|
Previous: DELAFIELD FUND INC, N-14/A, 2000-04-27 |
Next: MASSACHUSETTS FINANCIAL SERVICES CO /MA/, 13F-HR, 2000-04-27 |
UNITED STATES
Form 10-Q
(Mark One)
[X]
For the Quarterly Period Ended March 31, 2000
[ ]
For the transition period from to .
Commission File Number 1-12542
UTI Energy Corp.
Delaware (State or other jurisdiction of incorporation) Suite 225N 16800 Greenspoint Park Houston, Texas (Address of principal executive offices) |
23-2037823 (I.R.S. Employer Identification No.) 77060 (Zip 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 registrants common stock, as of the latest practicable date.
18,483,397 shares of Common Stock at April 24, 2000.
INDEX
Page No. | ||||||
PART I FINANCIAL INFORMATION | ||||||
Item 1. | Condensed Consolidated Financial Statements | 3 | ||||
Condensed Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999 | 3 | |||||
Condensed Consolidated Statements of Income for the Three Months ended March 31, 2000 and 1999 | 4 | |||||
Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2000 and 1999 | 5 | |||||
Notes to Condensed Consolidated Financial Statements | 6 | |||||
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations | 12 | ||||
PART II OTHER INFORMATION | ||||||
Item 1. | Legal Proceedings | 18 | ||||
Item 2. | Changes in Securities | 19 | ||||
Item 6. | Exhibits and Reports on Form 8-K | 20 | ||||
Signatures | 21 |
2
PART I FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Information
UTI ENERGY CORP.
March 31, | December 31, | |||||||
2000 | 1999 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 11,339 | $ | 7,547 | ||||
Accounts receivable, net of allowance for doubtful accounts of $2,993 in 2000 and $3,143 in 1999 | 32,844 | 33,522 | ||||||
Federal income tax receivables | 5,834 | 5,043 | ||||||
Materials and supplies | 798 | 748 | ||||||
Deferred income taxes | 1,997 | 1,762 | ||||||
Prepaid expenses | 2,362 | 1,487 | ||||||
55,174 | 50,109 | |||||||
PROPERTY AND EQUIPMENT | ||||||||
Land | 1,225 | 1,224 | ||||||
Buildings and improvements | 3,538 | 3,538 | ||||||
Machinery and equipment | 246,915 | 244,657 | ||||||
Oil and gas working interests | 1,559 | 1,856 | ||||||
Construction in process | 1,999 | 376 | ||||||
255,236 | 251,651 | |||||||
Less accumulated depreciation and amortization | 68,276 | 62,807 | ||||||
186,960 | 188,844 | |||||||
GOODWILL, less accumulated amortization of $3,998 in 2000 and $3,616 in 1999 | 18,879 | 19,261 | ||||||
OTHER ASSETS | 2,288 | 2,368 | ||||||
$ | 263,301 | $ | 260,582 | |||||
LIABILITIES AND SHAREHOLDERS EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Current maturities long-term debt | $ | 3,500 | $ | | ||||
Accounts payable | 19,204 | 19,672 | ||||||
Accrued payroll and related costs | 4,823 | 4,536 | ||||||
Accrued health insurance | 1,032 | 1,058 | ||||||
Other accrued expenses | 3,342 | 3,948 | ||||||
31,901 | 29,214 | |||||||
LONG-TERM DEBT | 28,815 | 32,196 | ||||||
DEFERRED INCOME TAXES | 41,310 | 41,668 | ||||||
OTHER LIABILITIES | 472 | 472 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
SHAREHOLDERS EQUITY | ||||||||
Common Stock, $.001 par value, 50,000 shares authorized, 19,086 issued and 18,483 outstanding in 2000, 18,432 shares issued and 17,829 outstanding in 1999 | 19 | 18 | ||||||
Additional capital | 147,778 | 144,312 | ||||||
Retained earnings | 23,011 | 22,707 | ||||||
Treasury Stock, 603 shares in 2000 and 1999, at cost | (10,005 | ) | (10,005 | ) | ||||
160,803 | 157,032 | |||||||
$ | 263,301 | $ | 260,582 | |||||
See notes to condensed consolidated financial statements.
3
UTI ENERGY CORP.
Three Months Ended | ||||||||
March 31, | ||||||||
2000 | 1999 | |||||||
REVENUES | $ | 54,273 | $ | 32,536 | ||||
COST OF REVENUES | 43,439 | 25,907 | ||||||
GROSS PROFIT | 10,834 | 6,629 | ||||||
OTHER COSTS AND EXPENSES | ||||||||
Selling, general and administrative | 2,781 | 2,724 | ||||||
Provisions for bad debts | | 292 | ||||||
Other charges | | 260 | ||||||
Depreciation and amortization | 6,631 | 5,834 | ||||||
9,412 | 9,110 | |||||||
OPERATING INCOME (LOSS) | 1,422 | (2,481 | ) | |||||
OTHER INCOME (EXPENSE) | ||||||||
Interest expense | (1,208 | ) | (1,028 | ) | ||||
Interest income | 145 | 126 | ||||||
Other, net | 131 | 2,955 | ||||||
(932 | ) | 2,053 | ||||||
INCOME (LOSS) BEFORE INCOME TAXES | 490 | (428 | ) | |||||
INCOME TAXES | 186 | (172 | ) | |||||
NET INCOME (LOSS) | $ | 304 | $ | (256 | ) | |||
BASIC EARNINGS (LOSS) PER COMMON SHARE | $ | 0.02 | $ | (0.02 | ) | |||
DILUTED EARNINGS (LOSS) PER COMMON SHARE | $ | 0.02 | $ | (0.02 | ) | |||
AVERAGE COMMON SHARES OUTSTANDING | ||||||||
Basic | 18,059 | 16,211 | ||||||
Diluted | 19,218 | 16,211 |
See notes to condensed consolidated financial statements.
4
UTI ENERGY CORP.
Three Months Ended | ||||||||||||
March 31, | ||||||||||||
2000 | 1999 | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
Net income (loss) | $ | 304 | $ | (256 | ) | |||||||
Adjustments to reconcile net income (loss) to net cash provided by operations | ||||||||||||
Depreciation | 6,082 | 5,293 | ||||||||||
Amortization | 549 | 541 | ||||||||||
Deferred income taxes | (593 | ) | 2,176 | |||||||||
Amortization of debt discount | 119 | 119 | ||||||||||
Provisions for bad debts | | 300 | ||||||||||
Gain on disposal of fixed assets | (95 | ) | (2,897 | ) | ||||||||
Changes in operating assets and liabilities, net of effect of businesses acquired | ||||||||||||
Receivables and prepaids | 1,261 | 4,541 | ||||||||||
Materials and supplies | (50 | ) | 8 | |||||||||
Accounts payable and accruals | (813 | ) | (5,060 | ) | ||||||||
Other | (87 | ) | (2 | ) | ||||||||
Net cash provided by operating activities | 6,677 | 4,763 | ||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
Capital expenditures | (4,236 | ) | (999 | ) | ||||||||
Net proceeds from disposition | | 4,935 | ||||||||||
Proceeds from sale of property and equipment | 134 | 145 | ||||||||||
Net cash provided (used) by investing activities | (4,102 | ) | 4,081 | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
Proceeds from exercise of stock options | 1,217 | 1,139 | ||||||||||
Net cash provided by financing activities | 1,217 | 1,139 | ||||||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 3,792 | 9,983 | ||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 7,547 | 10,337 | ||||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 11,339 | $ | 20,320 | ||||||||
See notes to condensed consolidated financial statements.
5
UTI ENERGY CORP.
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements as of March 31, 2000 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, 2000 are not necessarily indicative of the results for the entire year ending December 31, 2000. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in UTIs Annual Report on Form 10-K for the year ended December 31, 1999.
2. ACQUISITIONS
Norton Drilling Services, Inc. |
On July 27, 1999, UTI acquired Norton Drilling Services, Inc., for approximately 1.3 million shares of UTIs common stock. UTI also repaid approximately $8.0 million of Nortons existing debt upon the acquisition. The acquisition has been accounted for under the purchase method of accounting. Nortons operating results since July 27, 1999 have been consolidated with the operating results of UTI. No goodwill was recorded because the estimated fair market value of the assets acquired exceeded the purchase price. Nortons assets included:
| sixteen land drilling rigs | |
| drilling equipment | |
| rolling stock |
Schneider Drilling Corporation |
On December 14, 1999, UTI acquired the land drilling assets of Schneider Drilling Corporation for $7.5 million in cash. The acquisition has been accounted for under the purchase method of accounting. Schneiders operating results since December 14, 1999 have been consolidated with the operating results of UTI. No goodwill was recorded because the estimated fair market value of the assets acquired exceeded the purchase price. Schneiders assets included:
| three land drilling rigs | |
| major components for two additional land drilling rigs | |
| drilling equipment |
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
3. DISPOSITIONS
In March 1999, UTI sold certain land drilling assets of International Petroleum Service Company, its wholly owned 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 land drilling rigs | |
| related support equipment | |
| rolling stock | |
| spare parts and supplies |
4. LONG-TERM DEBT
Under UTIs $7.8 million promissory notes, a principal payment of $3.5 million is required if the average trading value of UTIs common stock for thirty consecutive trading days exceeds $30.00 per share. The triggering event occurred on March 9, 2000 and payment will be made by June 8, 2000.
5. CONTINGENCIES
UTI is involved in several claims arising in the ordinary course of business. UTI management believes all of these claims are covered by insurance. UTIs management believes that these matters will not have a material adverse effect on UTIs financial position.
UTI is partially self-insured for employee health insurance claims. UTI was self-insured for workers compensation for certain years prior to 1999. UTI incurs a maximum of $100,000 per employee under medical claims and a maximum of $250,000 per event for workers compensation claims. Although UTI believes that adequate reserves have been provided for expected liabilities arising from its self-insured obligations, managements estimates of these liabilities may change in the future as circumstances develop.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
6. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended | |||||||||
March 31, | |||||||||
2000 | 1999 | ||||||||
(in thousands, except | |||||||||
per share amounts) | |||||||||
Numerator: | |||||||||
Net income (loss) | $ | 304 | $ | (256 | ) | ||||
Denominator: | |||||||||
Denominator for basic earnings per share weighted-average shares | 18,059 | 16,211 | |||||||
Effect of dilutive securities: | |||||||||
Stock options | 845 | | |||||||
Warrants | 314 | | |||||||
Dilutive potential common shares | 1,159 | | |||||||
Denominator for diluted earnings per share adjusted weighted-average shares and assumed conversions | 19,218 | 16,211 | |||||||
Basic earnings (loss) per share | $ | 0.02 | $ | (0.02 | ) | ||||
Diluted earnings (loss) per share | $ | 0.02 | $ | (0.02 | ) | ||||
Options to purchase 200,000 shares of UTIs common stock and warrants to purchase 58,000 shares of UTIs common stock were not included in the computation of diluted earnings per share for the three months ended March 31, 1999 as the effect would have been antidilutive due to the net loss for the period.
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
7. WARRANTS
During the quarter, certain warrant holders executed a net exercise of their warrants. As a result of these transactions, a total of 663,000 warrants were converted into 389,638 shares of UTI common stock.
The following warrants to purchase UTI common stock were outstanding at March 31, 2000:
Number of | ||||||||||||
Related Event | Shares | Exercise Price | Expiration Date | |||||||||
Southland Acquisition | 12,000 | $ | 16.00 | April 11, 2002 | ||||||||
Suits Acquisition | 100,000 | 26.50-35.00 | July 31, 2003 | |||||||||
Norton Acquisition | 36,264 | 9.50-14.82 | February 24, 2004 and | |||||||||
April 1, 2002 |
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
8. INDUSTRY SEGMENT INFORMATION
UTI has two reportable segments: land drilling and pressure pumping. UTIs reportable segments are business units that offer different services.
UTI evaluates performance and allocates resources based on profit or loss from 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.
Three Months Ended | ||||||||
March 31, | ||||||||
2000 | 1999 | |||||||
(in thousands) | ||||||||
Revenues: | ||||||||
Land Drilling | $ | 50,044 | $ | 27,572 | ||||
Pressure Pumping | 4,180 | 4,927 | ||||||
Other | 49 | 37 | ||||||
$ | 54,273 | $ | 32,536 | |||||
Selling, General and Administrative: | ||||||||
Land Drilling | $ | 782 | $ | 882 | ||||
Pressure Pumping | 858 | 909 | ||||||
Other | | | ||||||
1,640 | 1,791 | |||||||
Corporate | 1,141 | 933 | ||||||
$ | 2,781 | $ | 2,724 | |||||
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
8. INDUSTRY SEGMENT INFORMATION (Continued)
Three Months Ended | ||||||||
March 31, | ||||||||
2000 | 1999 | |||||||
(in thousands) | ||||||||
Operating Income (Loss): | ||||||||
Land Drilling(1) | $ | 2,446 | $ | (1,860 | ) | |||
Pressure Pumping(1) | 180 | 616 | ||||||
Other(1) | 23 | 8 | ||||||
2,649 | (1,236 | ) | ||||||
Other Charge | | (260 | ) | |||||
Corporate | (1,227 | ) | (985 | ) | ||||
$ | 1,422 | $ | (2,481 | ) | ||||
Depreciation and Amortization: | ||||||||
Land Drilling | $ | 6,129 | $ | 5,444 | ||||
Pressure Pumping | 404 | 322 | ||||||
Other | 12 | 15 | ||||||
6,545 | 5,781 | |||||||
Corporate | 86 | 53 | ||||||
$ | 6,631 | $ | 5,834 | |||||
Capital Expenditures: | ||||||||
Land Drilling | $ | 3,973 | $ | 335 | ||||
Pressure Pumping | 254 | 664 | ||||||
Other | | | ||||||
4,227 | 999 | |||||||
Corporate | 9 | | ||||||
$ | 4,236 | $ | 999 | |||||
March 31, | December 31, | |||||||
2000 | 1999 | |||||||
Segment Assets: | ||||||||
Land Drilling | $ | 226,701 | $ | 233,341 | ||||
Pressure Pumping | 13,739 | 16,399 | ||||||
Other | 306 | 318 | ||||||
240,746 | 250,058 | |||||||
Corporate | 22,555 | 10,524 | ||||||
$ | 263,301 | $ | 260,582 | |||||
(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. |
11
ITEM 2. | Managements 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. UTI operates one of the largest land drilling rig fleets in the United States. UTIs drilling operations currently are concentrated in the prolific oil and natural gas producing basins of:
| Texas | |
| Oklahoma | |
| New Mexico | |
| Wyoming |
UTI has a fleet of 125 land drilling rigs that are well suited to the requirements of its markets. UTI also provides pressure pumping services in the Appalachian Basin.
Beginning in 1995, UTI decided to expand its land drilling operations. Management of UTI made this decision to take advantage of:
| improving market conditions | |
| benefits arising from a consolidation in the land drilling industry |
To effect this strategy, UTI disposed of its oilfield distribution business in September 1995 and embarked on an acquisition program aimed at expanding UTIs presence in the oil and natural gas producing regions in the United States. Under this strategy, UTI has acquired 107 rigs since 1995. During this same time period, UTI disposed of nine rigs primarily in the Appalachian Basin. Five of the nine rigs disposed of were sold in 1999.
UTIs revenues grew during 1997 and 1998 as a result of:
| acquisitions | |
| increased rig utilization and dayrates caused by favorable market conditions |
Beginning in 1998 and continuing into 1999, UTI and the United States land drilling industry experienced significant declines in demand and pricing for services. The depressed market conditions caused UTIs rig fleet utilization to decrease from 72% in 1997 to 55% in 1998 and to 43% in 1999. As a result, UTIs revenues decreased significantly during 1999.
UTI currently expects market conditions in the land drilling industry to improve in response to the recent improvement in commodity prices for oil and natural gas. In this regard, UTIs average utilization of 58% during the first quarter of 2000 was more than the 43% average utilization during 1999. The dayrate component of drilling contracts also increased during the first quarter of 2000. As conditions in the land drilling industry improve, UTI believes that its strong liquidity position and balance sheet provide it with the financial ability to react quickly to opportunities in the land drilling industry.
12
Results of Operations
UTI believes the number of land rigs actively drilling in the United States indicates the overall strength of the United States oilfield service industry. Without giving effect to acquisitions, variations in UTIs revenues and gross margins generally follow trends in the United States rig count.
The following table presents certain results of operations data for UTI and the average United States rig count as reported by Baker Hughes Inc.(1) for the periods indicated:
Three Months Ended | ||||||||
March 31, | ||||||||
2000 | 1999 | |||||||
(dollars in thousands) | ||||||||
Land Drilling: | ||||||||
Revenues | $ | 50,044 | $ | 27,572 | ||||
Cost of Revenues | $ | 40,687 | $ | 22,806 | ||||
Selling, general and administrative | $ | 782 | $ | 882 | ||||
Operating days(2) | 6,627 | 3,287 | ||||||
Average revenue per operating day | $ | 7.55 | $ | 8.39 | ||||
Average costs per operating day | $ | 6.14 | $ | 6.94 | ||||
Average margin per operating day | $ | 1.41 | $ | 1.45 | ||||
Average U.S. land rig count | 636 | 423 | ||||||
Number of owned rigs at end of period | 125 | 104 | ||||||
Average number of rigs owned during period | 125 | 108 | ||||||
Average rigs operating | 73 | 37 | ||||||
Rig utilization percentage(3) | 58 | % | 34 | % | ||||
Capital expenditures | $ | 3,973 | $ | 335 | ||||
Capital expenditures per operating day | $ | .60 | $ | .10 | ||||
Pressure Pumping: | ||||||||
Revenues | $ | 4,180 | $ | 4,927 | ||||
Cost of revenues | $ | 2,738 | $ | 3,087 | ||||
Selling, general and administrative | $ | 858 | $ | 909 | ||||
Total jobs | 653 | 691 | ||||||
Average revenue per job | $ | 6.40 | $ | 7.13 | ||||
Average costs per job | $ | 4.19 | $ | 4.47 | ||||
Average margin per job | $ | 2.21 | $ | 2.66 | ||||
Capital expenditures | $ | 254 | $ | 664 | ||||
Other and Corporate: | ||||||||
Revenues | $ | 49 | $ | 37 | ||||
Cost of revenues | $ | 14 | $ | 14 | ||||
Selling, general and administrative | $ | 1,141 | $ | 933 | ||||
Capital expenditures | $ | 9 | $ | |
(1) | Baker Hughes, Inc. is an international oilfield service and equipment company. For more than twenty years, it 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 calculated by dividing the operating days by the total available days, including stacked rigs. Available days are calculated by multiplying rigs owned by the days in the period under review. For the three months ended March 31, 2000, the utilization rate of UTIs rigs, excluding stacked rigs, was 67%. |
13
Comparison of Three Months Ended March 31, 2000 and 1999
Revenues by business segment for the three months ended March 31, 2000 and 1999 are as follows:
Three Months | ||||||||||||
Ended March 31, | ||||||||||||
% Increase | ||||||||||||
2000 | 1999 | (Decrease) | ||||||||||
(in thousands) | ||||||||||||
Revenues: | ||||||||||||
Land Drilling | $ | 50,044 | $ | 27,572 | 81.5 | |||||||
Pressure Pumping | 4,180 | 4,927 | (15.2 | ) | ||||||||
Other | 49 | 37 | 32.4 | |||||||||
$ | 54,273 | $ | 32,536 | 66.8 | ||||||||
Land drilling revenues increased as a result of improved market conditions resulting in improved utilization rates. The decrease in pressure pumping revenue is a result of weather conditions which have limited activity in the Appalachian Basin during the three months ended March 31, 2000.
Gross profit and gross profit percentage by business segment for the three months ended March 31, 2000 and 1999 are as follows:
Three Months | ||||||||||||||||
Ended March 31, | ||||||||||||||||
2000 | % | 1999 | % | |||||||||||||
(in thousands) | ||||||||||||||||
Gross Profit: | ||||||||||||||||
Land Drilling | $ | 9,357 | 18.7 | $ | 4,766 | 17.3 | ||||||||||
Pressure Pumping | 1,442 | 34.5 | 1,840 | 37.3 | ||||||||||||
Other | 35 | 71.4 | 23 | 62.2 | ||||||||||||
$ | 10,834 | 20.0 | $ | 6,629 | 20.4 | |||||||||||
Land drilling gross profit increased due to improved market conditions which resulted in higher utilization rates during the three months ended March 31, 2000 compared to the three months ended March 31, 1999. This improvement comes on top of 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 had an associated cost of approximately $.2 million in the first quarter of 1999. Gross profit percentage decreased in pressure pumping for the three months ended March 31, 2000 compared to the same period of 1999 due to mix of jobs performed.
The other charge of $.3 million for the three months ended March 31, 1999 was related to a series of actions taken to improve efficiency, increase productivity and make UTI more competitive in the marketplace. The actions included the reduction of regional operating offices from seven to four and reduced UTIs administrative staff by twenty-six individuals. The other charge consisted primarily of employee-related expenses associated with these reductions.
14
Depreciation and amortization expense increased $.8 million during the three months ended March 31, 2000, compared to the three months ended March 31, 1999, primarily due to acquisitions consummated during 1999.
Interest expense increased $.2 million during the quarter ended March 31, 2000 compared to the quarter ended March 31, 1999. This increase was primarily due to the fee incurred on the unused portion of the $65.0 million revolving credit facility and amortization of deferred financing fees related to that same credit facility. The credit facility was entered into on November 22, 1999 and no amounts have been borrowed as of March 31, 2000.
Income taxes increased $.4 million during the quarter ended March 31, 2000, compared to the quarter ended March 31, 1999, primarily due to higher taxable income in 2000. UTIs effective tax rate for the quarter ended March 31, 2000 was 38%. UTIs effective tax rate for the quarter ended March 31, 1999 was 40%.
Liquidity and Capital Resources
Working Capital |
Historically, UTI has needed cash:
| to fund working capital requirements | |
| to make capital expenditures to replace and expand its drilling rig fleet | |
| for acquisitions |
UTI has funded ongoing operations through:
| available cash | |
| cash provided from operations | |
| borrowings |
To date, UTI has funded acquisitions with:
| available cash | |
| borrowings | |
| issuances of common stock and warrants to purchase common stock |
Operations provided net cash of $6.7 million in the first quarter of 2000 and $4.8 million in the first quarter of 1999. UTI used these funds along with available cash balances on hand to fund capital expenditures. Capital expenditures were $4.2 million for the quarter ended March 31, 2000. Capital expenditures were $1.0 million for the quarter ended March 31, 1999.
UTI had $11.3 million in cash and cash equivalents and no borrowings under the revolving credit facility as of March 31, 2000. This is compared to $7.5 million in cash and cash equivalents and no borrowings under the revolving credit facility as of December 31, 1999.
15
Long Term Debt Facilities |
As of March 31, 2000, UTI had outstanding debt, net of unamortized discounts, of $32.3 million. This indebtedness included $25.0 million associated with a 1997 private placement of debt securities in connection with an acquisition and refinancing of existing indebtedness and $7.8 million of notes associated with an acquisition completed in 1998.
Revolving Credit Facility. On November 22, 1999, UTI entered into a four-year revolving credit facility. This revolving credit facility provides for maximum borrowings of up to $65.0 million. Under the revolving credit facility, UTI may use up to $10.0 million for letters of credit. The revolving credit facility calls for periodic interest payments at a floating rate ranging from LIBOR plus 1.75% to LIBOR plus 2.75%. The actual rate charged above LIBOR is based on UTIs trailing twelve-month EBITDA. UTIs assets secure the new facility. As of March 31, 2000, UTI had no outstanding borrowings under this facility.
Subordinated Notes. On April 11, 1997, UTI issued $25.0 million principal amount of 12.0% subordinated notes. These subordinated notes come due 2001. The subordinated notes were issued at a 2.0% discount along with seven-year warrants to purchase 1.2 million shares of UTIs common stock at an exercise price of $10.83 per share. The subordinated notes contain various affirmative and negative covenants customary in such private placements, including restrictions on additional indebtedness, restrictions on dividends, distributions and other restricted payments.
Promissory Notes. On July 31, 1998, UTI issued $7.8 million principal amount of unsecured promissory notes. In the event the average trading value of UTIs common stock for thirty consecutive days exceeds $30.00 per share, then $3.5 million of the principal amount becomes payable within 90 days following the event. The triggering event occurred on March 9, 2000 and payment will be made by June 8, 2000. The notes bear interest at 7.0% and, except for the $3.5 million discussed above, mature on July 31, 2002. The notes were issued in connection with an acquisition.
Future Acquisitions and Capital Needs
Management believes UTI will be able to meet its working capital, capital expenditure and debt service requirements for the next twelve months by using:
| internally generated cash | |
| availability under the revolving credit facility | |
| cash balances on hand |
The Company believes that UTIs strong liquidity position will allow it to react quickly to opportunities in the land drilling industry. These opportunities include making strategic acquisitions.
16
Year 2000
In late 1999, UTI completed remediating and testing its Year 2000 readiness systems. UTI did not experience any significant disruptions in mission critical information technology and non-information technology systems. UTI believes those systems successfully responded to the Year 2000 date change.
UTI is not aware of any material problems resulting from Year 2000 issues, either with:
| UTIs products and services | |
| UTIs internal systems | |
| products and services of third parties |
UTI will continue to monitor the mission critical computer applications of the following parties throughout the Year 2000:
| UTI | |
| UTIs suppliers | |
| UTIs vendors |
Risks Associated with Forward-Looking Statements
From time to time, UTI may make certain statements that contain forward-looking information. Forward-looking statements speak to the future. Words such as anticipate, believe, expect, estimate, predict, project, should and similar expressions usually identify such forward-looking statements. Forward-looking statements may be made by management both orally or in writing. Written forward-looking statements may appear:
| in press releases | |
| as part of the Managements Discussion and Analysis of Financial Condition and Results of Operation contained in this report | |
| in UTIs other filings with the Securities and Exchange Commission |
UTI believes that the expectations reflected in these forward-looking statements are reasonable. However, UTI cannot give any assurance that such expectations will materialize. These forward-looking statements are subject to:
| risks | |
| uncertainties | |
| assumptions |
If any of these risks or uncertainties materialize, actual results of current and future operations may not be as expected. Therefore, readers should not place undue reliance on these forward-looking statements. These forward looking statements speak only as of their dates.
17
Among the factors that will directly affect UTIs results of operations and the contract drilling service industry are:
| changes in the prices of oil and natural gas | |
| the volatility of the contract drilling service industry in general | |
| UTIs ability to successfully integrate recent acquisitions | |
| contractual risk associated with turnkey and footage contracts | |
| 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 UTIs successful execution of internal operating plans | |
| regulatory uncertainties | |
| legal proceedings |
PART II OTHER INFORMATION
ITEM 1. | Legal Proceedings |
UTI 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 will not have a material adverse effect on UTIs financial position.
UTI and its operating subsidiaries are sometimes named as a defendant in litigation usually relating to personal injuries alleged to result from negligence. UTI maintains insurance coverage against such claims to the extent deemed prudent by management.
There can be no assurance that UTI 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 UTI could have a material adverse effect on UTIs financial condition and results of operations.
18
ITEM 2. | Changes in Securities |
During the quarter, UTI sold unregistered common stock to Canpartners Investments IV, LLC and parties related to Southland Drilling Company, Ltd. These two transactions are described in the following paragraphs.
On March 2, 2000, UTI sold 298,138 shares of common stock to Canpartners Investments IV, LLC. Canpartners Investments IV, LLC exchanged warrants covering 480,000 shares of common stock of UTI that it acquired on September 26, 1997 for the 298,138 shares of common stock of UTI, and no other consideration was paid. This sale was exempt from registration. Under Section 3(a)(9) of the Securities Act of 1933, if an existing security holder exchanges securities of the issuer for other securities of the issuer and no other consideration is paid, then the transaction is exempt from registration.
On March 3, 2000, UTI sold 91,500 shares of common stock to parties related to Southland Drilling Company, Ltd. Like Canpartners Investments IV, LLC, the Southland parties exchanged warrants covering 183,000 shares of common stock of UTI that it acquired on April 11, 1997 for the 91,500 shares of common stock of UTI, and no other consideration was paid. This sale was also exempt from registration.
19
ITEM 6. | Exhibits and Reports on Form 8-K |
(a) Exhibits
Exhibit Number | Title or Description | |||
27.1* | Financial Data Schedule. |
* | Filed herewith. |
(b) Reports on 8-K
None.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, UTI has duly caused this report to be signed on its behalf by the undersigned, who have been duly authorized.
UTI ENERGY CORP. |
Signature | Title | Date | ||
/s/ JOHN E. VOLLMER III John E. Vollmer III |
Senior Vice President, Treasurer and Chief Financial Officer (Principal Financial Officer) | April 27, 2000 | ||
/s/ BRUCE SAUERS Bruce Sauers |
Vice President and Corporate Controller (Principal Accounting Officer) | April 27, 2000 |
21
EXHIBIT INDEX
Exhibit Number | Title or Description | |||
27.1* | Financial Data Schedule. |
* | Filed herewith. |
|