<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997 Commission File Number 1-8226
DI INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-2144774
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number)
10370 RICHMOND AVENUE, SUITE 600
HOUSTON, TEXAS 77042
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 435-6100
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
------ ------
The number of shares of the Registrant's Common Stock, par value $.10 per
share, outstanding at April 30, 1997, was 137,541,034.
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DI INDUSTRIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Shareholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports in Form 8-K 15
Signatures 16
</TABLE>
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DI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,693 $ 6,162
Restricted cash - insurance deposits 250 1,000
Accounts receivable, net of allowance of $1,310
and $1,333, respectively 25,395 15,866
Rig inventory and supplies 428 936
Assets held for sale 557 557
Prepaids and other current assets 4,054 3,690
--------- ---------
Total current assets 34,377 28,211
--------- ---------
Property and equipment:
Land, buildings and improvements 5,042 4,312
Drilling and well service equipment 141,916 95,059
Furniture and fixtures 1,208 1,088
--------- ---------
148,166 100,459
Less: accumulated depreciation and amortization (14,159) (11,983)
--------- ---------
Net property and equipment 134,007 88,476
--------- ---------
Other noncurrent assets 1,044 1,132
--------- ---------
$ 169,428 $ 117,819
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,997 $ 613
Accounts payable 14,050 11,826
Accrued workers' compensation 2,164 1,502
Payroll and related employee costs 4,422 3,340
Customer advances 777 2,466
Taxes payable 1,083 845
Other accrued liabilities 810 1,424
--------- ---------
Total current liabilities 25,303 22,016
--------- ---------
Long-term debt net of current maturities 32,071 26,846
Other long-term liabilities and minority interest 3,177 3,299
Deferred income taxes 10,109 248
Series A preferred stock - mandatory redeemable 726 764
Commitments and contingent liabilities -- --
Shareholders' equity:
Series B preferred stock, $1 par value; 10,000 shares
authorized; none outstanding -- --
Common stock, $.10 par value; 300,000,000 shares
authorized 137,524,034 and 125,043,234 issued
and outstanding, respectively 13,752 12,504
Additional paid-in capital 129,135 99,301
Cumulative translation adjustments (404) (404)
Accumulated deficit (44,441) (46,755)
--------- ---------
Total shareholders' equity 98,042 64,646
--------- ---------
$ 169,428 $ 117,819
--------- =========
</TABLE>
See accompanying notes to consolidated financial statements.
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DI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amount in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
Revenues:
Contract drilling $ 35,975 $ 20,102
Costs and expenses:
Drilling operations 28,792 18,936
Depreciation and amortization 2,207 1,097
General and administrative 1,654 720
Non-recurring charges -- 602
--------- ---------
Total costs and expenses 32,653 21,355
--------- ---------
Operating income (loss) 3,322 (1,253)
Other income (expense):
Interest income 92 11
Gain on sale of assets 30 15
Interest expense (672) (262)
Minority interest 202 (2)
Other, net 2 --
--------- ---------
Other income (expense), net (346) (238)
--------- ---------
Income (loss) before income taxes 2,976 (1,491)
Income taxes 662 --
--------- ---------
Net income (loss) 2,314 (1,491)
Series A preferred stock redemption premium (22) --
Series B preferred stock
subscription dividend requirement -- (150)
--------- ---------
Net income (loss) applicable to common stock $ 2,292 $ (1,641)
========= =========
Net income (loss) per common share $ .02 $ (.04)
========= =========
Weighted average common and common equivalent shares outstanding 133,334 38,669
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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DI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Series B
Preferred Common
Stock Stock Additional Cumulative
$1 par $.10 par Paid-in Translation
Value Value Capital Deficit Adjustments Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ 4,000 $ 3,867 $ 46,458 $ (34,631) -- $ 19,694
Series B preferred stock
dividend requirement 150 -- -- (150) -- --
Net loss -- -- -- (1,491) -- (1,491)
----------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 1996 $ 4,150 $ 3,867 $ 46,458 $ (36,272) $ -- $ 18,203
=========== =========== =========== =========== =========== ===========
Balance, December 31, 1996 $ -- $ 12,504 $ 99,301 $ (46,755) $ (404) $ 64,646
Issuance of shares in
Flournoy transaction -- 1,243 29,823 -- -- 31,066
Exercise of stock options -- 5 33 -- -- 38
Redemption of Series A
preferred stock -- -- (22) -- -- (22)
Net income -- -- -- 2,314 -- 2,314
----------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 1997 $ -- $ 13,752 $ 129,135 $ (44,441) $ (404) $ 98,042
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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DI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,314 $ (1,491)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,207 1,097
Provision for deferred income taxes 424 --
Gain on sale of assets (30) (15)
Net effect of changes in assets and liabilities
related to operating accounts (6,766) 886
-------- --------
Cash provided by (used in) operating activities (1,851) 477
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions (7,247) (921)
Proceeds from sale of property and equipment 42 19
-------- --------
Cash used in investing activities (7,205) (902)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 6,910 167
Repayments of long-term debt (301) (605)
Proceeds from exercise of stock options 38 --
Redemption of Series A Preferred Stock (60) --
-------- --------
Cash provided by (used in) financing activities 6,587 (438)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,469) (863)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,162 1,859
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,693 $ 996
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURE
CASH PAID FOR INTEREST: $ 672 $ 262
======== ========
CASH PAID FOR TAXES: $ -- $ --
======== ========
NON CASH TRANSACTIONS:
Issuance of common stock in Flournoy transaction
Change in property and equipment additions $ 40,503
Change in issuance of common stock 31,066
Change in deferred tax liability 9,437
</TABLE>
See accompanying notes to consolidated financial statements.
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DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) GENERAL
The accompanying unaudited consolidated financial statements have been
prepared by DI Industries, Inc. (the "Company" or "DI") in accordance with the
rules and regulations of the Securities and Exchange Commission and include the
accounts of the Company and its majority-owned subsidiaries. In the opinion of
management, the accompanying unaudited consolidated financial statements
contain all adjustments, which are of a normal recurring nature, necessary to
present fairly the Company's financial position as of March 31, 1997, and the
results of operations and cash flows for the periods indicated. All significant
intercompany transactions have been eliminated. The results of operations for
the three months ended March 31, 1997 and 1996 are not necessarily indicative
of the results for any other period or for the year as a whole. These
consolidated financial statements should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1996.
(2) NET INCOME (LOSS) PER COMMON SHARE
The following table presents the weighted average number of shares of
common stock and common stock equivalents outstanding for the three months
ended March 31, 1997 and 1996.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------
1997 1996
------- -------
(In thousands)
<S> <C> <C>
Weighted average shares of common stock outstanding 133,334 38,669
Stock options (treasury method) -- --
------- -------
133,334 38,669
======= =======
</TABLE>
Stock options are not included in the computation for the three months
ended March 31, 1997 and 1996, since such inclusion would be antidilutive or
not significant to the computation.
(3) ACCOUNTING FOR INCOME TAXES
The Company and its domestic subsidiaries file a consolidated federal
income tax return. The Company's foreign owned subsidiaries file tax returns in
the country where they are domiciled. The Company records current income taxes
based on its estimated tax liability in the United States and foreign countries
for the period. The Company recorded a current tax provision of $238,000 and a
deferred provision of $424,000 for the three months ended March 31, 1997.
The Company accounts for income taxes based upon Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
which requires recognition of deferred income tax liabilities and assets for
the expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. Deferred income taxes reflect
the gross tax effect of (a) temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and tax reporting
purposes, and (b) operating loss and tax credit carryforwards.
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<PAGE> 8
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(4) LONG-TERM DEBT
On December 31, 1996, the Company closed a $35 million reducing
revolving line of credit (the "Facility") with a group of banks. The Facility
reduces by $5.0 million each year until the December 31, 1999 maturity date.
The Facility is secured by substantially all the Company's assets and calls for
quarterly interest payments on the outstanding balance at either LIBOR plus 3%
or prime plus 2% (8.75% at March 31, 1997). The Facility also contains
customary affirmative and negative covenants with which the Company was in
compliance.
On April 30, 1997, the Facility was amended and restated to increase
the line of credit to $50.0 million and to revise certain other terms and
covenants, including the elimination of the mandatory $5 million reductions in
January 1998 and 1999 and a conversion of the interest rate to a sliding
variable rate based on certain financial ratios of either LIBOR plus 1.75% to
2.5% or prime plus .75% to 1.5%.
(5) COMMITMENTS AND CONTINGENT LIABILITIES
The Company is involved in litigation incidental to the conduct of its
business, none of which management believes is, individually or in the
aggregate, material to the Company's consolidated financial condition or
results of operations.
Substantially all of the Company's contract drilling activities are
conducted with independent and major oil and gas companies in the United States
or with national utility or national petroleum companies in Venezuela.
Historically, the Company has not required collateral or other security to
support the related receivables from such customers. However, the Company has
required certain customers to deposit funds in escrow prior to the commencement
of drilling. Actions typically taken by the Company in the event of nonpayment
include filing a lien on the customer's producing property and filing suit
against the customer.
(6) SIGNIFICANT PROPERTY TRANSACTIONS
On January 31, 1997, the Company acquired the operating assets of
Flournoy Drilling Company ("Flournoy") for 12.4 million shares of DI common
stock and $800,000 in cash. The assets acquired include 13 drilling rigs, 17
rig hauling trucks, a yard and office facility in Alice, Texas, and various
other equipment and drill pipe. The Company agreed to issue additional shares
of common stock to Flournoy's shareholders if, and to the extent that on
January 31, 1998, the aggregate market value of one-half of the shares received
by the Flournoy shareholders less any shares sold, plus the gross proceeds from
certain sales of common stock received in the transaction by the Flournoy
shareholders prior to January 31, 1998, is, in total, less than $12.4 million.
On March 7, 1997, the Company entered into an agreement to acquire by
merger Grey Wolf Drilling Company ("Grey Wolf") for up to $61.6 million in cash
and approximately 14.0 million shares of the Company's common stock. The number
of shares to be issued in the merger is subject to adjustment if the average
trading price of DI's common stock ten days prior to the three days before the
merger is greater than $4.00 or less than $3.00 per share. Additionally, the
merger agreement calls for the decrease of the cash consideration and a
corresponding increase in the number of shares issued so that at least 45% of
the value of the merger consideration consists of the Company's common stock.
An escrow will be established for certain post-closing contingencies with $5
million of the cash consideration. The merger is subject to obtaining
regulatory and Grey Wolf shareholder's approval and certain other conditions.
The Company expects this
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<PAGE> 9
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
merger to close by the end of the second quarter of 1997. The Company expects
to issue $125 million of public debentures due in the year 2007 to fund the
cash portion of the Grey Wolf acquisition, to repay outstanding debt under the
Facility and for general corporate purposes.
The March 31, 1997, consolidated balance sheet includes the effect of
the Flournoy acquisition. The following unaudited proforma balance sheet data
assumes the Grey Wolf acquisition, related common stock issuance and debt
financing occurred on March 31, 1997. The following unaudited consolidated
proforma results of operations assumes the Flournoy and Grey Wolf acquisitions
occurred on January 1, 1996, and do not purport to be indicative of what would
have occurred had the transactions occurred at those dates or of results which
may occur in the future. (Amounts in thousands, except per share amounts):
<TABLE>
<CAPTION>
As of
March 31,
1997
----------
<S> <C>
Working capital $ 37,236
Total assets 346,272
Shareholders' equity 140,042
</TABLE>
<TABLE>
<CAPTION>
For the Three For the Year
Months Ended Ended
March 31, December 31,
1997 1996
----------- -----------
<S> <C> <C>
Total revenues $ 55,709 $ 205,316
Net income (loss) applicable
to common stock 802 (26,311)
Net income (loss) per common share .01 (.17)
</TABLE>
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<PAGE> 10
DI INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto of DI Industries, Inc.
("DI" or the "Company") included elsewhere herein.
GENERAL
In 1996, the Company began implementing a new business strategy to
return the Company to profitability and to enable it to keep pace with rapidly
changing competitive conditions in the land drilling business. The first step
in this process was to install new senior management and elect a substantially
new board of directors. The new senior management immediately focused the
Company's resources toward higher margin markets and recapitalized the Company
to provide for growth capacity. Management believes that its recent past
financial performance is not indicative of the Company's potential,
particularly in light of recent increased demand and contract rates for land
drilling rigs in its core markets; the Ark-La-Tex, South Texas and Gulf Coast
markets.
Since August of 1996, the Company has completed five transactions that
improved its liquidity and added drilling rigs to its core markets. In
addition, during 1996, the Company made the decision to exit Argentina and
Mexico. The four drilling rigs previously operating in Mexico were mobilized
back to the United States during December 1996, where three were refurbished
and returned to service and one is held for sale. In April 1997, the Company
sold three of the Argentina drilling rigs and certain other assets and is in
the process of returning its other three rigs in Argentina to the United
States. The Company has undertaken a program to refurbish, upgrade and redeploy
twelve to sixteen of its rigs held in inventory. The combined effect of these
events materially changed the Company's financial position, liquidity, capital
structure and principal shareholders.
There is a general shortage in the industry of used drill pipe, and
the cost of obtaining new and used drill pipe is substantially higher than in
prior periods and continues to escalate. At present, the Company does not have
a shortage of drill pipe or other equipment but will need to purchase
additional drill pipe for newly refurbished rigs and rigs currently in service.
In response to this shortage, the Company has formed an alliance with a drill
pipe manufacturer in an effort to secure an adequate supply of new drill pipe
for its active rigs and the rigs that will be refurbished over the near term.
FINANCIAL CONDITION AND LIQUIDITY
During the first three months of 1997, the Company funded its
activities through a combination of cash generated from operations, borrowings
under the Company's loan facility (the "Facility") and the issuance of common
stock. Until its recent amendment, the Facility provided for an initial $35.0
million reducing revolving line of credit with mandatory reductions of $5.0
million each year until maturity on December 31, 1999. On April 30, 1997, the
Facility was amended and restated to increase the line of credit to $50 million
and amend certain other covenants and terms including the elimination of the
mandatory $5.0 million reductions and a reduction in the interest rate of
approximately .5%.
The following table summarizes the Company's financial position at
March 31, 1997 and as of December 31, 1996.
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<PAGE> 11
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
------------- -----------------
(unaudited)
<S> <C> <C>
Working capital $ 9,074 $ 6,195
Property and equipment, net 134,007 88,476
Other noncurrent assets 1,044 1,132
------------- -------------
Total $ 144,125 95,803
============= =============
Long-term debt $ 32,071 $ 26,846
Other long-term liabilities 14,012 4,311
Shareholders' equity 98,042 64,646
------------- -------------
Total $ 144,125 $ 95,803
============= =============
</TABLE>
The most significant changes in the Company's financial position from
December 31, 1996 to March 31, 1997, are the increases in property and
equipment of $45.5 million and shareholders' equity of $33.4 million. These
changes are primarily due to the acquisition of Flournoy Drilling Company
("Flournoy") discussed further below.
On January 31, 1997, the Company acquired the operating assets of
Flournoy for 12.4 million shares of the Company's common stock and $800,000 in
cash. The assets acquired included 13 drilling rigs, 17 rig hauling trucks, a
yard and office facility in Alice, Texas and various other equipment and drill
pipe. The acquisition was accounted for using purchase accounting and as such,
all revenues and expenses were recorded by the Company beginning from the date
of acquisition.
Operating Activities
During the first quarter of 1997, the Company used $1.9 million to
fund operating activities. While the Company generated cash from operations of
$4.9 million, working capital requirements increased by $6.7 million due to
recent acquisitions. In these acquisitions, the Company purchased drilling rigs
and certain other related equipment which required additional working capital
to operate.
Investing Activities
During the quarter ended March 31, 1997, the Company invested $7.2
million in fixed assets, net of asset sales. Rig refurbishments consisted of
$3.3 million and $3.9 million was spent to acquire drill pipe and other
drilling related equipment.
In addition, the acquisition of Flournoy resulted in a $40.5 million
non-cash addition to property and equipment.
Financing Activities
During the first quarter of 1997, the Company obtained $6.6 million
from financing activities, consisting principally of borrowings under the
Facility. These net borrowings were used to fund the working capital
requirements and capital expenditures discussed above.
Future Activities
In March 1997, the Company entered into an agreement to acquire Grey
Wolf Drilling Company ("Grey Wolf") for up to $61.6 million in cash and
approximately 14.0 million shares of the Company's common stock. The terms of
the agreement call for Grey Wolf to merge with and into Drillers, Inc. a
subsidiary of the Company, subject to obtaining regulatory and Grey Wolf
shareholders' approval and certain other conditions. Grey Wolf is a premier
Gulf Coast land drilling contractor with a fleet of 18 large drilling
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<PAGE> 12
rigs currently working in South Louisiana and the upper Texas Gulf Coast. The
number of shares of the Company's common stock to be issued in the merger is
subject to adjustment if the average trading price of the Company's common
stock in the ten trading days prior to three days before the merger is greater
than $4.00 or less than $3.00 per share. Additionally, the merger agreement
calls for the decrease of cash consideration and a corresponding increase in
the number of shares issued so that at least 45% of the value of the merger
consideration consists of the Company's common stock. If the Grey Wolf
acquisition were to close on May 1, 1997, the aggregate consideration would
consist of approximately $57.0 million in cash and approximately 18.7 million
shares of common stock. An escrow will be established for certain post-closing
contingencies with $5.0 million of the cash consideration. The Company expects
this merger to close by the end of the second quarter of 1997. The Company
expects to issue $125 million of public debentures due in the year 2007 to fund
the cash portion of the Grey Wolf acquisition, to repay outstanding debt under
the Facility and for general corporate purposes. The Grey Wolf acquisition will
be recorded utilizing purchase accounting, as such, all revenues and expenses
will be recorded beginning from the date of acquisition.
In addition to the capital requirements necessary to complete the
acquisition of Grey Wolf, the Company anticipates substantial additional funding
requirements in connection with its rig refurbishment program. During the last
quarter of 1996 and the first quarter of 1997, the Company commenced and
completed the refurbishment of four rigs at an aggregate cost of $3.2 million.
In addition, as of April 30, 1996, the Company is in the process of refurbishing
six additional rigs. The cost of refurbishing these rigs, including new drill
strings, is estimated to be $8.6 million, of which $188,000 had been expended as
of March 31, 1997. The Company also anticipates that during the remainder of
1997, it may commence the refurbishment of up to an additional 10 rigs depending
upon a variety of factors, including market conditions, management's assessment
of existing and anticipated demand and day rates for land drilling rigs in the
Company's domestic and Venezuelan markets and the Company's success in bidding
for drilling contracts. The estimated cost of refurbishment could vary
substantially, depending upon the type of rig refurbished and its intended
market following refurbishment. The Company estimates that rigs destined for its
core domestic markets will cost an average of approximately $1.5 million to
refurbish, while rigs to be deployed to Venezuela will cost an average of up to
$12.0 million. In each of these instances, the cost includes the cost of new
drill string.
The Company believes that the balance of the proceeds from the
proposed offering of public debentures, the cash flow from operations and, to
the extent required, borrowings under the Facility, will be sufficient to fund
the Company's refurbishment program and meet its other anticipated capital
requirements for 1997. The Company, however, continues to actively review
possible acquisition opportunities. While the Company has no definitive
agreements to acquire additional equipment, other than Grey Wolf, suitable
opportunities may arise in the future. The timing or success of any acquisition
effort and the size of the associated potential capital commitments cannot be
predicted at this time. The ability of the Company to consummate any such
transaction will be dependent in large part on its ability to fund such
transaction. There can be no assurance that adequate funding will be available
in terms satisfactory to the Company.
Other
The Company has no derivative contracts related to its foreign
currency exposure in Venezuela where it operates. However, the Company
generally structures its foreign operations and related drilling contracts in
such a manner as to minimize any potential foreign currency exchange
restrictions and any exposure to foreign currency fluctuations. The Company
believes that its foreign currency exposure, if any, is not significant.
The Company has not paid any cash dividends on the Company's common
stock and does not anticipate paying dividends on the common stock at any time
in the foreseeable future. Furthermore, the Facility prohibits the payment of
dividends without the consent of the participating banks.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, ("SFAS 128") "Earnings
per Share," SFAS 128 specifies the compilation, presentation and disclosure
requirements for earnings per share for entities with publicly held common stock
or potential common stock. The requirements of this statement will be effective
for fiscal years beginning after December 15, 1997. Management does not believe
that the implementation of SFAS 128 will have a material effect on its financial
statements.
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<PAGE> 13
RESULTS OF OPERATIONS
Comparison of the Three Months Ended March 31, 1997 and 1996
The following tables highlight rig days worked, revenues and
operating expenses, for the Company's domestic and foreign operations for the
three months ended March 31, 1997 and 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996
------------------------------------ ------------------------------------
DOMESTIC FOREIGN DOMESTIC FOREIGN
OPERATIONS OPERATIONS TOTAL OPERATIONS OPERATIONS TOTAL
---------- ---------- ---------- ---------- ---------- ----------
(In thousands, except rig days worked and average revenue per day)
<S> <C> <C> <C> <C> <C> <C>
Rig days worked 3,973 450 4,423 1,349 1,331 2,680
Average revenue per day $ 8,205 $ 7,500 $ 8,134 $ 7,731 $ 7,267 $ 7,501
Drilling revenues $ 32,600 $ 3,375 $ 35,975 $ 10,429 $ 9,673 $ 20,102
Operating expenses(1) 25,817 2,975 28,792 9,770 9,166 18,936
---------- ---------- ---------- ---------- ---------- ----------
Gross profit (loss) $ 6,783 $ 400 $ 7,183 $ 659 $ 507 $ 1,166
========== ========== ========== ========== ========== ==========
</TABLE>
- ----------
(1) Operating expenses exclude expenses for depreciation and amortization and
general and administrative.
Revenues increased approximately $15.9 million or 79% to $36.0 million
for the three months ended March 31, 1997, from $20.1 million for the three
months ended March 31, 1996. The increase is due to an increase in revenue from
domestic operations of $22.2 million partially offset by a decrease in revenue
from foreign operations of $6.3 million. Revenues from domestic operations
increased due to an increase in rig days worked of 2,624, and an increase in the
average revenue per day of $474. The increase in domestic days worked is a
result of an increase in the number of rigs owned and available for service to
59 at March 31, 1997, compared to 26 at March 31, 1996. The increase in rigs
available for service is principally the result of the acquisitions completed in
1996 and the first quarter of 1997 in which the Company added 26 working rigs.
Rig days worked in domestic operations consisted of 2,254 days worked in the
Company's South Texas division, 1,152 days worked in the Company's Ark-La-Tex
division, and 567 days worked in all other divisions of the Company. Revenue
from foreign operations decreased due to a decrease in rig days worked of 881
partially offset by an increase in average revenue per day of $233. The decrease
in days worked is primarily a result of the Company withdrawing from Mexico and
Argentina during the fourth quarter of 1996. Increases in domestic and foreign
average revenue per day are a result of the overall increase in demand for land
drilling rigs.
Drilling operating expenses increased by approximately $9.9 million,
or 52%, to $28.8 million for the three months ended March 31, 1997, as compared
to $18.9 million for the three months ended March 31, 1996. The increase is due
to a $16.0 million increase in drilling operating expenses from domestic
operations partially offset by a decrease of $6.1 million in drilling operating
expenses from foreign operations. The increase in domestic drilling operating
expenses is a direct result of the increase in the number of rigs owned and
available for service and the corresponding 2,624 increase in the days worked.
The decrease in drilling operating expenses from foreign operations is due to
fewer rigs operating as a result of the Company's withdrawal from Mexico and
Argentina as discussed above.
Depreciation and amortization expense increased by $1.1 million, or
101%, to $2.2 million for the three months ended March 31, 1997, compared to
$1.1 million for the three months ended March 31, 1996. The increase is
primarily due to additional depreciation associated with the acquisition in late
1996 of 13 additional operating rigs and the acquisition of 13 operating rigs in
January 1997.
General and administrative expense increased by $1.0 million, or 130%,
to $1.7 million for the three months ended March 31, 1997, from $720,000 for the
same period of 1996 due primarily to (i) increased payroll costs
- 13 -
<PAGE> 14
associated with new management and increased corporate staff, (ii) increased
legal fees due to the Company's expansion activities, and (iii) increased
insurance expense due to an increase in the number of rigs as well as an
overall increase in employee related insurance coverage.
During the first quarter of 1996, the Company incurred $602,000 in
non-recurring charges relating to the contractual severance to be paid over a
two-year period to the Company's former president and chief executive officer.
Interest expense increased by $410,000, or 156% to $672,000 for the
three months ended March 31, 1997, compared to $262,000 for the three months
ended March 31, 1996. The increase is due to an increase in the average
outstanding debt balance of $18.6 million to $30.8 million for the three months
ended March 31, 1997 from $12.2 million for the three months ended March 31,
1996.
For the three months ended March 31, 1997, the Company provided income
tax expense of $662,000. This expense is the result of the Company's profitable
operations and the resulting taxable income. The Company had no taxable income
for the first quarter of 1996.
- 14 -
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Note 4 of the "Notes to Consolidated Financial Statements" is
incorporated herein by reference.
ITEM 2. CHANGES IN SECURITIES
On January 31, 1997, the Company issued 12.4 million shares of common
stock and paid $800,000 in cash to acquire the operating assets of Flournoy
Drilling Company. The shares were issued in a negotiated transaction exempt
from registration under the Securities Act of 1933 pursuant to Section 4(2)
thereof. A shelf registration statement was filed by the Company registering
these shares for resale on Form S-3 that became effective February 12, 1997.
With respect to one-half of the shares issued in the transaction, DI agreed to
issue additional shares if the shareholders of Flournoy hold value less than
$2.00 per share one year from closing.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
This Quarterly Report on Form 10-Q contains "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
All statements other than statements of historical facts included in this
report including, without limitation, statements regarding the Company's
business strategy, plans, objectives and beliefs of management for future
operations, the anticipated closing and methods of financing the proposed
merger with Grey Wolf Drilling Company and are forward-looking statements.
Although the company believes the expectations and beliefs reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from the Company's expectations
("Cautionary Statements") are discussed in Management's Discussion and Analysis
of Financial Condition and Results of Operations - Overview and the preceding
paragraph concerning the Company's proposed acquisition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A current report on Form 8-K (Item 2), was filed with the Securities
and Exchange Commission on January 31, 1997. This current report reported the
acquisition of the operating assets of Flournoy Drilling Company and the
election of Mr. Lucien Flournoy, the founder of Flournoy Drilling Company to
the Company's Board of Directors.
A current report on Form 8-K (Item 5) was filed with the Securities
and Exchange Commission on March 10, 1997, announcing the signing of an
agreement to acquire by merger Grey Wolf Drilling Company.
(a) Exhibit 11 - Computation of Net Income (Loss) per Common Stock
Share.
(b) Exhibit 27 - Financial Data Schedule.
- 15 -
<PAGE> 16
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.
DI INDUSTRIES, INC.
Date: May 2, 1997 By: /s/ T. Scott O'Keefe
---------------------------------------
T. Scott O'Keefe
Senior Vice President and Chief
Financial Officer
Date: May 2, 1997 By: /s/ David W. Wehlmann
---------------------------------------
David W. Wehlmann
Vice President and Controller
- 16 -
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
Exhibit 11 Computation of Net Income (Loss) per Common Stock Share.
Exhibit 27 Financial Data Schedule.
</TABLE>
<PAGE> 1
Exhibit 11
DI INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER COMMON STOCK SHARE
(in thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Income (loss) per share:
Weighted average shares of common stock outstanding for
per share computation 133,334 38,669
========== ==========
Net income (loss) $ 2,314 $ (1,491)
Less: Series A preferred stock redemption premium 22 --
Series B preferred stock subscription dividend requirement -- 150
---------- ----------
Net income (loss) applicable to common stock $ 2,292 $ (1,641)
========== ==========
Income (loss) per common share $ .02 $ (.04)
========== ==========
</TABLE>
Note: Reference is made to Note 2 to Consolidated Financial Statements
regarding computation of per common stock share amounts.
(a) Stock options are not included since inclusion would be either antidilutive
or not significant for all the periods presented.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,943
<SECURITIES> 0
<RECEIVABLES> 26,705
<ALLOWANCES> (1,310)
<INVENTORY> 428
<CURRENT-ASSETS> 34,377
<PP&E> 148,166
<DEPRECIATION> (14,159)
<TOTAL-ASSETS> 169,428
<CURRENT-LIABILITIES> 25,303
<BONDS> 0
726
0
<COMMON> 13,752
<OTHER-SE> 84,290
<TOTAL-LIABILITY-AND-EQUITY> 169,428
<SALES> 35,975
<TOTAL-REVENUES> 35,975
<CGS> 28,792
<TOTAL-COSTS> 32,653
<OTHER-EXPENSES> 346
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 672
<INCOME-PRETAX> 2,976
<INCOME-TAX> 662
<INCOME-CONTINUING> 2,314
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,314
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
