<PAGE> 1
UNITED STATES
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, 1998
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.
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(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 225N
16800 GREENSPOINT PARK
HOUSTON, TEXAS 77060
- ------------------------------------------- ---------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (281) 873-4111
------------------------
- --------------------------------------------------------------------------------
(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.
16,026,741 SHARES OF COMMON STOCK AT MAY 1, 1998.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page No.
--------
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at March 31, 1998
and December 31, 1997 ................................... 3
Condensed Consolidated Statements of Income for the
Three Months ended March 31, 1998 and 1997 ............... 4
Condensed Consolidated Statements of Cash Flows for the
Three Months ended March 31, 1998 and 1997................ 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 ........................................................... 17
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UTI ENERGY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- -------------
(In thousands)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents...................$ 43,913 $ 58,347
Accounts receivable, net ................... 30,813 35,589
Materials and supplies...................... 1,517 1,363
Prepaid expenses............................ 1,282 749
-------------- -------------
77,525 96,048
PROPERTY AND EQUIPMENT:
Land........................................ 1,149 1,149
Buildings and improvements.................. 2,819 2,819
Machinery and equipment..................... 123,400 116,357
Oil and gas working interests............... 1,893 1,893
Construction in process..................... 8,261 4,305
-------------- -------------
137,522 126,523
Less accumulated depreciation and
amortization............................ 34,779 31,508
-------------- -------------
102,743 95,015
GOODWILL, less accumulated amortization of
$960 in 1998 and $652 in 1997............... 17,450 17,758
OTHER ASSETS.................................... 166 166
-------------- -------------
$ 197,884 $ 208,987
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt...........$ 33 $ 50
Accounts payable............................ 11,895 14,087
Accrued payroll costs....................... 3,615 5,048
Accrued income taxes........................ 1,552 3,375
Other accrued expenses...................... 2,558 3,036
-------------- -------------
19,653 25,596
LONG-TERM DEBT, less current portion ........... 23,575 23,458
DEFERRED INCOME TAXES........................... 14,846 15,256
OTHER LONG-TERM LIABILITIES..................... 348 356
COMMITMENTS AND CONTINGENCIES
REDEEMABLE STOCK, Common Stock, $.001 par
value, none outstanding in 1998 and 309,374
issued and outstanding in 1997.............. -- 6,701
SHAREHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 5,000,000
shares authorized, none issued and
outstanding in 1998 and 1997............. -- --
Common Stock, $.001 par value, 50,000,000
shares authorized, 16,456,115 issued and
16,026,741 outstanding in 1998, 16,146,74
issued and outstanding in 1997............ 16 16
Additional capital.......................... 126,909 120,208
Retained earnings........................... 20,988 17,441
Restricted stock plan unearned
compensation.............................. (34) (45)
Treasury stock, 429,374 shares in 1998,
at cost................................... (8,417) --
------------- ------------
139,462 137,620
------------- ------------
$ 197,884 $ 208,987
============= ============
</TABLE>
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<PAGE> 4
UTI ENERGY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
--------------------------------
1998 1997
---------- -----------
(In thousands, except share
and per share amounts)
<S> <C> <C>
REVENUES:
Oilfield service....................... $ 48,265 $ 34,295
Other.................................. 52 73
---------- -----------
48,317 34,368
COSTS AND EXPENSES:
Cost of sales
Oilfield service.................. 34,928 27,329
Other............................. 25 33
Selling, general and administrative.... 3,594 2,334
Depreciation and amortization.......... 3,801 1,545
---------- ----------
42,348 31,241
---------- ----------
OPERATING INCOME........................... 5,969 3,127
OTHER INCOME (EXPENSE):
Interest expense....................... (879) (479)
Interest income........................ 647 2
Other, net............................. 103 225
---------- -----------
(129) (252)
---------- -----------
INCOME BEFORE INCOME TAXES................. 5,840 2,875
INCOME TAXES............................... 2,293 1,031
---------- -----------
NET INCOME................................. $ 3,547 $ 1,844
========== ===========
EARNINGS PER COMMON SHARE:
Basic.................................. $ 0.22 $ 0.16
========== ===========
Diluted................................ $ 0.21 $ 0.14
========== ===========
AVERAGE COMMON SHARES OUTSTANDING:
Basic.................................. 16,150,546 11,296,194
Diluted................................ 17,256,436 13,238,066
</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>
Three Months
Ended March 31,
---------------------
1998 1997
---------- ---------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................ $ 3,547 $ 1,844
Adjustments to reconcile net income
to net cash provided
by operating activities:
Depreciation and amortization.................. 3,801 1,545
Deferred income taxes.......................... 240 --
Amortization of debt discount.................. 119 46
Stock compensation expense..................... 11 12
Gain on disposal of fixed assets............... (54) (190)
Changes in operating assets and liabilities
Accounts receivable and prepaids............ 4,243 (1,339)
Materials and supplies...................... (154) (100)
Accounts payable, accrued
expenses and accrued
payroll costs............................. (5,926) 1,795
Other....................................... (661) (759)
---------- ---------
Net cash provided
by operating activities................ 5,166 2,854
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................... (11,352) (1,723)
Acquisition of business............................ -- (8,100)
Proceeds from sale of property and equipment....... 188 396
---------- ---------
Net cash used by
investing activities................... (11,164) (9,427)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt........... -- 8,100
Repayments of long-term debt....................... (19) (1,290)
Redemption of stock and purchase
of treasury stock................................. (8,417) --
---------- ---------
Net cash (used) provided
by financing activities.................... (8,436) 6,810
---------- ---------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS................................ (14,434) 237
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD.............................. 58,347 570
---------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD.................. $ 43,913 $ 807
========== =========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 6
UTI ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1998
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements
at March 31, 1998, 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, 1998, are not necessarily indicative
of the results for the entire year ending December 31, 1998. 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, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per Share
(SFAS 128). SFAS 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of options, warrants and convertible securities.
Diluted earnings per share is similar to the previously reported fully
diluted earnings per share. All earnings per share amounts for all
periods have been presented, and where appropriate, restated to conform
to the SFAS 128 requirements.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive
Income (SFAS 130). SFAS 130, which is effective for fiscal years
beginning after December 15, 1997, establishes standards for reporting
and presentation of comprehensive income and its components. SFAS 130
requires that all items that are 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. Total comprehensive income is the same as
net income for the periods presented.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information (SFAS 131). SFAS 131, which is
effective for fiscal years beginning after December 15, 1997,
established revised guidelines for determining an entity's operating
segments, as well as the type and level of financial information to be
disclosed. The Company has not applied SFAS 131 to the 1998 interim
financial statements as this information is not required in the initial
year of application.
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<PAGE> 7
UTI ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassifications
Certain items in the prior period's financial statements have been
reclassified to conform with the presentation in the current period.
3. ACQUISITIONS
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 cash and 733,779 shares of Common Stock
(after adjustment pursuant to the purchase agreement). The acquired
assets consisted of nine land drilling rigs, various equipment, rig
components and other equipment used in Quarles' contract drilling
business. 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. No goodwill was
recorded as the estimated fair market value of the assets acquired
exceeded the purchase price.
On April 11, 1997, the Company acquired the land drilling operations of
Southland Drilling Company Ltd. ("Southland") for approximately $27.1
million cash and a five-year warrant to purchase 300,000 shares of
Common Stock at an exercise price of $16 per share. The acquired assets
consisted of nine drilling rigs, various equipment, components and
other equipment used in Southland's contract drilling business. 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. Goodwill of
$9.9 million was recorded related to this acquisition, which is being
amortized over a period of 15 years.
On September 11, 1997, the Company acquired all of the capital stock of
J.S.M. & Associates, Inc. ("JSM") for 618,748 shares of Common Stock
and $2.6 million in cash. In January 1998, the former shareholders of
JSM exercised their right to redeem one half of the shares issued by
the Company (309,374 shares) for $21.66 per share. This redemption was
accounted for as a treasury stock transaction. Prior to this date, JSM
was an independent contract land driller in the Permian Basin. JSM's
assets at the time of acquisition included seven land drilling rigs, an
office and warehouse in Odessa, Texas and approximately $1.0 million in
net working capital. The acquisition was accounted for using the
purchase method of accounting, and JSM's operating results since
September 11, 1997, have been consolidated with the operating results
of the Company. Goodwill of $8.5 million was recorded related to this
acquisition, which is being amortized over a period of 15 years.
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<PAGE> 8
UTI ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1998
4. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
1998 1997
-------------- --------------
Numerator:
<S> <C> <C>
Net income............................ $ 3,547 $ 1,844
============== ==============
Denominator:
Denominator for basic earning per
share - weighted-average shares..... 16,150,546 11,296,194
Effect of dilutive securities:
Stock options....................... 967,480 1,211,860
Warrants............................ 138,410 632,092
Other............................... 0 97,920
-------------- --------------
Dilutive potential common shares...... 1,105,890 1,941,872
-------------- --------------
Denominator for diluted earnings per
share-adjusted weighted-average
shares and assumed conversions........ 17,256,436 13,238,066
============= ==============
Basic earnings per share.................. $ 0.22 $ 0.16
============== ==============
Diluted earnings per share................ $ 0.21 $ 0.14
============== ==============
</TABLE>
5. 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 or 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
$100,000 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 (UNAUDITED)
March 31, 1998
6. SUBSEQUENT EVENT
On April 9, 1998, the Company effected the acquisition of Peterson
Drilling Company, ("PDC"), for a total purchase price of $20.4 million.
PDC's assets include eight drilling rigs, as well as related drilling
equipment, office facilities in Midland, Texas, and approximately $3.3
million in cash. The Company intends to continue to operate the
business of PDC and integrate PDC's operations with the Company's
existing contract drilling operations. The acquisition will be
accounted for under the purchase method.
Pursuant to the terms of the Merger Agreement, the purchase price was
paid in cash utilizing funds that the Company had on hand following the
Company's public offering in October 1997.
- 9 -
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
UTI Energy Corp. is a leading provider of onshore contract drilling
services to exploration and production companies and operates one of the largest
land drilling rig fleets in the United States. The Company's drilling operations
are currently concentrated in the prolific oil and natural gas producing basins
of New Mexico, Oklahoma, Texas and the Gulf Coast. The Company's current rig
fleet consists of 97 land drilling rigs that are well suited to the requirements
of its markets. The Company's contract drilling services are performed through
various regional drilling units and are marketed under the names Triad, FWA,
Southland, Cougar, JSM, Peterson and IPSCO. 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 effect this strategy, the Company disposed of its
oilfield 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 74 rigs in six
transactions. (i) FWA Drilling Company, Inc. was acquired in November 1995 for
$12.9 million net cash; (ii) Viersen & Cochran Drilling Company was acquired in
August 1996 for approximately $6.0 million cash, a two-year $8.0 million note
and warrants to purchase 600,000 shares of Common Stock at $5 per share; (iii)
the contract drilling assets of Quarles Drilling Corporation ("Quarles") was
acquired in January 1997 for $8.1 million cash and 733,779 shares of Common
Stock having a value at the time of $8.1 million; (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 300,000 shares of
Common Stock at $16 per share; (v) J.S.M. & Associates, Inc. ("JSM") was
acquired in September 1997, for 618,748 shares of Common Stock (of which 309,374
shares have been redeemed for $6.7 million) and approximately $2.6 million in
cash; and (vi) Peterson Drilling Company was acquired on April 9, 1998 for $17.1
million net cash. These acquisitions have resulted in the Company realizing
substantial growth in its revenues and earnings.
Market conditions in the United States land drilling markets during the
three months ended March 31, 1998 were improved over the conditions that
prevailed in the corresponding period of 1997. Contract drilling revenue per day
for the quarter ended March 31, 1998 was approximately $8,200 compared to $7,000
for the same period of 1997. Since December 1997, however, the worldwide price
of oil has declined and prices for natural gas have weakened slightly. These
declines have been attributed to, among other things, an excess supply of oil in
the world markets, reduced domestic demand associated with an unseasonably warm
winter and the potential for lower worldwide demand due to the impact of the
economic downturn in Southeast Asia. As prices for oil have declined, some
exploration and production companies, including some of the Company's customers,
have announced reductions in previously disclosed spending budgets. Such
reductions have reduced the demand for drilling services and increased
competitive pressures, leading to lower contract rates. Each of the Company's
operating regions have been affected by the above mentioned factors. The Permian
Basin region is more sensitive to changes in oil prices than any other of the
Company's operating regions.
The Company intends to continue its strategy of growth through
acquisitions of rigs and equipment that can be 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.
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<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 oilfield 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 land rig count as reported by Baker Hughes
Inc.(1) for the periods indicated:
Three Months
Ended March 31,
------------------------
1998 1997
---------- ---------
Operating Data:
Average U.S. land rig count (1)................. 787 727
Number of owned rigs at end of period........... 89 74
Average number of rigs owned during period...... 89 71
Contract drilling:
Operating days(2)............................... 5,272 4,225
Utilization rates(3)............................ 66% 64%
Pressure pumping:
Cement jobs ................................ 508 600
Stimulation jobs................................ 209 202
Financial data: (in thousands)
Revenues.......................................... $ 48,317 $ 34,368
Gross profit...................................... $ 13,364 $ 7,006
Gross profit margin............................... 27.7% 20.4%
Operating income.................................. $ 5,969 $ 3,127
- ----------------------
(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) An operating day is defined as a day during which a rig is being
operated, mobilized, assembled or dismantled while under contract.
(3) Utilization rates are based on a 365-day year and are calculated by
dividing the number of rigs utilized by the total number of rigs in the
Company's drilling fleet, included stacked rigs. A rig is considered
utilized when it is being operated, mobilized, assembled or dismantled
while under contract.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Revenue increased 40.6% to $48.3 million for the three months ended
March 31, 1998 from $34.4 million for the corresponding period of 1997 primarily
due to the growth in the Company's rig fleet and improved contract rates. The
Company's rig fleet was employed for 5,272 days for the three months ended March
31, 1998 as compared to 4,225 days in the same period of 1997, and the Company
completed 717 pressure pumping jobs for the three months ended March 31, 1998 as
compared to 802 jobs for the three months ended March 31, 1997. Although the
number of pressure pumping jobs decreased from the same period in 1997, revenues
were similar due to increased revenue per job and a shift to higher revenue
jobs.
- 11 -
<PAGE> 12
Gross profit increased 90.8% to $13.4 million in the first quarter of
1998 compared to $7.0 million for the same quarter in 1997. Contract drilling
gross profit as a percentage of revenue was 26.2% for the first quarter ended
March 31, 1998 compared to 17.8% for the first quarter ended March 31, 1997,
reflecting increased dayrates and more efficient operations. Pressure pumping
gross profit as a percentage of revenue was 40.9% in the first quarter of 1998
and 35.4% in the first quarter of 1997.
Depreciation and amortization expense increased $2.3 million during the
three months ended March 31, 1998 compared to the three months ended March 31,
1997, primarily due to the acquisitions of Quarles, Southland and JSM.
Selling, general and administrative expenses increased $1.3 million
during the three months ended March 31, 1998 compared to three months ended
March 31, 1997 primarily due to the acquisitions of Quarles, Southland and JSM.
Interest expense increased $.4 million during the quarter ended March
31, 1998 compared to the quarter ended March 31, 1997 primarily due to interest
on the Company's 12% subordinated notes due 2001 (the "Subordinated Notes")
issued in connection with the Southland acquisition and the related refinancing
of the Company's credit facility. Average debt outstanding was $23.9 million
during the quarter ended March 31, 1998 compared to $23.0 million for the
quarter ended March 31, 1997, the effective interest rate for the quarter ended
March 31, 1998 was 14.7% compared to 8.3% for the quarter ended March 31, 1997.
Interest income increased $.6 million during the three months ended
March 31, 1998 compared to the three months ended March 31, 1997, primarily due
to the investment of the net proceeds to the Company from its secondary offering
of Common Stock in October 1997. The excess funds were invested in short-term,
interest-bearing securities and are being utilized by the Company for general
corporate purposes, including the expansion of the Company's business through
selective acquisitions of businesses and assets.
Income taxes increased $1.3 million during the quarter ended March 31,
1998, compared to the quarter ended March 31, 1997, primarily due to higher
taxable income in 1998. The Company's effective tax rate for the quarter ended
March 31, 1998 was 39.3% and 35.9% for the quarter ended March 31, 1997, with
the increase primarily attributable to nondeductible goodwill amortization in
1998 relating to the acquisitions of Southland and JSM.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
Working capital at March 31, 1997 was $57.9 million compared to $70.5
million at December 31, 1997. The Company's primary cash needs historically have
been to fund working capital requirements, to make capital expenditures, to
replace and expand its drilling rig fleet, to fund acquisitions and most
recently to fund its $10.0 million stock repurchase program established in
February 1998. The Company's ongoing operations have been funded through
available cash, cash provided from operations and borrowings under the Company's
Amended and Restated Loan and Security Agreement dated December 5, 1995 with
Mellon Bank, N.A. as amended (the "Working Capital Line"). To date, acquisitions
have been funded with available cash, borrowings and issuances of Common Stock
and warrants to purchase Common Stock.
- 12 -
<PAGE> 13
On October 1997, the Company sold in a public offering 1,792,600 shares
of Common Stock. Shares of Common Stock held by various shareholders of the
Company were also sold in this offering, including 1,707,000 shares of Common
Stock that were subject to outstanding warrants and options. The net proceeds to
the Company from this offering were approximately $80.0 million, including
approximately $13.0 million from the exercise of warrants and options to
purchase shares of Common Stock that were sold in the offering. The Company
utilized approximately $27.9 million of the net proceeds to repay all of its
outstanding debt other than the Subordinated Notes. The Company intends to
utilize these available cash resources, together with its cash flow from
operations, to continue its acquisition and growth strategy and to continue to
fund a stock repurchase program of up to $10.0 million.
Net cash provided by continuing operations was $5.2 million and $2.9
million, for the three months ended March 31, 1998 and 1997, respectively. Such
funds were utilized primarily to fund capital expenditures. Capital
expenditures, excluding acquisitions, for the quarter ended March 31, 1998 and
1997, were $11.4 million and $1.7 million, respectively.
Long Term Debt Facilities
Working Capital Line. The Working Capital Line provides for borrowings
up to $12.4 million, subject to collateral requirements. The facility is secured
by a pledge of the Company's accounts receivable and inventory and includes
financial covenants covering tangible net worth, interest coverage and debt
service coverage. Advances under the line are limited by levels of accounts
receivable and inventory. Interest under the facility is calculated at the lower
of the prime rate or such other rate options available at the time of borrowing,
depending upon the Company's financial performance. The facility expires on June
30, 1998. At March 31, 1998, the Company had $12.0 million available for
borrowings under this facility. The Company currently is in discussion with its
bank regarding a new line of credit or an amendment to the Working Capital Line
to increase the Company's availability thereunder. The timing of any new line of
credit or amendment will be dependent upon numerous factors, including the
Company's need for additional financing.
Subordinated Notes. On April 11, 1997, the Company issued $25.0 million
principal amount of Subordinated Notes. The Subordinated Notes were issued at a
2% discount along with seven-year warrants to purchase 1.2 million shares of
Common Stock at an exercise price of $10.83 per share, of which warrants to
purchase 720,000 shares of Common Stock issued in connection therewith were
exercised in connection with the Company's October 1997 public offering. The
Subordinated Notes 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.
Peterson
On April 9, 1998, the Company effected the acquisition of Peterson
Drilling Company, ("PDC"), for a total purchase price of $20.4 million. PDC's
assets include eight drilling rigs, as well as related drilling equipment,
office facilities in Midland, Texas, and approximately $3.3 million in cash. The
Company intends to continue to operate the business of PDC and integrate PDC's
operations with the Company's existing contract drilling operations. The
acquisition will be accounted for under the purchase method of accounting.
In connection with the Company's acquisition of PDC, the Company
retained Ray Peterson, President of PDC, and Leroy Peterson, Vice President of
PDC, as employees to the Company.
Pursuant to the terms of the Merger Agreement, the purchase price was
paid in cash utilizing funds that the Company had on hand following the
Company's public offering in October 1997.
- 13 -
<PAGE> 14
Stock Repurchase Program
On February 18, 1998, the Board of Directors of the Company approved a
stock repurchase by the Company of up to $10.0 million of Common Stock pursuant
to transactions effected from time to time in the open market. As of March 31,
1998, the Company had utilized $1.7 million to repurchase 120,000 shares of
Common Stock at an average purchase price of $14.20 per share.
Future Acquisitions
Management believes its internally generated cash, availability under
the Working Capital Line, and cash balances on hand will be sufficient to meet
its working capital, capital expenditure and debt service requirements for the
next twelve months. 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 term thereof, such acquisitions
would further expand the Company's rig fleet and operations. Acquisitions are
expected to be funded with available cash, borrowings under the Working Capital
Line and 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.
Year 2000
As the millennium approaches, the Company is preparing all of its
computer systems to be Year 2000 compliant. Many existing application software
products in the marketplace were designed to only accommodate a two digit date
position which represents the year (e.g., "97" is stored on the system and
represents the year 1997). As a result, the year 1999 (i.e., "99") could be the
maximum date value systems will be able to accurately process. Management does
not anticipate that the Company will incur material operating expenses or be
required to invest heavily in computer system improvements to be Year 2000
compliant.
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; including the effects of
recent downturns in prices for oil and natural gas; 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 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 or these matters will not have a material adverse effect on
the Company's financial position.
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.
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.
ITEM 2. CHANGES IN SECURITIES
Under the terms of the JSM acquisition agreement, the Company granted
to the prior shareholders of JSM demand and piggyback registration rights
exercisable beginning December 10, 1997. The Company also agreed to provide the
prior JSM shareholders with the right, exercisable for a period of 30 days
beginning December 10, 1997, to require the Company to purchase one-half of the
shares of Common Stock issued in the transaction at $21.66 per share. In January
1998, the former shareholders of JSM exercised this right and the Company
repurchased the shares subject to this right for $6.7 million which has been
accounted for as a treasury stock transaction.
On February 18, 1998, the Board of Directors of the Company approved a
stock repurchase by the Company of up to $10.0 million of Common Stock pursuant
to transactions effected from time to time in the open market. As of March 31,
1998, the Company had utilized $1.7 million to repurchase 120,000 shares of
Common Stock at an average price of $14.20 per share.
- 15 -
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT
NUMBER TITLE OR DESCRIPTION
- --------------------------------------------------------------------------------
* 2.1 - Agreement and Plan of Merger dated April 9, 1998 (the
"Merger Agreement"), between UTI Energy Corp., PDC Acquisition
Company, Peterson Drilling Company ("PDC") and the shareholders
of PDC signatory thereto (incorporated by reference from the
Company's Current Report on Form 8-K dated April 21, 1998).
Pursuant to Item 601 (b)(2) of Regulation S-K, schedules and
similar attachments to the Merger Agreement have not been filed
with this exhibit. The Disclosure Schedule contains
information relating to the representations and warranties
contained in Article IV of the Merger Agreement. The Company
agrees to furnish supplementally any omitted schedule to the
Securities and Exchange Commission upon request.
27.1 - Financial Data Schedule.
27.2 - Restated Financial Data Schedule.
*Previously filed with the Company's Current Report on Form 8-K dated
April 9, 1998.
(b) Reports on 8-K
None filed.
- 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 14, 1998 /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
Exhibit
Number Description
- ------ -----------
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 43,913
<SECURITIES> 0
<RECEIVABLES> 31,732
<ALLOWANCES> 919
<INVENTORY> 1,517
<CURRENT-ASSETS> 77,525
<PP&E> 137,522
<DEPRECIATION> 34,779
<TOTAL-ASSETS> 197,884
<CURRENT-LIABILITIES> 19,653
<BONDS> 23,575
0
0
<COMMON> 16
<OTHER-SE> 139,446
<TOTAL-LIABILITY-AND-EQUITY> 197,884
<SALES> 0
<TOTAL-REVENUES> 48,317
<CGS> 0
<TOTAL-COSTS> 34,953
<OTHER-EXPENSES> 3,801
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 879
<INCOME-PRETAX> 5,840
<INCOME-TAX> 2,293
<INCOME-CONTINUING> 3,547
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,547
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.21
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<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> 19,906
<ALLOWANCES> 329
<INVENTORY> 974
<CURRENT-ASSETS> 23,298
<PP&E> 80,666
<DEPRECIATION> 24,626
<TOTAL-ASSETS> 80,476
<CURRENT-LIABILITIES> 17,106
<BONDS> 22,064
0
0
<COMMON> 12
<OTHER-SE> 32,639
<TOTAL-LIABILITY-AND-EQUITY> 80,476
<SALES> 0
<TOTAL-REVENUES> 34,368
<CGS> 0
<TOTAL-COSTS> 27,362
<OTHER-EXPENSES> 1,545
<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> 0.16
<EPS-DILUTED> 0.14
</TABLE>
