<PAGE> 1
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
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 12, 1997
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.)
P.O. BOX 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 or former address, if changed since last report.)
- --------------------------------------------------------------------------------
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of business acquired.
WES-TEX DRILLING COMPANY
FINANCIAL STATEMENTS
AND AUDITOR'S REPORT
YEARS ENDED
DECEMBER 31, 1996, 1995 AND 1994
2
<PAGE> 3
WES-TEX DRILLING COMPANY
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report 4
Financial Statements:
Statements of Assets Acquired 6
Statements of Direct Drilling Revenue
and Direct Operating Expenses 7
Notes to Financial Statements 8
</TABLE>
3
<PAGE> 4
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
WES-TEX Drilling Company:
We have audited the accompanying statements of assets acquired of WES-TEX
Drilling Company as of December 31, 1996 and 1995, and the related statements
of direct drilling revenue and direct operating expenses for each of the three
years in the period ended December 31, 1996. These financial statements are
the responsibility of 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 assets acquired of WES-TEX Drilling Company as of
December 31, 1996 and 1995, and its direct drilling revenue and direct
operating expenses for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
/s/ DAVIS, KINARD & CO., P. C.
Abilene, Texas,
July 7, 1997
4
<PAGE> 5
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors of
WES-TEX Drilling Company:
We have reviewed the accompanying statements of assets acquired of WES-TEX
Drilling Company as of March 31, 1997 and the related statements of direct
drilling revenue and direct operating expenses for the three months ended March
31, 1997 and 1996. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
/s/ DAVIS, KINARD & CO., P.C.
Abilene, Texas,
July 7, 1997
5
<PAGE> 6
WES-TEX DRILLING COMPANY
STATEMENTS OF ASSETS ACQUIRED
DECEMBER 31, 1996 AND 1995 AND MARCH 31, 1997
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
------------ -------------------------------
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Inventory $ 157,473 $ 244,891 $ 454,426
PROPERTY AND EQUIPMENT:
Land 108,703 108,703 108,703
Drilling equipment 19,337,554 18,683,997 18,038,841
Radio equipment 178,662 178,662 177,230
Shop building and equipment 438,956 438,956 414,480
Sonora yard 20,849 20,849 20,849
Transportation equipment 2,021,285 1,974,982 1,909,865
----------- ----------- -----------
Total 22,106,009 21,406,149 20,669,968
Less: Accumulated depreciation 17,726,968 17,427,031 16,586,491
----------- ----------- -----------
Property and equipment, net 4,379,041 3,979,118 4,083,477
----------- ----------- -----------
Total assets acquired $ 4,536,514 $ 4,224,009 $ 4,537,903
=========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of this statement.
6
<PAGE> 7
WES-TEX DRILLING COMPANY
STATEMENTS OF DIRECT DRILLING REVENUE AND
DIRECT OPERATING EXPENSES
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
(UNAUDITED)
---------------------------
MARCH 31, DECEMBER 31,
--------------------------- -------------------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
DIRECT DRILLING REVENUE:
Drilling operations $11,792,551 $10,794,845 $47,010,631 $45,375,527 $43,048,358
Subcontract drilling operations 125,650
----------- ----------- ----------- ----------- -----------
Total direct drilling revenue $11,792,551 $10,794,845 $47,010,631 $45,501,177 $43,048,358
----------- ----------- ----------- ----------- -----------
DIRECT OPERATING EXPENSES:
Direct drilling costs 10,091,003 9,911,249 40,408,689 40,232,915 36,117,629
Subcontract drilling costs 125,650
Depreciation 345,833 397,046 1,588,186 1,561,519 1,528,747
Allocated general and administrative 663,780 606,204 2,337,327 2,552,504 2,726,979
----------- ----------- ----------- ----------- -----------
Total direct operating expenses 11,100,616 10,914,499 44,334,202 44,472,588 40,373,355
----------- ----------- ----------- ----------- -----------
EXCESS (DEFICIT) OF DIRECT DRILLING
REVENUE OVER DIRECT
OPERATING EXPENSES $ 691,935 $ (119,654) $ 2,676,429 $ 1,028,589 $ 2,675,003
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of this statement.
7
<PAGE> 8
WES-TEX DRILLING COMPANY
NOTES TO FINANCIAL STATEMENTS
Note 1: BASIS OF PRESENTATION
On June 4, 1997, Patterson Energy, Inc. (Patterson) entered into an
agreement in principle to acquire from WES-TEX Drilling Company
(Company) all of its drilling assets in exchange for 283,000 shares of
Patterson common stock, $25,000,000 cash consideration, and stock
warrants to purchase 200,000 shares of Patterson common stock for
$32.00 per share. Patterson did not assume any of the Company's
liabilities. On June 12, 1997 Patterson and the Company entered into a
definitive purchase agreement which specified the terms regarding the
transfer of the consideration.
The accompanying statements of direct drilling revenue and direct
operating expenses only includes revenue and expenses directly
associated with drilling operations and the general and administrative
expenses allocated to drilling activities. All of the Company's
general and administrative expenses have been subject to allocation.
General and administrative expenses have been allocated based on
revenues from drilling operations and oil and gas production
activities. Management believes that this is a reasonable basis to
allocate general and administrative expenses and this method is
consistent with historical financial statement presentations.
Investment income, interest expense and provision for income taxes, as
well as, revenues and expenses related to oil and gas exploration and
production have been excluded from the presentation.
Historical financial information reflecting financial position, results
of operations, and cash flows of the Company is not presented because
the acquisition cost was assigned to the assets acquired, covenants not
to compete and goodwill. Accordingly, the historical statements of
assets acquired and direct drilling revenues and direct operating
expenses have been presented in lieu of the financial statements
required under Rule 3-05 of Securities and Exchange Commission
Regulation S-X.
The financial statements as of March 31, 1997 and for each of the three
months ended March 31, 1997 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 not
misleading. These financial statements should be read in conjunction
with the audited December 31, 1994, 1995 and 1996 financial statements.
In the opinion of management, all adjustments considered necessary for
presentation have been included.
The results of operations for the three months ended March 31, 1997 are
not necessarily indicative of the results to be expected for the full
year.
Summarized below are the accounting policies utilized in preparing the
financial statements presented.
Operations
The Company is engaged in onshore contract drilling of oil and gas
wells and the development, exploration, acquisition and production of
oil and natural gas. Drilling services are provided to major oil and
gas companies and independent producers in the West Texas area. This
financial presentation only includes the assets acquired by Patterson
and the related direct drilling revenue, direct drilling expenses and
allocated general and administrative expenses. All of the activity
related to the development, exploration, acquisition and production of
oil and natural gas, general and administrative expenses allocated to
other operations, other income and expense, including interest and
income taxes have been excluded from the presentation.
Subsidiaries
The accompanying financial statements include only the accounts of the
Company. WES-TEX Supply Company (WTS) which sells oil field supplies
and Aztec Salvage Company (Aztec) are wholly-owned subsidiaries,
however, they have been excluded from the financial presentation since
WTS sells solely to the Company at cost and Aztec's only activity is to
hold investments.
Contracts in Progress and Customer Prepayments
Drilling operations are accounted for on a completed contract basis
such that revenue and expense is not recognized until the wells are
completed. Costs incurred at year end on uncompleted drilling contracts
are deferred and any customer advance payments or billings related to
uncompleted drilling contracts are also deferred until the drilling
contract has been completed. Provisions for losses are made on
incomplete contracts when significant losses are anticipated.
8
<PAGE> 9
WES-TEX DRILLING COMPANY
NOTES TO FINANCIAL STATEMENTS
Note 1: BASIS OF PRESENTATION - (continued)
Inventory
Inventory is stated at the lower of first-in, first-out cost or market.
Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. The cost and accumulated depreciation of property and
equipment sold or retired are removed from the related account.
Expenditures for repairs and maintenance are charged to expense as
incurred, and renewals and improvements to property and equipment are
capitalized.
Depreciation
Depreciation is provided on the straight-line method over the estimated
useful lives as follows:
Drilling rigs and equipment 5-10
Transportation equipment 3-5
Buildings 15
Other equipment 3-10
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 revenue
and expenses during the reporting period. Actual results could differ
from those estimates.
Note 2: RELATED PARTY TRANSACTIONS
The Company has purchased services related to drilling operations from
a company in which the Company has an ownership interest. Services
purchased from this entity amounted to approximately $3,000,000,
$4,700,000 and $1,900,000 for the years ended December 31, 1996, 1995
and 1994, and $350,000 and $984,000 for the three months ended March
31, 1997 and 1996, respectively. Management believes these
transactions were under terms no less favorable to the Company than
those arranged with other parties.
9
<PAGE> 10
WES-TEX DRILLING COMPANY
NOTES TO FINANCIAL STATEMENTS
Note 3: MAJOR CUSTOMERS
Customers comprising 10% or more of drilling revenue during the years
ended December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Union Pacific Resources Company 29% 37% 22%
Louis Dreyfus Natural Gas Company 13% 14% 13%
</TABLE>
Note 4: COMMITMENTS AND CONTINGENCIES
The Company's drilling operations are subject to inherent risks,
including blowouts, cratering, fire and explosions which could result
in personal injury or death, suspend drilling operations, damage to or
destruction of equipment 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
$2,000,000 of aggregate and excess liability and umbrella coverages up
to $20,000,000 per occurrence with a $20,000,000 aggregate. The
Company believes it is adequately insured for public liability and
property damage to others with respect to its drilling 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 connections with its
drilling operations.
The Company is 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 financial condition of the
Company.
Note 5: EMPLOYEES' RETIREMENT PLAN
The Company has a defined contribution employee benefit plan available
to substantially all employees. The plan provides for annual
discretionary contributions to be determined by the Board of Directors
of the Company. The participating employees make no contributions to
the plan, and the Company may discontinue its contributions at any
time. The Company made discretionary contributions to the Plan of
$300,000, $0 and $300,000 for the years ended December 31, 1996, 1995
and 1994, respectively. The discretionary contributions are
determined and recorded at year end.
Effective January 1, 1993 the Company amended and restated its plan to
incorporate 401 (k) Profit Sharing Plan provisions to the Plan.
During the years ended December 31, 1996, 1995 and 1994 the Company
made $66,572, $43,912 and $38,936 in employer matching contributions
to the Plan. The cost of the discretionary contributions and employer
matching contributions are allocated to drilling operations as a
component of general and administrative expenses. The percentage
allocated to drilling operations were 88.29%, 92.07% and 91.77% for
the years ended December 31, 1996, 1995 and 1994 respectively. For
the three months ended March 31, 1997 and 1996 the employer matching
contributions were $29,105 and $11,666 respectively with 88.69% and
93.16% being allocated to drilling operations.
10
<PAGE> 11
WES-TEX DRILLING COMPANY
NOTES TO FINANCIAL STATEMENTS
Note 6: CONCENTRATIONS OF CREDIT RISK
The Company is required by SFAS No. 105, "Disclosure of Information
about Financial Instruments with Off- Balance-Sheet Risk and Financial
Instruments with Concentrations of Credit Risk," to disclose
significant concentrations of credit risk. Financial instruments
which potentially subject the Company to concentrations of credit risk
consist principally of trade receivables and cash on deposit with
financial institutions in excess of federal insurance coverage. The
Company provides credit, in the normal course of business, to oil and
gas related companies in the West Texas area. The Company performs
ongoing credit evaluations of its customers and has not had any
significant write-offs of accounts. Collateral for trade receivables
is generally not required.
11
<PAGE> 12
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(b) Pro forma financial information.
Unaudited pro forma financial information as of March 31, 1997 and for the
three months ended March 31, 1997 and the year ended December 31, 1996 are
provided below. The unaudited financial information reflects adjustments
necessary to give effect to the acquisition on June 12, 1997 by Patterson
Drilling Company (the "Company"), a wholly-owned subsidiary of Patterson Energy,
Inc., of the contract drilling assets of Wes-Tex Drilling Company ("Wes-Tex").
The unaudited pro forma balance sheet as of March 31, 1997 assumes the
acquisition was completed at March 31, 1997 and the unaudited pro forma
statements of income assume the acquisition was completed on January 1, 1996.
The pro forma adjustments are based upon available information and certain
assumptions the Company believes are reasonable. The unaudited pro forma
financial information is not necessarily indicative of operating results that
would have occurred had the acquisition been consummated on January 1, 1996, nor
are they indicative of future operating results of the combined companies.
PATTERSON ENERGY, INC.
PRO FORMA BALANCE SHEET
MARCH 31, 1997
(Unaudited)
(in thousands)
ASSETS
<TABLE>
<CAPTION>
Wes-Tex
Patterson Drilling
Energy, Inc. Company Adjustments Pro Forma
------------ -------- ----------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents ................ $ 35,415 $ -- $(19,000)(b) $ 16,415
Marketable securities .................... 543 -- -- 543
Inventory ................................ -- 157 (157)(a) --
Accounts receivable:
Trade ................................. 23,802 -- -- 23,802
Oil and natural gas sales ............. 973 -- -- 973
Costs of uncompleted drilling contracts
in excess of related billings ......... 6 -- -- 6
Deferred income taxes .................... 1,483 -- -- 1,483
Undeveloped oil and natural gas
properties held for resale ............ 4,907 -- -- 4,907
Other current assets ..................... 303 -- -- 303
-------- -------- -------- --------
Total current assets ............... 67,432 157 (19,157) 48,432
Property and equipment, at cost, net ..... 55,733 4,380 13,070(a) 73,183
Intangible asset, net .................... -- -- 17,903(a) 17,903
Deposits on worker's compensation
insurance policy ...................... 412 -- -- 412
Other .................................... 720 -- -- 720
-------- -------- -------- --------
Total assets ....................... $124,297 $ 4,537 $ 11,816 $140,650
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited
pro forma financial statements.
(continued)
12
<PAGE> 13
PATTERSON ENERGY, INC.
PRO FORMA BALANCE SHEET - CONTINUED
MARCH 31, 1997
(Unaudited)
(in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Wes-Tex
Patterson Drilling
Energy, Inc. Company Adjustments Pro Forma
------------ -------- ----------- ---------
<S> <C> <C> <C> <C>
Current liabilities:
Current maturities of note payable ............. $ -- $ -- $ 323(b) $ 323
Accounts payable:
Trade ....................................... 9,890 -- 190(b) 10,080
Revenue distribution ........................ 3,246 -- -- 3,246
Other ....................................... 1,523 -- -- 1,523
Accrued expenses .............................. 2,534 -- -- 2,534
-------- -------- -------- --------
Total current liabilities ........... 17,193 -- 513 17,706
Deferred income taxes ............................ 513 -- -- 513
Deferred liabilities ............................. 707 -- -- 707
Notes payable, less current maturities ........... -- -- 5,677(b) 5,677
-------- -------- -------- --------
Total liabilities ................... 18,413 -- 6,190 24,603
-------- -------- -------- --------
Commitments and contingencies .................... -- -- -- --
Stockholders' equity:
Preferred stock - par value $.01; authorized
1,000,000 shares, no shares issued .......... -- -- -- --
Common stock - par value $.01; authorized
9,000,000 shares with 7,353,657 issued and
outstanding at March 31, 1997 ............... 71 -- 3(b) 74
Additional paid-in capital .................... 82,099 -- 10,160(b) 92,259
Retained earnings ............................. 23,714 -- -- 23,714
Assets acquired ............................... -- 4,537 (4,537)(a) --
-------- -------- -------- --------
Total stockholders' equity .......... 105,884 4,537 5,626 116,047
-------- -------- -------- --------
Total liabilities and
stockholders' equity ............. $124,297 $ 4,537 $ 11,816 $140,650
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
unaudited pro forma financial statements.
13
<PAGE> 14
PATTERSON ENERGY, INC.
Pro Forma Statement of Income
For the year ended December 31, 1996
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Wes-Tex
Patterson Drilling
Energy, Inc. Company Adjustments Pro Forma
------------ --------- ----------- ---------
<S> <C> <C> <C> <C>
Operating revenues:
Drilling ............................. $ 73,590 $ 47,010 $ 848(d) $ 121,448
Oil and natural gas sales ............ 8,299 -- -- 8,299
Well operation fees .................. 1,499 -- -- 1,499
Other ................................ 320 -- -- 320
--------- --------- --------- ---------
83,708 47,010 848 131,566
--------- --------- --------- ---------
Operating costs and expenses:
Direct drilling costs ................ 59,564 40,409 878(d) 100,851
Lease operating and production ....... 2,012 -- -- 2,012
Impairment of oil and natural gas
properties ......................... 549 -- -- 549
Exploration costs .................... 466 -- -- 466
Dry holes and abandonments ........... 987 -- -- 987
Depreciation, depletion and
amortization ..................... 9,960 1,588 1,956(c) 13,504
General and administrative expense ... 5,416 2,337 -- 7,753
--------- --------- --------- ---------
78,954 44,334 2,834 126,122
--------- --------- --------- ---------
Operating income ......................... 4,754 2,676 (1,986) 5,444
--------- --------- --------- ---------
Other income (expense):
Net gain on sale of assets ........... 546 -- -- 546
Interest income ...................... 478 -- -- 478
Interest expense ..................... (1,612) -- (497)(c) (2,109)
Non-recurring acquisition costs ...... (2,268) -- -- (2,268)
Other ................................ 119 -- -- 119
--------- --------- --------- ---------
(2,737) -- (497) (3,234)
--------- --------- --------- ---------
Income before income taxes ............... 2,017 2,676 (2,483) 2,210
--------- --------- --------- ---------
Income tax expense (benefit):
Current .............................. 174 -- -- 174
Deferred ............................. (2,428) -- 69(c) (2,359)
--------- --------- --------- ---------
(2,254) -- 69 (2,185)
--------- --------- --------- ---------
Net income ............................... $ 4,271 $ 2,676 $ (2,552) $ 4,395
========= ========= ========= =========
Net income per common share:
Primary .............................. $ 0.43 N/A N/A $ 0.42
========= ========= ========= =========
Fully diluted ........................ $ 0.43 N/A N/A $ 0.41
========= ========= ========= =========
Weighted average number of common
shares outstanding:
Primary .............................. 9,906 N/A 566(b) 10,472
========= ========= ========= =========
Fully diluted ........................ 10,042 N/A 566(b) 10,608
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
unaudited pro forma financial statements.
14
<PAGE> 15
PATTERSON ENERGY, INC.
PRO FORMA STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Wes-Tex
Patterson Drilling
Energy, Inc. Company Adjustments Pro Forma
------------ --------- ----------- ---------
<S> <C> <C> <C> <C>
Operating revenues:
Drilling ............................. $ 27,564 $ 11,793 $ (598)(d) $ 38,759
Oil and natural gas sales ............ 2,633 -- -- 2,633
Well operation fees .................. 407 -- -- 407
Other ................................ 37 -- -- 37
--------- --------- --------- ---------
30,641 11,793 (598) 41,836
--------- --------- --------- ---------
Operating costs and expenses:
Direct drilling costs ................ 22,320 10,091 (589)(d) 31,822
Lease operating and production ....... 517 -- -- 517
Impairment of oil and natural gas
properties ......................... 150 -- -- 150
Exploration costs .................... 159 -- -- 159
Dry holes and abandonments ........... 223 -- -- 223
Depreciation, depletion and
amortization ..................... 3,295 346 540(c) 4,181
General and administrative expense ... 1,337 664 -- 2,001
--------- --------- --------- ---------
28,001 11,101 (49) 39,053
--------- --------- --------- ---------
Operating income ......................... 2,640 692 (549) 2,783
--------- --------- --------- ---------
Other income (expense):
Net gain on sale of assets ........... 135 -- -- 135
Interest income ...................... 284 -- -- 284
Interest expense ..................... (483) -- (124)(c) (607)
Other ................................ 19 -- -- 19
--------- --------- --------- ---------
(45) -- (124) (169)
--------- --------- --------- ---------
Income before income taxes ............... 2,595 692 (673) 2,614
--------- --------- --------- ---------
Income tax expense:
Current .............................. 497 -- 7(c) 504
Deferred ............................. 458 -- -- 458
--------- --------- --------- ---------
955 -- 7 962
--------- --------- --------- ---------
Net income ............................... $ 1,640 $ 692 $ (680) $ 1,652
========= ========= ========= =========
Net income per common share:
Primary .............................. $ 0.12 N/A N/A $ 0.12
========= ========= ========= =========
Fully diluted ........................ $ 0.12 N/A N/A $ 0.12
========= ========= ========= =========
Weighted average number of common
shares outstanding:
Primary .............................. 13,208 N/A 566(b) 13,774
========= ========= ========= =========
Fully diluted ........................ 13,208 N/A 566(b) 13,774
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
unaudited pro forma financial statements.
15
<PAGE> 16
PATTERSON ENERGY, INC.
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
On June 12, 1997, the Company consummated an acquisition to purchase
the contract drilling assets of Wes-Tex Drilling Company ("Wes-Tex"), a
privately-held, non-affiliated company based in Abilene, Texas, for a
purchase price of approximately $35.4 million; consisting of $25 million
in cash, 283,000 shares of the Company's common stock, $0.01 par value,
(valued at $31.50 per share), a three-year stock purchase warrant (valued
at $6.24 per share) to purchase 200,000 additional shares of Patterson
common stock at an exercise price of $32 per share and approximately
$190,000 of other direct costs incurred relative to the transaction. The
acquisition was funded using $19 million of the Company's cash on hand and
$6 million provided by an existing $30 million line of credit. The assets
acquired consist of 21 fully operable drilling rigs, all related rolling
stock and a shop and yard. The Company did not assume any liabilities of
Wes-Tex.
The unaudited pro forma financial information reflects adjustments
necessary to give effect to the acquisition on June 12, 1997 by Patterson
Drilling Company (the "Company"), a wholly-owned subsidiary of Patterson
Energy, Inc., of the contract drilling assets of Wes-Tex Drilling Company
("Wes-Tex"), as described above. The unaudited pro forma balance sheet as
of March 31, 1997 assumes the acquisition was completed at March 31, 1997
and the unaudited pro forma statements of income assume the acquisition
was completed on January 1, 1996.
The pro forma adjustments are based upon available information and
certain assumptions the Company believes are reasonable. The unaudited pro
forma financial information is not necessarily indicative of operating
results that would have occurred had the acquisition been consummated on
January 1, 1996, nor are they indicative of future operating results of
the combined companies.
The contract drilling revenue and direct operating expenses of
Wes-Tex presented herein only include the revenues and expenses directly
associated with the drilling operations of Wes-Tex, as well as the general
and administrative expense allocated to such drilling activities. General
and administrative expenses were allocated proportionately based on
revenues contributed by the drilling and oil and gas production operations
of Wes-Tex. Management believes that this is a reasonable basis to
allocate general and administrative expenses.
The effects of a two-for-one stock split, authorized by Patterson's
Board of Directors on July 1, 1997, have been reflected in the Company's
earnings per share and weighted average number of common shares
outstanding for all periods presented.
2. PERIODS PRESENTED
The unaudited pro forma balance sheet and statement of income as of
and for the three months ended March 31, 1997 was prepared using the
unaudited consolidated financial statements for the quarterly period ended
March 31, 1997 of Patterson Energy, Inc. as reported under Form 10-Q and
the unaudited Statement of Assets Acquired and the unaudited Statement of
Direct Drilling Revenue and Direct Operating Expenses of Wes-Tex for the
period ended March 31, 1997, as filed herewith as Item 7. (a) of this
report. The unaudited pro forma statement of income for the year ended
December 31, 1996 was prepared using the audited consolidated financial
statement of income for the year ended December 31, 1996 of Patterson
Energy, Inc. as reported under Form 10-K and the audited Statement of
Direct Drilling Revenue and Direct Operating Expenses of Wes-Tex for the
year ended December 31, 1996, as filed herewith as Item 7. (a) of this
report.
(continued)
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<PAGE> 17
PATTERSON ENERGY, INC.
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS - CONTINUED
3. PRO FORMA ADJUSTMENTS
a. The following pro forma adjustment reflects the allocation, based
on the estimated fair values, of the purchase price of approximately $35.4
million, as well as the elimination of the related book values of the
assets acquired (thousands):
<TABLE>
<CAPTION>
ALLOCATION OF CARRYING
ACCOUNT DESCRIPTION PURCHASE PRICE VALUE ADJUSTMENT
------------------------------------------------------------------------
<S> <C> <C> <C>
Inventory .................... $ -- $ 157 $ (157)
Property and equipment ....... 17,450 4,380 13,070
Intangible assets:
Goodwill ................... 16,629 -- 16,629
Covenants not to compete ... 1,274 -- 1,274
Assets acquired .............. -- 4,537 (4,537)
</TABLE>
The purchase price allocation as detailed above is preliminary in
nature and subject to change.
b. The following pro forma adjustment reflects the related funding of
the acquisition discussed above (in thousands):
<TABLE>
<CAPTION>
ACCOUNT DESCRIPTION ADJUSTMENT
------------------------------------------------------
<S> <C>
Cash and cash equivalents ........... $ (19,000)
Draw down on line of credit ......... 6,000
Accrued expenses .................... 190
Common stock ........................ 3
Additional paid-in capital .......... 10,160
</TABLE>
c. Depreciation and amortization expense, interest expense and income
tax expense were adjusted to reflect increases resulting from the
acquisition of the contract drilling assets of Wes-Tex. Depreciation
expense was determined on a straight line basis using depreciable lives
consistent with those historically used by the Company. Amortization
expense was determined on a straight line basis over five and fifteen
years for the covenants not to compete and goodwill, respectively. The
related expense accounts were increased as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
ACCOUNT DESCRIPTION MARCH 31, 1997 DECEMBER 31, 1996
---------------------------------------------------------------------------
<S> <C> <C>
Depreciation and amortization ..... $ 540 $ 1,956
Interest expense .................. 124 497
Income tax expense ................ 7 204
</TABLE>
d. Contract drilling revenues and direct contract drilling costs were
adjusted to convert Wes-Tex's methodology of accounting for wells in
progress from the completed contract method for day work and footage
drilling arrangements to the percentage-of-completion method.
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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: August 12, 1997 /s/ James C. Brown
---------------------------------
James C. Brown
Vice President-Finance
18
