<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 SEPTEMBER 30, 1999
[ ] 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 225N
16800 GREENSPOINT PARK
HOUSTON, TEXAS 77060
- ---------------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
(281) 873-4111
----------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(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 registrant's common
stock, as of the latest practicable date.
17,813,382 SHARES OF COMMON STOCK AT OCTOBER 26, 1999.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1999
and December 31, 1998........................................................ 3
Condensed Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 1999 and 1998..................................... 4
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1999 and 1998..................................... 5
Notes to Condensed Consolidated Financial Statements.......................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................... 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings.............................................................. 21
Item 6. Exhibits and Reports on Form 8-K............................................... 22
Signatures..................................................................... 23
</TABLE>
-2-
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM I. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UTI ENERGY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents .......................................................................... $ 12,662 $ 10,337
Accounts receivable, net of allowance for doubtful accounts
of $3,830 in 1999 and $1,919 in 1998 ............................................................. 28,850 25,485
Federal income tax receivable ...................................................................... 3,528 3,200
Deferred income taxes .............................................................................. 1,861 --
Materials and supplies ............................................................................. 653 887
Prepaid expenses and other ......................................................................... 4,847 4,648
--------- ---------
52,401 44,557
PROPERTY AND EQUIPMENT
Land ............................................................................................... 1,324 1,224
Buildings and improvements ......................................................................... 3,542 3,324
Machinery and equipment ............................................................................ 231,786 202,698
Oil and gas working interests ...................................................................... 2,035 1,943
Construction in process ............................................................................ 2,748 2,729
--------- ---------
241,435 211,918
Less accumulated depreciation and amortization ..................................................... 57,856 47,070
--------- ---------
183,579 164,848
GOODWILL, less accumulated amortization of $3,233 in 1999
and $2,086 in 1998 ............................................................................... 19,644 20,791
OTHER ASSETS ....................................................................................... 1,450 1,871
--------- ---------
$ 257,074 $ 232,067
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ................................................................................... $ 16,649 $ 17,649
Accrued payroll costs .............................................................................. 3,999 2,387
Accrued health insurance ........................................................................... 1,313 1,284
Other accrued expenses ............................................................................. 6,471 2,599
--------- ---------
28,432 23,919
LONG-TERM DEBT, less current portion ............................................................... 32,078 31,721
DEFERRED INCOME TAXES .............................................................................. 40,196 31,625
OTHER LIABILITIES .................................................................................. 498 656
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common Stock, $.001 par value, 5,000 shares authorized,
18,416 issued and 17,813 outstanding in 1999,
16,612 shares issued and 16,009 outstanding in 1998 .............................................. 18 17
Additional capital ................................................................................. 144,087 128,825
Retained earnings .................................................................................. 21,770 25,309
Treasury Stock, 603 shares in 1999 and 1998, at cost ............................................... (10,005) (10,005)
--------- ---------
155,870 144,146
--------- ---------
$ 257,074 $ 232,067
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE> 4
UTI ENERGY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ ------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES .................................... $ 42,396 $ 48,690 $ 103,816 $ 145,410
COST OF REVENUES ............................ 33,263 36,264 82,186 106,969
--------- --------- --------- ---------
GROSS PROFIT ................................ 9,133 12,426 21,630 38,441
OTHER COSTS AND EXPENSES
Selling, general and administrative ......... 2,541 2,726 7,799 8,188
Provisions for bad debts .................... -- 361 548 1,143
Other charge ................................ -- 785 260 785
Depreciation and amortization ............... 6,093 5,055 17,700 13,409
--------- --------- --------- ---------
8,634 8,927 26,307 23,525
--------- --------- --------- ---------
OPERATING INCOME (LOSS) ..................... 499 3,499 (4,677) 14,916
OTHER INCOME (EXPENSE)
Interest expense ............................ (1,031) (987) (3,090) (2,744)
Interest income ............................. 139 68 461 1,027
Other, net (note 4) ......................... 38 127 2,867 556
--------- --------- --------- ---------
(854) (792) 238 (1,161)
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES ........... (355) 2,707 (4,439) 13,755
INCOME TAXES ................................ -- 1,083 (900) 5,482
--------- --------- --------- ---------
NET INCOME (LOSS) ........................... $ (355) $ 1,624 $ (3,539) $ 8,273
========= ========= ========= =========
BASIC EARNINGS (LOSS) PER COMMON SHARE ...... $ (0.02) $ 0.10 $ (0.21) $ 0.51
========= ========= ========= =========
DILUTED EARNINGS (LOSS) PER COMMON SHARE .... $ (0.02) $ 0.10 $ (0.21) $ 0.48
========= ========= ========= =========
AVERAGE COMMON SHARES OUTSTANDING
Basic ....................................... 17,442 16,087 16,716 16,094
Diluted ..................................... 17,442 16,747 16,716 17,061
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE> 5
UTI ENERGY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTH
ENDED SEPTEMBER 30,
----------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) .................................................... $ (3,539) $ 8,273
Adjustments to reconcile net income (loss) to net cash
provided by operations
Depreciation ................................................. 16,051 12,036
Amortization ................................................. 1,649 1,373
Deferred income taxes ........................................ 442 547
Amortization of debt discount ................................ 357 356
Stock compensation expense ................................... -- 34
Provisions for bad debts ..................................... 412 1,143
Gain on disposals of fixed assets ............................ (2,944) (362)
Changes in operating assets and liabilities, net of effect
of acquisition and disposition
Receivables and prepaids .................................. (1,939) 5,432
Materials and supplies .................................... (14) (193)
Accounts payable and accruals ............................. (2,410) (3,404)
Other ..................................................... (110) (2,235)
-------- --------
Net cash provided by operating activities ............ 7,955 23,000
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ................................................. (4,913) (33,698)
Acquisition of businesses, net of cash ............................... 217 (33,646)
Net proceeds from disposition ........................................ 4,935 --
Proceeds from sale of property and equipment ......................... 711 763
-------- --------
Net cash provided (used) by investing activities ..... 950 (66,581)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of long-term debt ......................................... (7,951) (84)
Repurchased Stock .................................................... -- (8,992)
Proceeds from exercise of stock options .............................. 1,371 1,243
-------- --------
Net cash used by financing activities ................ (6,580) (7,833)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................. 2,325 (51,414)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..................... 10,337 58,347
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................... $ 12,662 $ 6,933
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
-5-
<PAGE> 6
UTI ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements
as of September 30, 1999 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 nine months ended
September 30, 1999 are not necessarily indicative of the results for
the entire year ending December 31, 1999. 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, 1998 and the Company's Quarterly Report on Form 10-Q
for the three and six months ended June 30, 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
New Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-1, Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use. This statement
provides guidance on accounting for the cost of software developed or
obtained for internal use and is effective for fiscal years beginning
after December 15, 1998. The Company adopted this standard in the first
quarter of 1999. The change did not have a significant effect on the
Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133). SFAS 133, as amended by
Statement of Financial Accounting Standards No. 137, Accounting for
Derivative Instruments and Hedging Activities - deferral of the
effective date of FAS-SFAS 133 ("SFAS 137"), is effective for fiscal
years beginning after June 15, 2000, and requires all derivatives to be
recognized at fair value on the balance sheet. The Company plans to
adopt SFAS 133, as amended by SFAS 137, no later than January 1, 2001.
The change is not expected to have a significant effect on the
Company's financial statements.
Reclassifications
Certain items in the prior period's financial statements have been
reclassified to conform with the presentation in the current period.
-6-
<PAGE> 7
UTI ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999
3. ACQUISITIONS
On July 27, 1999, the Company acquired Norton Drilling Services
("Norton") for approximately 1,299,000 shares of the Company's Common
Stock. Norton's assets included sixteen drilling rigs, assorted spare
parts, drilling equipment and rolling stock. The acquisition has been
accounted for under the purchase method of accounting. No goodwill was
recorded because the estimated fair market value of the assets acquired
exceeded the purchase price.
On July 31, 1998, the Company acquired Suits Enterprises, Inc.
("Suits") for approximately $11.1 million, comprised of $2.9 million in
cash, $7.8 million in 7% four-year notes and 100,000 five-year warrants
of Common Stock. Warrants to purchase 75,000 shares of Common Stock are
exercisable at $26.50 per share and warrants to purchase 25,000 shares
of Common Stock are exercisable at $35.00 per share. Suits' assets
included seven drilling rigs plus assorted spare parts, drilling
equipment and rolling stock. The acquisition has been accounted for
using the purchase method of accounting. No goodwill was recorded
because the estimated fair market value of the assets acquired exceeded
the purchase price.
On June 24, 1998, the Company acquired the land drilling assets of
LaMunyon Drilling Corporation for $12.2 million in cash, which the
Company funded from cash on hand following the Company's public
offering in October 1997. The acquired assets consisted of five land
drilling rigs, related spare parts, office equipment and rolling stock.
The acquisition has been accounted for using the purchase method of
accounting. No goodwill was recorded because the estimated fair market
value of the assets acquired exceeded the purchase price.
On April 9, 1998, the Company acquired Peterson Drilling Company
("Peterson") for a total purchase price of $20.4 million in cash, which
the Company funded from cash on hand following the Company's public
offering in October 1997. Peterson's assets included eight drilling
rigs, as well as related drilling equipment, office facilities in
Midland, Texas and approximately $4.5 million in net working capital.
The acquisition has been accounted for under the purchase method of
accounting. Goodwill of $3.6 million has been recorded related to this
acquisition.
4. DISPOSITIONS
In March 1999, the Company sold certain assets of International
Petroleum Service Company, its wholly owned Pennsylvania subsidiary, to
an unrelated party for $5.6 million. A pre-tax gain of $2.8 million was
realized as a result of the sale. Included in the sale were five
drilling rigs, related support equipment, rolling stock, spare parts,
tools and other inventory.
-7-
<PAGE> 8
UTI ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999
5. OTHER CHARGE
In the first quarter of 1999, the Company incurred a charge related to
a series of actions taken to improve efficiency, increase productivity
and make the Company more competitive in the market place. The actions
included the reduction of regional operating offices from seven to four
and reduced the Company's administrative staff by twenty-six
individuals. The other charge of approximately $.3 million consisted
primarily of employee-related expenses associated with these
reductions.
6. INCOME TAXES
The provision (credit) for income taxes was different than would result
from applying the U.S. statutory rate to income (loss) before income
taxes primarily due to nondeductible expenses and the tax benefit of
operating losses being partially offset by state income tax expense for
certain subsidiaries with taxable income.
7. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
1999 1998 1999 1998
--------- ------- -------- -------
<S> <C> <C> <C> <C>
Numerator:
- ---------
Net income (loss) ................................ $ (355) $ 1,624 $ (3,539) $ 8,273
========= ======= ======== =======
Denominator:
- -----------
Denominator for basic earning (loss) per
share - weighted-average shares ................ 17,442 16,087 16,716 16,094
Effect of dilutive securities:
Stock options ............................... -- 660 -- 865
Warrants .................................... -- -- -- 102
--------- ------- -------- -------
Dilutive potential common shares ............ -- 660 -- 967
--------- ------- -------- -------
Denominator for diluted earnings per
share-adjusted weighted-average
shares and assumed conversions ............ 17,442 16,747 16,716 17,061
========= ======= ======== =======
Basic earnings (loss) per share .................. $ (0.02) $ 0.10 $ (0.21) $ 0.51
========= ======= ======== =======
Diluted earnings (loss) per share ................ $ (0.02) $ 0.10 $ (0.21) $ 0.48
========= ======= ======== =======
</TABLE>
-8-
<PAGE> 9
UTI ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999
7. EARNINGS PER SHARE (CONTINUED)
Due to the Company being in a net loss position in 1999, the effect of
dilutive securities is antidilutive and therefore not included in the
computation of diluted earnings per share.
8. 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 are not expected to have a
material adverse effect on the Company's financial position.
The Company is partially self-insured for employee health insurance
claims. The Company was self-insured for workers compensation for years
prior to 1999. 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.
9. INDUSTRY SEGMENT INFORMATION
Reportable segments are business units that offer different services.
The Company has two reportable segments: land drilling and pressure
pumping.
The Company evaluates performance and allocates resources to the
reportable segments based on profit or loss from their operations
before other income (expense) and income taxes. The accounting policies
of the reportable segments are the same as those described in the
summary of significant accounting policies.
The other category in the segment breakdown is attributable to
investments in oil and gas properties. This segment has not met the
quantitative thresholds for determining reportable segments. There are
no intersegment sales and transfers.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Revenues:
- ---------
Land Drilling ........... $ 36,327 $ 41,665 $ 89,188 $127,657
Pressure Pumping ........ 6,022 6,975 14,501 17,604
Other ................... 47 50 127 149
-------- -------- -------- --------
$ 42,396 $ 48,690 $103,816 $145,410
======== ======== ======== ========
</TABLE>
-9-
<PAGE> 10
UTI ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999
9. INDUSTRY SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------------
1999 1998 1999 1998
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Selling, General and Administrative:
- ------------------------------------
Land Drilling .......................... $ 682 $ 1,079 $ 2,251 $ 2,921
Pressure Pumping ....................... 874 745 2,613 2,348
Other .................................. -- -- -- --
-------- -------- -------- --------
1,556 1,824 4,864 5,269
Corporate .............................. 985 902 2,935 2,919
-------- -------- -------- --------
$ 2,541 $ 2,726 $ 7,799 $ 8,188
======== ======== ======== ========
Operating Income (Loss):
- ------------------------
Land Drilling (1) ...................... $ 99 $ 3,201 $ (3,537) $ 14,523
Pressure Pumping (1) ................... 1,413 2,023 2,149 4,156
Other (1) .............................. 7 3 26 17
-------- -------- -------- --------
1,519 5,227 (1,362) 18,696
Other Charge ........................... -- (785) (260) (785)
Corporate .............................. (1,020) (943) (3,055) (2,995)
-------- -------- -------- --------
$ 499 $ 3,499 $ (4,677) $ 14,916
======== ======== ======== ========
Depreciation and Amortization:
- ------------------------------
Land Drilling .......................... $ 5,673 $ 4,735 $ 16,519 $ 12,546
Pressure Pumping ....................... 367 263 1,010 741
Other .................................. 18 15 51 45
-------- -------- -------- --------
6,058 5,013 17,580 13,332
Corporate .............................. 35 42 120 77
-------- -------- -------- --------
$ 6,093 $ 5,055 $ 17,700 $ 13,409
======== ======== ======== ========
Capital Expenditures:
- ---------------------
Land Drilling .......................... $ 906 $ 6,827 $ 3,144 $ 30,742
Pressure Pumping ....................... 794 271 1,761 2,773
Other .................................. -- -- -- --
-------- -------- -------- --------
1,700 7,098 4,905 33,515
Corporate .............................. -- 146 8 183
-------- -------- -------- --------
$ 1,700 $ 7,244 $ 4,913 $ 33,698
======== ======== ======== ========
</TABLE>
- ------------------
(1) Operating income (loss) is total operating revenues less operating
expenses, depreciation and amortization and does not include general
corporate expenses, other charge, other income (expense) or income
taxes.
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<PAGE> 11
UTI ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999
9. INDUSTRY SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ -----------
<S> <C> <C>
Segment Assets:
- ---------------
Land Drilling .................................... $ 220,933 $ 204,283
Pressure Pumping ................................. 15,189 14,799
Other ............................................ 349 404
------------ -----------
236,471 219,486
Corporate ........................................ 20,603 12,581
------------ -----------
$ 257,074 $ 232,067
============ ===========
</TABLE>
-11-
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
UTI 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
Texas, Oklahoma, New Mexico and Wyoming. The Company's rig fleet consists of 120
land drilling rigs that are well suited to the requirements of its markets. The
Company's contract drilling services are performed through four regional
drilling units and are marketed under the names FWA Drilling Company,
FWA/Peterson Drilling Company, Norton Drilling Company, Southland Drilling
Company and Triad Drilling Company. The Company also provides pressure pumping
services in the Appalachian Basin under the name of Universal Well Services.
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 natural gas producing regions in the United States. Pursuant to this
strategy, the Company has acquired 97 rigs net of dispositions since 1995. As a
result of these acquisitions and increased rig utilization and dayrates caused
by favorable market conditions, the Company's revenues grew substantially during
1996 and 1997. During the latter part of 1997 and during 1998, however, the
Company and the United States contract drilling industry, in general,
experienced significant declines in demand and pricing for their services. These
depressed market conditions have resulted in the Company's fleet utilization
decreasing to 39% during the first nine months of 1999 from 60% during the first
nine months of 1998.
In response to depressed industry conditions, the Company undertook a
series of actions during the first quarter of 1999 designed to improve
efficiency, increase productivity and make the Company more competitive in the
market place. These actions included the streamlining of certain contract
drilling operations and certain personnel changes. This consolidation of
operations reduced the Company's number of regional operating units from seven
to four and reduced the Company's administrative staff by twenty-six
individuals. As a result of these actions, the Company recorded a one-time other
charge during 1999 of $.3 million, which consisted primarily of employee-related
expenses. In addition, the Company sold certain non-strategic assets of its
Appalachian Basin contract drilling division for $5.6 million, which resulted in
the Company recording a one-time gain of approximately $2.8 million during the
first quarter of 1999. As a result of these initiatives, the Company believes
that it has brought its cost and operating structure more in line with current
industry conditions and has strengthened its balance sheet.
The three months ended September 30, 1999 reflect an improvement in
market conditions in the United States land drilling markets compared to the
first six months of 1999 and the Company's actions taken during the first
quarter to improve efficiency and increase productivity. Fleet utilization was
44% for the three months ended September 30, 1999 compared to 35% for the first
six months of 1999. The Company believes that its strong liquidity position and
balance sheet provide it with the financial flexibility to capitalize on the
improving market conditions and the ability to react quickly to opportunities in
the contract drilling industry.
-12-
<PAGE> 13
During the third quarter of 1999, the Company completed its acquisition
of Norton Drilling Services, Inc. Norton's assets consist of 16 drilling rigs
which operate in the Permian Basin, South Texas and the Rockies.
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 average U.S. land rig count for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Land Drilling:
- --------------
Revenues ......................................... $ 36,327 $ 41,665 $ 89,188 $ 127,657
Cost of revenues ................................. $ 29,874 $ 32,259 $ 73,401 $ 96,519
Selling, general and administrative .............. $ 682 $ 1,079 $ 2,251 $ 2,921
Operating days (1) ............................... 4,711 5,349 11,394 15,950
Average revenue per operating day ................ $ 7.71 $ 7.79 $ 7.83 $ 8.00
Average costs per operating day .................. $ 6.34 $ 6.03 $ 6.44 $ 6.05
Average margin per operating day ................. $ 1.37 $ 1.76 $ 1.39 $ 1.95
Average U.S. land rig count (2) .................. 543 654 459 710
Number of owned rigs at end of period ............ 120 109 120 109
Average number of rigs owned during period ....... 115 107 109 97
Average rigs operating ........................... 51 58 42 58
Rig utilization percentage (3) ................... 44% 54% 39% 60%
Capital expenditures ............................. $ 906 $ 6,827 $ 3,144 $ 30,742
Capital expenditures per operating day ........... $ .19 $ 1.28 $ .28 $ 1.93
Pressure Pumping:
- -----------------
Revenues ......................................... $ 6,022 $ 6,975 $ 14,501 $ 17,604
Cost of revenues ................................. $ 3,367 $ 3,973 $ 8,736 $ 10,363
Selling, general and administrative .............. $ 874 $ 745 $ 2,613 $ 2,348
Total jobs ....................................... 841 993 1,995 2,509
Average revenue per job .......................... $ 7.16 $ 7.02 $ 7.27 $ 7.02
Average costs per job ............................ $ 4.00 $ 4.00 $ 4.38 $ 4.13
Average margin per job ........................... $ 3.16 $ 3.02 $ 2.89 $ 2.89
Capital expenditures ............................. $ 794 $ 271 $ 1,761 $ 2,773
Other and Corporate:
- --------------------
Revenues ......................................... $ 47 $ 50 $ 127 $ 149
Cost of revenues ................................. $ 22 $ 32 $ 49 $ 87
Selling, general and administrative .............. $ 985 $ 902 $ 2,935 $ 2,919
Capital expenditures ............................. $ 0 $ 146 $ 8 $ 183
</TABLE>
-13-
<PAGE> 14
- ------------------
(1) An operating day is defined as a day during which a rig is being
operated, mobilized, assembled or dismantled while under contract.
(2) Average U.S. land rig count is compiled from data reported by Baker
Hughes, Inc. 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.
(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, including stacked rigs. A rig is considered
utilized when it is being operated, mobilized, assembled or dismantled
while under contract. For the quarter ended September 30, 1999, the
utilization rate of the Company's rigs, excluding stacked rigs, was
51%.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Revenues by business segment for the three months ended
September 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three Months
Ended September 30,
--------------------- %
1999 1998 (Decrease)
-------- -------- ----------
(in thousands)
<S> <C> <C> <C>
Revenues:
- ---------
Land Drilling ...... $ 36,327 $ 41,665 (12.8)
Pressure Pumping ... 6,022 6,975 (13.7)
Other .............. 47 50 (6.0)
-------- --------
$ 42,396 $ 48,690 (12.9)
======== ========
</TABLE>
Land drilling revenues decreased as a result of depressed market
conditions resulting in decreased utilization rates and dayrates and prices
received on footage and turnkey contracts during 1999. The decrease in pressure
pumping revenue is a result of depressed market conditions.
Gross profit and gross profit percentage by business segment for the
three months ended September 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three Months
Ended September 30,
--------------------------------------------
1999 % 1998 %
------- ---- -------- -----
(in thousands)
<S> <C> <C> <C> <C>
Gross Profit:
- -------------
Land Drilling ....... $ 6,453 17.8 $ 9,406 22.6
Pressure Pumping .... 2,655 44.1 3,002 43.0
Other ............... 25 53.2 18 36.0
------- --------
$ 9,133 21.5 $ 12,426 25.5
======= ========
</TABLE>
-14-
<PAGE> 15
Land drilling gross profit decreased due to depressed market
conditions. Gross profit increased in pressure pumping for the three months
ended September 30, 1999, compared to the same period of 1998, due to mix of
jobs performed.
Depreciation and amortization expense increased $1.0 million during the
three months ended September 30, 1999, compared to the three months ended
September 30, 1998, primarily due to capital expenditures incurred in 1998 and
acquisitions consummated during 1998 and 1999.
Interest expense increased $44 thousand during the quarter ended
September 30, 1999 compared to the quarter ended September 30, 1998. This
increase was primarily due to an increase in outstanding debt for the three
months ended September 30, 1999 compared to the same period of 1998. Average
debt outstanding was $32.0 million during the quarter ended September 30, 1999
compared to $27.7 million for the quarter ended September 30, 1998. The
effective interest rate for the quarter ended September 30, 1999 was 12.9%
compared to 14.3% for the quarter ended September 30, 1998.
Income taxes decreased $1.1 million during the quarter ended
September 30, 1999, compared to the quarter ended September 30, 1998, primarily
due to lower taxable income in 1999. The Company's effective tax rate for the
quarter ended September 30, 1999 was 0.0% and 40.0% for the quarter ended
September 30, 1998, with the decrease primarily attributable to the impact of
goodwill amortization associated with acquisitions that are nondeductible for
tax purposes.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Revenues by business segment for the nine months ended
September 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
------------------------ %
1999 1998 (Decrease)
--------- --------- ----------
(in thousands)
<S> <C> <C> <C>
Revenues:
- ---------
Land Drilling ........... $ 89,188 $ 127,657 (30.1)
Pressure Pumping ........ 14,501 17,604 (17.6)
Other ................... 127 149 (14.8)
--------- ---------
$ 103,816 $ 145,410 (28.6)
========= =========
</TABLE>
Land drilling revenues decreased as a result of depressed market
conditions resulting in decreased utilization rates and dayrates and prices
received on footage and turnkey contracts during 1999. The decrease in pressure
pumping revenue is a result of depressed market conditions.
-15-
<PAGE> 16
Gross profit and gross profit percentage by business segment for the
nine months ended September 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
--------------------------------------
1999 % 1998 %
-------- ----- -------- -----
(in thousands)
<S> <C> <C> <C> <C>
Gross Profit:
- -------------
Land Drilling ........... $15,787 17.7 $31,138 24.4
Pressure Pumping ........ 5,765 39.8 7,241 41.1
Other ................... 78 61.4 62 41.6
------- -------
$21,630 20.8 $38,441 26.4
======= =======
</TABLE>
Land drilling gross profit decreased during the nine months ended
September 30, 1999, compared to the same period of 1998, due to depressed market
conditions along with three abnormal events in the first quarter of 1999: a rig
move from one market to another, a Department of Labor audit assessment and an
unfavorable court decision on a workers compensation claim. Each event was
approximately $.2 million. Gross profit per job decreased in pressure pumping
for the nine months ended September 30, 1999, compared to the same period of
1998, due to the mix of jobs performed.
The other charge of $.3 million for the nine months ended
September 30, 1999 was related to a series of actions taken to improve
efficiency, increase productivity and make the Company more competitive in the
market place. The actions included the reduction of regional operating offices
from seven to four and reduced the Company's administrative staff by twenty-six
individuals. The other charge consisted primarily of employee-related expenses
associated with these reductions.
Depreciation and amortization expense increased $4.3 million during the
nine months ended September 30, 1999, compared to the nine months ended
September 30, 1998, primarily due to acquisitions consummated during 1998 and
1999.
Interest expense increased $.3 million during the nine months ended
September 30, 1999 compared to the nine months ended September 30, 1998. This
increase was primarily due to an increase in outstanding debt for the nine
months ended September 30, 1999 compared to the same period of 1998. Average
debt outstanding was $31.9 million during the nine months ended
September 30, 1999 compared to $25.2 million for the nine months ended
September 30, 1998. The effective interest rate for the nine months ended
September 30, 1999 was 12.9% compared to 14.5% for the nine months ended
September 30, 1998.
Interest income decreased $.6 million during the nine months ended
September 30, 1999 compared to the nine months ended September 30, 1998. In
October of 1997, the Company completed a secondary offering of which the excess
funds were invested in short-term, interest-bearing, investment-grade securities
through the first six months of 1998.
-16-
<PAGE> 17
Other income increased $2.3 million during the nine months ended
September 30, 1999 compared to the nine months ended September 30, 1998. During
the first quarter of 1999, the Company sold certain assets of its Appalachian
drilling subsidiary resulting in a $2.8 million gain. In addition, during the
second quarter of 1999, the Company incurred $.2 million of expenses related to
its unsuccessful bid, in partnership with its largest shareholder, to purchase
all or substantially all of the assets of Fracmaster, Ltd.
Income taxes decreased $6.4 million during the nine months ended
September 30, 1999, compared to the nine months ended September 30, 1998,
primarily due to lower taxable income in 1999. The Company's effective tax rate
for the nine months ended September 30, 1999 was 20.3% and 39.9% for the nine
months ended September 30, 1998, with the decrease primarily attributable to the
impact of goodwill amortization associated with acquisitions that are
nondeductible for tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
Working capital as of September 30, 1999 was $24.0 million compared to
$20.6 million as of December 31, 1998. The Company's primary cash needs
historically have been to fund working capital requirements, make capital
expenditures to replace and expand its drilling rig fleet and for acquisitions.
The Company's ongoing operations have been funded through available cash, cash
provided from operations and borrowings under the Company's line of credit 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.
The Company had $12.7 million in cash and cash equivalents and no
borrowings under the Working Capital Line as of September 30, 1999, compared to
$10.3 million in cash and cash equivalents and no borrowings under the Working
Capital Line as of December 31, 1998. In March 1999, the Company sold certain
non-strategic assets located in the Appalachian Basin for $5.6 million in cash.
The Company intends to utilize these available cash resources, together with its
cash flow from operations, to continue to fund its operations and capital
expenditures.
Net cash provided by operations was $8.0 million and $23.0 million, for
the nine months ended September 30, 1999 and 1998, respectively. Such funds were
retained in 1999 and primarily utilized to fund capital expenditures in 1998.
Capital expenditures for the nine months ended September 30, 1999 and 1998 were
$4.9 million and $33.7 million, respectively.
Long Term Debt Facilities
Working Capital Line. On June 19, 1998, the Company entered into an
amended Working Capital Line, which now provides for maximum borrowings of up to
$30.0 million. Under the Working Capital Line, up to $1.6 million may be
utilized for letters of credit. Borrowings under the Working Capital Line bear
interest at the lower of the bank's prime rate or a LIBOR-based rate. Borrowings
under the Working Capital Line mature on June 30, 2000 and are secured by all of
the Company's accounts receivable and inventory (excluding the Company's
drilling rigs, drilling equipment or drill pipe). The Working Capital
-17-
<PAGE> 18
Line contains covenants and restrictions customary in financial instruments of
this type, including covenants relating to the maintenance of financial ratios,
changes in control of the Company and limits on capital expenditures. Although
the Company has not borrowed any money under the Working Capital Line during at
least the past twelve months and had working capital of $24.0 million as of
September 30, 1999, during the third quarter, the Company amended certain of its
financial covenants so that it would be in compliance with the terms of the
credit agreement in the event the Company desires to borrow any funds in the
future.
Subordinated Notes. On April 11, 1997, the Company issued $25.0 million
principal amount of 12.0% Subordinated Notes due 2001 (the "Subordinated
Notes"). The Subordinated Notes were issued at a 2.0% 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 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), restrictions on dividends, distributions and other restricted payments.
Promissory Notes. On July 31, 1998, the Company issued $7.8 million
principal amount of unsecured promissory notes. The notes bear interest at 7.0%
and mature on July 31, 2002. The notes were issued in connection with an
acquisition.
Acquisitions
Norton. On July 27, 1999, the Company acquired Norton Drilling Services
("Norton") for 1,299,000 shares of the Company's Common Stock. Norton's assets
include sixteen drilling rigs as well as related drilling equipment. The
acquisition has been accounted for under the purchase method of accounting. No
goodwill was recorded because the estimated fair market value of the assets
acquired exceeded the purchase price.
Peterson. On April 9, 1998, the Company acquired Peterson Drilling
Company ("Peterson") for a total purchase price of $20.4 million in cash, which
the Company funded from cash on hand following the Company's public offering in
October 1997. Peterson's assets included eight drilling rigs, as well as related
drilling equipment, office facilities in Midland, Texas and approximately $4.5
million in net working capital. The acquisition has been accounted for under the
purchase method of accounting. Goodwill of $3.6 million has been recorded
related to this acquisition.
LaMunyon. On June 24, 1998, the Company acquired the land drilling
assets of LaMunyon Drilling Corporation for $12.2 million in cash, which the
Company funded from cash on hand following the Company's public offering in
October 1997. The acquired assets consisted of five land drilling rigs, related
spare parts, office equipment and rolling stock. The acquisition has been
accounted for using the purchase method of accounting. No goodwill was recorded
because the estimated fair market value of the assets acquired exceeded the
purchase price.
-18-
<PAGE> 19
Suits. On July 31, 1998, the Company acquired Suits Enterprises, Inc.
("Suits") for a total of approximately $11.1 million, comprised of $2.9 million
in cash, $7.8 million in 7% four-year notes and 100,000 five-year warrants of
Common Stock. Warrants to purchase 75,000 shares of Common Stock are exercisable
at $26.50 per share and warrants to purchase 25,000 shares of Common Stock are
exercisable at $35.00 per share. Included in the acquisition are Suits' seven
complete drilling rigs plus assorted spare parts, drilling equipment and a fleet
of rolling stock. The acquisition has been accounted for using the purchase
method of accounting. No goodwill was recorded because the estimated fair market
value of the assets acquired exceeded the purchase price.
Future Acquisitions and Capital Needs
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 believes that its strong liquidity position also
provides it with the financial flexibility to react quickly to opportunities in
the contract drilling industry, including opportunities to make strategic
acquisitions that the Company deems advisable given current industry conditions.
Year 2000
The Year 2000 Issue is the result of computer programs written using
two digits rather than four to define the applicable year. The Company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the Year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities.
The Company's plan to resolve the Year 2000 Issue involves the
following four phases: assessment, remediation, testing and implementation. To
date, the Company has fully completed its assessment of all systems that it
believes could be significantly affected by the Year 2000 Issue. The completed
assessment indicated that most of the Company's significant information
technology systems could be affected, particularly the general ledger accounting
system. The Company does not believe that the Year 2000 Issue presents a
material exposure as it relates to the Company's services. The Company
experienced no disruptions during this year's high-risk dates: April 9, August
21 and 22 and September 9. In addition, the Company has gathered information
about the Year 2000 compliance status of its significant suppliers and
subcontractors and continues to monitor their compliance.
For its information technology exposures, to date, the Company is 75%
complete on the remediation phase and expects to complete software reprogramming
and replacement during November 1999. Once software is reprogrammed or replaced
for a system, the Company begins testing and implementation. These phases run
concurrently for different systems with all remediated systems expected to be
fully tested and implemented with 100% completion targeted for November 30,
1999.
-19-
<PAGE> 20
The Company has contacted its significant suppliers and subcontractors
and, to date, the Company is not aware of any third parties with a Year 2000
Issue that would materially impact the Company's results of operations,
liquidity or capital resources. However, the Company has no means of ensuring
that third parties will be Year 2000 ready. The inability of third parties to
complete their Year 2000 resolution process in a timely fashion could materially
impact the Company by causing such third parties to fail to timely deliver or
supply needed material and services to or on behalf of the Company, thereby
materially adversely affecting the Company's ability to deliver its services in
a timely and cost-effective manner in accordance with Company standards or by
causing third party customer's operations to temporarily shutdown or delay
operations, thereby materially affecting demand for the Company's services. The
effect of non-compliance by third parties is not determinable.
The Company will utilize both internal and external resources to
reprogram or replace, test and implement the software and operating equipment
for Year 2000 modifications. The total cost of the Year 2000 Project is
estimated at $1.0 million and is being funded through operating cash flows. To
date, the Company has incurred approximately $.7 million for new systems related
to all phases of the Year 2000 Project, which has been capitalized. The total
remaining project costs is attributable to the implementation of new software
and purchase of operating equipment, which will also be capitalized.
Management of the Company believes that it has an effective program in
place to resolve Year 2000 Issues in a timely manner. However, the Company has
not yet completed all necessary phases of the Year 2000 Project. Disruptions in
the economy generally resulting from Year 2000 Issues could also materially
adversely affect the Company. The Company could be subject to litigation for
computer system product failure, including equipment shutdown or failure to
properly date business records. The amount of potential liability and lost
revenue cannot be reasonably estimated at this time.
The Company currently has contingency plans in place in the event it
does not complete all phases of the Year 2000 Project.
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 the "Business", "Properties" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" 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.
-20-
<PAGE> 21
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; and risks that a
continuation of current industry conditions or further decline in industry
conditions will adversely effect the demand for and pricing of the Company's
services; 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;
labor shortages; operating risks inherent in the contract drilling service
industry, such as blowouts, explosions, cratering, sour gas, well fires and
spills; domestic and world-wide political stability and economic growth; risks
associated with the Year 2000 Issue and other risks associated with the
Company's successful execution of internal operating plans as well as regulatory
uncertainties and legal proceedings.
The risks related to the Year 2000 Issue and the dates on which the
Company believes its Year 2000 Project will be completed are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources,
third-party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved, or that there will not be a
delay in, or increased costs associated with the implementation of the Company's
Year 2000 Project. Specific factors that might cause differences between the
estimates and actual results, include but are not limited to, the availability
and cost of personnel trained in these areas, the ability to locate and correct
all relevant computer codes, timely responses to and corrections by third
parties and suppliers, the ability to implement interfaces between the new
systems and the systems not being replaced and similar uncertainties. Due to the
general uncertainty inherent in the Year 2000 Project, resulting in part from
uncertainty of the Year 2000 readiness of third parties and the interconnection
of global businesses, the Company cannot ensure its ability to timely and cost
effectively resolve problems associated with the Year 2000 Issue that may affect
its operations and business or expose it to third-party liability.
The Company's forward-looking statements assume that there will not be
a material decline in oil and natural gas prices, and that the Company will not
experience any other events or factors enumerated above.
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 there can
be no assurance that insurance will continue to be available on terms as
favorable as those that currently exist. 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.
-21-
<PAGE> 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Title or Description
- ------------------------------------------------------------------------------------------------------
<S> <C>
* 10.1 - Fifth Amendment and Modification to Amended and Restated Loan and Security
Agreement.
* 27 - Financial Data Schedule
</TABLE>
* Filed herewith.
(b) Reports on 8-K
To report the acquisition of Norton, pursuant to Item 2 of Form 8-K, the Company
filed a Form 8-K with the Securities and Exchange Commission dated
July 26, 1999.
-22-
<PAGE> 23
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, thereunto duly authorized.
UTI ENERGY CORP.
(REGISTRANT)
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------- ----------------------------- --------------------------------
<S> <C> <C>
/s/ John E. Vollmer III Vice President, Treasurer and November 15, 1999
- -------------------------------- Chief Financial Officer --------------------------------
John E. Vollmer III
Signed on behalf of the registrant and as principal financial officer.
/s/ Bruce Sauers Vice President and Chief November 15, 1999
- -------------------------------- Accounting Officer --------------------------------
Bruce Sauers
</TABLE>
-23-
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Title or Description
------- --------------------
<S> <C>
* 10.1 - Fifth Amendment and Modification to Amended and Restated Loan and Security
Agreement.
* 27 - Financial Data Schedule
</TABLE>
* Filed herewith.
<PAGE> 1
EXHIBIT 10.1
FIFTH AMENDMENT AND MODIFICATION
TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS FIFTH AMENDMENT AND MODIFICATION TO AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT (the "AMENDMENT") is made effective as of
November 12, 1999 by and among INTERNATIONAL PETROLEUM SERVICE COMPANY, a
Pennsylvania corporation ("IPSCO"), UNIVERSAL WELL SERVICES, INC., a Delaware
corporation ("UNIVERSAL"'), UTICO HARD ROCK BORING, INC., a Delaware corporation
formerly known as USC, Incorporated ("HRB"), UTI DRILLING, L.P., a Texas limited
partnership ("UTI L.P."), SUITS DRILLING COMPANY, an Oklahoma corporation
("SUITS DRILLING"), UTI MANAGEMENT SERVICES, L.P., a Texas limited partnership
("MANAGEMENT SERVICES"), NORTON DRILLING SERVICES, INC., a Delaware corporation
("NORTON"), NORTON DRILLING COMPANY, a Delaware corporation ("NORTON
OPERATING"), UTI ENERGY CORP., a Delaware corporation ("UTI"), UTICO, INC., a
Delaware corporation ("UTICO"), and MELLON BANK, N.A. ("BANK"). IPSCO,
Universal, HRB, UTI L.P., SUITS Drilling, Management Services, Norton and Norton
Operating are hereinafter sometimes collectively referred to as the "BORROWERS"
and individually as a "BORROWER." UTI and UTICO are hereinafter sometimes
collectively referred to as the "GUARANTORS" and individually as a "GUARANTOR."
The Borrowers and the Guarantors are hereinafter sometimes collectively referred
to as the "OBLIGORS" and individually as an "OBLIGOR."
BACKGROUND
A. Pursuant to the terms of that certain Amended and Restated Loan and
Security Agreement dated June 19, 1998, as amended by (i) that certain First
Amendment and Modification to Amended and Restated Loan and Security Agreement
dated August 31, 1998, (ii) that certain Second Amendment and Modification to
Amended and Restated Loan and Security Agreement dated December 31, 1998, (iii)
that certain Third Amendment and Modification to Amended and Restated Loan and
Security Agreement dated June 30, 1999, and (iv) that certain Fourth Amendment
and Modification to Amended and Restated Loan and Security Agreement dated July
26, 1999 (as amended, the "LOAN AGREEMENT"), Bank agreed, inter alia, to extend
to Borrowers a revolving line of credit in a maximum outstanding principal
amount of up to Thirty Million Dollars ($30,000,000.00).
B. Obligors have requested and Bank has agreed to amend the terms of
the Loan Agreement in accordance with the terms and conditions hereof.
NOW THEREFORE, the parties hereto, intending to be legally
bound, agree as follows:
1. DEFINITION. The definition of "Acquisition Purchase Price
Limit" in SECTION 15 of the Loan Agreement shall be amended to read in its
entirety, as follows:
<PAGE> 2
"ACQUISITION PURCHASE PRICE LIMIT means as follows:
(a)$40,000,000.00 if the Obligors' Total Funded Debt
to EBITDA Ratio at such time is less than 1.0 to 1.0.
(b)$35,000,000 if the Obligors' Total Funded Debt to
EBITDA Ratio at such time is greater than or equal to 1.0 to
1.0.
Notwithstanding the foregoing, the Acquisition
Purchase Price Limit shall be unlimited as to dollar amount if
100% of the purchase price to be paid as part of the
applicable acquisition is paid by the issuance of Equity
Securities of an Obligor."
2. INTEREST COVERAGE RATIO. SECTION 8.3 of the Loan Agreement
shall be amended to read, in its entirety, as follows:
"8.3 INTEREST COVERAGE RATIO. Obligors will maintain
an Interest Coverage Ratio of not less than (a) 4.0 to 1.0 as
of the end of each fiscal quarter through the fiscal quarter
ending December 31, 1998; (b) 2.7 to 1.0 as of the end of the
fiscal quarter ending March 31, 1999; (c) 0.5 to 1.0 as of the
end of the fiscal quarter ending June 30, 1999; (d) (-0.22) to
1.0 as of the end of the fiscal quarter ending September 30,
1999; and (e) 4.0 to 1.0 as of the end of each fiscal quarter
thereafter. The Interest Coverage Ratio will be calculated on
a rolling four (4) quarters basis for the four (4) full fiscal
quarters then ended."
3. AMENDMENT FEE. In consideration for the Bank entering into
this Amendment, Obligors agree to pay to Bank an amendment fee equal to Fifteen
Thousand Dollars ($15,000.00). Such fee shall be fully earned and shall be due
and payable upon execution of this Letter Agreement. Such fee shall not be
refundable in whole or in part.
4. CHALLENGE TO ENFORCEMENT. Obligors acknowledge and agree
that they do not have any defense, set-off, counterclaim or challenge against
the payment of any sums owing under the Loan Documents, or the enforcement of
any of the terms or conditions thereof.
5. CONFIRMATION OF COLLATERAL. Nothing contained herein shall
be deemed to be a compromise, satisfaction, accord and satisfaction, novation or
release of any of the Loan Documents, or any rights or obligations thereunder,
or a waiver by Bank of any of its rights under the Loan Documents or at law or
in equity. All liens, security interests, rights and remedies granted to the
Bank in the Loan Documents are hereby ratified, confirmed and continued.
2
<PAGE> 3
6. REPRESENTATIONS, WARRANTIES AND COVENANTS. Obligors
represent, warrant and covenant, as applicable, which representations,
warranties and covenants shall survive until all Bank Indebtedness and all other
obligations of Obligors to Bank are paid and satisfied in full, as follows:
6.1 All representations and warranties of
Obligors set forth in the Loan Documents, as amended hereby, are true and
correct as of the date hereof.
6.2 No condition or event exists or has occurred
which would constitute an Event of Default under the Loan Documents (or would,
upon the giving of notice or the passage of time or both, constitute an Event of
Default).
6.3 The execution and delivery of this Amendment
by Obligors and all documents and agreements to be executed and delivered
pursuant to the terms hereof:
(a) have been duly authorized by all
requisite corporate or limited partnership action, as the case may be, by
Obligors;
(b) will not conflict with or result in
the breach of or constitute a default (upon the passage of time, delivery of
notice or both) under any applicable statute, law, rule, regulation or ordinance
or any indenture, mortgage, loan or other material document or agreement to
which any Obligor is a party or by which any of them is bound or affected; and
(c) will not result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the property or assets of any Obligor, except liens in favor of the Bank.
6.4 Obligors agree that none of their
obligations under any of the Loan Documents shall in any way be adversely
affected by this Amendment.
6.5 Obligors ratify and confirm all of their
obligations under the Loan Documents.
7. NO WAIVER. Except as otherwise provided herein, nothing
contained and no actions taken by Bank in connection herewith shall constitute
nor shall they be deemed to be a waiver, release or amendment of or to any
rights, remedies, or privileges afforded to Bank under the Loan Documents or
under the Uniform Commercial Code. Nothing herein shall constitute a waiver by
Bank of Obligors' compliance with the terms of the Loan Documents, nor shall
anything contained herein constitute an agreement by Bank to enter into any
further amendments with Obligors.
8. INCONSISTENCIES. To the extent of any inconsistency between
the terms and conditions of this Amendment and the terms and conditions of the
other Loan Documents, the terms
3
<PAGE> 4
and conditions of this Amendment shall prevail. All terms and conditions of the
Loan Documents not inconsistent herewith shall remain in full force and effect
and are hereby ratified and confirmed by Obligors.
9. CONSTRUCTION. All references to the Loan Agreement therein
or in any other Loan Documents shall be deemed to be a reference to the Loan
Agreement as hereby amended.
10. COSTS AND EXPENSES. Obligors agree to pay all of Bank's
legal fees and expenses in connection with the review, preparation, negotiation,
documentation and closing of this Amendment. Nothing contained in this Amendment
shall limit in any manner whatsoever Bank's right to reimbursement under any of
the Loan Documents.
11. BINDING EFFECT. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective permitted
successors and assigns.
12. GOVERNING LAW. This Amendment has been made, executed and
delivered in the Commonwealth of Pennsylvania and will be construed in
accordance with and governed by the laws of such Commonwealth, without regard to
any rules or principles regarding conflicts of law or any rule or canon of
construction which interprets agreements against the draftsman.
13. HEADINGS. The headings of the Sections of this Amendment
are inserted for convenience only and shall not be deemed to constitute a part
of this Amendment.
14. COUNTERPARTS. This Amendment may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart. Signatures delivered via facsimile transmission shall be
deemed original signatures hereto.
15. DEFINED TERMS. Capitalized terms used in this Amendment
and not defined herein shall have the respective meaning assigned to such terms
in the Loan Agreement.
16. WAIVER OF RIGHT TO TRIAL BY JURY. OBLIGORS AND BANK WAIVE
ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (a)
ARISING UNDER ANY OF THE LOAN DOCUMENTS, INCLUDING THIS AMENDMENT OR (b) IN ANY
WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF OBLIGORS OR BANK
WITH RESPECT TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR
THERETO, IN EACH CASE WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE,
OBLIGORS AND BANK AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE
OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO
THIS AMENDMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH
ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF OBLIGORS AND BANK TO THE WAIVER
OF THEIR RIGHT TO TRIAL BY JURY.
4
<PAGE> 5
OBLIGORS ACKNOWLEDGE THAT THEY HAVE HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL
REGARDING THIS SECTION, THAT THEY FULLY UNDERSTAND ITS TERMS, CONTENT AND
EFFECT, AND THAT THEY VOLUNTARILY AND KNOWINGLY AGREE TO THE TERMS OF THIS
SECTION.
IN WITNESS WHEREOF, the parties have executed this Amendment
as of the date first above written.
BORROWERS:
INTERNATIONAL PETROLEUM
SERVICE COMPANY, a Pennsylvania
corporation
By: /s/ John E. Vollmer
-------------------------------
John E. Vollmer, Vice President
UNIVERSAL WELL SERVICES, INC., a
Delaware corporation
By: /s/ John E. Vollmer
-------------------------------
John E. Vollmer, Vice President
UTICO HARD ROCK BORING, INC., a
Delaware corporation, formerly
known as USC, Incorporated
By: /s/ John E. Vollmer
-------------------------------
John E. Vollmer, Vice President
UTI DRILLING, L.P., a Texas limited
partnership
BY: UTICO HARD ROCK BORING, INC.,
a Delaware corporation, its
sole general partner
By: /s/ John E. Vollmer
--------------------------
John E. Vollmer,
Vice President
5
<PAGE> 6
SUITS DRILLING COMPANY, an Oklahoma
corporation
By: /s/ John E. Vollmer
-------------------------------
John E. Vollmer, Vice President
UTI MANAGEMENT SERVICES, L.P., a
Texas limited partnership
BY: UTICO HARD ROCK BORING, INC.,
a Delaware corporation, its
sole general partner
By: /s/ John E. Vollmer
--------------------------
John E. Vollmer,
Vice President
NORTON DRILLING SERVICES, INC., a
Delaware corporation
By: /s/ John E. Vollmer
-------------------------------
John E. Vollmer, Vice President
NORTON DRILLING COMPANY, a Delaware
corporation
By: /s/ John E. Vollmer
-------------------------------
John E. Vollmer, Vice President
GUARANTORS:
UTI ENERGY CORP., a Delaware
corporation
By: /s/ John E. Vollmer
-------------------------------
John E. Vollmer, Vice President
6
<PAGE> 7
UTICO, INC., a Delaware corporation
By: /s/ John E. Vollmer
-------------------------------
John E. Vollmer, Vice President
BANK:
MELLON BANK, N.A.
By: /s/ Stephen Wilus
-------------------------------
Stephen Wilus, Vice President
7
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