<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997
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 1-12542
UTI ENERGY CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 23-2037823
- --------------------------------------------------- ---------------------------------------------------
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
Suite 112
485 Devon Park Drive
Wayne, Pennsylvania 19087
- --------------------------------------------------- ---------------------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
(Registrant's telephone number, including area code) (610) 971-9600
--------------------
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 registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each class of issuer's common
stock, as of the latest practicable date. 3,858,511 shares of Common Stock at
April 25, 1997.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page No.
--------------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at March 31, 1997
and December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Income for the
Three Months ended March 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows for the
Three Months ended March 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
- 2 -
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UTI ENERGY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
(Unaudited) (See Note)
---------------- --------------
(In thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 807 $ 570
Accounts receivable, net of allowance for doubtful
accounts of $329 in 1997 and $305 in 1996 . . . . . . . . . . . . . . . . . . 19,577 17,831
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 592 598
Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 974 874
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,348 1,749
------------- -------------
23,298 21,622
PROPERTY AND EQUIPMENT
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 749 749
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . 1,760 1,760
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,647 58,421
Oil and gas working interests . . . . . . . . . . . . . . . . . . . . . . . . . 1,821 1,732
Construction in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . 689 338
------------- -------------
80,666 63,000
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . 24,626 23,149
------------- -------------
56,040 39,851
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,138 397
------------- -------------
$ 80,476 $ 61,870
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . $ 3,957 $ 4,507
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,310 7,945
Accrued payroll costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,698 2,445
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,141 964
------------- -------------
17,106 15,861
LONG-TERM DEBT, less current portion . . . . . . . . . . . . . . . . . . . . . . . 22,064 14,658
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,305 8,305
OTHER LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350 350
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.001 par value, 10,000,000 shares authorized,
3,858,511 shares issued and outstanding in 1997, 3,602,336
shares issued and outstanding in 1996 . . . . . . . . . . . . . . . . . . . . 4 4
Additional capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,977 17,877
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,759 4,916
Restricted stock plan unearned compensation . . . . . . . . . . . . . . . . . . (89) (101)
------------- -------------
32,651 22,696
------------- -------------
$ 80,476 $ 61,870
============= =============
</TABLE>
Note: The balance sheet at March 31, 1996, has been derived from the
audited financial statements but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. See Note 1 to condensed consolidated financial
statements.
- 3 -
<PAGE> 4
UTI ENERGY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------------------------
1997 1996
-------------- ------------
(In thousands, except
per share amounts)
<S> <C> <C>
REVENUES
Oilfield service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,295 $ 20,320
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 86
------------- -------------
34,368 20,406
COSTS AND EXPENSES
Cost of sales
Oilfield service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,329 16,538
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 31
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . 2,334 1,673
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,545 973
------------- --------------
31,241 19,215
------------- --------------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,127 1,191
OTHER INCOME (EXPENSE)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (479) (223)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227 747
------------- --------------
(252) 524
------------- --------------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,875 1,715
INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,031 515
------------- --------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,844 $ 1,200
============= ==============
EARNINGS PER COMMON SHARE:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.42 $ 0.35
============= ==============
Fully Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.42 $ 0.35
============= ==============
AVERAGE COMMON SHARES OUTSTANDING
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,422,514 3,466,222
Fully Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,422,514 3,466,222
</TABLE>
See notes to condensed consolidated financial statements.
- 4 -
<PAGE> 5
UTI ENERGY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------------------------
1997 1996
-------------- -------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,844 $ 1,200
Adjustments to reconcile income from continuing operations
to net cash provided by continuing operations:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . 1,545 973
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 123
Amortization of debt discount . . . . . . . . . . . . . . . . . . . . . . . . . 46 -
Stock compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 21
Provision (recovery) for doubtful accounts . . . . . . . . . . . . . . . . . . . 24 (6)
Gain on disposal of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . (190) (22)
Change in operating assets and liabilities, net of
effect of business acquired:
Accounts receivable and prepaids . . . . . . . . . . . . . . . . . . . . . . (1,363) (3,034)
Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . (100) (143)
Accounts payable, accrued expenses and accrued
payroll costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,795 1,037
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (759) (45)
------------- ------------
Net cash provided by operating activities . . . . . . . . . . . . . . . . 2,854 104
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,723) (686)
Acquisition of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,100) -
Proceeds from sale of property and equipment . . . . . . . . . . . . . . . . . . . 396 105
------------- ------------
Net cash used by investing activities . . . . . . . . . . . . . . . . . . (9,427) (581)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . 8,100 34
Repayments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,290) (523)
------------- ------------
Net cash provided (used) by financing activities . . . . . . . . . . . . 6,810 (489)
------------- ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237 (966)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 570 2,273
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . $ 807 $ 1,307
============= ============
</TABLE>
See notes to condensed consolidated financial statements.
- 5 -
<PAGE> 6
UTI ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements at March
31, 1997, have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for
a fair presentation of the financial position and operating results
for the interim periods have been included. The results of operations
for the three months ended March 31, 1997, are not necessarily
indicative of the results for the entire year ending December 31,
1997. For further information, refer to the Consolidated Financial
Statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
2. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted
on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to
restate all prior periods. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options will
be excluded. The impact is expected to result in an increase in
primary earnings per share for the first quarter of 1997 of $.06 per
share and no change to the first quarter of 1996 per share amount.
The impact of Statement 128 on the calculation of fully diluted
earnings per share for these quarters is not expected to be material.
3. ACQUISITIONS AND DISPOSITIONS
On August 14, 1996, the Company purchased all of the capital stock of
the Viersen & Cochran Drilling Company ("Viersen"). Viersen was
engaged in contract drilling in Oklahoma but had suspended its
operations prior to the closing date. The consideration paid for
Viersen consisted of (i) $6,000,000 in cash paid on August 14, 1996 (a
portion of which the Company borrowed under its existing credit
agreement); (ii) a two-year $8,000,000 promissory note (the
"Promissory Note") executed by the Company in favor of the Seller; and
(iii) stock warrants with a two-year term to purchase 200,000 shares
of the Company's common stock, $.001 par value, at $15 per share. The
Promissory Note bore interest at the rate of 6% per annum and was
payable in full on or before August 14, 1998. The Company had the
option under the Promissory Note to pay Seller $7,655,000 plus accrued
interest on or before April 14, 1997, in full satisfaction of the
Promissory Note. The Company's obligations under the Promissory Note
were guaranteed by Viersen and were secured by a pledge of the assets
of Viersen pursuant to a security agreement. On April 11, 1997, the
Company repaid in full the outstanding principal and accrued interest
on the Promissory Note. The acquisition was accounted for using the
purchase method, and Viersen's operating results since August 14,
1996, have been consolidated with the operating results of the
Company.
- 6 -
<PAGE> 7
UTI ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
On January 27, 1997, pursuant to the terms and conditions of an Asset
Purchase Agreement dated as of December 31, 1996 (the "Asset Purchase
Agreement"), the Company acquired the contract drilling assets of
Quarles Drilling Corporation (Quarles) for $16.2 million, consisting
of $8.1 million and 256,175 shares of Common Stock having a value at
the time the agreement was negotiated of $8.1 million. The cash
portion of the purchase price was funded with advances under the
Company's revolving line of credit of $4.1 million and a $4.0 million
advance pursuant to a new bank term loan. The term loan bore interest
at the bank's prime rate and was secured by a pledge of certain of the
Company's accounts receivable and inventory. Under the terms of the
Asset Purchase Agreement, Quarles is entitled to receive additional
shares of Common Stock in the event the average market price (as
defined in the Asset Purchase Agreement)of the Common Stock on the
earlier of (i) June 30, 1997, or (ii) the date on which a registration
statement covering the resale of the Common Stock issued to Quarles is
declared effective, is less than $31.69 per share. The number of
additional shares, if any, would be equal to a number of shares
sufficient to provide Quarles with $8.1 million of Common Stock based
on the average market price of the Common Stock on such date. In the
event the average market price of the Common Stock is greater than
$31.69 per share on such date, Quarles is required to return a number
of shares of Common Stock having a value (at such average market
price) equal to one-half of the amount by which the average market
price of the shares initially issued is greater than $8.1 million. On
April 11, 1997, the Company repaid in full the $4.0 million term loan.
The acquisition was accounted for using the purchase method, and
Quarles' operating results since January 27, 1997, have been
consolidated with the operating results of the Company.
The following pro forma operating results reflect the inclusion of
Viersen in 1996, and the inclusion of Quarles for 1996 and 1997:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------------------------
1997 1996
-------------- -------------
(in thousands)
<S> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . $ 37,775 $ 32,094
============= ============
Net income . . . . . . . . . . . . . . . . $ 1,292 $ 843
============= ============
Earnings per share
(primary and fully diluted) . . . . . . . . $ 0.29 $ 0.23
============= =============
</TABLE>
- 7 -
<PAGE> 8
UTI ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
4. SUPPLEMENTAL CASH FLOW INFORMATION
On January 27, 1997, the Company acquired the contract drilling
division of Quarles for cash and stock as follows:
(in thousands)
Fair value of assets acquired . . . . . . . . . . $ 16,200
Cash paid for assets . . . . . . . . . . . . . . ( 8,100)
------------
Common Stock issued . . . . . . . . . . . . . . . $8,100
============
5. COMMITMENTS AND CONTINGENCIES
The Company is involved in several claims arising in the ordinary
course of business. In the opinion of management, all of these claims
are covered by insurance and these matters will not have a material
adverse effect on the Company's financial position.
The Company is partially self-insured for employee health insurance
claims and for workers' compensation. The Company incurs a maximum of
$75,000 per employee under medical claims and a maximum of $250,000
per event for workers' compensation claims. Although the Company
believes that adequate reserves have been provided for expected
liabilities arising from its self-insured obligations, it is
reasonably possible that management's estimates of these liabilities
will change over the near term as circumstances develop.
6. SUBSEQUENT EVENTS
On April 11, 1997, the Company acquired the contract drilling
operations of Southland Drilling Company, Ltd. ("Southland") for
$27.1 million and 100,000 five-year warrants to purchase the Company's
common stock at an exercise price of $48 per share (the "Southland
Acquisition"). The acquired assets include eight land drilling rigs,
various equipment and rig components, and other equipment used in
Southland's contract drilling business. The Company also assumed
various drilling contracts of Southland and acquired Southland's rig
crew.
On April 11, 1997, the Company completed two separate financing
transactions that together provided the capital required to fund the
Southland Acquisition and to consolidate three separate loans incurred
to finance prior acquisitions. The financing consisted of (i) $25.0
million principal amount of 12% Senior Subordinated Notes due 2001
(the "Subordinated Notes") and (ii) $25.0 million in senior secured
bank debt having a term of 38 months and bearing interest at the
bank's prime lending rate (the "Term Note"). The Subordinated Notes
were issued at a 2% discount along with seven-year warrants to
purchase 400,000 shares of Common Stock at an exercise price of $32.50
per share. The Term Note is secured by substantially all of the
Company's rig assets, inventory and accounts receivable. The net
proceeds of the two financings were used to fund the Southland
Acquisition in the amount of $27.1 million and to refinance
approximately $18.4 million of debt incurred in connection with the
prior acquisitions of FWA Drilling Company, Inc., Viersen and Quarles.
The Company incurred a one-time prepayment penalty of approximately
$132,000 in connection with such refinancing. This prepayment penalty
was more than offset by a $345,000 prepayment discount that the
Company received as a result of its prepayment of the indebtedness
incurred to acquire Viersen. In addition to funding the Southland
-8-
<PAGE> 9
Acquisition and the refinancing, the Company also repaid $4.1 million
of its borrowings under its revolving line of credit and increased its
line of credit to $12 million.
-9-
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
UTI is a leading provider of contract drilling services in the United States.
The Company's drilling operations are currently concentrated in the prolific
oil and natural gas producing basins of Oklahoma and Texas. The Company's rig
fleet consists of 82 land drilling rigs with effective depth capabilities
ranging from 5,000 to 25,000 feet. The Company also provides drilling and
pressure pumping services in the Appalachian Basin.
Beginning in 1995, the Company made a strategic decision to focus its efforts
on the expansion of its land drilling operations to take advantage of improving
market conditions and the benefits arising from a consolidation in the land
drilling industry. To effect this strategy, the Company disposed of its oil
field distribution business in September 1995 and immediately embarked on a
directed acquisition program aimed at expanding the Company's presence in the
oil and gas producing regions in the United States.
Since November 1995, the Company has acquired 59 rigs in four transactions.
FWA Drilling Company, Inc. ("FWA") was acquired in November 1995 for $12.9
million net cash, Viersen & Cochran Drilling Company ("Viersen") in August 1996
for approximately $14.5 million (consisting of $6 million cash, a two-year $8.0
million note and warrants to purchase Common Stock at $15 per share), the
contract drilling division of Quarles Drilling Corporation ("Quarles") in
January 1997 for $16.2 million (consisting of $8.1 million cash and shares of
Common Stock having a value of $8.1 million) and the contract drilling business
of Southland Drilling Company, Ltd. ("Southland") in April 1997 for $27.1
million and warrants to purchase 100,000 shares of Common Stock at $48 per
share.
The Company's results for the three months ended March 31, 1997, also reflect
an improvement in market conditions in the United States land drilling markets
resulting from an increase in demand for drilling services. Fleet utilization
increased to 66% in the first quarter of 1997 from 48% in the first quarter of
1996. The Company has continued to focus on streamlining operations and
reducing its cost structure, which has further increased operating margins and
profitability.
The Company currently expects that its land drilling operations will continue
to benefit from improved market conditions and the effects of its prior
acquisitions. The Company intends to continue its strategy of growth through
acquisitions of rigs and equipment that can be easily integrated into its fleet
and operations and through acquisitions of other drilling contractors that may
provide opportunities for expansion of the Company's markets and services.
Although there can be no assurance as to the success of the Company's future
acquisitions, such acquisitions, if effected, could be expected to result in
further increases in revenues and earnings.
RECENT DEVELOPMENT--SOUTHLAND ACQUISITION
On April 11, 1997, the Company acquired the contract drilling operations of
Southland for $27.1 million and 100,000 five-year warrants to purchase the
Common Stock at an exercise price of $48 per share (the "Southland
Acquisition"). The Southland Acquisition expands the Company's operations in
South Texas and the Gulf Coast by providing the Company with an established
base of operation in these markets with eight fully equipped and manned rigs
having an average efficient drilling depth capacity of 12,000 to 18,000 feet.
The Southland rigs operated at an average utilization rate during 1996 of
approximately 90% and at an average dayrate of approximately $5,700. The rigs
are currently operating at a utilization rate in excess of 90% and at an
average dayrate of approximately $6,500.
-10-
<PAGE> 11
RESULTS OF OPERATIONS
The Company views the number of rigs actively drilling in the
United States as a barometer of the overall strength of the domestic oil field
service industry. Without giving effect to acquisitions, variations in
revenues and gross margins of the Company's core business generally follow the
rig count trend.
The following table presents certain results of operations data
for the Company and the average United States rig count as reported by Baker
Hughes Inc.(1) for the periods indicated:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------------------------
1997 1996
-------------- -------------
(in thousands)
<S> <C> <C>
Operating Data:
Average U.S. land rig count . . . . . . . . . . . . . . . . 727 609
Contract drilling:
Total Rig Fleet(2) . . . . . . . . . . . . . . . . . . . . 74 55
Average Rig Fleet . . . . . . . . . . . . . . . . . . . . 71 55
Operating days . . . . . . . . . . . . . . . . . . . . . . 4,225 2,412
Average utilization . . . . . . . . . . . . . . . . . . . 66% 48%
Pressure pumping:
Cement jobs . . . . . . . . . . . . . . . . . . . . . 600 452
Stimulation jobs . . . . . . . . . . . . . . . . . . . . . 202 211
Financial data:
Revenues . . . . . . . . . . . . . . . . . . . . . $ 34,368 $ 20,406
============= ============
Gross profit . . . . . . . . . . . . . . . . . . . . . $ 7,006 $ 3,837
============= ============
As a percentage of sales . . . . . . . . . . . . . . . . . . 20.4% 18.8%
============= ============
Operating income . . . . . . . . . . . . . . . . . . . . . . $ 3,127 $ 1,191
============= ============
</TABLE>
__________________________________
(1) Baker Hughes, Inc. is an international oilfield service and equipment
company which for more than twenty years has conducted and published a
weekly census of active drilling rigs. Its active rig count is
generally regarded as an industry standard for measuring industry
activity levels.
(2) At end of period. Excludes eight rigs acquired in the Southland
Acquisition.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Revenue
Revenue increased 68% to $34.4 million in the first quarter of 1997 from $20.4
million in the first quarter of 1996 primarily due to the increase in demand
for drilling services combined with growth in the Company's rig fleet. The
revenue increase of $14.0 million is comprised of a $12.5 million increase in
contract drilling revenue and an increase of $1.4 million in pressure pumping
revenue. The Company's rig fleet was employed for 4,225 days in the first
quarter of 1997 as compared to 2,412 days in the same quarter of 1996, and the
Company completed 802 pressure pumping jobs in 1997 as compared to 663 jobs in
1996. Revenue increases also reflected improvements in average dayrates of
approximately 12%.
-11-
<PAGE> 12
Gross Profit
Gross profit increased 84% to $7.0 million in the first quarter of 1997
compared to $3.8 million for the same period in 1996 due to higher revenues and
consolidation savings. Contract drilling gross profit as a percentage of
revenue was 17.8% in 1997 and 16.6% in 1996. Pressure pumping gross profit as a
percentage of revenue was 35.4% in 1997 and 28.5% in 1996 due to higher demand
and lower average costs reflecting higher average date rates [and cost
savings].
Depreciation and Amortization
Depreciation and amortization expense increased $572,000 primarily due to the
acquisitions of Viersen and Quarles. Depreciation and amortization expense
will increase in future periods as a result of the Company's acquisitions of
Quarles and Southland.
Selling, General, and Administrative
Selling, general, and administrative expenses increased $661,000 primarily due
to the acquisitions of Viersen and Quarles and the related increase in the
average number of rigs operating during the period. As a percentage of
revenues, selling, general, and administrative expenses decreased to 6.8% from
8.2% reflecting the effects of consolidation savings.
Other Income
Other income decreased $520,000 primarily due to the inclusion of $650,000 in
income in the first quarter of 1996 as a result of a favorable resolution of a
dispute with the United States government over mineral rights owned by the
Company in Southeast New Mexico.
Interest Expense
Interest expense increased $256,000 primarily due to interest on the debt
associated with the Viersen and Quarles acquisitions. Average debt during the
first quarter of 1997 was $22.6 million compared to $11.0 million for the first
quarter of 1996. Interest expense will increase in future periods as a result
of the increased debt levels associated with the Company's acquisitions of
Quarles and Southland.
Net Income
Net income for the first quarter of 1997 was $1.8 million compared to $1.2
million for the same period in 1996. This increase reflects the improved
revenues and gross profit resulting from the Company's growth and improved
market conditions.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
Cash balances, net cash provided by operations and borrowings under the
Company's revolving line of credit are utilized to fund the Company's normal
recurring cash requirements. At March 31, 1997 the Company's cash balance was
$807,000 and its borrowing availability under its revolving line of credit was
$1.5 million. On April 11, 1997, maximum borrowing availability under the
Company's revolving line of credit was increased from $8.4 million to $12.0
million and borrowings were repaid by $4.1 million, resulting in an increase in
borrowings availability of $7.7 million.
Debt Facilities
-12-
<PAGE> 13
On April 11, 1997, the Company completed two separate financing transactions
that provided the capital required to fund the Southland Acquisition and to
consolidate three separate loans incurred to finance prior acquisitions. The
financing consisted of the Subordinated Notes and the Term Note. The
Subordinated Notes were issued at a 2% discount along with seven-year warrants
to purchase 400,000 shares of Common Stock at an exercise price of $32.50 per
share. The Term Note is secured by substantially all of the Company's rig
assets, inventory and accounts receivable. The net proceeds of the two
financings were used to fund the Southland Acquisition in the amount of $27.1
million and to refinance approximately $18.4 million of debt incurred in
connection with the prior acquisitions of FWA, Viersen and Quarles. The Company
incurred a one-time prepayment penalty of approximately $132,000 in connection
with such refinancing. This prepayment penalty was more than offset by a
$345,000 prepayment discount that the Company received as a result of its
prepayment of the indebtedness incurred to acquire Viersen. In addition to
funding the Southland Acquisition and the refinancing, the Company also repaid
$4.1 million of its borrowings under its revolving line of credit. The
Subordinated Notes and Term Note contain various customary negative and
affirmative covenants, including restrictions on incurrence of additional debt
based on various financial ratios, negative pledges and restrictions on cash
dividends, distributions and stock repurchases (other than in connection with
employee benefit plans.
Other
The Company is continuing to review potential acquisitions of rigs and rig
contractors. These potential acquisitions are currently focused on operating
drilling companies that have between five and fifteen rigs of various depth
capabilities and operations in locations in which the Company does not
currently have any significant presence. Although there can be no assurance
that such acquisitions will be completed or as to the terms thereof, such
acquisitions would further expand the Company's rig fleet and operations.
Management believes its internally generated cash and revolving line of credit
will be sufficient to meet its working capital, capital expenditure, and debt
service requirements. Acquisitions are expected to be funded with available
cash and borrowings. In addition, the Company may, if desirable, issue stock
and rights to acquire stock.
INFLATION
Inflation has not had a significant impact on the Company's comparative results
of operations.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
From time to time, the Company may make certain statements that contain
"forward-looking" information (as defined in the Private Securities Litigation
Reform Act of 1995). Words such as "anticipate", "believe", "expect",
"estimate", "project" and similar expressions are intended to identify such
forward-looking statements. Forward-looking statements may be made by
management orally or in writing, including, but not limited to, in press
releases, as part of this "Management's Discussion and Analysis of Financial
Condition Results of Operation" contained in this Report, and in the Company's
other filings with the Securities and Exchange Commission under the Securities
Act of 1933 and the Securities Exchange Act of 1934.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Such forward-looking statements
are subject to certain risks, uncertainties and assumptions, including without
limitation those identified below. Should one or more of these risks or
uncertainties materialize, or should any of the underlying assumptions prove
incorrect, actual results of current and future operations may vary materially
from those anticipated, estimated, or projected. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as
of their dates.
-13-
<PAGE> 14
Among the factors that will have a direct bearing on the Company's results of
operations and the contract drilling service industry in which it operates are
changes in the price of oil and natural gas and the volatility of the contract
drilling service industry in general; any difficulties associated with the
Company's ability to successfully integrate recent acquisitions; contractual
risk associated with turnkey and footage contracts; the presence of competitors
with greater financial resources; operating risks inherent in the contract
drilling service industry, such as blowouts, explosions, cratering, well fires
and spills; labor shortages; domestic and world-wide political stability and
economic growth; and other risks associated with the Company's successful
execution of internal operating plans as well as regulatory uncertainties and
legal proceedings.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its operating subsidiaries are sometimes named as a defendant in
litigation usually relating to personal injuries alleged to result from
negligence. The Company maintains insurance coverage against such claims to the
extent deemed prudent by management. The Company recently experienced a loss of
one of its shallow rigs operated by the Company's IPSCO division as a result of
an accident involving the rig in which two employees were injured. The Company
currently anticipates that any losses relating to this accident in excess of its
$250,000 deductible will be covered by insurance and that the recovery in excess
of book value for the lost rig should approximate or exceed the uninsured
portion of the loss. Except as described above, there are no material pending,
or, to the Company's knowledge, threatened lawsuits against the Company or any
of its subsidiaries.
There can be no assurance that the Company will be able to maintain adequate
insurance in the future at rates it considers reasonable, and further, there
can be no assurance that insurance will continue to be available on terms as
favorable as those for its existing arrangements. The occurrence of an adverse
claim in excess of the coverage limits maintained by the Company could have a
material adverse effect on the Company's financial condition and results of
operations.
The Company knows of no legal proceedings pending or threatened, or judgments
entered against, any director or officer of the Company in his capacity as
such.
ITEM 2. CHANGES IN SECURITIES.
On January 27, 1997, pursuant to the terms and conditions of an Asset Purchase
Agreement dated as of December 31, 1996 (the "Asset Purchase Agreement"), by
and between the Company, and Quarles, the Company purchased the contract
drilling assets (the "Quarles Assets") of Quarles for a total purchase price of
$16.2 million (the "Purchase Price"). The Purchase Price was determined
through arms-length negotiations between the parties. Pursuant to the terms of
the Asset Purchase Agreement, the Purchase Price was paid utilizing $8.1
million in cash and a private placement of 256,175 shares of Common Stock
having a value at the time the agreement was negotiated of $8.1 million,
subject to adjustment as described below. The cash portion of the Purchase
Price was funded with a $4.1 million in borrowings under the Company's existing
line of credit (the "Line of Credit") with Mellon Bank, N.A. ("Mellon") and a
new $4.0 million term loan (the "Term Loan") with Mellon.
Under the terms of the Asset Purchase Agreement, Quarles is entitled to receive
additional shares of Common Stock in the event the average market price (as
defined in the Asset Purchase Agreement) of the Common Stock on the earlier of
(i) June 30, 1997, or (ii) the date on which a registration statement covering
the resale of the Common Stock issued to Quarles is declared effective, is less
than $31.69 per share. The number of additional shares will be equal to a
number of shares sufficient to provide Quarles with $8.1 million of Common
Stock based on the average market price of the Common Stock on such date. In
the event the average market price of the Common Stock is greater than $31.69
per share on such date, Quarles is required to return a number of shares of
Common Stock having a value (at such average market price) equal to one-half of
the amount by which the market price of the shares (at such average market
price) initially issued is greater than $8.1 million. The Company has granted
Quarles certain registration rights with respect to the Common Stock issued in
connection with the acquisition. The shares of Common Stock issued or to be
issued pursuant to the Asset Purchase
-14-
<PAGE> 15
Agreement were exempt from registration under the Securities Act of 1933
pursuant to Section 4(2) thereof.
On April 11, 1997, the Company acquired the land drilling operations of
Southland for approximately $27.1 million in cash and a five-year warrant to
purchase 100,000 shares of the Company's common stock at an exercise price of
$48 per share (the "Southland Warrants"). The purchase price was determined
through arms-length negotiations between the parties. The Southland
Acquisition was effected pursuant to an Asset Purchase Agreement dated as of
March 5, 1997 between the Company and Southland. The Southland Acquisition was
funded with a combination of the Company's existing cash, the net proceeds from
the private placement of $25 million principal amount of the Subordinated Notes
and the net proceeds from the Term Loan. The Subordinated Notes were issued by
the Company at a discount of 2% and were issued with seven-year warrants to
purchase 400,000 shares of Common Stock at an exercise price of $32.50 per
share (the "Subordinated Notes Warrants"). The Subordinated Notes Warrants are
also subject to call at $.25 per warrant after six months under certain
circumstances if the market price of the Common Stock is greater than $45 per
share over a 90 day period.
The issuance of the Subordinated Notes, the Term Note, the Southland
Warrants and the Subordinated Note Warrants were issued in transactions exempt
from registration under the Securities Act of 1933 pursuant to Section 4(a)
thereof.
Additional information with respect to the Subordinated Notes and Term
Note is set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources -- Debt
Facilities", which is incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Reports on 8-K.
To report the acquisition of the contract drilling assets of the
Quarles Drilling Corporation pursuant to Item 2 of Form 8-K, the
Company filed a Form 8-K with the Securities and Exchange Commission
on January 27, 1997. To report certain historical and pro forma
financial information of Quarles and the Company pursuant to Item 7 of
Form 8-K, the Company filed a Form 8-K/A with the Securities and
Exchange Commission on April 14, 1997, which contained (i) audited
statement of net assets acquired; (ii) audited historical statement of
gross drilling contract revenues, direct operating expenses and
depreciation of the drilling operations of Quarles for the year ended
December 31, 1996: (iii) unaudited pro forma condensed balance sheet
of the Company as of December 31, 1996, and statement of income for
the Company for the year ended December 31, 1996.
(c) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE OR DESCRIPTION
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*10.1 - Asset Purchase Agreement dated December 31, 1996 (the "Asset Purchase Agreement"), by and
between UTI Energy Corp. and Quarles Drilling Corporation.
*10.2 - First Amendment to Asset Purchase Agreement dated as of December 31, 1996, by and between UTI
Energy Corp., Triad Drilling Company and Quarles Drilling Corporation.
*10.3 - Fourth Amendment and Modification to the Mellon Line of Credit effective January 23, 1997, by and
among FWA Drilling Company, Inc., International Petroleum Service Company, Triad Drilling
Company, Universal Well Services, Inc., USC, Incorporated, UTI Energy Corp., UTICO, Inc.,
Viersen & Cochran Drilling Company and Mellon Bank, N.A..
</TABLE>
-15-
<PAGE> 16
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE OR DESCRIPTION
________________________________________________________________________________
<S> <C> <C>
*10.4 - Loan and Security Agreement dated as of January 23,
1997, by and among FWA Drilling Company, Inc.,
International Petroleum Service Company, Triad
Drilling Company, Universal Well Services, Inc., USC,
Incorporated, UTI Energy Corp., UTICO, Inc., Viersen &
Cochran Drilling Company and Mellon Bank, N.A..
*10.5 - $4.0 million note dated January 23, 1997, from FWA
Drilling Company, Inc., International Petroleum Service
Company, Triad Drilling Company, Universal Well
Services, Inc., USC, Incorporated, UTI Energy Corp.,
UTICO, Inc., Viersen & Cochran Drilling Company in
favor of Mellon Bank, N.A..
27.1 - Financial Data Schedule.
</TABLE>
*Previously filed with the Company's Current Report on Form 8-K dated January
27, 1997.
- 16 -
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
UTI ENERGY CORP.
(REGISTRANT)
Date: May 12, 1997 /s/ P. Blake Dupuis
-----------------------------------------
P. Blake Dupuis
Vice President Chief Financial Officer and
Chief Accounting Officer
Signed on behalf of the registrant and as
principal financial officer
-17-
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE OR DESCRIPTION
_______________________________________________________________________________
<S> <C> <C>
*10.1 - Asset Purchase Agreement dated December 31, 1996 (the
"Asset Purchase Agreement"), by and between UTI Energy
Corp. and Quarles Drilling Corporation.
*10.2 - First Amendment to Asset Purchase Agreement dated as
of December 31, 1996, by and between UTI Energy Corp.,
Triad Drilling Company and Quarles Drilling
Corporation.
*10.3 - Second Amendment and Modification to the Mellon Line
of Credit effective August 14, 1996, by and among FWA
Drilling Company, Inc., International Petroleum Service
Company, Triad Drilling Company, Universal Well
Services, Inc., USC, Incorporated, UTI Energy Corp.,
UTICO, Inc., Viersen & Cochran Drilling Company and
Mellon Bank, N.A..
*10.4 - Loan and Security Agreement dated as of January 23,
1997, by and among FWA Drilling Company, Inc.,
International Petroleum Service Company, Triad
Drilling Company, Universal Well Services, Inc., USC,
Incorporated, UTI Energy Corp., UTICO, Inc., Viersen &
Cochran Drilling Company and Mellon Bank, N.A..
*10.5 - $4.0 million note dated January 23, 1997, from FWA
Drilling Company, Inc., International Petroleum Service
Company, Triad Drilling Company, Universal Well
Services, Inc., USC, Incorporated, UTI Energy Corp.,
UTICO, Inc., Viersen & Cochran Drilling Company in
favor of Mellon Bank, N.A..
27.1 - Financial Data Schedule.
</TABLE>
*Previously filed with the Company's Current Report on Form 8-K dated January
27, 1997.
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 807
<SECURITIES> 0
<RECEIVABLES> 20,498
<ALLOWANCES> 329
<INVENTORY> 974
<CURRENT-ASSETS> 23,298
<PP&E> 80,666
<DEPRECIATION> 24,626
<TOTAL-ASSETS> 80,476
<CURRENT-LIABILITIES> 17,106
<BONDS> 0
<COMMON> 4
0
0
<OTHER-SE> 32,647
<TOTAL-LIABILITY-AND-EQUITY> 80,476
<SALES> 34,368
<TOTAL-REVENUES> 34,368
<CGS> 27,362
<TOTAL-COSTS> 3,879
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 479
<INCOME-PRETAX> 2,875
<INCOME-TAX> 1,031
<INCOME-CONTINUING> 1,844
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,844
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
