<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 June 30, 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)
Delaware 23-2037823
- ---------------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
Suite 225 N
16800 Greenspoint Park
Houston, Texas 77060
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (281) 873-4111
---------------
Suite 112, 485 Devon Park Drive, Wayne, Pennsylvania 19087
- --------------------------------------------------------------------------------
(Former Address)
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. 4,036,729 shares of Common Stock at
August 7, 1997.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at June 30, 1997
and December 31, 1996......................................... 3
Condensed Consolidated Statements of Income for the
Three and Six Months ended June 30, 1997 and 1996 ............ 4
Condensed Consolidated Statements of Cash Flows for the
Six Months ended June 30, 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..................................... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 15
Item 2. Changes in Securities.......................................... 15
Item 6. Exhibits and Reports on Form 8-K............................... 16
Signatures ............................................................... 18
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UTI ENERGY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
(Unaudited) (See Note)
------------ ------------
(In thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash ......................................................... $ 49 $ 570
Accounts receivable, net of allowance for doubtful
accounts of $413 in 1997 and $305 in 1996 .................. 27,838 17,831
Other receivables ............................................ 688 598
Materials and supplies ....................................... 1,109 874
Prepaid expenses ............................................. 1,213 1,749
------------ ------------
30,897 21,622
PROPERTY AND EQUIPMENT
Land ......................................................... 899 749
Buildings and improvements ................................... 2,196 1,760
Machinery and equipment ...................................... 96,736 58,421
Oil and gas working interests ................................ 1,813 1,732
Construction in process ...................................... 923 338
------------ ------------
102,567 63,000
Less accumulated depreciation and amortization ............... 26,704 23,149
------------ ------------
75,863 39,851
GOODWILL, less amortization of $166 .............................. 9,772 --
OTHER ASSETS ..................................................... 2,252 397
------------ ------------
$ 118,784 $ 61,870
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt ............................ $ 5,226 $ 4,507
Accounts payable ............................................. 10,070 7,945
Accrued payroll costs ........................................ 3,468 2,445
Other accrued expenses ....................................... 3,725 964
------------ ------------
22,489 15,861
LONG-TERM DEBT, less current portion ............................. 50,351 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,
4,036,729 shares issued and outstanding in 1997, 3,602,336
shares issued and outstanding in 1996 ...................... 4 4
Additional capital ........................................... 28,822 17,877
Retained earnings ............................................ 8,539 4,916
Restricted stock plan unearned compensation .................. (76) (101)
------------ ------------
37,289 22,696
------------ ------------
$ 118,784 $ 61,870
============ ============
</TABLE>
Note: The balance sheet at December 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.
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<PAGE> 4
UTI ENERGY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------ ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(In thousands, except share data)
<S> <C> <C> <C> <C>
REVENUES
Oilfield service ...................... $ 42,139 $ 19,586 $ 76,434 $ 39,906
Other ................................. 301 73 374 159
---------- ---------- ---------- ----------
42,440 19,659 76,808 40,065
COSTS AND EXPENSES
Cost of sales
Oilfield service ................. 33,056 16,107 60,385 32,645
Other ............................ 44 26 77 57
Selling, general and administrative ... 2,840 1,774 5,174 3,447
Depreciation and amortization ......... 2,475 1,006 4,020 1,979
---------- ---------- ---------- ----------
38,415 18,913 69,656 38,128
---------- ---------- ---------- ----------
OPERATING INCOME .......................... 4,025 746 7,152 1,937
OTHER INCOME (EXPENSE)
Interest .............................. (1,275) (209) (1,754) (432)
Other, net ............................ 27 107 254 854
---------- ---------- ---------- ----------
(1,248) (102) (1,500) 422
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES ................ 2,777 644 5,652 2,359
INCOME TAXES .............................. 1,000 163 2,031 678
---------- ---------- ---------- ----------
NET INCOME ................................ $ 1,777 $ 481 $ 3,621 $ 1,681
========== ========== ========== ==========
EARNINGS PER COMMON SHARE:
Primary ............................... $ 0.39 $ 0.13 $ 0.81 $ 0.46
========== ========== ========== ==========
Fully Diluted ......................... $ 0.38 $ 0.13 $ 0.79 $ 0.46
========== ========== ========== ==========
AVERAGE COMMON SHARES OUTSTANDING
Primary ............................... 4,513,482 3,768,627 4,467,998 3,617,425
Fully Diluted ......................... 4,699,157 3,792,969 4,560,836 3,629,396
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 5
UTI ENERGY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
--------------------
1997 1996
-------- --------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from operations .................................... $ 3,621 $ 1,681
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ......................... 4,020 1,979
Deferred income taxes ................................. -- 97
Amortization of debt discount ......................... 46 --
Stock compensation expense ............................ 25 21
Provision for doubtful accounts ....................... 108 17
Gain on disposal of fixed assets ...................... (290) (38)
Change in operating assets and liabilities,
net of effect of business acquired:
Accounts receivable and prepaids ................... (9,669) (2,624)
Materials and supplies ............................. (235) (171)
Accounts payable, accrued expenses and accrued
payroll costs .................................... 5,909 1,233
Other .............................................. (1,881) 141
-------- --------
Net cash provided by operating activities ...... 1,654 2,336
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ...................................... (6,747) (2,074)
Acquisition of businesses ................................. (43,357) --
Proceeds from sale of property and equipment .............. 617 163
-------- --------
Net cash used by investing activities .......... (49,487) (1,911)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt .................. 58,100 34
Repayments of long-term debt .............................. (21,734) (1,041)
Proceeds from issuance of common stock .................... 10,946 --
-------- --------
Net cash provided (used) by financing activities ... 47,312 (1,007)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS ..................... (521) (582)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD ................................................... 570 2,273
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................... $ 49 $ 1,691
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 6
UTI ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements at June 30,
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 and six months ended June 30,
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 three months and six months ended June 30, 1997 of $.06 and $.11
per share, respectively, and an increase to the three months and six
months ended June 30, 1996 of $.01 and $.02 per share, respectively. 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. On April 11, 1997, the Company prepaid the Promissory Note at a
contractually agreed upon discounted balance of $7,655,000 plus accrued
interest. The acquisition of Viersen 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.
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<PAGE> 7
UTI ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
On January 27, 1997, the Company acquired the contract drilling assets of
Quarles Drilling Corporation ("Quarles") for $16.2 million, consisting of
$8.1 million in cash and 244,593 shares of Common Stock as adjusted
pursuant to the purchase agreement. 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.
On April 11, 1997, the Company acquired the land drilling operations of
Southland Drilling Company Ltd., ("Southland") for approximately $27.1
million in cash and a five-year warrant to purchase 100,000 shares of
Common Stock, at an exercise price of $48 per share (the "Southland
Acquisition"). The acquired assets included 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 hired Southland's rig crews. The
acquisition was accounted for using the purchase method, and Southland's
operating results since April 11, 1997 have been consolidated with the
operating results of the Company.
The Southland Acquisition was financed with a combination of the Company's
existing cash, the net proceeds from the private placement of $25 million
principal amount of its 12% Senior Subordinated Notes due 2001 (the
"Subordinated Notes") and the net proceeds from a new $25 million 38-month
term loan facility. The Company also increased the amount available under
its line of credit from $8.4 million to $12.0 million. The Subordinated
Notes were issued by the Company at a discount of 2% together with a
seven-year warrant to purchase 400,000 shares of Common Stock at an
exercise price of $32.50 per share. The warrants are 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 Company utilized a portion of the net proceeds from the
term loan to refinance approximately $18.6 million in indebtedness that
was incurred in connection with its prior acquisitions of FWA Drilling
Company, Inc., Viersen and the contract drilling assets of Quarles. The
indebtedness under the term loan is secured by substantially all of the
Company's rig assets, inventory and accounts receivable.
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<PAGE> 8
UTI ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
The following pro forma operating results reflect the inclusion of Viersen
in 1996, and the inclusion of Quarles and Southland for 1996 and 1997:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Revenue ................... $ 44,207 $ 28,388 $ 87,562 $ 66,428
======== ======== ======== ========
Net income (loss) ......... $ 1,946 $ (1,183) $ 2,935 $ (1,233)
======== ======== ======== ========
Earnings per share:
- Primary ................. $ 0.43 $ (0.29) $ 0.65 $ (0.32)
======== ======== ======== ========
- Fully diluted ........... $ 0.41 $ (0.29) $ 0.64 $ (0.32)
======== ======== ======== ========
</TABLE>
4. SUPPLEMENTAL CASH FLOW INFORMATION
On January 27, 1997, the Company acquired the contract drilling division
of Quarles for cash and stock as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Cash paid for assets.......................... $ 8,100
Common stock issued........................... 8,100
------------
Fair value of assets acquired................. $ 16,200
============
</TABLE>
On April 11, 1997, the Company acquired the contract operations of
Southland for cash and warrants as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Cash paid for assets.......................... $ 27,147
Warrants issued............................... 10
------------
Fair value of assets acquired................. $ 27,157
============
</TABLE>
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.
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<PAGE> 9
UTI ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
6. SUBSEQUENT EVENTS
The Company's Board of Directors has approved a 3-for-1 stock split, and
an increase in the number of authorized shares of UTI common stock from 10
million to 50 million shares, subject to stockholder approval. The
Company's annual meeting is currently scheduled for August 28, 1997. The
stock split, if approved, would be effective for common stockholders of
record on August 25, 1997.
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<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 consolidation in the land
drilling industry. To implement 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 of the United States.
Since November 1995, the Company has acquired 59 rigs in four transactions: (i)
FWA Drilling Company, Inc. ("FWA") was acquired in November 1995 for $12.9
million net cash, (ii) Viersen & Cochran Drilling Company ("Viersen") was
acquired 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), (iii) the contract drilling assets of Quarles Drilling
Corporation ("Quarles") were acquired 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 (iv) the contract drilling business of Southland Drilling
Company, Ltd. ("Southland") was acquired in April 1997, for $27.1 million in
cash and warrants to purchase 100,000 shares of Common Stock at $48 per share.
These acquisitions have resulted in the company realizing substantial growth in
its revenues and income.
The Company's results for the three and six months ended June 30, 1997 also
reflect a strong improvement in market conditions in the United States land
drilling markets resulting from an increase in demand for drilling services.
Fleet utilization increased to 69% in 1997 from 49% in 1996. The Company
continues 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.
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.
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<PAGE> 11
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 Six Months
Ended June 30, Ended June 30,
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Operating Data:
Average U.S. land rig count ... 789 631 754 614
Contract Drilling:
Total Rig Fleet(2) ............ 82 55 82 55
Average Rig Fleet ............. 82 55 77 55
Operating Days ................ 5,346 2,508 9,571 4,920
Average utilization ........... 72% 51% 69% 49%
Pressure Pumping:
Cement jobs ................... 418 309 1,018 761
Stimulation jobs .............. 175 158 377 369
Financial data:
Revenues ...................... $ 42,440 $ 19,659 $ 76,808 $ 40,065
======== ======== ======== ========
Gross profit .................. $ 9,340 $ 3,526 $ 16,346 $ 7,363
======== ======== ======== ========
As a percentage of sales ...... 22.0% 17.9% 21.3% 18.4%
======== ======== ======== ========
Operating income .............. $ 4,025 $ 746 $ 7,152 $ 1,937
======== ======== ======== ========
</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.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1997 AND 1996
Revenue
Revenue increased 116% to $42.4 million in 1997 from $19.7 million in 1996
primarily due to the increase in demand for drilling services combined with
growth in the Company's rig fleet. The revenue increase of $22.7 million is
comprised of a $21.4 million increase in contract drilling revenue and an
increase of $1.1 million in pressure pumping revenue. The Company's rig fleet
was employed for 5,346 days in the second quarter of 1997 as compared to 2,508
days in the same quarter of 1996, and the Company completed 593 pressure
pumping jobs in 1997 as compared to 467 jobs in 1996. Revenue increases also
reflected improvements in dayrates.
Gross Profit
Gross profit increased 166% to $9.3 million in the second quarter of 1997
compared to $3.5 million for the same period in 1996. Contract drilling gross
profit as a percentage of revenue was 21.4% in 1997 and 18.4% in 1996. Pressure
pumping gross profit as a percentage of revenue was 29.5% in 1997 and 12.4% in
1996.
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<PAGE> 12
Depreciation and Amortization
Depreciation and amortization expense increased $1.5 million primarily due to
the acquisitions of Viersen, Quarles and Southland. 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 $1.1 million primarily
due to the acquisitions of Viersen, the contract drilling assets and business
of Quarles and Southland, and the relocation of the Company's corporate
headquarters from Wayne, Pennsylvania to Houston, Texas. As a percentage of
revenues, selling, general, and administrative expenses decreased to 6.7%
from 9.1%.
Other Income
Other income decreased $80,000 due to a reduction in revenue from sales of
miscellaneous parts and equipment.
Interest Expense
Interest expense increased $1.1 million primarily due to interest on the debt
associated with the Viersen, Quarles, and Southland acquisitions. Average debt
during the quarter ended June 30, 1997 was $40.8 million compared to $13.0
million during the quarter ended June 30, 1996. Interest expense is expected to
increase in future periods as a result of the Company's acquisitions of Quarles
and Southland and the incurrence of debt to fund the acquisitions.
Net Income
Net income for the second quarter of 1997 was $1.8 million compared to $481,000
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.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Revenue
Revenue increased 92% to $76.8 million in the first six months of 1997 from
$40.1 million in the first six months 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 $36.7 million is comprised of a $33.9 million increase
in contract drilling revenue and an increase of $2.5 million in pressure
pumping revenue. The Company's rig fleet was employed for 9,571 days in the
first six months of 1997 as compared to 4,920 days in the same period of 1996,
and the Company completed 1,395 pressure pumping jobs in 1997 as compared to
1,130 jobs in 1996. Revenue increases also reflected improvements in average
dayrates.
Gross Profit
Gross profit increased 120% to $16.3 million in the first six months of 1997
compared to $7.4 million for the same period in 1996 due to higher revenues and
consolidation savings. Contract drilling gross profit as a percentage of
revenue was 19.9% in 1997 and 17.5% in 1996. Pressure pumping gross profit as a
percentage of revenue was 33.0% in 1997 and 22.2% in 1996.
- 12 -
<PAGE> 13
Depreciation and Amortization
Depreciation and amortization expense increased $2 million primarily due to the
acquisitions of Viersen, Quarles, and Southland. 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 $1.7 million primarily
due to the acquisitions of Viersen, Quarles, Southland, and a related increase
in the average number of rigs operating during the period. As a percentage of
revenues, selling, general, and administrative expenses decreased to 6.7% from
8.6%.
Other Income
Other income decreased $600,000 primarily because the prior period included a
one-time payment of $671,000 which the Company received 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 $1.3 million primarily due to interest on the debt
associated with the Viersen and Quarles acquisitions. Average debt during the
first six months of 1997 was $37.4 million compared to $10.7 million for the
first six months of 1996.
Net Income
Net income for the first six months of 1997 was $3.6 million compared to $1.7
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. 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. At June 30, 1997 the Company's cash balance was $49,000 and its
borrowing availability under its revolving line of credit was $5.3 million.
Debt Facilities
On April 11, 1997, the Company completed two separate financing transactions,
which together provided the capital required to fund the Southland acquisition
and to consolidate three separate loans incurred to finance prior acquisitions.
The Company issued $25.0 million of its 12% Senior Subordinated Notes due 2001
(the "Subordinated Notes") and entered into a $25.0 million 38-month term loan
facility (the "Term Loan"). 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
- 13 -
<PAGE> 14
of $32.50 per share. The Term Loan bears interest at prime rate and 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 the contract drilling assets of Quarles. The
Company incurred a one-time prepayment penalty of approximately $132,000 in
connection with such refinancing. 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 Term Loan and the Company's
existing revolving credit facility contain various customary affirmative and
negative covenants, including restrictions on incurrence of additional
indebtedness, restrictions on dividends and distributions and acquisitions and
capital expenditures, and various financial covenants. The Subordinated Notes
similarly contain various affirmative and negative covenants customary in such
private placements, including restrictions on additional indebtedness unless
certain pro forma financial coverage ratios are met and restrictions on
dividends, distributions and other restricted payments.
Other
The Company is continuing to review potential acquisitions of rigs and rig
contractors. 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 availability under its
revolving line of credit will be sufficient to meet its working capital,
capital expenditure, and debt service requirements for the remainder of 1997.
Acquisitions are expected to be funded with available cash, borrowings under
the revolving line of credit and common stock. In addition, depending on the
number and size of any acquisitions consummated by the Company, the Company may
be required to obtain additional capital through public or private offerings of
debt or equity securities.
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.
- 14 -
<PAGE> 15
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 and any future 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 believes that there are no
existing adverse claims for which it is uninsured or has not already provided.
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, the Company purchased the contract drilling assets of
Quarles for a total purchase price of $16.2 million (the "Purchase Price"). The
Purchase Price was paid utilizing $8.1 million in cash and 244,583 shares of
Common Stock as adjusted pursuant to the purchase agreement.
Under the terms of the asset purchase agreement with Quarles, the number of
shares issued to Quarles was subject to adjustment based upon the average
market price (as defined in 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 was
declared effective. On June 4, 1997, in accordance with the terms of the asset
purchase agreement with Quarles, Quarles returned to the Company 11,562 shares
of stock having a value (at the average market price) equal to one-half of the
amount by which the market price of the shares (at the average market price)
initially issued was greater than $8.1 million.
- 15 -
<PAGE> 16
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 purchase price was determined through arms-length
negotiations between the parties. 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 its 12% Senior Subordinated Notes
due 2001 (the "Subordinated Notes") and the net proceeds from a new $25 million
38-month term loan facility with Mellon. The Subordinated Notes were issued by
the Company at a discount of 2% and were issued with a seven-year warrant to
purchase 400,000 shares of Common Stock at an exercise price of $32.50 per
share. The warrants are 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 Term Loan and the Company's
existing revolving credit facility contain various customary affirmative and
negative covenants, including restrictions on incurrence of additional
indebtedness, restrictions on dividends and distributions and acquisitions and
capital expenditures, and various financial covenants. The Subordinated Notes
similarly contain various affirmative and negative covenants customary in such
private placements, including restrictions on additional indebtedness unless
certain pro forma financial coverage ratios are met and restrictions on
dividends, distributions and other restricted payments.
In addition, on May 15, 1997, the Company issued 162,000 shares of Common Stock
to Four Flags Drilling Company ("Four Flags") in connection with the exercise
by Four Flags of warrants to purchase 125,000 shares and 37,000 shares,
respectively. The exercise price relating to the warrant to purchase 125,000
shares was paid by Four Flags by canceling an outstanding promissory note of
the Company payable to Four Flags, which promissory note had an outstanding
principal balance on May 15, 1997 of $1.0 million. The exercise price paid for
the shares underlying the warrant to purchase 37,000 shares was $8.00 per
share.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Reports on 8-K.
To report certain historical and proforma financial information of Quarles
and the company, the company filed a Form 8-K/A with the Securities and
Exchange Commission on April 14, 1997. To report the acquisition of the
land drilling operations of Southland Drilling Company, Ltd., pursuant to
Item 2 of Form 8-K, the Company filed a Form 8-K with the Securities and
Exchange Commission dated April 11, 1997. To report certain historical and
pro forma financial information of Southland 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 June 27, 1997.
- 16 -
<PAGE> 17
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE OR DESCRIPTION
------- --------------------
<S> <C>
*2.1 - Asset Purchase Agreement dated March 5, 1997 (the "Asset
Purchase Agreement"), by and between UTI Energy Corp. and
Southland Drilling Company, Ltd., (incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1996). Pursuant to Item 601(b)(2) of Regulation
S-K, certain schedules and similar attachments to the Asset
Purchase Agreement have not been filed with this exhibit.
Schedule 2.1(a), 2.1(b), 2.1(c), 2.1(d) and 2.1(e) contain lists
of certain of the assets purchased by the Company pursuant to
the terms and conditions of the Asset Purchase Agreement.
Agreement. The Company agrees to furnish supplementally any
omitted schedule to the Securities and Exchange Commission upon
request.
*2.2 - First Amendment to Asset Purchase Agreement dated April 11,
1997, by and between UTI Energy Corp., Triad Drilling Company
and Southland Drilling Company, Ltd.
*10.1 - Warrant Agreement, dated April 11, 1997, by and between UTI
Energy Corp. And Southland Drilling Company, Ltd.
*10.2 - Loan and Security Agreement dated April 11, 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., Panther
Drilling, Inc., and Mellon Bank, N.A.
*10.3 - Fourth Amendment and Modification to the Mellon Line of Credit
dated April 11, 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., Panther Drilling, Inc., and Mellon Bank,
N.A.
*10.4 - Note Purchase Agreement dated April 11, 1997, by and among FWA
Drilling Company, Inc., International Petroleum Service Company,
Triad Drilling Company, Universal Well Services, Inc., USC,
Incorporated, Panther Drilling, Inc., and Canpartners
Investments IV, LLC (incorporated by reference to Schedule 13D
relating to the Company filed on April 22, 1997 by Canpartners
Investments IV, LLC, Canpartners Incorporated, Mitchell R.
Julis, Joshua S. Friedman and R. Christian B. Evensen).
*10.5 - Note dated April 11, 1997, payable by FWA Drilling Company,
Inc., International Petroleum Service Company, Triad Drilling
Company, Universal Well Services, Inc., USC, Incorporated and
Panther Drilling, Inc. to Canpartners Investments IV, LLC.
*10.6 - Warrant Agreement dated April 11, 1997, by and between UTI
Energy Corp. and Canpartners Investments IV, LLC.
*10.7 - Warrant dated April 11, 1997, by and between UTI Energy Corp.
and Canpartners Investments IV, LLC.
*10.8 - Registration Rights Agreement dated April 11, 1997, by and
between UTI Energy Corp. and Canpartners Investments IV, LLC.
27.1 - Financial Data Schedule.
</TABLE>
* Previously filed with the Company's Current Report on Form 8-K dated April
11, 1997.
- 17 -
<PAGE> 18
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: August 14, 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
- 18 -
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27.1 - Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANIES FINANCIAL STATEMENT AS OF AND FOR THE SIX MONTH PERIOD ENDED
JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS AND THE NOTES THERETO CONTAINED IN THE COMPANY'S 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 49
<SECURITIES> 0
<RECEIVABLES> 28,939
<ALLOWANCES> 413
<INVENTORY> 1,109
<CURRENT-ASSETS> 30,897
<PP&E> 102,567
<DEPRECIATION> 26,704
<TOTAL-ASSETS> 118,784
<CURRENT-LIABILITIES> 22,489
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 37,285
<TOTAL-LIABILITY-AND-EQUITY> 118,784
<SALES> 0
<TOTAL-REVENUES> 76,808
<CGS> 0
<TOTAL-COSTS> 60,462
<OTHER-EXPENSES> 9,194
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,754
<INCOME-PRETAX> 5,652
<INCOME-TAX> 2,031
<INCOME-CONTINUING> 3,621
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,621
<EPS-PRIMARY> .81
<EPS-DILUTED> .79
</TABLE>
