<PAGE> 1
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-KA
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) February 6, 1998
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)
(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.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
Robertson Onshore Drilling Company
We have audited the accompanying balance sheet of Robertson Onshore Drilling
Company (a Texas Subchapter S Corporation) as of December 31, 1997, and the
related statements of income, changes in shareholders' equity and cash flows for
the year then ended. 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 audit.
We conducted our audit 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 audit provides 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 Robertson Onshore Drilling
Company as of December 31, 1997, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
BELEW AVERITT LLP
Dallas, Texas
March 6, 1998
1
<PAGE> 3
ROBERTSON ONSHORE DRILLING COMPANY
Balance Sheet
December 31, 1997
<TABLE>
<CAPTION>
ASSETS
Current assets:
<S> <C>
Cash $ 528,074
Accounts receivable, less allowance for doubtful accounts of $75,000 5,513,840
Due from insurance company (Note 10) 625,202
Costs of uncompleted drilling contracts in excess of related billings 838,490
Prepaid assets 352,953
-------------
Total current assets 7,858,559
Property and equipment, at cost, net (Notes 3 and 6) 9,010,924
Deposits 13,845
-------------
Total assets $ 16,883,328
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable (Note 6) $ 1,800,000
Accounts payable 3,088,696
Accrued expenses:
Drilling costs 1,217,383
Bonuses 403,119
Insurance 169,182
State income taxes 160,771
Other 342,551
-------------
Total current liabilities 7,181,702
Commitments and contingencies (Note 7) --
Shareholders' equity (Notes 4, 5 and 8):
Common stock, par value $1 per share; 1,000,000 shares
authorized; 169,217 shares issued 169,217
Additional paid-in capital 2,311,544
Retained earnings 7,332,142
Treasury stock, 4,953 shares at cost (111,277)
-------------
Total shareholders' equity 9,701,626
-------------
Total liabilities and shareholders' equity $ 16,883,328
=============
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 4
ROBERTSON ONSHORE DRILLING COMPANY
Statement of Income
Year ended December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Contract drilling revenues $ 38,332,382
Operating costs:
Direct drilling costs 29,200,887
Depreciation 1,225,667
General and administrative 3,626,599
-------------
34,053,153
-------------
Operating income 4,279,229
Other income (expense):
Investment income 27,694
Other income 23,254
Loss on sale of assets (58,244)
Interest expense (109,564)
-------------
(116,860)
-------------
Income before income taxes 4,162,369
Provision for state income taxes 233,400
-------------
Net income $ 3,928,969
=============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 5
ROBERTSON ONSHORE DRILLING COMPANY
Statement of Changes in Shareholders' Equity
Year ended December 31, 1997
<TABLE>
<CAPTION>
Common Stock Additional
--------------------- Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
------- -------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 169,217 $ 169,217 $ 2,290,995 $ 4,717,285 $ (147,224) $ 7,030,273
Declaration of dividends (Note 8) -- -- -- (1,314,112) -- (1,314,112)
Sale of treasury stock (600 shares)
(Note 5) -- -- 13,816 -- 13,480 27,296
Exercise of stock options
(1,000 shares)(Note 5) -- -- 6,733 -- 22,467 29,200
Net income -- -- -- 3,928,969 -- 3,928,969
------- --------- ----------- ----------- ---------- -----------
Balance, December 31, 1997 169,217 $ 169,217 $ 2,311,544 $ 7,332,142 $ (111,277) $ 9,701,626
======= ========= =========== =========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 6
ROBERTSON ONSHORE DRILLING COMPANY
Statement of Cash Flows
Year ended December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net income $ 3,928,969
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,225,667
Loss on sale of assets 58,244
Change in operating assets and liabilities:
Accounts receivable (1,763,784)
Due from insurance company (420,878)
Costs of uncompleted drilling contracts in
excess of related billings 85,339
Other current assets 29,543
Accounts payable 684,514
Accrued expenses 900,264
-------------
Net cash provided by operating activities 4,727,878
Cash flows from investing activities:
Acquisition of property, plant and equipment (3,080,864)
Proceeds from sale of equipment 85,870
-------------
Net cash used in investing activities (2,994,994)
Cash flows from financing activities:
Payment of dividends (1,314,112)
Proceeds from stock issuance 56,496
-------------
Net cash used in financing activities (1,257,616)
-------------
Net increase in cash 475,268
Cash, January 1, 1997 52,806
-------------
Cash, December 31, 1997 $ 528,074
=============
Supplemental cash flow information:
Cash paid for interest $ 109,564
=============
Cash paid for state income taxes $ 72,629
=============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 7
ROBERTSON ONSHORE DRILLING COMPANY
Notes to Financial Statements
December 31, 1997
1. DESCRIPTION OF BUSINESS
Robertson Onshore Drilling Company (the Company), a Texas Subchapter S
Corporation, was formed September 18, 1986 to own and operate drilling
rigs within the continental United States. At December 31, 1997, the
Company owned and operated 15 rigs and provided contract drilling
services in Texas, Louisiana, Mississippi and Alabama.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers highly-liquid investments with original maturities
of three months or less to be components of cash.
CONCENTRATIONS OF CREDIT RISK
The Company maintains cash in excess of the limit insured by the Federal
Deposit Insurance Corporation (FDIC) in financial institutions which the
Company considers of high credit quality. Concentrations of credit risk
with respect to trade receivables are limited due to the number of
customers comprising the Company's customer base. Management does not
anticipate significant credit losses from such financial instruments.
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.
Provisions for losses are made on incomplete contracts when significant
losses are anticipated.
PROPERTY AND EQUIPMENT
Depreciation has been provided for using the straight-line method over
estimated useful lives of 5 to 10-years. Repairs and maintenance costs
are charged to expense as incurred. Significant repairs are capitalized.
6
<PAGE> 8
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," net capitalized costs of
long-lived assets in excess of estimated future net revenues are reduced
to reflect an amount which is expected to be recovered through the
future cash flows generated by the use of the related assets. The
Company did not reduce the costs of its long-lived assets at December
31, 1997 as a result of applying the provisions of SFAS 121.
INCOME TAXES
As a Subchapter S Corporation, the shareholders are allocated their
pro-rata share of the Company's taxable income or loss for inclusion in
their personal income tax returns. Accordingly, no provision for Federal
income taxes is reflected in the accompanying financial statements. The
Company's tax returns and the amount of the Company's taxable income or
loss are subject to examination by Federal and state taxing authorities.
If such examinations result in changes in taxable income or loss, the
tax liability of the shareholders could be changed accordingly.
The Company does provide for state income taxes based on the effective
rates of the applicable states.
ACCOUNTING FOR STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), encourages, but does not require,
companies to record compensation cost for stock-based compensation plans
at fair value (Note 4). The Company has elected to continue to account
for stock-based compensation using the intrinsic value method prescribed
in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB 25), and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any,
of the fair value of the Company's stock at the measurement date
(generally the date of the grant) over the amount the employee must pay
to acquire the stock.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For the majority of the Company's financial instruments, including cash,
accounts receivable, debt, accounts payable and accrued expenses, the
carrying amounts approximate fair value due to their short maturities.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results may vary from management's
estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Company adopted the provisions of SFAS No. 129, "Disclosures of
Information about Capital Structure," effective for the year ended
December 31, 1997. This statement consolidates existing pronouncements
on required disclosures about a company's capital structure including a
brief discussion of rights and privileges for securities outstanding.
The adoption of this statement had no material effect on the Company's
financial statements.
7
<PAGE> 9
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income." This statement requires that all
items required to be recognized under accounting standards as components
of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS
No. 130 is effective for financial statement periods beginning after
December 15, 1997. Management does not anticipate that this statement
will have a significant effect on the Company's financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related
Information." This statement establishes standards for reporting
information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in
interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 is effective for
fiscal years beginning after December 15, 1997. Management does not
anticipate that this statement will have a significant effect on the
Company's financial statements.
3. PROPERTY AND EQUIPMENT
Major classifications of property and equipment at December 31, 1997 are
summarized below:
<TABLE>
<S> <C>
Drilling rigs and equipment $ 12,274,568
Furniture and fixtures 243,078
Buildings 63,787
Vehicles 25,480
Land 26,303
------------
12,633,216
Less accumulated depreciation 3,622,292
------------
$ 9,010,924
============
</TABLE>
4. INCENTIVE COMPENSATION
The Board of Directors of the Company unanimously approved a stock
option program with a key employee. Pursuant to this plan, the Company
issued the option to purchase 1,000 shares at a price of $29,240 on an
annual basis on the first working day of 1997, 1998, 1999 and 2000, for
a total of 4,000 shares at a price of $116,960. The individual exercised
the option for the first 1,000 shares earned pursuant to this plan on
January 2, 1997, by executing a note in favor of the Company in the
amount of $29,240. The individual was granted an extension on the
exercise of the second 1,000 share option until immediately prior to the
closing of the sale of the Company (Note 11) and was also granted an
acceleration on the exercise of the final 2,000 shares. On February 6,
1998, the individual exercised the option for the 3,000 shares for
$87,720.
8
<PAGE> 10
On April 21, 1997, the Board of Directors of the Company unanimously
approved a stock option program for certain other key employees.
Pursuant to this plan, the Company issued the option to purchase shares
in accordance with the following exercise intervals:
<TABLE>
<CAPTION>
Number of Exercise
shares price Not Before Not After
--------- ------------ -------------- --------------
<S> <C> <C> <C>
250 $ 8,405 April 30, 1998 April 30, 2007
250 8,405 April 30, 1999 April 30, 2007
250 8,405 April 30, 2000 April 30, 2007
250 8,405 April 30, 2001 April 30, 2007
--------- ------------
1,000 $ 33,620
========= ============
</TABLE>
All of these options were exercised on February 6, 1998 in conjunction
with the sale of the Company (Note 11).
The Company applies APB 25 and related interpretations in accounting for
its stock options, and accordingly, $70,000 of compensation cost was
recognized during 1997. Had compensation cost for the stock options been
determined based on the fair value at the grant date consistent with the
method of SFAS 123, approximately $45,000 in gross compensation costs
would have been recognized in the year ended December 31, 1997.
Accordingly, the Company's net income for 1997 would have been increased
to the pro forma amounts indicated below:
<TABLE>
<S> <C>
As reported $ 3,928,969
Pro forma $ 3,953,969
</TABLE>
The weighted average fair value at date of grant for options granted
during 1997 was $180.34 per option. The fair value of each option grant
is estimated using the Black-Shoales option-pricing model with the
following weighted-average assumptions used:
<TABLE>
<S> <C>
Dividend yield 0%
Expected volatility 1%
Risk-free rate of return 6.00%
Expected life 7.5 years
</TABLE>
In addition to the stock option plans, the Company has a bonus pool for
the benefit of the same individuals. The bonus pool is determined based
upon a formula and is approved annually by the Board of Directors. At
December 31, 1997, the Company accrued approximately $403,000 relative
to the bonus pool. Such amounts were paid subsequent to year-end.
5. TREASURY STOCK
Treasury shares are accounted for under the cost method whereby the
shares are stated at average cost.
The Company sold 1,600 treasury shares (including 1,000 shares pursuant
to a stock option program) on January 1, 1997 for $56,496 to two key
employees.
9
<PAGE> 11
6. NOTE PAYABLE
The Company has a revolving credit agreement with a bank. The maximum
borrowings pursuant to the agreement are $2,000,000, and bear interest
at prime plus 1% per annum or 9.5% at December 31, 1997. Borrowings are
secured by a certain drilling rig and related equipment and are payable
on demand or on April 30, 1998. At December 31, 1997, the Company had
outstanding borrowings of $1,800,000 which were subsequently paid in
full by Patterson Onshore Drilling Company in conjunction with its
merger with the Company on February 6, 1998 (Note 11).
7. COMMITMENTS AND CONTINGENCIES
The Company leases office space and automobiles under non-cancelable
operating leases. Rent expense was $220,067 for operating leases.
Scheduled future minimum rental payments under non-cancelable operating
leases at December 31, 1997 are approximately as follows:
<TABLE>
<CAPTION>
Years ending
December 31,
------------
<S> <C>
1998 $ 60,000
1999 49,000
------------
$ 109,000
============
</TABLE>
On July 22, 1997, the Salary Contingency Plan Committee of the Board of
Directors unanimously approved a Stay Bonus and Salary Contingency Plan
for the Company. The plan provides for a designated group of employees
to receive a bonus equal to two months of their respective gross salary
on March 31, 1998, the stay bonus date. Included in accrued expenses at
December 31, 1997 is management's estimate of the bonus accrual totaling
$64,000.
8. DIVIDENDS
The Board of Directors of the Company has unanimously voted to establish
a policy of declaring and paying dividends quarterly, at a rate of
approximately 40% of net income for the previous quarter. This policy
took effect with the first quarter of 1991.
The following table summarizes dividends declared by the Board of
Directors of the Company and paid in 1997:
<TABLE>
<CAPTION>
Amount
Declaration date Record date Payment date per share
----------------- ----------------- ----------------- ---------
<S> <C> <C> <C>
February 19, 1997 February 19, 1997 April 15, 1997 $2.50
July 17, 1997 July 17, 1997 October 10, 1997 $2.50
October 15, 1997 October 15, 1997 November 21, 1997 $3.00
</TABLE>
10
<PAGE> 12
9. RETIREMENT PLAN
The Company has a defined contribution plan (the Plan) which is
available to all employees meeting certain eligibility requirements.
Participants may contribute up to 20% of their eligible compensation to
the Plan. The Company makes matching contributions at the discretion of
the Board of Directors. The Company's matching contribution of
approximately $85,000 was paid throughout 1997, with the final $24,000
being paid subsequent to year-end.
10. WORKERS' COMPENSATION INSURANCE
The Company accrued $580,000 at December 31, 1997 for returns from
retrospective adjustments to previously paid workers' compensation
insurance premiums. These amounts represent the insurance carrier's best
estimate of the retrospective return as of December 31, 1997 and are
reflected as a reduction in direct drilling costs.
11. SUBSEQUENT EVENT
On February 6, 1998 the Company was merged into Patterson Onshore
Drilling Company, a wholly-owned subsidiary of Patterson Energy, Inc.,
in consideration for $40 million. The separate existence of the Company
ceased on such date.
11
<PAGE> 13
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(b) Pro forma financial information.
Unaudited pro forma financial information as of December 31, 1997 and for
the year then ended is provided below. The unaudited pro forma financial
information reflects adjustments necessary to give effect to the merger on
February 6, 1998 of Patterson Drilling Company (the "Company"), a wholly-owned
subsidiary of Patterson Energy, Inc., and Robertson Onshore Drilling Company
("Robertson"). The unaudited pro forma balance sheet as of December 31, 1997
assumes the acquisition was completed at December 31, 1997 and the unaudited pro
forma statement of income assumes the acquisition was completed on January 1,
1997. 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, 1997, nor
is it indicative of future operating results of the combined companies.
PATTERSON ENERGY, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 1997
(Unaudited)
(in thousands)
ASSETS
<TABLE>
<CAPTION>
Historical Financial
Statements
---------------------------------- Pro Forma
Patterson Robertson Onshore Pro Forma Financial
Energy, Inc. Drilling Company Adjustments Statements
----------- ----------------- ----------- ----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents .................. $ 23,338 $ 528 $ (5,650)(b)(d) $ 18,216
Marketable securities ................... 566 -- -- 566
Accounts receivable:
Trade ................................ 44,732 5,514 -- 50,246
Oil and natural gas sales ............ 773 -- -- 773
Other ................................ -- 625 -- 625
Costs of uncompleted drilling contracts
in excess of related billings ........ -- 838 -- 838
Deferred income taxes ................... 2,309 -- -- 2,309
Undeveloped oil and natural gas
properties held for resale............ 4,781 -- -- 4,781
Other current assets..................... 515 353 -- 868
-------- -------- -------- --------
Total current assets .............. 77,014 7,858 (5,650) 79,222
Property and equipment, at cost, net .... 100,405 9,011 21,505 (a) 130,921
Intangible assets, net .................. 24,644 -- 9,393 (a) 34,037
Other assets............................. 1,137 14 -- 1,151
-------- -------- -------- --------
Total assets ...................... $203,200 $ 16,883 $ 25,248 $245,331
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
combined financial statements.
(continued)
12
<PAGE> 14
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (CONTINUED)
(b) Pro forma financial information.
PATTERSON ENERGY, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET - CONTINUED
December 31, 1997
(Unaudited)
(in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Historical Financial
Statements
---------------------------------- Pro Forma
Patterson Robertson Onshore Pro Forma Financial
Energy, Inc. Drilling Company Adjustments Statements
----------- ----------------- ----------- ----------
<S> <C> <C> <C> <C>
Current liabilities:
Current maturities of notes payable........... $ 1,467 $ 1,800 $ (1,800)(d) $ 1,467
Accounts payable:
Trade ...................................... 12,126 3,089 -- 15,215
Revenue distribution ....................... 3,352 -- -- 3,352
Other ...................................... 1,569 -- -- 1,569
Accrued expenses ............................. 5,142 2,131 -- 7,273
Accrued state and federal income
taxes payable ............................. 6,874 161 -- 7,035
--------- --------- --------- ---------
Total current liabilities .............. 30,530 7,181 (1,800) 35,911
--------- --------- --------- ---------
Deferred income taxes, net ...................... 3,268 -- -- 3,268
Deferred liabilities ............................ 687 -- -- 687
Notes payable, less current maturities .......... 21,783 -- 36,750 (b) 58,533
--------- --------- --------- ---------
25,738 -- 36,750 62,488
--------- --------- --------- ---------
Commitments and contingencies ................... -- -- -- --
Stockholders' equity:
Preferred stock - par value $.01; authorized
1,000,000 shares, no shares issued ......... -- -- -- --
Common stock - par value $.01; authorized
50,000,000 shares with 30,967,084 issued
and outstanding at December 31, 1997 ....... 310 169 (169) 310
Additional paid-in capital ................... 102,306 2,312 (2,312) 102,306
Retained earnings ............................ 44,316 7,332 (7,332) 44,316
Treasury Stock ............................... -- (111) 111 --
--------- --------- --------- ---------
Total stockholders' equity ............. 146,932 9,702 (9,702)(a) 146,932
--------- --------- --------- ---------
Total liabilities and stockholders'
equity............................. $ 203,200 $ 16,883 $ 25,248 $ 245,331
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
combined financial statements.
13
<PAGE> 15
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (CONTINUED)
(b) Pro forma financial information.
PATTERSON ENERGY, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Historical Financial
Statements
------------------------------------
Patterson Robertson Pro Forma
Energy, Inc. Onshore Drilling Financial
Company Pro Forma Adjustments Statements
---------------- --------------- --------------------- ----------
<S> <C> <C> <C> <C>
Operating revenues:
Drilling ............................... $ 178,332 $ 38,332 $ -- $ 216,664
Oil and natural gas sales .............. 10,773 -- -- 10,773
Well operation fees .................... 1,632 -- -- 1,632
Other .................................. 40 -- -- 40
--------- --------- --------- ---------
190,777 38,332 -- 229,109
--------- --------- --------- ---------
Operating costs and expenses:
Direct drilling costs .................. 128,416 29,201 -- 157,617
Lease operating and production ......... 2,274 -- -- 2,274
Impairment of oil and natural gas
properties ......................... 355 -- -- 355
Exploration costs ...................... 647 -- -- 647
Dry holes and abandonments ............. 1,481 -- -- 1,481
Depreciation, depletion and
amortization ....................... 17,497 1,226 2,939(c) 21,662
General and administrative ............. 6,786 3,626 -- 10,412
--------- --------- --------- ---------
157,456 34,053 2,939 194,448
--------- --------- --------- ---------
Operating income ........................... 33,321 4,279 2,939 34,661
--------- --------- --------- ---------
Other income (expense):
Net gain (loss) on sale of assets ...... 1,499 (58) -- 1,441
Interest income ........................ 1,056 28 -- 1,084
Interest expense ....................... (1,045) (110) (2,936)(c) (4,091)
Other .................................. 277 23 -- 300
--------- --------- --------- ---------
1,787 (117) (2,936) (1,266)
--------- --------- --------- ---------
Income before income taxes ................. 35,108 4,162 (5,875) 33,395
--------- --------- --------- ---------
Income tax expense (benefit):
Current ................................ 10,354 233 (860)(c) 9,727
Deferred ............................... 2,512 -- -- 2,512
--------- --------- --------- ---------
12,866 233 (860) 12,239
--------- --------- --------- ---------
Net income.................................. $ 22,242 $ 3,929 $ (5,015) $ 21,156
========= ========= ========= =========
Net income per common share:
Basic................................... $ 0.78 $ 0.74
========= =========
Diluted................................. $ 0.75 $ 0.72
========= =========
Weighted average number of common
shares outstanding:
Basic .................................. 28,492 28,492
========= =========
Diluted ................................ 29,505 29,505
========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
combined financial statements.
14
<PAGE> 16
PATTERSON ENERGY, INC.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
On February 6, 1998, the Company consummated a merger with Robertson
Onshore Drilling Company ("Robertson"), a privately-held, non-affiliated
company based in Dallas, Texas, in consideration for $40.6 million. The
purchase price includes an estimate of $600,000 for costs incurred by the
Company relating to the merger. The acquisition was funded using $3.25 million
of the Company's cash on hand and $36.75 million provided by its line of
credit. The assets acquired consist of 15 operable drilling rigs and a shop and
yard located in Liberty City, Texas.
The unaudited pro forma financial information reflects adjustments
necessary to give effect to the merger on February 6, 1998, as described above.
The unaudited pro forma balance sheet as of December 31, 1997 assumes the
acquisition was completed at December 31, 1997 and the unaudited pro forma
statement of income assumes the acquisition was completed on January 1, 1997.
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, 1997, nor
is it indicative of future operating results of the combined companies.
On July 25, 1997 and January 23, 1998, the Company effected two-for-one
splits of its common stock. All information regarding earnings per share and
weighted average number of common shares outstanding presented herein reflects
the effects of such stock splits.
2. PERIOD PRESENTED
The unaudited pro forma balance sheet and statement of income as of
December 31, 1997 and for the year then ended was prepared using the audited
consolidated financial statements as of and for the year ended December 31, 1997
of Patterson Energy, Inc., as reported under Form 10-K, and the audited
financial statements as of and for the year ended December 31, 1997 of Robertson
Onshore Drilling Company, as filed herewith as Item 7. (a) of this report.
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 $40.6 million,
as well as the elimination of the related book values of the assets acquired (in
thousands):
<TABLE>
<CAPTION>
ALLOCATION OF CARRYING
ACCOUNT DESCRIPTION PURCHASE PRICE VALUE ADJUSTMENT
------------------- -------------- ----- ----------
<S> <C> <C> <C>
Property and equipment................... $ 30,516 $ 9,011 $ 21,505
Goodwill................................. 9,393 -- 9,393
Other assets acquired ................... 7,872 7,872 --
Liabilities assumed ..................... (7,181) (7,181) --
Net assets acquired ..................... -- 9,702 (9,702)
</TABLE>
The purchase price allocation as detailed above is preliminary in
nature and subject to change.
(continued)
15
<PAGE> 17
PATTERSON ENERGY, INC.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS - CONTINUED
3. PRO FORMA ADJUSTMENTS - (continued)
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................ $ 3,850
Draw down on line of credit.............. 36,750
</TABLE>
c. Depreciation and amortization expense, interest expense and income
tax expense were adjusted to reflect the effects of the merger. 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 fifteen years. The related expense
accounts were adjusted as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
ACCOUNT DESCRIPTION DECEMBER 31, 1997
------------------- -----------------
<S> <C>
Depreciation expense..................... $ 2,313
Amortization expense..................... 626
Interest expense......................... 2,936
Income tax benefit....................... 860
</TABLE>
d. Restrictive debt covenants of the Company do not permit the Company
to maintain indebtedness with any other financial institution. As a means to
remain in compliance with such restrictions, the Company, using cash on hand,
extinguished all amounts then outstanding under Robertson's loan agreement
resulting in a $1.8 million reduction in cash and notes payable.
16
<PAGE> 18
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: April 20, 1998 /s/ JAMES C. BROWN
---------------------------------
James C. Brown
Vice President-Finance
