

 

0.79

%

Risk-free interest rate

 

1.65

%

 

 

1.75

%

 

 

9


Stock option activity from January 1, 2015 to March 31, 2015 follows:

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

Underlying

 

 

Exercise

 

 

Shares

 

 

Price

 

Outstanding at January 1, 2015

 

6,086,250

 

 

$

22.32

 

Granted

 

60,000

 

 

$

16.59

 

Exercised

 

 

 

 

 

Cancelled

 

 

 

 

 

Expired

 

 

 

 

 

Outstanding at March 31, 2015

 

6,146,250

 

 

$

22.26

 

Exercisable at March 31, 2015

 

5,390,683

 

 

$

21.44

 

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, 2015 to March 31, 2015 follows:

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

 

 

 

 

Grant Date

 

 

Shares

 

 

Fair Value

 

Non-vested restricted stock outstanding at January 1, 2015

 

1,493,059

 

 

$

26.93

 

Granted

 

18,000

 

 

$

16.59

 

Vested

 

(57,356

)

 

$

21.65

 

Forfeited

 

(15,590

)

 

$

28.08

 

Non-vested restricted stock outstanding March 31, 2015

 

1,438,113

 

 

$

27.00

 

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, 2015 to March 31, 2015 follows:

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

 

 

 

 

Grant Date

 

 

Shares

 

 

Fair Value

 

Non-vested restricted stock units outstanding at January 1, 2015

 

34,085

 

 

$

30.20

 

Granted

 

 

 

$

 

Vested

 

 

 

$

 

Forfeited

 

 

 

$

 

Non-vested restricted stock units outstanding March 31, 2015

 

34,085

 

 

$

30.20

 

 

10


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 units will only have a payout if total shareholder return is positive for the performance period and, when compared to the peer group, is at or above the 25th percentile. 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 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 2012 Stock-Settled Performance Units was 192,000. The performance period for the 2012 Stock-Settled Performance Units ended on March 31, 2015, and the Company’s total shareholder return was at the 87th percentile. In April 2015, 384,000 shares were issued to settle the 2012 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 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 March 31, 2015

$

449

 

 

$

464

 

 

$

255

 

 

NA

 

Three months ended March 31, 2014

NA

 

 

$

464

 

 

$

255

 

 

$

464

 

 

 

3. Property and Equipment

Property and equipment consisted of the following at March 31, 2015 and December 31, 2014 (in thousands):

 

 

March 31,

 

 

December 31,

 

 

2015

 

 

2014

 

Equipment

$

6,891,544

 

 

$

6,679,894

 

Oil and natural gas properties

 

200,390

 

 

 

196,234

 

Buildings

 

88,393

 

 

 

83,465

 

Land

 

12,024

 

 

 

12,038

 

 

 

7,192,351

 

 

 

6,971,631

 

Less accumulated depreciation, depletion and impairment

 

(2,969,947

)

 

 

(2,840,560

)

Property and equipment, net

$

4,222,404

 

 

$

4,131,071

 

 

 

11


4. Business Segments

The Company’s revenues, operating profits and identifiable assets are primarily attributable to three business segments: (i) contract drilling of oil and natural gas wells, (ii) pressure pumping services and (iii) the investment, on a non-operating working interest basis, in oil and natural gas properties. Each of these segments represents a distinct type of business. These segments have separate management teams which report to the Company’s chief operating decision maker. The results of operations in these segments are regularly reviewed by the chief operating decision maker for purposes of determining resource allocation and assessing performance. Separate financial data for each of our business segments is provided in the table below (in thousands):

 

 

 

Three Months Ended

 

 

March 31,

 

 

2015

 

 

2014

 

Revenues:

 

 

 

 

 

 

 

Contract drilling

$

402,241

 

 

$

426,961

 

Pressure pumping

 

249,721

 

 

 

240,261

 

Oil and natural gas

 

6,500

 

 

 

12,004

 

Total segment revenues

 

658,462

 

 

 

679,226

 

Elimination of intercompany revenues (a)

 

(763

)

 

 

(1,058

)

Total revenues

$

657,699

 

 

$

678,168

 

 

 

 

 

 

 

 

 

Income before income taxes:

 

 

 

 

 

 

 

Contract drilling

$

56,138

 

 

$

67,077

 

Pressure pumping

 

(15,016

)

 

 

1,543

 

Oil and natural gas

 

(4,562

)

 

 

2,703

 

 

 

36,560

 

 

 

71,323

 

Corporate and other

 

(15,373

)

 

 

(14,291

)

Net gain on asset disposals (b)

 

2,916

 

 

 

1,744

 

Interest income

 

283

 

 

 

176

 

Interest expense

 

(8,541

)

 

 

(7,188

)

Other

 

 

 

Income before income taxes

$

15,845

 

 

$

51,764

 

 

 

March 31,

 

 

December 31,

 

 

2015

 

 

2014

 

Identifiable assets:

 

 

 

 

 

 

 

Contract drilling

$

3,970,814

 

 

$

4,000,576

 

Pressure pumping

 

1,091,663

 

 

 

1,186,010

 

Oil and natural gas

 

46,017

 

 

 

50,945

 

Corporate and other (c)

 

122,413

 

 

 

156,480

 

Total assets

$

5,230,907

 

 

$

5,394,011

 

 

 

(a)

Consists of contract drilling intercompany revenues for services provided to the oil and natural gas exploration and production segment.

(b)

Net gains or losses associated with the disposal of assets relate to corporate strategy decisions of the executive management group. Accordingly, the related gains or losses have been separately presented and excluded from the results of specific segments.

(c)

Corporate and other assets primarily include cash on hand, income tax receivables and certain deferred tax assets.

 

 

5. Goodwill and Intangible Assets

Goodwill — Goodwill by operating segment as of March 31, 2015 and changes for the three months then ended are as follows (in thousands):

 

 

Contract

 

 

Pressure

 

 

 

 

 

 

Drilling

 

 

Pumping

 

 

Total

 

Balance December 31, 2014

$

86,234

 

 

$

124,561

 

 

$

210,795

 

Changes to goodwill

 

 

 

 

 

 

Balance March 31, 2015

$

86,234

 

 

$

124,561

 

 

$

210,795

 

 

12


There were no accumulated impairment losses as of March 31, 2015 or December 31, 2014.

Goodwill is evaluated at least annually on December 31, or when circumstances require, to determine if the fair value of recorded goodwill has decreased below its carrying value. For purposes of impairment testing, goodwill is evaluated at the reporting unit level. The Company’s reporting units for impairment testing have been determined to be its operating segments. The Company first determines whether it is more likely than not that the fair value of a reporting unit is less than its carrying value after considering qualitative, market and other factors. If so, then goodwill impairment is determined using a two-step impairment test. From time to time, the Company may perform the first step of the quantitative testing for goodwill impairment in lieu of performing the qualitative assessment. The first step is to compare the fair value of an entity’s reporting units to the respective carrying value of those reporting units. If the carrying value of a reporting unit exceeds its fair value, the second step of the impairment test is performed whereby the fair value of the reporting unit is allocated to its identifiable tangible and intangible assets and liabilities with any remaining fair value representing the fair value of goodwill. If this resulting fair value of goodwill is less than the carrying value of goodwill, an impairment loss would be recognized in the amount of the shortfall.

Intangible Assets — Intangible assets were recorded in the pressure pumping operating segment in connection with the fourth quarter 2010 acquisition of the assets of a pressure pumping business. As a result of the purchase price allocation, the Company recorded an intangible asset related to the customer relationships acquired. The intangible asset was recorded at fair value on the date of acquisition.

The value of the customer relationships was estimated using a multi-period excess earnings model to determine the present value of the projected cash flows associated with the customers in place at the time of the acquisition and taking into account a contributory asset charge. The resulting intangible asset is being amortized on a straight-line basis over seven years. Amortization expense of approximately $911,000 was recorded in the three months ended March 31, 2015 and 2014 associated with customer relationships.

The following table presents the gross carrying amount and accumulated amortization of the customer relationships as of March 31, 2015 and December 31, 2014 (in thousands):

 

 

March 31, 2015

 

 

December 31, 2014

 

 

Gross

 

 

 

 

 

 

Net

 

 

Gross

 

 

 

 

 

 

Net

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

Amount

 

 

Amortization

 

 

Amount

 

 

Amount

 

 

Amortization

 

 

Amount

 

Customer relationships

$

25,500

 

 

$

(16,393

)

 

$

9,107

 

 

$

25,500

 

 

$

(15,482

)

 

$

10,018

 

 

 

6. Accrued Expenses

Accrued expenses consisted of the following at March 31, 2015 and December 31, 2014 (in thousands):

 

 

March 31,

 

 

December 31,

 

 

2015

 

 

2014

 

Salaries, wages, payroll taxes and benefits

$

39,161

 

 

$

52,956

 

Workers' compensation liability

 

73,726

 

 

 

77,348

 

Property, sales, use and other taxes

 

7,266

 

 

 

11,644

 

Insurance, other than workers' compensation

 

10,148

 

 

 

9,632

 

Accrued interest payable

 

14,638

 

 

 

7,427

 

Other

 

33,937

 

 

 

14,459

 

 

$

178,876

 

 

$

173,466

 

 

 

13


7. Asset Retirement Obligation

The Company records a liability for the estimated costs to be incurred in connection with the abandonment of oil and natural gas properties in the future. This liability is included in the caption “other” in the liabilities section of the consolidated condensed balance sheet. The following table describes the changes to the Company’s asset retirement obligations during the three months ended March 31, 2015 and 2014 (in thousands):

 

 

Three Months Ended

 

 

March 31,

 

 

2015

 

 

2014

 

Balance at beginning of year

$

5,301

 

 

$

4,837

 

Liabilities incurred

 

188

 

 

 

91