<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-KA
AMENDMENT NO. 2
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) July 30, 1996
PATTERSON ENERGY, INC.
----------------------
(Exact name of registrant as specified in its charter)
Delaware 0-22664 75-2504748
- ---------------------------- -------------- ------------------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
4510 Lamesa Highway, Snyder, Texas 79549
- ---------------------------------- --------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (915) 573-1104
No Change
---------
(Former name or former address, if changed since last report.)
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(b) Supplemental Consolidated Financial Statements.
The supplemental consolidated financial statements of Patterson
Energy, Inc. and Subsidiaries listed below have been prepared to give
retroactive effect to the merger with Tucker Drilling Company, Inc. which
has been accounted for by the pooling of interests method of accounting
as described in Notes 1 and 2 to the supplemental consolidated financial
statements. The supplemental consolidated balance sheets are as of
December 31, 1994 and 1995, and the related supplemental consolidated
statements of income, stockholders' equity, and cash flows are for each
of the three years ended December 31, 1995. Supplemental consolidated
financial statements as of June 30, 1996 and for each of the six months
ended June 30, 1995 and 1996 have been prepared by management of the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information
presented not misleading. The supplemental consolidated interim
financial statements should be read in conjunction with the
aforementioned audited supplemental consolidated financial statements
as of December 31, 1994 and 1995 and for the respective periods ended
December 31, 1993, 1994 and 1995. In the opinion of management, all
adjustments (consisting of only normal recurring accruals) considered
necessary for presentation have been included. Furthermore, the results
of operations for the six months ended June 30, 1996 are not necessarily
indicative of the results expected for the full year. Generally accepted
accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling of interests method of
accounting in financial statements that do not include the date of
consummation. These financial statements do not extend through the date
of consummation; however, they will become the historical consolidated
financial statements of the Company after financial statements covering
the date of consummation of the business combination are issued.
2
<PAGE> 3
INDEX TO
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Page
<TABLE>
<S> <C>
Report of Independent Accountants; Coopers & Lybrand L.L.P ............... 4
Report of Independent Public Accountants; Arthur Andersen LLP ............ 5
Supplemental Consolidated Financial Statements:
Supplemental Consolidated Balance Sheets as of
December 31, 1994 and 1995 and June 30, 1996 (unaudited) ......... 6
Supplemental Consolidated Statements of Income for the
years ended December 31, 1993, 1994 and 1995 and for the
six months ended June 30, 1995 and 1996 (unaudited) .............. 7
Supplemental Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1993, 1994 and 1995 and for the
six months ended June 30, 1995 and 1996 (unaudited) .............. 8
Supplemental Consolidated Statements of Cash Flows for the
years ended December 31, 1993, 1994 and 1995 and for the
six months ended June 30, 1995 and 1996 (unaudited) .............. 9
Notes to Supplemental Consolidated Financial Statements ............ 11
</TABLE>
3
<PAGE> 4
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders of
Patterson Energy, Inc.
We have audited the supplemental consolidated balance sheets of Patterson
Energy, Inc. and Subsidiaries (the "Company") as of December 31, 1994 and 1995,
and the related supplemental consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. These supplemental consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. We did not audit
the financial statements of Tucker Drilling Company, Inc. which financial
statements reflect 36 and 30 percent of supplemental consolidated total assets
as of December 31, 1994 and 1995, respectively, and 42, 41 and 28 percent in
1993, 1994 and 1995, respectively of supplemental consolidated total operating
revenues. Those financial statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for Tucker Drilling Company, Inc., is based solely on the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
The supplemental consolidated financial statements give retroactive effect
to the merger of Patterson Energy, Inc. and Tucker Drilling Company, Inc. on
July 30, 1996, which has been accounted for as a pooling of interests as
described in Notes 1 and 2 to the supplemental consolidated financial
statements. Generally accepted accounting principles proscribe giving effect
to a consummated business combination accounted for by the pooling of interests
method in financial statements that do not include the date of consummation.
These financial statements do not extend through the date of consummation;
however, they will become the historical consolidated financial statements of
Patterson Energy, Inc. and Subsidiaries after financial statements covering the
date of consummation of the business combination are issued.
In our opinion, based on our audits and the report of the other auditors,
the supplemental consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Patterson Energy, Inc. and Subsidiaries as of December 31, 1994 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles applicable after financial statements
are issued for a period which includes the date of consummation of the business
combination.
/s/ COOPERS & LYBRAND L.L.P.
Dallas, Texas
September 13, 1996
4
<PAGE> 5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Tucker Drilling Company, Inc.
We have audited the balance sheets of Tucker Drilling Company, Inc. (a Delaware
corporation), as of March 31, 1996 and 1995, and the related statements of
operations, changes in stockholders' equity and cash flows for the three years
ended March 31, 1996, prior to the restatement (and, therefore, are not
presented herein) for the pooling of interests as described in Notes 1 and 2 to
the supplemental consolidated financial statements of Patterson Energy, Inc.,
and Subsidiaries included in the Current Report on Form 8-KA, Amendment No. 2.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tucker Drilling Company, Inc.,
as of March 31, 1996 and 1995, and the results of its operations and its cash
flows for the three years ended March 31, 1996, in conformity with generally
accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
San Antonio, Texas
May 16, 1996
5
<PAGE> 6
PATTERSON ENERGY, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, JUNE 30,
-------------------------- -----------
1994 1995 1996
----------- ------------ -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................................... $ 6,845,059 $ 9,344,494 $11,570,554
Marketable securities....................................................... 2,570,459 524,323 524,323
Accounts receivable:
Trade:
Billed.................................................................... 11,445,058 10,570,891 13,146,259
Unbilled.................................................................. 1,929,055 2,048,782 979,069
Oil and gas sales.......................................................... 593,861 712,497 717,634
Costs of uncompleted drilling contracts in excess of related billings........ -- -- 218,447
Equipment inventory.......................................................... 426,897 413,677 471,092
Deferred income taxes........................................................ 406,515 1,058,947 614,567
Undeveloped oil and gas properties held for resale........................... 1,385,781 2,122,112 2,544,206
Other current assets......................................................... 1,072,485 351,579 317,654
----------- ------------ -----------
Total current assets................................................... 26,675,170 27,147,302 31,103,805
----------- ------------ -----------
Property and equipment, at cost, net........................................... 21,538,030 34,385,345 35,523,330
Deferred income taxes.......................................................... -- 347,892 2,334,061
Deposits on workers' compensation insurance policy............................. 556,864 343,760 343,760
Other assets................................................................... 738,739 766,547 690,784
----------- ------------ -----------
Total assets........................................................... $49,508,803 $ 62,990,846 $69,995,740
=========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable.......................................... $ 918,834 $ 909,634 $ 3,388,149
Accounts Payable:
Trade...................................................................... 8,534,535 7,115,697 9,086,618
Revenue distribution....................................................... 967,020 1,686,626 2,143,703
Other...................................................................... 648,668 297,184 560,948
Accrued expenses............................................................. 1,838,588 2,042,254 2,203,554
----------- ------------ -----------
Total current liabilities................................................. 12,907,645 12,051,395 17,382,972
----------- ------------ -----------
Deferred liabilities........................................................... 324,650 376,746 387,996
Notes payable, less current maturities......................................... 5,966,710 12,906,473 12,544,908
----------- ------------ -----------
6,291,360 13,283,219 12,932,904
----------- ------------ -----------
Commitments and contingencies.................................................. -- -- --
Stockholders' equity:
Preferred stock-par value $.01; authorized 1,000,000 shares, no shares
issued.................................................................... -- -- --
Common stock-par value $.01; authorized 5,000,000 shares, issued
4,168,632 shares at December 31, 1994 and 4,747,083 shares at
December 31,1995 and 4,751,967 at June 30, 1996.......................... 41,687 47,472 47,520
Additional paid-in capital................................................... 14,907,454 19,047,037 19,087,414
Retained earnings............................................................ 15,360,657 18,561,723 20,544,930
----------- ------------ -----------
Total stockholders' equity................................................ 30,309,798 37,656,232 39,679,864
----------- ------------ -----------
Total liabilities and stockholders' equity.......................... $49,508,803 $ 62,990,846 $69,995,740
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
6
<PAGE> 7
PATTERSON ENERGY, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Operating revenues:
Drilling............................ $37,746,477 $54,822,766 $57,599,180 27,396,870 $30,208,018
Oil and gas sales................... 3,913,746 3,593,786 5,399,536 2,551,455 3,643,615
Well operation fees................. 1,063,629 979,756 1,296,257 586,067 771,276
Other............................... 168,926 133,240 148,976 122,355 169,769
----------- ----------- ----------- ----------- -----------
42,892,778 59,529,548 64,443,949 30,656,747 34,792,678
----------- ----------- ----------- ----------- -----------
Operating costs and expenses:
Direct drilling costs............... 30,631,392 43,035,526 46,504,502 22,068,179 24,740,863
Lease operating and production...... 1,206,796 1,141,391 1,509,206 735,365 996,200
Writedown due to impairment
of long-lived assets.............. -- -- 159,403 -- 159,403
Exploration costs................... 317,085 233,547 369,133 131,339 232,716
Dry holes and abandonments.......... 395,508 1,279,133 791,221 203,027 354,062
Depreciation, depletion
and amortization................. 4,654,697 4,911,929 7,522,695 3,496,338 4,787,241
General and administrative.......... 4,013,766 4,793,484 5,062,940 2,312,350 3,150,596
----------- ----------- ----------- ----------- -----------
41,219,244 55,395,010 61,919,100 28,946,598 34,421,081
----------- ----------- ----------- ----------- -----------
Operating income...................... 1,673,534 4,134,538 2,524,849 1,710,149 371,597
----------- ----------- ----------- ----------- -----------
Other income (expense):
Net gain on sale of assets.......... 138,272 611,009 373,567 119,759 399,362
Interest income..................... 141,067 408,945 545,463 280,396 248,425
Interest expense.................... (330,739) (366,152) (1,064,523) (460,155) (645,148)
Other............................... 117,463 25,020 34,946 (15,815) 74,286
----------- ----------- ----------- ----------- -----------
66,063 678,822 (110,547) (75,815) 76,925
----------- ----------- ----------- ----------- -----------
Income before income taxes............ 1,739,597 4,813,360 2,414,302 1,634,334 448,522
----------- ----------- ----------- ----------- -----------
Income taxes:
Current............................. 123,309 213,349 213,560 120,774 92,390
Deferred income tax benefit......... -- (406,515) (1,000,324) (94,243) (2,385,641)
----------- ----------- ----------- ----------- -----------
Income tax expense (benefit)...... 123,309 (193,166) (786,764) 26,531 (2,293,251)
----------- ----------- ----------- ----------- -----------
Net income............................ $ 1,616,288 $ 5,006,526 $ 3,201,066 $ 1,607,803 $ 2,741,773
=========== =========== =========== =========== ===========
Net income per common share:
Primary............................. $ 0.51 $ 1.24 $ 0.73 $ 0.38 $ 0.56
=========== =========== =========== =========== ===========
Assuming full dilution.............. $ 0.51 $ 1.24 $ 0.71 $ 0.38 $ 0.55
=========== =========== =========== =========== ===========
Weighted average number of
common shares outstanding:
Primary............................. 3,175,957 4,029,669 4,379,236 4,193,176 4,932,293
=========== =========== =========== =========== ===========
Assuming full dilution.............. 3,175,957 4,029,669 4,520,588 4,193,176 4,956,316
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
7
<PAGE> 8
PATTERSON ENERGY, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
------------------------- ----------------------------
NUMBER NUMBER
OF SHARES AMOUNT OF SHARES AMOUNT
--------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1992 ... 3,331,760 $ 33,318 351,158 $ (730,292)
Sale of treasury stock ....... -- -- (97,554) 49,172
Issuance of common stock and
redeemable warrants ..... 835,000 8,350 -- --
Net income ................... -- -- -- --
--------- ------------ ------------ ------------
Balance, December 31, 1993 ... 4,166,760 41,668 253,604 (681,120)
Issuance of common stock ..... 250,000 2,500 -- --
Retirement of treasury stock . (253,604) (2,536) (253,604) 681,120
Exercise of stock options .... 5,476 55 -- --
Net income ................... -- -- -- --
--------- ------------ ------------ ------------
Balance, December 31, 1994 ... 4,168,632 41,687 -- --
Issuance of common stock
and warrants ............ 97,500 975 -- --
Conversion of 853,748
redeemable warrants ..... 426,874 4,269 -- --
Conversion of 75,315
underwriters redeemable
warrants ................ 35,577 356 -- --
Exercise of stock options .... 18,500 185 -- --
Net income ................... -- -- -- --
--------- ------------ ------------ ------------
Balance, December 31, 1995 ... 4,747,083 47,472 -- --
Exercise of stock options
(Unaudited) ............. 4,884 48 -- --
Net income (Unaudited) ....... -- -- -- --
Change in Tucker Drilling
Company, Inc. fiscal year
(Unaudited) ............. -- -- -- --
--------- ------------ ------------ ------------
Balance June 30, 1996
(Unaudited) ............. 4,751,967 $ 47,520 -- $ --
========= ============ ============ ============
<CAPTION>
ADDITIONAL
PAID-IN RETAINED
CAPITAL EARNINGS TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
Balance, December 31, 1992 ... $ 9,003,283 $ 8,737,843 $ 17,044,152
Sale of treasury stock ....... 3,935 -- 53,107
Issuance of common stock and
redeemable warrants ..... 4,662,925 -- 4,671,275
Net income ................... -- 1,616,288 1,616,288
------------ ------------ ------------
Balance, December 31, 1993 ... 13,670,143 10,354,131 23,384,822
Issuance of common stock ..... 1,872,500 -- 1,875,000
Retirement of treasury stock . (678,584) -- --
Exercise of stock options .... 43,395 -- 43,450
Net income ................... -- 5,006,526 5,006,526
------------ ------------ ------------
Balance, December 31, 1994 ... 14,907,454 15,360,657 30,309,798
Issuance of common stock
and warrants ............ 721,275 -- 722,250
Conversion of 853,748
redeemable warrants ..... 2,991,015 -- 2,995,284
Conversion of 75,315
underwriters redeemable
warrants ................ 280,353 -- 280,709
Exercise of stock options .... 146,940 -- 147,125
Net income ................... -- 3,201,066 3,201,066
------------ ------------ ------------
Balance, December 31, 1995 ... 19,047,037 18,561,723 37,656,232
Exercise of stock options
(Unaudited) ............. 40,377 -- 40,425
Net income (Unaudited) ....... -- 2,741,773 2,741,773
Change in Tucker Drilling
Company, Inc. fiscal year
(Unaudited) ............. -- (758,566) (758,566)
------------ ------------ ------------
Balance June 30, 1996
(Unaudited) ............. $ 19,087,414 $ 20,544,930 $ 39,679,864
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
8
<PAGE> 9
PATTERSON ENERGY, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................................ $ 1,616,288 $ 5,006,526 $ 3,201,066
Adjustments to reconcile net income to
net cash from operating activities:
Loss on abandonment.................................................. 225,478 399,694 108,867
Depreciation, depletion and amortization............................. 4,654,697 4,911,929 7,522,695
Writedown due to impairment of long-lived assets..................... -- -- 159,403
Net gain on sale of assets........................................... (123,945) (611,009) (373,567)
Deferred income tax benefit.......................................... -- (406,515) (1,000,324)
Change in current assets and liabilities:
(Increase) decrease in trade accounts receivable................. (3,268,159) (4,666,120) 1,680,215
(Increase) decrease in oil and gas sales receivable.............. 91,026 (47,110) (258,561)
Increase in undeveloped oil and gas properties held for resale... (469,710) (549,440) (736,331)
(Increase) decrease in other current assets...................... 4,142 (70,067) (25,777)
Increase (decrease) in trade accounts payable.................... 1,391,010 2,825,111 (1,761,828)
Increase in revenue distribution payable......................... 45,426 181,459 699,235
Increase in deferred compensation payable........................ 49,026 182,701 52,096
Increase (decrease) in other current payables.................... (47,191) 1,107,299 53,495
Net change in deposits on workers' compensation
insurance policy.................................................... 57,853 (22,901) 213,104
----------- ----------- -----------
Net cash provided by operating activities...................... 4,225,941 8,241,557 9,533,788
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment................................... (5,261,725) (11,617,225) (19,906,204)
Sales of property and equipment....................................... 181,388 1,315,491 555,878
Net maturities (purchases) of investment securities................... 23,488 (1,685,929) 2,046,136
Change in other assets................................................ -- -- (83,844)
----------- ----------- -----------
Net cash used in investing activities.......................... (5,056,849) (11,987,663) (17,388,034)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from notes payable........................................... 2,766,488 5,000,000 9,375,000
Payments on notes payable............................................. (4,681,296) (573,456) (2,444,437)
Issuance of common stock and redeemable warrants...................... 4,671,275 -- 3,275,993
Proceeds from exercise of stock options............................... -- 43,450 147,125
Proceeds from sale of treasury stock.................................. 53,107 -- --
----------- ----------- -----------
Net cash provided by financing activities...................... 2,809,574 4,469,994 10,353,681
----------- ----------- -----------
Net increase in cash and cash equivalents...................... 1,978,666 723,888 2,499,435
Cash and cash equivalents at beginning of period........................ 4,142,505 6,121,171 6,845,059
----------- ----------- -----------
Cash and cash equivalents at end of period.............................. $ 6,121,171 $ 6,845,059 $ 9,344,494
=========== =========== -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................................ $ 347,888 $ 344,487 $ 992,651
Income taxes........................................................ 101,711 75,679 270,095
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
---------------------------------
1995 1996
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................ $ 1,607,803 $ 2,741,773
Adjustments to reconcile net income to
net cash from operating activities:
Loss on abandonment.................................................. 35,304 118,550
Depreciation, depletion and amortization............................. 3,496,338 4,787,241
Writedown due to impairment of long-lived assets..................... -- 159,403
Net gain on sale of assets........................................... (119,759) (399,362)
Deferred income tax benefit.......................................... (94,243) (2,385,641)
Change in current assets and liabilities:
(Increase) decrease in trade accounts receivable................. 3,845,887 (2,295,113)
(Increase) decrease in oil and gas sales receivable.............. (62,231) 13,090
Increase in undeveloped oil and gas properties held for resale... (830,468) (422,094)
(Increase) decrease in other current assets...................... (258,065) 951,276
Increase (decrease) in trade accounts payable.................... (2,316,653) 1,957,654
Increase in revenue distribution payable......................... 812,428 538,120
Increase in deferred compensation payable........................ 27,000 22,846
Increase (decrease) in other current payables.................... (156,831) 102,355
Net change in deposits on workers' compensation
insurance policy.................................................... (150,000) --
----------- -----------
Net cash provided by operating activities...................... 5,836,510 5,890,098
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment................................... (8,900,141) (6,549,809)
Sales of property and equipment....................................... 183,596 804,495
Net maturities (purchases) of investment securities................... (989,787) 1,946,562
Change in other assets................................................ (85,781) 81,841
----------- -----------
Net cash used in investing activities.......................... (9,792,113) (3,716,911)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable........................................... 8,000,000 2,440,000
Payments on notes payable............................................. (1,679,128) (323,050)
Issuance of common stock and redeemable warrants...................... -- --
Proceeds from exercise of stock options............................... 116,500 71,050
Proceeds from sale of treasury stock.................................. -- --
----------- -----------
Net cash provided by financing activities...................... 6,437,372 2,188,000
----------- -----------
Net increase in cash and cash equivalents...................... 2,481,769 4,361,187
Cash and cash equivalents at beginning of period........................ 6,845,059 7,209,367(1)
----------- -----------
Cash and cash equivalents at end of period.............................. $ 9,326,828 $11,570,554
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................................ $ 435,665 $ 645,188
Income taxes........................................................ 166,492 141,898
</TABLE>
(1) Amount does not agree to cash and cash equivalents as presented as a
result of conforming reporting periods.
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
(continued)
9
<PAGE> 10
PATTERSON ENERGY, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
Noncash investing and financing activities:
During the year ended December 31, 1994, the Company
issued 250,000 shares of common stock to Questor Drilling
Corp. for certain assets valued at $1,875,000 (See Notes 2
and 7).
During the year ended December 31, 1994, the Company
retired 253,604 shares of common stock that were held in
treasury (See Note 7).
During the year ended December 31, 1995, the Company
acquired three drilling rigs and related equipment from a
non-affiliated person. The purchase price for the rigs
consisted of $367,500 cash, 97,500 shares of the Company's
common stock, valued for purposes of this transaction at
$682,500, and warrants to purchase an additional 75,000
shares at an exercise price of $9.00 per share, valued at
$39,750 for this transaction (See Note 7).
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
10
<PAGE> 11
PATTERSON ENERGY, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies follows:
Basis of presentation - The supplemental consolidated financial
statements of Patterson Energy, Inc. and its wholly-owned subsidiaries have
been prepared to give retroactive effect to the merger with Tucker Drilling
Company, Inc. (hereinafter referred to as "Tucker") on July 30, 1996 (the
"Consummation Date"). Generally accepted accounting principles proscribe
giving effect to a consummated business combination accounted for by the
pooling of interests method of accounting in financial statements that do not
include the date of consummation. These financial statements do not extend
through the Consummation Date; however, they will become the historical
consolidated financial statements of Patterson Energy, Inc. after financial
statements covering the Consummation Date of the business combination are
issued.
Principles of consolidation - The supplemental consolidated financial
statements include the accounts of Patterson Energy, Inc. ("Patterson") dba
Patterson Drilling Company and its wholly-owned subsidiaries, Patterson
Petroleum, Inc., Patterson Petroleum Trading Company, Inc. and Patterson
Drilling Programs, Inc. (collectively referred to as the "Company"). All
significant intercompany accounts and transactions have been eliminated.
On April 19, 1996, Patterson filed a Certificate of Incorporation with the
Secretary of State of the State of Delaware organizing Patterson Drilling
Company ("Patterson Drilling") as a wholly-owned subsidiary of Patterson.
Patterson Drilling was formed solely for the purpose of acquiring Tucker
through a merger of Patterson Drilling with and into Tucker (the "Merger") as
discussed in Note 2. As of June 30, 1996, no transactions had occurred
involving the operating accounts of Patterson Drilling.
Interim financial statements - The supplemental consolidated financial
statements as of June 30, 1996 and for each of the six months ended June 30,
1995 and 1996 have been prepared by management of the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. These supplemental consolidated interim financial
statements should be read in conjunction with the audited December 31, 1993,
1994 and 1995 supplemental consolidated financial statements. In the opinion
of management, all adjustments (consisting of only normal recurring accruals)
considered necessary for presentation have been included. Furthermore, the
results of operations for the six months ended June 30, 1996 are not
necessarily indicative of the results expected for the full year.
Management estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Drilling operations - The Company follows the percentage-of-completion
method of accounting for day work and footage drilling arrangements. Under
this method all drilling revenues, direct costs and appropriate portions of
indirect costs, related to the contracts in progress, are recognized as
contract drilling services are performed.
The Company follows the completed contract method of accounting for
turnkey drilling arrangements. Under this method, all drilling advances,
direct costs and appropriate portions of indirect costs (including
maintenance, repairs and depreciation) related to the contracts in progress are
deferred and recognized as revenues and expenses in the period the contracts
are completed.
Provision for losses is made on incomplete contracts when significant
losses are anticipated.
Equipment inventory - Equipment inventory consists primarily of
equipment to be used in conjunction with the Company's contract drilling
activities. The inventory is stated at the lower of cost or market. Cost is
determined by the first-in, first-out method.
(Continued)
11
<PAGE> 12
PATTERSON ENERGY, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Undeveloped oil and gas properties held for resale - Undeveloped oil and
gas properties held for resale represent leasehold interests in unproven oil
and gas properties which the Company expects to sell. Also included are
leasehold costs programmed for development under arrangements which will
provide for reimbursement of such costs to the Company. Such properties are
carried at lower of cost or net realizable value. The Company recognizes gains
or losses upon disposition or impairment of the properties. For the years ended
December 31, 1993, 1994 and 1995, the Company recorded impairment of
undeveloped properties of approximately $287,000, $313,000 and $56,000,
respectively.
Property and equipment -
(a) Property and equipment (other than oil and gas) - Depreciation of
property and equipment (other than oil and gas properties) is provided on the
straight-line method over their estimated useful lives as follows:
<TABLE>
<CAPTION>
Lives (years)
-------------
<S> <C>
Drilling rigs and equipment 2-15
Automotive equipment 2-07
Office furniture 3-10
Buildings 5-20
Other 3-07
</TABLE>
(b) Oil and gas properties - The Company follows the successful efforts
method of accounting, using the field as its accumulation center for
capitalized costs. Under the successful efforts method of accounting, costs
which result directly in the discovery of oil and gas reserves and all
development costs are capitalized. Exploration costs which do not result
directly in discovering oil and gas reserves are charged to expense as
incurred. The capitalized costs, consisting of lease and well equipment, lease
acquisition costs and intangible development costs are depreciated, depleted
and amortized on the unit-of-production method, based on petroleum engineer
estimates of recoverable proved developed oil and gas reserves of each
respective field. In addition, net capitalized costs are subject to a periodic
ceiling limitation. Such costs are limited to the undiscounted future net
revenues from proved oil and gas properties, using period end costs and prices,
after considering potential future income tax effects. There were no charges
relating to ceiling limitations during the years ended December 31, 1993, 1994
and 1995.
(c) Maintenance and repairs - Maintenance and repairs are charged against
operations. Renewals and betterments which extend the life or improve existing
properties are capitalized.
(d) Retirements - Upon disposition or retirement of property and
equipment (other than oil and gas properties), the cost and related accumulated
depreciation are removed from the accounts and the gain or loss thereon, if
any, is credited or charged to income.
The Company recognizes the gain or loss on the sale of either a part of a
proved oil and gas property or of an entire proved oil and gas property
constituting a part of a field upon the sale or other disposition of such. The
unamortized cost of the property or group of properties, a part of which was
sold or otherwise disposed of, is apportioned to the interest sold and the
interest retained on the basis of the fair value of those interests.
Income per common share - Income per common share of stock is based on
the weighted average number of shares outstanding during the year. Common
stock equivalents are excluded for the years ended December 31, 1993 and 1994
because their effect is antidilutive and included for the year ended December
31, 1995. The average number of shares outstanding has been adjusted for all
periods to give effect to the number of shares outstanding as a result of the
mergers discussed in Notes 2 and 7.
(Continued)
12
<PAGE> 13
PATTERSON ENERGY, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In addition, the number of shares outstanding has also been adjusted for
the year ended December 31, 1993, to give effect to the issuance of treasury
stock to existing stockholders in 1993 (see Note 7). The dilutive effect of
this transaction was calculated using the treasury stock method.
Income taxes - Income taxes are provided based on earnings reported for
financial statement purposes. The provision for income taxes differs from the
amounts currently payable because of temporary differences in the recognition
of certain income and expense items for financial reporting and tax reporting
purposes.
The Company and its subsidiaries adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") effective
January 1, 1993, the beginning of its 1993 fiscal year, and did not
retroactively apply the provisions of SFAS 109 prior to that date. SFAS 109
requires the asset and liability approach be used to account for income taxes.
Under this method, deferred tax liabilities and assets are determined based on
the temporary differences between financial statement and tax basis of assets
and liabilities using enacted rates in effect for the year in which the
differences are expected to reverse. Deferred tax assets (net of a
valuation allowance) primarily result from net operating loss carryforwards,
certain accrued but unpaid insurance losses, unpaid state income taxes,
alternative minimum tax credit carryforwards and investment tax credit
carryforwards.
The cumulative effect as of January 1, 1993, of adopting this new
accounting standard was not material to the financial position of the
Company. Also, there was no material impact on the supplemental
consolidated statement of income for the year ended December 31, 1993.
Investment tax credits are recorded under the flow through method as a
reduction of the provision for income taxes.
The Company files a consolidated Federal income tax return.
Statement of cash flows - For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, cash on deposit and unrestricted
certificates of deposit with original maturities of less than 90 days.
Reclassifications - Certain reclassifications have been made to the 1993
and 1994 supplemental consolidated financial statements in order for them to
conform with the 1995 presentation. The reclassifications had no effect on net
income or stockholders' equity for those years.
2. MERGER AND ACQUISITIONS
Tucker Drilling Company, Inc. - On April 22, 1996, as amended on May 16,
1996, the Company and Tucker executed the Agreement and Plan of Merger among
Patterson Energy, Inc., Patterson Drilling Company and Tucker Drilling Company,
Inc. (the "Merger Agreement") whereby Patterson Drilling would merge with and
into Tucker. Tucker survives the merger as a wholly-owned subsidiary of
Patterson assuming the name of Patterson Drilling. On July 30, 1996, the
Merger was consummated by a required approval of stockholders of both Patterson
and Tucker.
Pursuant to the terms of the Merger Agreement, each share of Tucker common
stock outstanding on July 30, 1996 was converted into 0.74 of a share of
Patterson common stock ("Exchange Ratio"), and all options to purchase shares
of Tucker common stock outstanding on that date became options to purchase
Patterson common stock upon the terms of the governing stock option plans and
as adjusted by the Exchange Ratio. A total of 1,577,514 shares of Patterson
common stock was issued pursuant to the Merger and an additional 74,592 shares
of Patterson common stock was reserved for issuance under the outstanding
Tucker stock options, (which, upon consummation of the Merger, became options
to purchase Patterson common stock). The Merger was treated as a reorganization
within the meaning of Section
(Continued)
13
<PAGE> 14
PATTERSON ENERGY, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
2. MERGER AND ACQUISITIONS (CONTINUED)
368(a) of the Internal Revenue Code of 1986, as amended and was accounted for
as a pooling of interests for accounting purposes.
Questor Drilling Corp. - On July 15, 1994, the Company acquired certain
assets of Questor Drilling Corp. ("Questor") a Delaware corporation
wholly-owned by Phibro Energy USA, Inc. ("Phibro"), pursuant to the terms of an
Asset Purchase Agreement between the Company and Questor, dated July 8, 1994.
The assets acquired consisted of: (a) nine drilling rigs and related equipment
consisting primarily of 16 rig hauling trucks, and (b) a yard facility
consisting of approximately 11 acres of real estate and improvements
located thereon. The purchase price for the assets consisted of a cash payment
of $4,500,000 and 250,000 shares of the Company's common stock, par value $0.01
per share. The total value of the transaction was $6,375,000. The purchase
price was determined through arm's-length negotiation between Questor and the
Company. Neither Questor nor Phibro is an affiliate of the Company. The
operating results have been included in the consolidated operating results of
the Company since the date of acquisition.
The following summary, prepared on a pro forma basis, combines the
consolidated results of operations as if Questor had been acquired as of the
beginning of 1993, after including the impact of certain adjustments, such as
the elimination of revenues and other income and expenses attributed to the
assets not acquired from Questor, the increased interest expense on the
acquisition debt and related income tax effects.
<TABLE>
(Unaudited)
Year ended December 31,
------------------------------------------------
1993 1994
------------ ------------
(Dollars in thousands, except per share amounts)
<S> <C> <C>
Revenues $43,214 $43,609
Net income 1,037 3,270
Net income per share .55 1.24
</TABLE>
The pro forma results are not necessarily indicative of what actually
would have occurred if the acquisition had been in effect for the entire
periods presented nor do the results give consideration for the above described
merger with Tucker. In addition, they are not intended to be a projection of
future results and do not reflect any synergies that might be achieved from
combined operations.
3. CASH
Included in cash as of December 31, 1994 and 1995 was approximately
$967,000 and $1,687,000, respectively, of monthly oil and gas sales to be
distributed to revenue owners subsequent to year-end.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1994 and
1995:
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Drilling rigs and equipment................................................ $ 43,746,485 $ 57,598,179
Producing oil and gas properties, successful efforts method of accounting.. 11,215,663 15,387,584
Undeveloped oil and gas properties, successful efforts method of accounting 338,032 251,500
Other equipment............................................................ 9,904,372 11,460,737
Buildings.................................................................. 2,747,992 2,743,138
Land....................................................................... 361,248 361,248
------------ ------------
68,313,792 87,802,386
Less accumulated depreciation, depletion and amortization.................. (46,775,762) (53,417,041)
------------ ------------
$ 21,538,030 $ 34,385,345
============ ============
</TABLE>
(Continued)
14
<PAGE> 15
PATTERSON ENERGY, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. NOTES PAYABLE
Notes payable consisted of the following at December 31, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
------------ -----------
<C> <C> <C>
Loan agreement with The CIT
Group/Capital Equipment Financing, Inc.
entered into March, 1995, with a
revolving credit facility of
$7,000,000; monthly payments of
interest only at the one month London
Interbank Offered Rate (5.72% at
December 31, 1995) plus 3%; revolving
credit facility converts to 54 month
term loan requiring principal and
interest in monthly installments
commencing on October 14, 1996;
collateralized by 18 drilling rigs;
matures March, 2001..................... $ -- $ 7,000,000
Note payable entered into July, 1994 in
the original amount of $5,000,000 to U.
S. Bancorp Leasing and Financial; 84
monthly installments (currently
$83,356) including interest at the one
month London Interbank Offered Rate
(5.72% at December 31, 1995) plus
3.75%, payments subject to increase or
decrease by the lender (as a result of
changes in interest rate);
collateralized by nine drilling rigs;
matures July, 2001...................... 4,776,544 4,207,704
Line of credit with Norwest Bank Texas,
Wichita Falls, N.A. (formerly Parker
Square Bank, N.A.) entered into
September, 1994, with a facility of
$1,000,000. The line of credit note
was renewed and increased to $2,385,833
in June, 1995. The line was amended
and restated and increased to
$3,500,000 in December, 1995; monthly
payments of interest only at the Wall
Street Journal prime rate (8.5% at
December 31, 1995) plus .25%;
collateralized by certain of the
Company's oil and gas properties;
matures December 1, 1997................ -- 1,999,403
Line of credit with Financial Services
Partnership of Snyder an entity related
to the Company's Chairman of the
Board/Chief Executive Officer and the
Company's President/Chief Operating
Officer with a facility of $710,000
originally due May, 1994. The
line-of-credit was renewed in December,
1993, bearing interest at 8%, payable
monthly, and is collateralized by
accounts receivable and other
intangibles. In December, 1994, the
maturity date of the line-of-credit was
extended to December, 1996. In
December, 1995, the maturity date of
the line of credit was extended to
December, 1997.......................... 709,000 609,000
Note payable entered into during
December, 1993 in the original amount
of $1,750,000 to Snyder National Bank;
monthly principal payments of $29,167
plus interest at Chase Manhattan Bank's
prime rate (8.5% at December 31, 1994);
collateralized by the Company's
drilling rigs and real estate;
scheduled maturity December 1998. The
note was paid prior to its maturity in
1995.................................... 1,400,000 --
------------ -----------
6,885,544 13,816,107
Less current maturities................. (918,834) (909,634)
------------ -----------
$ 5,966,710 $12,906,473
============ ===========
</TABLE>
(Continued)
15
<PAGE> 16
PATTERSON ENERGY, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. NOTES PAYABLE (CONTINUED)
The CIT Group/Capital Equipment Financing, Inc. ("CIT") Loan Agreement and
the Norwest Bank Texas, Wichita Falls, N.A. ("Norwest") line of credit contain
a number of representations, warranties and covenants, the breach of which, at
the election of CIT or Norwest, would accelerate the maturity date of the
loans. The covenants include:
o Maintenance on a quarterly basis of a consolidated cash flow coverage
ratio of at least 1.5:1 (sum of net income, plus depreciation, depletion and
amortization, less dividends paid and extraordinary items in the prior four
quarters; divided by the sum of the current portion of long-term debt and
capitalized lease obligations coming due in the following four quarters).
o Maintenance on a consolidated basis of tangible net worth of at least
$12,000,000 (CIT): $18,000,000 (Norwest).
o Maintenance on a consolidated basis of a ratio of total liabilities to
tangible net worth of not greater than 1.75:1.
o Without written consent of CIT and/or Norwest, the Company cannot conduct
any business not being conducted by the Company on March 14, 1995, nor
liquidate, dissolve or merge into any other entity.
o The Company shall not pay, or authorize the payment of, any dividends on
any stock, debenture or other security without the prior written consent of
Norwest.
The U.S. Bancorp Leasing and Financial note payable contains a provision
that the Company may prepay the note in whole, but not in part, by remitting to
the lender an amount equal to the principal balance at the time of such
prepayment and an administrative fee equal to a specified percentage of such
balance as follows:
<TABLE>
<CAPTION>
Month of prepayment Amount of fee
------------------- -------------
<S> <C>
1-12......................................................4%
13-24......................................................3%
25-36......................................................2%
37-48......................................................1%
</TABLE>
The Financial Services Partnership note payable contains a covenant that
requires the Company to maintain a minimum ratio of "accounts receivable
trade" to "loan balance outstanding" of 1.5:1.
Other restrictive covenants under the terms of all debt agreements require
that the underlying collateral not be subjected to impairment, sold, conveyed,
transferred, encumbered, mortgaged, pledged, assigned or hypothecated in any
manner without express written consent of the lenders.
At December 31, 1995, the Company was in compliance with all loan
covenants.
Unused credit available under revolving notes payable and line-of-credit
agreements totaled $1,600,000 at December 31, 1995. A commercial bank has
issued a letter of credit to the Company's workers' compensation insurance
carrier on behalf of the Company in the amount of $150,000. Additionally, the
Company maintains a letter of credit in the amount of $475,000 with a bank for
the benefit of an insurance company as collateral for retrospective premiums
and retained losses which could become payable under the terms of the Company's
insurance contract which existed prior to consummation of the Merger. The
Company pays a fee in the amount of one percent per annum on the unused
balance. The letter of credit expires on November 30, 1996 with provision for
an indefinite number of annual extensions of the expiration date. No amounts
have been drawn under the letter of credit.
The Company has pledged as collateral a US Treasury bill, maturing on
November 14, 1996 with a book value of approximately $524,000 against the
letter of credit.
(Continued)
16
<PAGE> 17
PATTERSON ENERGY, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. NOTES PAYABLE (CONTINUED)
Five year maturities of notes payable - Scheduled maturities of notes
payable subsequent to December 31, 1995, are as follows:
<TABLE>
<S> <C>
1996......................... $ 909,634
1997......................... 4,446,407
1998......................... 1,895,985
1999......................... 1,958,973
2000......................... 2,027,402
Thereafter .................. 2,577,706
-----------
Total........................ $13,816,107
===========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Commitments - On July 15, 1994, the Company issued 250,000 shares of
common stock as part of the purchase price of certain assets. The terms of the
transaction included a registration rights agreement that, among other matters,
provided in the event the holder of the shares ("Holder") still held the
shares on April 1, 1996, but prior to April 1, 1997, at the request of the
Holder, during such period, the Company would use its best efforts to arrange
for the purchase of the shares at the best available price; provided, however,
that if the price were less than $7.50 per share (before deduction of any
brokerage commission), the Company would pay to the Holder the difference
between $7.50 per share and the consideration received by the Holder (See Note
7).
During September 1995, the Holder sold the 250,000 shares to Metropolitan
Life Insurance Company Separate Account EN ("MetLife"). At the time of the
sale to MetLife, MetLife and the Company amended and restated the registration
rights agreement ("Amended and Restated Agreement") in its entirety. The
Amended and Restated Agreement provides that the Company, upon written notice
from MetLife, or any transferee of the 250,000 shares, on or after February 1,
1996, shall file, at the Company's expense, a "shelf" registration statement
with the commission and keep the registration statement effective until the
earlier to occur of (i) such time as all of the registered shares have been
sold, (ii) two years from the effective date of the registration statement, or
(iii) the date on which such shares become available for a resale under Rule
144(k) of the Securities Act of 1933. The provisions relating to the $7.50
price guarantee and the remittance to the Company of sales proceeds in excess
of $9.00 per share were eliminated.
Supplemental executive retirement plan - Effective April 1, 1991 the
Tucker Drilling Company, Inc. Supplemental Executive Retirement Plan (the
"Plan") was established for certain officers and key employees. Pursuant to
agreements, as amended on April 22, 1996 and May 16, 1996 with related
participants of the Plan, the Company is obligated to pay each participant or,
the designated beneficiary, a lump sum at such participant's death, disability
or retirement. The amount to be paid to each participant is equal to the
participant's vested benefit at such date limited however, to related benefits
received from underlying insurance policies as described below. These
obligations are unsecured general liabilities of the Company. As of December
31, 1995 there were seven participants in the Plan and benefits accrue to the
participants in equal annual amounts over ten years of service beginning April
1, 1991. Fully vested benefits are in the aggregate approximately $1,498,000.
The estimated present value of the future benefit obligations as of April 1,
1991 will be accrued over the same ten year period as the benefits vest. As of
December 31, 1995 approximately $237,000 has been accrued as a liability and
approximately $44,000 has been expensed. As of December 31, 1994,
approximately $193,000 had been accrued and approximately $50,900 was expensed
under the Plan.
The Company, through a grantor trust of which it is beneficiary, owns life
insurance policies on the participants, and an annuity from which future
premiums on the life insurance policies will be paid. These assets are
included as other assets at a book value of approximately $568,000 and $528,000
at December 31, 1995 and 1994, respectively.
(Continued)
17
<PAGE> 18
PATTERSON ENERGY, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The insurance company which is the issuer of the life insurance and
annuity contracts owned by the Company is currently under the supervision of
the Michigan Commissioner of Insurance pursuant to an Order of Rehabilitation.
Although the insurance company has continued to pay death benefits and
scheduled annuity benefits, cash surrender values reflected above may be
subject to change and access to such cash surrender values may be limited
pending the negotiation of assumption reinsurance agreements.
Contingencies - (a) The Company's drilling and oil and gas exploration
and production operations are subject to inherent risks, including blowouts,
cratering, fire and explosions which could result in personal injury or death,
suspended drilling operations, damage to or destruction of equipment, damage to
producing formations and pollution or other environmental hazards. As a
protection against these hazards, the Company maintains general liability
insurance coverage of $1,000,000 per occurrence with a $3,000,000 aggregate and
excess liability and umbrella coverages of up to $15,000,000 per occurrence
with a $15,000,000 aggregate. The Company believes it is adequately insured
for public liability and property damage to others with respect to its
operations. However, such insurance may not be sufficient to protect the
Company against liability for all consequences of well disasters, extensive
fire damage or damage to the environment. The Company also carries insurance
to cover physical damage to or loss of its rigs; however, it does not carry
insurance against loss of earnings resulting from such damage or loss.
The Company's lenders which have a security interest in the drilling rigs
are named as loss payees on the physical damage insurance on such rigs. The
Company has never been fined or incurred liability for pollution or other
environmental damage in connection with its operations.
(b) In April, 1993, a wrongful death and survivorship suit was filed
against the Company and the operator of a well in the 59th Judicial District
Court of Grayson County, Texas (Case No. 93-0721). The suit arose out of a
drilling rig accident in Gonzales County, Texas on February 7, 1993. An
employee of the Company died in the accident. The survivorship action was
brought against the operator by the decedent's estate, and the wrongful death
action was brought against the Company and the operator by family members. In
addition, another employee of the Company was injured in the accident and has
joined the suit against the operator as a plaintiff. The Company was engaged
in drilling a horizontal well under a contract with the operator of the well
when the accident occurred. The suit asserts, among other things, a claim for
gross negligence against the Company and a claim for negligence and
gross negligence against the operator. The Company's defense has been
assumed by the insurance carrier under the Company's workers' compensation
policy.
The Company has been informed by the insurance carrier that the accident
constitutes a single occurrence under the policy, subject to a $100,000
deductible. The operator has made a claim against the Company under the
Company's drilling contract with the operator for indemnification. The claims
against the Company and the operator have been settled, but the terms of the
settlement must be approved by the Court. The settlement amounts are less than
the coverage available under the Company's workers' compensation policy and
general liability policy. The Company's general liability insurance carrier
has determined that the operator's claim for indemnification against the
Company is covered by the Company's general liability policy (subject to a
$25,000 deductible), but is assessing whether the amount of the settlement
agreed to by the operator and the defense costs claimed by the operator are
reasonable.
(c) In March 1994, a suit was filed against the Company, Patterson
Petroleum, Inc., an employee of the Company and the operator of a well, in the
71st Judicial District Court of Harrison County, Texas (Case No. 94-0255). The
suit arose out of a drilling rig accident in Burleson County, Texas in January
1994. An individual died in the accident. The action was brought on behalf of
the decedent's minor child. Another child intervened in the suit. The Company
was engaged in drilling a horizontal well under a contract with the operator
of the well when the accident occurred. The suit asserted a claim for
negligence against the company and the other defendants. The Company's and
Patterson Petroleum's defense was assumed by the insurance carrier under the
Company's general liability policy, which is subject to a $25,000 deductible.
This case has been settled within the limits of liability coverage.
(Continued)
18
<PAGE> 19
PATTERSON ENERGY, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
(d) In addition, the Company is also involved in various routine
litigation incident to its business. In the Company's opinion, none of these
proceedings will have a material adverse effect on the Company.
7. STOCKHOLDERS' EQUITY
In January, 1993, the Company sold 97,554 shares of treasury stock to the
existing stockholders of the Company (including officers and directors) on a
proportionate share ownership basis. The shares were sold for $0.54 per share
and the proceeds were used to retire a note payable to SSI Oil & Gas, Inc., a
company then indirectly owned by the Chairman of the Board/Chief Executive
Officer, and currently owned 50% by an affiliate of the Company's Chairman of
the Board/Chief Executive Officer and 50% by the President/Chief Operating
Officer.
On October 19, 1993, the Company reincorporated in the State of Delaware
in a transaction pursuant to which the Company merged with and into a new
Delaware company that was formed as a wholly-owned subsidiary of the Company.
The new Delaware company has the authority to issue 5,000,000 shares of common
stock, par value $0.01 per share and 1,000,000 shares of Preferred Stock, par
value $0.01 per share. The Plan and Agreement of Merger provided for the
exchange of 1 share of common stock of the new Delaware company for 1.51214
shares of common stock of the Company. The new Delaware company is the
surviving corporation, and immediately after the merger had 1,803,604 shares of
common stock issued and 1,550,000 outstanding and no shares of preferred stock
issued or outstanding. The merger has been retroactively applied to the share
information presented in the financial statements.
In November, 1993, the Company completed an initial public offering of
745,000 shares of common stock and 745,000 redeemable warrants at a price of
$6.75 per share of common stock and $0.25 per redeemable warrant. Also, on
December 21, 1993, the underwriters of the Company's public offering exercised
a portion of their overallotment option to purchase 90,000 additional shares of
common stock and 111,750 additional redeemable warrants. Net proceeds from the
offering totaled approximately $4,700,000.
In July, 1995, the Company elected to redeem all of its outstanding
redeemable warrants (856,750) at the redemption price of $0.05 per warrant.
The redemption date was September 11, 1995 (the "Redemption Date"). Any right
to exercise a redeemable warrant terminated on September 8, 1995, the business
day immediately preceding the Redemption Date. As of September 26, 1995, the
Company issued 426,874 shares of common stock upon the exercise of 853,748
redeemable warrants at $7.50 per share. Of the remaining 3,002 redeemable
warrants, 2,002 were redeemed and the remaining warrants expired. The Company
received approximately $2,995,000 from the exercise of the redeemable warrants.
The funds were included in the Company's working capital and have been used
for general corporate purposes.
In November, 1995, the Company issued a total of 35,577 shares of common
stock to the underwriters of the Company's initial public offering pursuant to
their exercise of 75,315 redeemable warrants. The redeemable warrants were
issued to the underwriters pursuant to the partial exercise of underwriter
warrants issued as partial compensation for their underwriting services in
connection with the initial public offering. Total proceeds received by the
Company for the exercise of the underwriters warrants and the redeemable
warrants was approximately $281,000.
In July, 1994, the Company acquired certain assets of Questor pursuant to
the terms of an Asset Purchase Agreement between the Company and Questor, dated
July 8, 1994. The purchase price for the assets consisted of a cash payment of
$4,500,000 and 250,000 shares of the Company's common stock, par value $0.01
per share. The total value of the transaction was $6,375,000.
In September, 1994, the Board of Directors of the Company approved a
resolution that all shares of Common stock, par value $.01 per share, of the
Company then issued but not outstanding (the "Treasury Stock") be retired. The
Board of Directors further approved a resolution that the Treasury Stock resume
the status of authorized and unissued shares of common stock.
(Continued)
19
<PAGE> 20
PATTERSON ENERGY, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
In May, 1995, the Company acquired three drilling rigs and related
equipment from a non-affiliated person. The purchase price for the rigs
consisted of $367,500 cash, 97,500 shares of the Company's common stock and
warrants to purchase an additional 75,000 shares at an exercise price of $9.00
per share. The total value of the transaction was $1,089,750. The Company has
granted certain registration rights to the seller with respect to the 97,500
shares and the 75,000 shares purchasable upon exercise of the warrants
(collectively the "registrable securities") consisting of (a) a one-
time right after December 1, 1995, but prior to December 1, 1998, to cause the
Company to file, at the Company's expense, a registration statement with the
Securities and Exchange Commission (the "Commission") covering the registrable
securities, provided that the number of shares that may be sold in any given
calendar month in connection with such registration statement may not exceed
the greater of (i) 37,500 shares or (ii) the greater of 0.196 times the
average monthly trading volume of the Company's common stock on
NASDAQ/NM over the preceding 12 calendar months, and (b) the right to join the
registrable securities in any registration statements filed by the Company with
the Commission.
At December 31, 1995, the Company has 4,747,083 shares of common stock
issued and outstanding and no shares of preferred stock issued or outstanding.
8. STOCK OPTIONS AND WARRANTS
Employee Stock Incentive Plan - In August, 1993, the Company adopted the
Patterson Energy, Inc. 1993 Stock Incentive Plan (the "Stock Incentive Plan").
The purpose of the Stock Incentive Plan is to provide continuing incentives to
the Company's key employees, which may include, but shall not necessarily be
limited to, members of the Board of Directors (excluding members of the
Compensation Committee) and officers of the Company. The Stock Incentive Plan
provides for an authorization of 175,000 shares of common stock for issuance
thereunder. Under the Stock Incentive Plan, the Company may grant to key
employees awards of stock options and restricted stock or any combination
thereof. The Company may grant both incentive stock options ("incentive
stock options") intended to qualify under Section 422 of the Internal Revenue
Code of 1986, as amended, and options which are not qualified as incentive
stock options. The options become immediately exercisable in the event of a
change in control (as defined in the Stock Incentive Plan) of the Company.
Under the Stock Incentive Plan the exercise price of incentive stock options
must be at least equal to the fair market value of the stock on date of grant
and the exercise price of non-incentive stock options may not be less than 80%
of the fair market value on date of grant.
Stock options covering a total of 166,000 shares of common stock have been
granted to date under the Stock Incentive Plan to five executive officers and
15 other employees of the Company, including Mr. Patterson (options covering
70,000 shares or approximately 42% of the total options granted). The
outstanding options were variously granted on March 31, and October 27, 1995.
Each of the options has a 10-year term. The options granted on March 31, 1995,
are exercisable at a price of $7.25 per share; while the options granted on
October 27, 1995, are exercisable at a per share price of $12.50. These
exercise prices were equal to the fair market value of the stock on the
respective grant dates. The options vest in equal annual increments of 20%
beginning on the date of grant and continuing on each succeeding anniversary
date. No options have been exercised at December 31, 1995.
In March 1983, the Board of Directors of Tucker approved and implemented
an Incentive Stock Option Plan (including stock appreciation rights) which was
amended in 1988 to allow for granting of nonqualified stock options, and in
1991 was further amended to eliminate stock appreciation rights. The purpose
of the Plan was to attract and retain key employees and directors and to
provide such persons with a proprietary interest in Tucker through the granting
and exercise of stock options. The maximum number of shares of common stock
which may be granted under the plan is 126,910 shares. The proceeds from the
sale of common stock pursuant to the plan were to be added to the general funds
of Tucker and used for general corporate purposes.
(Continued)
20
<PAGE> 21
PATTERSON ENERGY, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
8. STOCK OPTIONS AND WARRANTS (CONTINUED)
In June 1994 the Board of Directors of Tucker adopted the Tucker Drilling
Company, Inc. 1994 Non Qualified Stock Option Plan. Officers and directors
were not eligible to receive options from this plan. The maximum number of
shares available for issuance under the plan was 20,720 shares.
Each of the plans provide that options may be granted to purchase shares
at prices not less than the fair market value at date of grant. The exercise
period is governed by option agreements, but in no event may the exercise
period extend beyond ten years from date of grant. As discussed at Note 2,
existing stock options and other employee incentive plans of Tucker effectively
became plans to purchase or receive common stock of Patterson as consummation
of the Merger. Accordingly, stock rights inherent in such plans are affected
by the Exchange Ratio.
Non-Employee Directors' Stock Option Plan - In June 1995, Patterson
adopted the Non-Employee Directors' Stock Option Plan (the "Outside Directors'
Plan"). The purpose of the Outside Directors' Plan is to encourage and provide
incentive for high level performance by non-employee directors of the Company.
An Aggregate of 30,000 shares of Common Stock are reserved for issuance
under the Outside Director's Plan, to directors who are not employees of the
Company. The exercise price of the options will be the fair market value of
the stock on the date of grant. Outside directors are automatically granted
options to purchase 5,000 shares initially and an additional 1,000 shares for
each subsequent year that they serve up to a maximum of 10,000 shares per
director. Each option is exercisable one year after the date of grant and
expires five years from the date of grant. The options become immediately
exercisable in the event of a change in control (as defined in the Outside
Director's Plan) of the Company. On June 6, 1995, each of the outside directors
of Patterson was automatically granted an option covering 5,000 shares with an
exercise price of $9.00 per share. No other options have been granted to date
under the Outside Director's Plan, and none have been exercised as of December
31, 1995.
Public relations services stock options - During November 1994, February
1995, and July 1995, the Company issued options covering a total of 125,000
shares of common stock to two consultants as partial compensation for public
relations services rendered to the Company. The respective options were fully
exerciseable upon grant date. In November 1994, 32,500 options were granted at
$7.50 per share and 12,500 options were granted at $8.50 per share. In
February 1995, 20,000 options were granted at $8.775 per share and in July
1995, 60,000 options were granted at $9.625 per share. The options expire five
years from date of grant. No options have been exercised at December 31, 1995.
Underwriters' warrants - In November 1993, the underwriting firms of the
Company's initial public offering were issued warrants as partial
consideration for their underwriting services for the initial public offering.
The warrants give the underwriters the right to purchase 75,315 shares of the
Company's common stock at a price of $8.68 per share and 75,315 redeemable
warrants at $.375 per warrant. In November 1995, 75,315 Redeemable
Warrants were issued to the underwriters due to a partial exercise of the
warrants. These Redeemable Warrants were immediately exercised by the
underwriters at a price of $7.50 per share resulting in the issuance of 35,577
shares of the Company's common stock. The right to purchase 75,315 shares of
the Company's common stock under the underwriters' warrants will expire in
November 1998.
Stock purchase warrants - In May 1995, the Company issued 75,000
warrants exerciseable at $9.00 per share as partial consideration for the
purchase of three drilling rigs and related equipment. (See Note 7). The
warrants were exerciseable upon issuance and expire on December 31, 1997. No
warrants have been exercised at December 31, 1995.
(Continued)
21
<PAGE> 22
PATTERSON ENERGY, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
8. STOCK OPTIONS AND WARRANTS (CONTINUED)
The following table contains information concerning stock options and
warrants:
<TABLE>
<CAPTION>
GRANTED SHARES AVERAGE EXERCISE PRICE
------- ------- ----------------------
<S> <C> <C>
1993 112,973 $ 8.29
1994 53,880 7.86
1995 331,000 9.67
EXERCISED
---------
1993 -- $ --
1994 5,476 7.93
1995 56,158 7.62
SURRENDERED
-----------
1993 -- $ --
1994 444 8.28
1995 1,776 8.28
OUTSTANDING AT YEAR END
- ------------------------
1993 230,263 $8.16
1994 278,223 8.10
1995 551,289 9.08
EXERCISEABLE AT YEAR END
- ------------------------
1993 208,951 $8.14
1994 259,131 8.09
1995 401,385 8.76
</TABLE>
9. LEASES
Rent expense for office space and certain tools and equipment under
monthly rental agreements and operation leases in 1993, 1994 and 1995 was
$518,525, $792,885 and $1,042,000, respectively.
For the years ended December 31, 1993 and 1994, the Company paid $13,800
in lease payments for each year. During April 1995, the Company acquired a
57.85% undivided interest in each of two drilling rigs in which the Company
owned the remaining 42.15% interest. The interests were acquired from Navajo
Rigs, Inc. ("Navajo"), an affiliated entity, for a purchase price of $433,875
in cash pursuant to a merger of Navajo into Patterson. The acquired interests
were leased by the Company on a month-to-month basis prior to the acquisition.
10. INCOME TAXES
The provision for income taxes for the years ended December 31, 1993, 1994
and 1995 consists of the following:
<TABLE>
<CAPTION>
1993 1994 1995
-------- ---------- ------------
<S> <C> <C> <C>
Federal:
Current.............................. $ 41,213 $ 105,019 $ 138,825
Deferred income tax benefit.......... -- (406,515) (1,000,324)
-------- ---------- ------------
41,213 (301,496) (861,499)
State:
Current.............................. 82,096 108,330 74,735
-------- ---------- ------------
Total income tax expense (benefit)... $123,309 $ (193,166) $ (786,764)
======== ========== ============
</TABLE>
(Continued)
22
<PAGE> 23
PATTERSON ENERGY, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
10. INCOME TAXES (CONTINUED)
The effective income tax rate varies from the Federal statutory rate as
follows for the years ended December 31, 1993, 1994 and 1995:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ -------
<S> <C> <C> <C>
Statutory Tax Rate.............. 34.0% 34.0% 34.0%
Net operating loss carryforward. (34.0) (34.0) (34.0)
Reduction of valuation allowance -- (8.5) (41.4)
State franchise taxes........... 4.7 2.3 3.1
Alternative minimum taxes....... 2.4 2.2 5.8
----- ----- -----
Effective tax rate.............. 7.1% (4.0%) (32.5%)
===== ===== =====
</TABLE>
There are $53,516 and $51,810 of accrued Federal income taxes in
accrued expenses at December 31, 1994 and 1995, respectively. There is
$54,101 of prepaid Federal income taxes in prepaid expenses at December
31, 1995. There are $139,835 and $135,642 of accrued state income taxes
in accrued expenses at December 31, 1994 and 1995, respectively.
As of January 1, 1993, the deferred tax asset valuation allowance
of approximately $6,405,000 was due primarily to net operating loss
("NOL") carryforwards which were not expected to be utilized before
their respective expiration dates or which benefits the Company was
unable to predict whether they would more likely than not be realized.
During 1994 and 1995, the Company changed its estimate with respect to
the future benefits of the NOL carryforwards and, accordingly, reduced
the related valuation allowance. To the extent the valuation allowance
was reduced, the related tax benefit was credited to income.
The tax effect of significant temporary differences representing
deferred tax assets and changes therein were as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 1, NET JANUARY 1, NET JANUARY 1, NET DECEMBER 31,
1993 CHANGE 1994 CHANGE 1995 CHANGE 1995
---- ------ ----- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
Deferred tax assets:
Net operating loss
carryforwards............... $ 6,335 $(774) $ 5,561 $(2,001) $ 3,560 $ (891) $2,669
Investment tax credit
carryforwards............... 469 -- 469 -- 469 -- 469
AMT credit carryforwards...... 62 41 103 103 206 76 282
Depletion carryforwards....... 492 64 556 (143) 413 199 612
Property and equipment........ -- 38 38 21 59 (59) --
Other......................... 157 (9) 148 137 285 (13) 272
------- ----- ------- ------- ------- ------ ------
7,515 (640) 6,875 (1,883) 4,992 (688) 4,304
Valuation allowance........... (6,405) 396 (6,009) 2,223 (3,786) 1,691 (2,095)
------- ----- ------- ------- ------- ------ ------
Deferred tax assets......... 1,110 (244) 866 340 1,206 1,003 2,209
Deferred tax liabilities:
Property and equipment basis
difference.................. (1,110) 244 (866) 67 (799) (3) (802)
------- ----- ------- -------- ------- ------ ------
Net deferred tax asset...... $ -- $ -- $ -- $ 407 $ 407 $1,000 $1,407
======= ===== ======= ======= ======= ====== ======
</TABLE>
For tax return purposes, the Company had tax NOL carryforwards of
approximately $7,990,000 and alternative minimum tax ("AMT") NOL carryforwards
of approximately $5,788,000 at December 31, 1995. In addition, the Company had
AMT credit carryforwards of $204,000 and statutory depletion carryforwards of
approximately $1,801,000 at December 31, 1995, which may be carried forward
indefinitely as a credit against the regular tax liability. If unused, the
aforementioned tax NOL carryforwards will expire in various amounts in years
1998 to 2008. During the years ended December 31, 1993, 1994 and 1995,
the Company utilized approximately $2,277,000, $5,891,000, and $2,481,000
respectively, of NOL carryforwards. The Company had investment tax credit
carryforwards of approximately $469,000 at December 31, 1995, which, if unused,
will expire at various dates through 2001.
(Continued)
23
<PAGE> 24
PATTERSON ENERGY, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
10. INCOME TAXES (CONTINUED)
During 1995, the Company's NOL carryforwards became subject to an annual
limitation due to a change of over 50% in the stock ownership as defined by
Internal Revenue Code Section 382 (g). Such limitations will be imposed upon
the net earnings of the Company excluding any contribution from the operations
acquired throughout the Merger ("Patterson Income") and separately imposed upon
the net earnings generated from the operations of the Tucker assets acquired
through the Merger ("Tucker Income"). The NOL carryforwards that can now be
utilized to offset Patterson income in any year will be equal to approximately
$1,808,000, which is determined by the value of Patterson's equity on August 2,
1995, the day prior to the ownership change, times 5.88%, the federal long-term
exempt rate on that date as published by the U. S. Treasury Department.
Similarly, the NOL carryforwards that can now be utilized to offset Tucker
Income will be limited to approximately $1,540,000 which is determined by the
value of Tucker's equity on July 29, 1996, the day prior to consummation of the
Merger, times 5.78%, the federal long term exempt rate on that date.
11. EMPLOYEE BENEFITS
Profit sharing Plan - Effective January 1, 1992, the Company established
a 401(k) profit sharing plan for all eligible employees. Company contributions
are discretionary. For the year ended December 31, 1993, no contributions were
made by the Company. In February, 1995, the Company made a contribution of
approximately $70,000, which was accrued in the year ended December 31, 1994.
In February, 1996, the Company approved a contribution of approximately
$100,000, which has been accrued in the year ended December 31, 1995.
12. BUSINESS SEGMENTS
The Company is engaged in contract drilling of oil and gas wells and oil
and gas exploration, development and production. Total revenues by business
segment includes sales to affiliated customers. Information concerning the
Company's business segments for the years ended December 31, 1993, 1994 and
1995 is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<C> <C> <C> <C>
Revenues:
Contract drilling............. $37,746,477 $54,822,766 $57,599,180
Oil and gas................... 5,146,301 4,706,782 6,844,769
----------- ----------- -----------
Total revenues................ $42,892,778 $59,529,548 $64,443,949
=========== =========== ===========
Income (loss) from operations:
Contract drilling............. $ 2,625,008 $ 6,012,356 $ 3,675,782
Oil and gas................... 45,294 (489,263) (50,554)
Other net..................... (126,205) (121,611) (126,542)
----------- ----------- -----------
2,544,097 5,401,482 3,498,686
----------- ----------- -----------
General corporate expense (a). (536,088) (415,387) (165,635)
Interest income............... 62,327 193,417 145,774
Interest expense.............. (330,739) (366,152) (1,064,523)
----------- ----------- -----------
Income before income taxes...... $ 1,739,597 $ 4,813,360 $ 2,414,302
=========== =========== ===========
Identifiable assets:
Contract drilling............. $22,418,335 $31,886,409 $43,286,628
Oil and gas................... 7,852,384 10,163,670 10,348,443
Other......................... 3,648,880 7,458,724 9,355,775
----------- ----------- -----------
Total assets.................... $33,919,599 $49,508,803 $62,990,846
=========== =========== ===========
</TABLE>
- ---------------
(a) General corporate expense consists primarily of interest income and
nonallocated general and administrative expenses.
(Continued)
24
<PAGE> 25
PATTERSON ENERGY, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
12. BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
1993 1994 1995
---------- ----------- -----------
<S> <C> <C> <C>
Depreciation, depletion and amortization:
Contract drilling.................................. $2,766,539 $ 3,524,635 $ 4,979,775
Oil and gas........................................ 1,761,953 1,265,683 2,416,378
Other.............................................. 126,205 121,611 126,542
---------- ----------- -----------
Total depreciation, depletion and amortization ...... $4,654,697 $ 4,911,929 $ 7,522,695
========== =========== ===========
Capital expenditures:
Contract drilling.................................. $3,354,629 $10,297,980 $15,634,539
Oil and gas........................................ 1,883,727 2,968,625 5,106,895
Other.............................................. 19,671 21,718 42,340
---------- ----------- -----------
Total expenditures................................... $5,258,027 $13,288,323 $20,783,774
========== =========== ===========
</TABLE>
No customer accounted for more than 10% of the Company's consolidated
revenues for the years ended December 31, 1993, 1994 and 1995.
13. OIL AND GAS EXPENDITURES
Gross oil and gas expenditures by the Company in the United States for the
years ended December 31, 1993, 1994 and 1995 are summarized below:
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ---------
<S> <C> <C> <C>
Property acquisition costs........................... $ 188,107 $ 860,759 $1,186,859
Exploration costs.................................... 1,462,648 2,332,926 3,736,937
Development costs.................................... 737,939 967,933 1,385,130
---------- ---------- ----------
$2,388,694 $4,161,618 $6,308,926
========== ========== ==========
</TABLE>
The aggregate amount of capitalized costs of oil and gas properties as of
December 31, 1993, 1994 and 1995 is comprised of the following:
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Proved properties.................................... $11,595,196 $11,215,663 $15,387,584
Accumulated depreciation, depletion
and amortization................................... (8,589,933) (7,445,261) (9,009,244)
----------- ----------- -----------
Net proved properties............................ $ 3,005,263 $ 3,770,402 $ 6,378,340
=========== =========== ===========
</TABLE>
14. SUPPLEMENTARY OIL AND GAS RESERVE INFORMATION AND RELATED DATA
(UNAUDITED)
OIL AND GAS RESERVE QUANTITIES
The following table sets forth information with respect to quantities of
net proved developed oil and gas reserves, and changes in those reserves for
the years ended December 31, 1993, 1994 and 1995. The quantities were
estimated by an independent petroleum engineering firm for the years ended
December 31, 1993, 1994 and 1995. The Company's proved developed oil and gas
reserves are located entirely within the United States.
(Continued)
25
<PAGE> 26
PATTERSON ENERGY, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
14. SUPPLEMENTARY OIL AND GAS RESERVE INFORMATION AND RELATED DATA
(UNAUDITED) (CONTINUED)
ESTIMATES OF RESERVES AND PRODUCTION PERFORMANCE ARE SUBJECTIVE AND MAY CHANGE
MATERIALLY AS ACTUAL PRODUCTION INFORMATION BECOMES AVAILABLE.
<TABLE>
<CAPTION>
OIL (BBLS) GAS (MCF)
--------------- ----------------
<S> <C> <C>
Estimated quantity, January 1, 1993...................... 280,876 1,962,204
Revision in previous estimates........................... 34,657 161,732
Extensions, discoveries and other additions.............. 177,273 1,119,152
Sales of reserves-in-place............................... (459) (10,088)
Production............................................... (45,574) (710,386)
-------- ----------
Estimated quantity, January 1, 1994...................... 346,773 2,522,614
Revision in previous estimates........................... 125,485 468,746
Extensions, discoveries and other additions.............. 299,623 1,872,512
Purchases................................................ 27,400 181,495
Sales of reserves-in-place............................... (75,193) (416,328)
Production............................................... (124,019) (859,791)
-------- ----------
Estimated quantity, January 1, 1995...................... 600,069 3,769,248
Revision in previous estimates........................... (59,429) 549,322
Extensions, discoveries and other additions.............. 405,364 2,272,738
Purchases................................................ 2,280 40,386
Sales of reserves-in-place............................... -- --
Production............................................... (191,342) (1,361,770)
-------- ----------
Estimated quantity, January 1, 1996...................... 756,942 5,269,924
======== ==========
</TABLE>
RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1993 1994 1995
--------------- ----------------- --------------
<S> <C> <C> <C>
Oil and gas revenues..................................... $ 3,913,746 $ 3,593,786 $ 5,399,536
Gain on sale of oil and gas properties................... -- 151,287 38,394
Gain on sale of undeveloped properties................... -- 48,506 66,755
---------- ----------- -----------
3,913,746 3,793,579 5,504,685
Costs and expenses (benefit):
Production costs....................................... 1,207,003 1,150,590 1,715,155
Exploration expenses................................... 363,943 1,493,676 1,137,557
Depreciation, depletion and amortization............... 2,086,258 1,192,328 2,289,070
Write down due to impairment of
long lived assets.................................... -- -- 159,403
Income tax (benefit)................................... 140,123 (20,745) 69,190
----------- ----------- -----------
3,797,327 3,815,849 5,370,375
----------- ----------- -----------
Results of operations for oil and gas producing
activities............................................. $ 116,419 $ (22,270) $ 134,310
=========== =========== ===========
</TABLE>
(Continued)
26
<PAGE> 27
PATTERSON ENERGY, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
14. SUPPLEMENTARY OIL AND GAS RESERVE INFORMATION AND RELATED DATA
(UNAUDITED) (CONTINUED)
STANDARDIZED MEASURE OF FUTURE NET CASH FLOWS OF PROVED DEVELOPED OIL AND GAS
RESERVES, DISCOUNTED AT 10% PER ANNUM
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1993 1994 1995
------- ------- -------
(000'S OMITTED)
<S> <C> <C> <C>
Future gross revenues.................. $ 9,236 $15,336 $22,436
Future development and production costs 3,508 6,772 8,623
Future income tax expense(b)........... 566 1,055 2,158
------- ------- -------
Future net cash flows.................. 5,162 7,509 11,655
Discount at 10% per annum.............. (1,153) (1,943) (2,987)
------- ------- -------
Standardized measure of discounted
future net cash flows.................. $ 4,009 $ 5,566 $ 8,668
======= ====== =======
</TABLE>
(b) Future income taxes are computed by applying the statutory tax rate to
future net cash flows less the tax basis of the properties and net
operating loss attributable to oil and gas operations and investment tax
credit carryforwards as of year-end; statutory depletion and tax credits
applicable to future oil and gas-producing activities are also considered
in the income tax computation.
CHANGES IN THE STANDARDIZED MEASURE OF NET CASH FLOWS OF PROVED DEVELOPED OIL
AND GAS RESERVES DISCOUNTED AT 10% PER ANNUM
The principal changes in the aggregate standardized measure of discounted
future net cash flows attributable to the Company's proved developed oil and
gas reserves are shown below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1993 1994 1995
------- ------- -------
(000'S OMITTED)
<S> <C> <C> <C>
Standardized measure at beginning of year... $ 3,539 $ 4,009 $ 5,566
Sales and transfers of oil and gas produced,
net of production costs................... (2,707) (2,337) (3,891)
Net changes in sales price and future
production and development costs.......... (390) (1,516) 807
Extensions, discoveries and improved
recovery, less related costs.............. 2,771 4,070 6,278
Sales of minerals-in-place.................. -- (727) --
Revision of previous quantity estimates..... 863 2,226 667
Accretion of discount....................... 354 401 574
Changes in production rates and other....... (154) (71) (230)
Net change in income taxes.................. (267) (489) (1,103)
------- ------- -------
Standardized measure at end of year......... $ 4,009 $ 5,566 $ 8,668
======= ======= =======
</TABLE>
15. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of demand deposits, temporary
cash investments and trade receivables.
(Continued)
27
<PAGE> 28
PATTERSON ENERGY, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
15. CONCENTRATIONS OF CREDIT RISK (CONTINUED)
The Company believes that it places its demand deposits and temporary cash
investments with high credit quality financial institutions. At December 31,
1994 and 1995, the Company's demand deposits and temporary cash investments
consisted of the following:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Deposit in FDIC and SIPC-insured institutions under
$100,000 and cash on hand.................................. $ 571,446 $ 563,743
Deposit in FDIC and SIPC-insured institutions over
$100,000 and cash on hand.................................. 4,258,509 4,984,675
Investment in US Treasury securities......................... 985,875 --
Mutual fund collateralized by US Treasury obligations and
repurchase agreements which are collateralized by US
Treasury securities........................................ 2,336,268 6,664,034
---------- -----------
8,152,098 12,212,452
Less outstanding checks and other reconciling items.......... (1,307,039) (2,867,958)
---------- -----------
Cash and cash equivalents.................................... 6,845,059 9,344,494
Investment in US Treasury securities (at cost as of March 31) 2,570,459 524,323
---------- -----------
$9,415,518 $ 9,868,817
========== ===========
</TABLE>
Concentrations of credit risk with respect to trade receivables are
primarily focused on contract drilling receivables. The concentration is
mitigated by the diversification of customers for which the Company provides
drilling services. No significant losses from individual contracts were
experienced during the years ended December 31, 1994 and 1995. Included in
general and administrative expense for the period ended December 31, 1993, is a
provision for 100% of a doubtful receivable in the approximate amount of
$355,500. Included in general and administrative expense for the periods ended
December 31, 1994 and 1995 are provisions for doubtful receivables of $107,757
and $137,757, respectively.
The carrying values of cash and cash equivalents, marketable securities
and trade receivables approximate fair value due to the short-term maturity of
these assets.
16. RELATED-PARTY TRANSACTIONS
Use of assets - The Company leases a 1981 Beech King-Air 90 airplane
owned by an affiliate of the Company's Chairman of the Board/Chief Executive
Officer. Under the terms of the lease, the Company pays a monthly rental of
$9,200 and the costs of fuel, insurance, taxes and maintenance of the aircraft.
From July, 1992, until January, 1995, the Company and another affiliate of the
Chairman of the Board/Chief Executive Officer were co-lessees of the aircraft.
The Company paid monthly rental of $4,500 plus the Company's proportionate
share of fuel. Under this agreement insurance, taxes and maintenance were
shared equally by the Company and the co-lessee. The Company paid
approximately $105,461, $126,497, and $174,455 for the lease of the airplane
during 1993, 1994 and 1995, respectively.
Purchase of oilfield equipment and related parts - In October 1994, the
Company purchased oilfield equipment and parts from an entity currently owned
50% by an affiliate of the Company's Chairman of the Board/Chief Executive
Officer and 50% by the President/Chief Operating Officer. The amount of the
purchase was $150,000 and the Company had a related accounts payable of
$125,000 to this entity at December 31, 1994.
(Continued)
28
<PAGE> 29
PATTERSON ENERGY, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
16. RELATED-PARTY TRANSACTIONS (CONTINUED)
Costs associated with the transportation of drilling fluids - During
1993, 1994 and 1995, the Company paid approximately $23,000, $25,700, and
$1,864 respectively, and at December 31, 1994 and 1995 had accounts payable of
approximately $397 and $941, respectively, for the transportation of drilling
fluids that were provided by a company owned by the son-in-law of a member of
the Company's Board of Directors.
Contract drilling services - A company owned in part by a relative of
the Chairman of the Board/Chief Executive Officer, contracted drilling services
from the Company during 1993, 1994 and 1995. Revenues for 1993, 1994 and 1995
include approximately $960,000, $338,000, and $597,700 respectively, for these
services.
Sales of oil - A company owned in part by a relative of the Chairman of
the Board/Chief Executive Officer, acted as the first purchaser of oil produced
from leases operated by the Company, during 1995. Sales of oil to that entity,
both royalty and working interest (including the Company) were approximately
$5,870,000.
Joint operation of oil and gas properties - The Company operates certain
oil and gas properties in which the Chairman of the Board/Chief Executive
Officer, the President/Chief Operating Officer and other persons or entities
related to the Company purchased a joint interest ownership with the Company
and other industry partners. The Company made oil and gas production payments
(net of royalty) of $3,802,766, $2,765,303, and $3,907,116 from these
properties in 1993, 1994 and 1995, respectively, to the aforementioned persons
or entities. These persons or entities reimbursed the Company for joint
operating costs of $3,605,569, $2,347,547, and $5,174,970 in 1993, 1994 and
1995 respectively.
W.P. Carr, Jr. a former director of Tucker, individually owns or did own
during the fiscal year interests in oil and gas properties which have been
developed or are operated by the Company or in which the Company has invested.
The Company bills Mr. Carr as other owners of interests in properties are
billed (on a current basis), or he is billed by operators of properties in
which the Company has invested, for his proportionate share of the development
costs and operating expenses of such properties. The aggregate indebtedness to
the Company of Mr. Carr did not exceed $60,000 at any time during the year
ended December 31, 1995.
W.P. Carr, Jr. a former director of Tucker, or entities in which Mr. Carr
has a direct material interest, participated with the Company in certain oil
and gas exploration and production activities. Amounts paid to the Company by
Mr. Carr or entities in which Mr. Carr has a direct material interest for
property and services were not material to the Company. The Company
participated in exploration and production activities with entities in which
W.P. Carr, Jr. has a direct material interest. Amounts paid by the Company to
entities in which Mr. Carr has a direct material interest for property and
services were not material to such entities.
Common ownership in Navajo Rigs - Certain officers, directors and
stockholders of the Company were also shareholders in Navajo Rigs (see Note 7).
Note payable to related parties - Note payable to related parties is
listed in Note 5.
Sale of treasury stock to existing stockholders - In January 1993, the
Company sold 97,554 shares of treasury stock to the existing stockholders of
the Company (including officers and directors) on a proportionate share
ownership basis. The shares were sold for $0.54 per share and the proceeds
were used to retire a note payable to an affiliate of the Company's Chairman of
the Board/Chief Executive Officer (See Note 7).
17. EVENTS SUBSEQUENT TO DATE OF AUDITOR'S REPORT (UNAUDITED)
Effective March 31, 1996, the Company revised its estimates relative to
the realization of the future benefits of its net operating loss carryforwards
and, accordingly, fully reduced the related valuation allowance recognizing a
net deferred income tax benefit of $1,610,000. The Company continues to
maintain a valuation allowance of approximately $470,000 as it does not appear
(Continued)
29
<PAGE> 30
PATTERSON ENERGY, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
17. EVENTS SUBSEQUENT TO DATE OF AUDITOR'S REPORT (UNAUDITED) (CONTINUED)
likely that the Company will realize the benefit of certain other deferred tax
assets prior to their respective expirations. The Company incurred net
deferred income tax expense of approximately $139,000 during the six months
ended June 30, 1996.
The Company adopted Statement of Financial Accounting Standard No. 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed of" during
the fiscal quarter ended March 31, 1996. The Statement establishes accounting
standards for determining the impairment of the Company's long-lived assets.
Implementation of the Statement did not result in any adjustments to the
carrying values of such assets.
The Company adopted Statement of Financial Accounting Standard No. 123,
"Accounting for Stock Based Compensation" during the fiscal quarter ended March
31, 1996. The Statement defines a fair value based method of accounting (i.e.,
using an option pricing model such as Black-Scholes) for employee stock options
or similar equity instrument plans, but also allows an entity to measure
compensation costs for those plans using the intrinsic value (the amount by
which the market price of the underlying stock exceeds the underlying price of
the option) based method of accounting as prescribed by Accounting Principles
Board Opinion No. 25. The Company has elected to continue using the intrinsic
value based method as allowed by the Statement.
On June 6, 1996, pursuant to the terms of the Company's Non-Employee
Directors' Stock Option Plan, options to purchase a total of 2,000 shares were
granted. The Company did not incur any compensation related expenses as a
result of this transaction. For the six months ended June 30, 1995, stock
options to purchase 180,000 shares of Patterson common stock were granted in
which no compensation expense was incurred. Furthermore, significant
compensation expense would not have been incurred had a fair value based method
of accounting (i.e., Black-Sholes) been applied to the above described
activity.
On July 12, 1996, pursuant to the terms of the Underwriter's Warrant
Agreement dated November 2, 1993, as amended on November 15, 1994 and June 18,
1996, the Company authorized the issuance of 38,224 shares of Patterson's
common stock upon exercise of the 75,316 warrants. In lieu of a cash payment
to Patterson, the warrant holders chose to forfeit 37,092 shares of common
stock back to Patterson, in order to receive 38,224 shares of Patterson's
common stock (i.e., the cashless method). The number of shares forfeited and
received by the respective warrant holders was determined using the stated
exercise price of the warrants ($8.68), the fair market value of Patterson's
common stock on the date of the exercise ($17.625) and the difference between
the stated exercise price and the fair market value on the date of exercise
($8.95). The difference of $8.95 was multiplied by the total number of
outstanding warrants (75,316) and then divided by the fair market value
($17.625) to determine the number of shares to be received.
On July 30, 1996, prior to consummation of the Merger on that date, the
stockholders of Patterson at a special meeting thereof, approved an amendment
to Patterson's Certificate of Incorporation providing for an increase in the
number of authorized shares of Patterson common stock from 5,000,000 shares to
9,000,000 shares and the issuance of the shares of Patterson common stock in
connection with the Merger.
30
<PAGE> 31
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (CONTINUED).
(c) Exhibits.
The following Exhibit is filed herewith:
27 Financial Data Schedule as of December 31, 1995 and 1994 and
for each of the three years in the period ended December 31,
1995 (audited) and as of June 30, 1996 and for each of the
respective six months ended June 30, 1996 and 1995 (unaudited).
31
<PAGE> 32
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PATTERSON ENERGY, INC.
Date: September 27, 1996 /s/ JAMES C. BROWN
------------------------
James C. Brown
Vice President-Finance
32
<PAGE> 33
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
27 Financial Data Schedule as of December 31, 1995 and 1994 and
for each of the three years in the period ended December 31,
1995 (audited) and as of June 30, 1996 and for each of the respective
six months ended June 30, 1996 and 1995 (unaudited)...............
</TABLE>
33
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1994 AND 1995
AND FOR THE THREE YEARS ENDED DECEMBER 31, 1995 (AUDITED) AND THE SUPPLEMENTAL
CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 AND 1995 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO AMENDMENT N0. 2 ON FORM 8-KA RELATIVE TO THE CURRENT REPORT DATED
JULY 30, 1996.
</LEGEND>
<RESTATED>
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994 DEC-31-1993 DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1995 JAN-01-1994 JAN-01-1993 JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1995 DEC-31-1994 DEC-31-1993 JUN-30-1996 JUN-30-1995
<CASH> 9,344,494 6,845,059 0 11,570,554 0
<SECURITIES> 524,323 2,570,459 0 524,323 0
<RECEIVABLES> 13,332,170 13,967,974 0 14,842,962 0
<ALLOWANCES> 0 0 0 0 0
<INVENTORY> 413,677 426,897 0 471,092 0
<CURRENT-ASSETS> 27,147,302 26,675,170 0 31,103,805 0
<PP&E> 87,802,386 68,313,792 0 93,727,612 0
<DEPRECIATION> 53,417,041 46,775,762 0 58,204,282 0
<TOTAL-ASSETS> 62,990,846 49,508,803 0 69,995,740 0
<CURRENT-LIABILITIES> 12,051,395 12,907,645 0 17,382,972 0
<BONDS> 0 0 0 0 0
0 41,687 0 0 0
0 0 0 0 0
<COMMON> 47,472 0 0 47,520 0
<OTHER-SE> 37,608,760 30,268,111 0 39,632,344 0
<TOTAL-LIABILITY-AND-EQUITY> 62,990,846 49,508,803 0 69,996,740 0
<SALES> 5,399,536 3,593,786 3,913,746 3,643,615 2,551,455
<TOTAL-REVENUES> 64,443,949 59,529,548 42,892,778 34,792,678 30,656,747
<CGS> 2,669,560 2,654,071 1,193,389 1,582,978 1,069,731
<TOTAL-COSTS> 61,919,100 55,395,010 41,219,244 34,421,081 28,946,598
<OTHER-EXPENSES> 110,547 (678,822) (66,063) (76,925) 75,815
<LOSS-PROVISION> 0 0 0 0 0
<INTEREST-EXPENSE> 1,064,523 366,152 330,739 645,148 460,155
<INCOME-PRETAX> 2,414,302 4,813,360 1,739,597 448,522 1,634,334
<INCOME-TAX> (786,764) (193,166) 123,309 (2,293,251) 26,531
<INCOME-CONTINUING> 3,201,066 5,006,526 1,616,288 2,741,773 1,607,803
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 3,201,066 5,006,526 1,616,288 2,741,773 1,607,803
<EPS-PRIMARY> .73 1.24 .51 .56 .38
<EPS-DILUTED> .71 1.24 .51 .55 .38
</TABLE>
