<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-22664
PATTERSON ENERGY, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 75-2504748
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
P. O. Drawer 1416, 4510 Lamesa Highway, Snyder, Texas 79550
(Address of principal executive offices) (Zip Code)
(915) 573-1104
(Registrant's telephone number, including area code)
No change
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [x] No [ ]
As of May 2, 1996 the issuer had 3,194,951 shares of Common Stock, par value
$0.01 per share, outstanding.
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<PAGE> 2
PATTERSON ENERGY, INC.
INDEX
<TABLE>
<CAPTION>
Part I - Financial Information Page
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<S> <C>
Item 1. Financial statements
Unaudited consolidated balance sheets 3
Unaudited consolidated statements of income 5
Unaudited consolidated statements of cash flows 6
Notes to unaudited consolidated financial
statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
Part II - Other Information
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
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<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE FOLLOWING CONSOLIDATED FINANCIAL STATEMENTS INCLUDE ALL
ADJUSTMENTS WHICH IN THE OPINION OF MANAGEMENT ARE NECESSARY IN ORDER TO MAKE
SUCH FINANCIAL STATEMENTS NOT MISLEADING.
PATTERSON ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
-------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,467,482 $ 3,432,761
Accounts receivable:
Trade:
Billed 8,722,373 7,709,159
Unbilled 1,807,029 1,184,350
Oil and gas sales 487,027 414,185
Equipment inventory 405,049 469,606
Deferred income taxes 614,567 614,567
Undeveloped oil and gas properties held for resale 2,122,112 2,785,351
Other current assets 174,588 153,655
------------- -------------
Total current assets 16,800,227 16,763,634
------------- -------------
Property and equipment, at cost, net 26,470,324 26,898,518
Deposits on workers' compensation insurance policy 343,760 343,760
Deferred income taxes -- 1,609,892
Other assets 176,115 148,977
------------- -------------
Total assets $ 43,790,426 $ 45,764,781
============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
(Continued)
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<PAGE> 4
PATTERSON ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
--------------- ---------------
<S> <C> <C>
Current liabilities:
Current maturities of notes payable $ 909,634 $ 2,207,005
Accounts payable:
Trade 6,102,382 5,529,134
Revenue distribution 1,595,411 1,481,773
Other 245,374 290,900
Accrued expenses 1,657,994 1,514,347
-------------- -------------
Total current liabilities 10,510,795 11,023,159
-------------- -------------
Notes payable, less current maturities 12,906,473 12,592,363
-------------- -------------
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 and
outstanding shares of 3,194,951 31,950 31,950
Additional paid-in capital 14,095,200 14,095,200
Retained earnings 6,246,008 8,022,109
-------------- -------------
Total stockholders' equity 20,373,158 22,149,259
-------------- -------------
Total liabilities and stockholders' equity $ 43,790,426 $ 45,764,781
============== ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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PATTERSON ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------
1995 1996
--------------- --------------
<S> <C> <C>
Operating revenues:
Drilling $ 9,042,256 $ 10,533,137
Oil and gas sales 918,913 1,324,143
Well operation fees 251,941 344,827
Other 40,610 74,015
-------------- --------------
10,253,720 12,276,122
-------------- --------------
Operating costs and expenses:
Direct drilling costs 7,454,536 8,746,180
Lease operating and production 276,525 387,546
Exploration costs 68,653 115,929
Dry holes and abandonments 154,580 67,921
Depreciation, depletion and amortization 1,029,769 1,733,382
General and administrative expense 720,512 808,092
-------------- --------------
9,704,575 11,859,050
-------------- --------------
Operating income 549,145 417,072
-------------- --------------
Other income (expense):
Net gain on sale of assets 28,984 26,613
Interest income 34,561 34,640
Interest expense (187,876) (329,454)
Other 5,057 40,777
-------------- --------------
Other expense, net (119,274) (227,424)
-------------- --------------
Income before income taxes 429,871 189,648
-------------- --------------
Income taxes:
Current 16,601 23,439
Deferred income tax benefit, net -- (1,609,892)
-------------- --------------
Income tax expense (benefit) 16,601 (1,586,453)
-------------- --------------
Net income $ 413,270 $ 1,776,101
============== ==============
Net income per common share:
Primary $ .16 $ .53
============== ===============
Assuming full dilution $ N/A $ .53
============== ===============
Weighted average number of common shares outstanding
Primary 2,635,000 3,334,032
============== ===============
Assuming full dilution N/A 3,340,594
============== ===============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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PATTERSON ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------
1995 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 413,270 $ 1,776,101
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation, depletion and amortization 1,029,769 1,733,382
Net gain on sale of assets (28,984) (26,613)
Deferred income tax benefit -- (1,609,892)
Change in current assets and liabilities:
Decrease in trade accounts receivable 1,167,078 1,635,893
(Increase) decrease in oil and gas sales receivable (27,648) 72,842
Increase in oil and gas properties held for resale (191,170) (663,239)
Increase in other current assets (205,484) (43,624)
Decrease in trade accounts payable (1,084,245) (573,248)
Increase (decrease) in revenue distribution payable 514,186 (113,638)
Decrease in other current liabilities (288,037) (98,121)
-------------- -------------
Net cash provided by operating activities 1,298,735 2,089,843
-------------- -------------
Cash flows from investing activities:
Purchases of property and equipment (3,479,195) (2,170,860)
Sale of property and equipment 43,010 35,897
(Increase) decrease in other assets (20,925) 27,138
-------------- -------------
Net cash used in investing activities (3,457,110) (2,107,825)
-------------- -------------
Cash flows from financing activities:
Proceeds from notes payable 5,500,000 1,140,000
Payments on notes payable (1,537,824) (156,739)
Loan commitment fees (67,242) --
-------------- ------------
Net cash provided by financing activities 3,894,934 983,261
-------------- -------------
Net increase in cash and cash equivalents 1,736,559 965,279
Cash and cash equivalents at beginning of period 3,369,382 2,467,482
-------------- -------------
Cash and cash equivalents at end of period $ 5,105,941 $ 3,432,761
============== =============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 171,856 $ 328,791
Income taxes 81,371 --
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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PATTERSON ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated financial statements include the accounts of
Patterson Energy, Inc. 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.
The consolidated financial statements have been prepared by the
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. In the opinion
of management, all adjustments (consisting of only normal recurring accruals)
considered necessary for presentation of the information have been included.
The results of operations for the three months ended March 31, 1996
are not necessarily indicative of the results to be expected for the full year.
Certain reclassifications have been made to the 1995 consolidated
financial statements in order for them to conform with the 1996 presentation.
2. 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.
As such, the corresponding net tax benefit totalling approximately $1,610,000
was credited to income. The Company continues to maintain a valuation
allowance of approximately $470,000 as it does not appear likely that the
Company will realize the benefit of certain other deferred tax assets prior to
their respective expirations.
3. 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 the Company's 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 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. There were no stock
options issued during the quarter ended March 31, 1996.
4. On April 22, 1996, the Company and Tucker Drilling Company, Inc.
("Tucker"), executed a definitive merger agreement pursuant to which the
Company will be merged with and into Tucker and the Company will be the
survivor. The terms of the merger agreement provide that each outstanding
share of Tucker's common stock will be converted into the right to receive 0.74
of a share of the Company's common stock.
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PATTERSON ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (CONTINUED)
The merger will take the form of a tax-free exchange and is expected
to be accounted for as a pooling of interests. The merger has been approved by
the Boards of Directors of the Company and Tucker and is subject to approval by
their respective stockholders as well as other customary conditions and
approvals.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996, the Company had working capital of approximately
$5,740,000 and cash and cash equivalents of approximately $3,433,000 as
compared to a working capital of approximately $6,385,000 and cash and cash
equivalents of approximately $5,106,000 as of March 31, 1995. For the three
months ended March 31, 1996, the Company generated net cash from operations of
approximately $2,090,000 and borrowed additional funds in the amount of
$1,140,000. These funds were used primarily to acquire drilling and other
related equipment of approximately $1,238,000, to fund leasehold acquisition,
exploration and development of approximately $933,000, to reduce certain notes
payable by approximately $157,000 and to increase cash by approximately
$965,000.
The Company's management believes that it will continue to use cash
flow from operations and borrowings (if available) which, together with the
current working capital should be sufficient to fund operations, and service
notes payable for at least the next 12 months. The Company's ability to repay
debt would be adversely affected by a decline in natural gas and crude oil
prices or by unsuccessful results in the Company's contract drilling activities
or exploration, development and production activities. See "Volatility of Oil
and Gas Prices" below in this Item.
The Company believes it must continually upgrade and maintain its
contract drilling fleet, and has budgeted approximately $4,000,000 in capital
expenditures for fiscal year 1996 for maintaining the contract drilling fleet.
For the three months ended March 31, 1996 the Company had expended $1,146,000
of this budget for the acquisition of drilling equipment (primarily new drill
pipe).
The Company has budgeted approximately $4,000,000 for capital
expenditures in the oil and gas segment in 1996. The funds (if available) will
be used for leasehold acquisitions, exploration and development of oil and gas
properties. As of March 31, 1996 the Company had expended approximately
$933,000 of this budget and has drawn down, in the first quarter of 1996,
$1,000,000, of a $3,500,000 line of credit with Norwest Bank Texas, Wichita
Falls, N.A.
RESULTS OF OPERATIONS
Comparison of the fiscal quarters ended March 31, 1996 and 1995
For the fiscal quarter ended March 31, 1996 contract drilling revenues
were approximately $10,533,000 as compared to $9,042,000 for the same fiscal
quarter in 1995, an increase of 16%. Average rig utilization was 77% for the
fiscal quarter ended March 31, 1996 as compared to 76%, in the same fiscal
quarter in 1995. Direct contract drilling cost for the fiscal quarter ended
March 31, 1996 was approximately $8,746,000 or 83% of contract drilling
revenues as compared to approximately $7,455,000 or 82% of contract drilling
revenues for the same period in 1995. The increase in contract drilling
revenues and direct drilling costs was due primarily to the addition of three
drilling rigs acquired during the second and third quarters of 1995. General
and administrative expense for the contract drilling segment was $447,000 for
the fiscal quarter ended March 31, 1996 as compared to approximately $442,000
for the same period in 1995. Depreciation expense was approximately $1,131,000
for the drilling segment in the fiscal quarter ended March 31, 1996 as
compared to approximately $693,000 in the same period in 1995. The increase
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<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
in depreciation expense is due primarily to the addition of the aforementioned
drilling rigs in late 1995 and significant capital expenditures for drill pipe.
The Company expended approximately $4,254,000 during fiscal 1995 and
approximately $556,000 during the fiscal quarter ended March 31, 1996 to
acquire approximately 242,000 feet of new drill pipe. In the fiscal quarter
ended March 31, 1996, income from this segment was approximately $268,000 as
compared to approximately $458,000 for the same period in 1995.
Oil and gas revenue was approximately $1,324,000 for the fiscal
quarter ended March 31, 1996, as compared to approximately $919,000 for the
fiscal quarter ended March 31, 1995. The volume of oil and gas sold increased
by 22% and 43%, respectively, in the fiscal quarter ended March 31, 1996 as
compared to the same period in 1995. The average price per barrel of oil was
$18.30 in the first quarter of 1996 as compared to $16.46 for the same period
in 1995, and the average price per mcf of gas was $1.53 in the first quarter of
1996 as compared to $1.37 in the first quarter of 1995. General and
administrative expenses for the oil and gas segment was approximately $361,000
for the fiscal quarter ended March 31, 1996 as compared to approximately
$279,000 for the same period in 1995. In the fiscal quarter ended March 31,
1996 income from the oil and gas segment was approximately $217,000 as compared
to $125,000 for the fiscal quarter ended March 31, 1995.
For the fiscal quarter ended March 31, 1996 interest expense was
approximately $329,000 compared to $188,000 for the same period in 1995. The
increase is due to higher interest rates and an increase in the principal
balance of outstanding notes payable.
INCOME TAXES
Subsequent to fiscal year end 1995 and first quarter end March 31
1996, the Company revised its estimates relative to the realization of the
future benefits of its deferred tax assets, particularly the net operating loss
carryforwards. In light of the Company's recent historical earnings, stable
rig utilization rates and increased crude oil prices, management has determined
that it is more likely than not that the Company will realize the benefits
provided by its net operating loss carryforwards and certain other deferred tax
assets. As such, the Company reduced its valuation allowance and recognized a
net deferred income tax benefit of approximately $1,610,000 in the quarter
ended March 31, 1996.
VOLATILITY OF OIL AND GAS PRICES
The Company's revenue, profitability and future rate of growth are
substantially dependent upon prevailing prices of oil and gas, both with
respect to its contract drilling and oil and gas segments. Historically, oil
and gas prices and markets have been extremely volatile. Prices are affected
by market supply and demand factors as well as actions of state and
local agencies, the United States and foreign governments and international
cartels. All of these are beyond the control of the Company. Any significant
or extended decline in those prices would have a material adverse effect on the
Company's financial condition and results of operations. The price of oil fell
to a five-year low in December, 1993, ($13.50 per barrel in the United States)
and has risen and fallen since then to $21.11 per barrel on May 7, 1996.
The average price of natural gas per mcf received by the Company has
increased from $1.37 in the first quarter of 1995 to $1.53 in the first quarter
of 1996. The sustained low prices of natural gas in particular have continued
to suppress the demand for contract drilling rigs in South and Southeast Texas
and have caused the Company's contract drilling rates in that area to remain
relatively flat among periods. If oil and gas prices decline from their
current levels, the Company's rig utilization, contract drilling rates and oil
and gas operations would be further adversely effected.
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<PAGE> 10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following Exhibit is filed herewith or incorporated by
reference herein:
11. Statement re computation of per share earnings.
27. Financial Data Schedule
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<PAGE> 11
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PATTERSON ENERGY, INC.
By: /s/ Cloyce A. Talbott
----------------------------------------
Cloyce A. Talbott
Chairman of the Board and
Chief Executive Officer
By: /s/ James C. Brown
----------------------------------------
James C. Brown
Vice President Finance
DATED: May 8, 1996
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EXHIBIT INDEX
Exhibit No. Exhibit Description Page
----------- ------------------- ----
11. Statement re computation of per share earnings 13
27. Financial Data Schedule 14
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EXHIBIT 11
PATTERSON ENERGY, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1996
--------------
<S> <C>
PRIMARY EARNINGS PER SHARE
Net income $ 1,776,101
=============
Shares:
Weighted average number of shares outstanding 3,194,951
Add-Dilutive effect of outstanding options and redeemable
warrants (as determined by the application of the
treasury stock method) 139,081
-------------
Weighted average number of shares outstanding, as
adjusted 3,334,032
=============
Net income per share: Primary $ 0.532719
=============
ASSUMING FULL DILUTION
Net income $ 1,776,101
Shares:
Weighted average number of shares outstanding 3,194,951
Add-Dilutive effect of outstanding options and redeemable
warrants (as determined by the application of the
treasury stock method) 145,643
---------------
Weighted average number of shares outstanding,
as adjusted 3,340,594
==============
Net income per share: Assuming full dilution $ 0.531672
=============
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) Form
10-Q for the Quarterly period ended March 31, 1996 (Balance Sheet & Statement of
Income)
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) Form 10-Q
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,432,761
<SECURITIES> 0
<RECEIVABLES> 9,307,694
<ALLOWANCES> 0
<INVENTORY> 469,606
<CURRENT-ASSETS> 16,763,634
<PP&E> 56,111,383
<DEPRECIATION> 29,212,865
<TOTAL-ASSETS> 45,764,781
<CURRENT-LIABILITIES> 11,023,159
<BONDS> 0
<COMMON> 31,950
0
0
<OTHER-SE> 22,117,309
<TOTAL-LIABILITY-AND-EQUITY> 45,764,781
<SALES> 0
<TOTAL-REVENUES> 12,276,122
<CGS> 0
<TOTAL-COSTS> 11,859,050
<OTHER-EXPENSES> 227,424
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 329,454
<INCOME-PRETAX> 189,648
<INCOME-TAX> 1,586,453
<INCOME-CONTINUING> 1,776,101
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,776,101
<EPS-PRIMARY> .53
<EPS-DILUTED> .53
</TABLE>
