10-Q 1 d05359e10vq.txt FORM 10-Q -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number 0-22664 PATTERSON-UTI ENERGY, INC. (Exact name of registrant as specified in its charter) DELAWARE 75-2504748 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) P. O. BOX 1416, 4510 LAMESA HIGHWAY, SNYDER, TEXAS, 79550 (Address of principal executive offices) (Zip Code) (325) 574-6300 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report.) 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 the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [x] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 80,328,609 shares of common stock, $0.01 par value, as of April 30, 2003 -------------------------------------------------------------------------------- PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES TABLE OF CONTENTS
PART I - Financial Information PAGE ---- ITEM 1. Financial Statements Unaudited condensed consolidated balance sheets...................................... 3 Unaudited condensed consolidated statements of income................................ 4 Unaudited condensed consolidated statement of changes in stockholders' equity........ 5 Unaudited condensed consolidated statements of changes in cash flows................. 6 Notes to unaudited condensed consolidated financial statements....................... 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................................................... 13 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.................................. 17 ITEM 4. Controls and Procedures..................................................................... 17 Forward Looking Statements and Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995................................... 18 PART II - Other Information ITEM 6. Exhibits and Reports on Form 8-K............................................................ 19 Signatures................................................................................................. 21 Certifications............................................................................................. 22
2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THE FOLLOWING UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS INCLUDE ALL ADJUSTMENTS WHICH, IN THE OPINION OF MANAGEMENT, ARE NECESSARY IN ORDER TO MAKE SUCH FINANCIAL STATEMENTS NOT MISLEADING. PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except share data)
MARCH 31, DECEMBER 31, 2003 2002 ------------- ------------- ASSETS Current assets: Cash and cash equivalents ............................................................ $ 70,796 $ 82,154 Accounts receivable, net of allowance for doubtful accounts of $3,297 at March 31, 2003 and $3,144 at December 31, 2002 ..................................... 121,605 99,014 Federal and state income taxes receivable, net ....................................... 23,820 24,719 Inventory ............................................................................ 15,436 15,323 Deferred tax assets .................................................................. 14,229 15,290 Other ................................................................................ 5,198 6,515 ------------- ------------- Total current assets ............................................................. 251,084 243,015 Property and equipment, at cost, net ..................................................... 641,912 627,734 Goodwill and other intangible assets, net ................................................ 51,270 51,313 Investment in equity securities .......................................................... 17,882 17,707 Other .................................................................................... 2,593 2,740 ------------- ------------- Total assets ..................................................................... $ 964,741 $ 942,509 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable: Trade ............................................................................. $ 32,421 $ 30,618 Accrued revenue distributions ..................................................... 6,991 6,266 Other ............................................................................. 5,201 2,755 Accrued expenses ..................................................................... 39,386 35,513 ------------- ------------- Total current liabilities ........................................................ 83,999 75,152 Deferred tax liabilities ................................................................. 126,965 127,006 Other .................................................................................... 3,827 2,795 ------------- ------------- Total liabilities ................................................................ 214,791 204,953 ------------- ------------- Commitments and contingencies ............................................................ -- -- Stockholders' equity: Preferred stock, par value $.01; authorized 1,000,000 shares, no shares issued ....... -- -- Common stock, par value $.01; authorized 200,000,000 shares with 81,799,669 and 81,576,674 issued and 80,293,121 and 80,070,126 outstanding at March 31, 2003 and December 31, 2002, respectively ................................. 818 816 Additional paid-in capital ........................................................... 492,840 489,201 Retained earnings .................................................................... 266,759 261,003 Accumulated other comprehensive income (loss) ........................................ 1,188 (1,809) Treasury stock, at cost, 1,506,548 shares ............................................ (11,655) (11,655) ------------- ------------- Total stockholders' equity ....................................................... 749,950 737,556 ------------- ------------- Total liabilities and stockholders' equity ....................................... $ 964,741 $ 942,509 ============= =============
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (in thousands, except per share amounts)
THREE MONTHS ENDED MARCH 31, ------------------------------ 2003 2002 ------------ ------------ Operating revenues: Drilling ........................................................................ $ 135,581 $ 101,940 Drilling and completion fluids .................................................. 15,848 16,146 Pressure pumping ................................................................ 8,511 7,428 Oil and natural gas ............................................................. 5,299 2,709 ------------ ------------ 165,239 128,223 ------------ ------------ Operating costs and expenses: Drilling ........................................................................ 106,428 73,432 Drilling and completion fluids .................................................. 14,381 14,723 Pressure pumping ................................................................ 5,006 4,157 Oil and natural gas ............................................................. 1,079 980 Depreciation, depletion, and amortization ....................................... 24,136 22,202 General and administrative ...................................................... 6,894 6,343 Bad debt expense ................................................................ 80 -- Other ........................................................................... (2,609) (42) ------------ ------------ 155,395 121,795 ------------ ------------ Operating income .................................................................... 9,844 6,428 ------------ ------------ Other income (expense): Interest income ................................................................. 260 225 Interest expense ................................................................ (72) (111) Other ........................................................................... 8 17 ------------ ------------ 196 131 ------------ ------------ Income before income taxes and cumulative effect of change in accounting principle ....................................................................... 10,040 6,559 ------------ ------------ Income tax expense (benefit): Current ......................................................................... 3,120 (4,557) Deferred ........................................................................ 695 7,181 ------------ ------------ 3,815 2,624 ------------ ------------ Income before cumulative effect of change in accounting principle ................... 6,225 3,935 Cumulative effect of change in accounting principle, net of related income tax benefit of approximately $287 ................................................... (469) -- ------------ ------------ Net income .......................................................................... $ 5,756 $ 3,935 ============ ============ Net income per common share: Basic: Income before cumulative effect of change in accounting principle ........... $ 0.08 $ 0.05 Cumulative effect of change in accounting principle ......................... (0.01) -- ------------ ------------ Net income .................................................................. $ 0.07 $ 0.05 ============ ============ Diluted: Income before cumulative effect of change in accounting principle ........... $ 0.08 $ 0.05 Cumulative effect of change in accounting principle ......................... (0.01) -- ------------ ------------ Net income .................................................................. $ 0.07 $ 0.05 ============ ============ Weighted average number of common shares outstanding: Basic ........................................................................... 80,163 77,412 ============ ============ Diluted ......................................................................... 82,085 79,894 ============ ============
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (in thousands)
Common Stock Accumulated --------------------- Additional other Number of paid-in Retained comprehensive Treasury shares Amount capital earnings income (loss) stock Total --------- --------- ------------ --------- ------------- ------------ -------- Balance, December 31, 2002 .......... 81,577 $ 816 $ 489,201 $ 261,003 $ (1,809) $ (11,655) $737,556 Exercise of stock options and warrants ........................ 223 2 1,982 -- -- -- 1,984 Tax benefit related to exercise of stock options ................... -- -- 1,657 -- -- -- 1,657 Foreign currency translation adjustment ...................... -- -- -- -- 2,901 -- 2,901 Change in unrealized gain on equity securities, net of tax ... -- -- -- -- 96 -- 96 Net income .......................... -- -- -- 5,756 -- -- 5,756 --------- --------- ------------ --------- ------------- ------------ -------- Balance, March 31, 2003 ............. 81,800 $ 818 $ 492,840 $ 266,759 $ 1,188 $ (11,655) $749,950 ========= ========= ============ ========= ============= ============ ========
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CASH FLOWS (UNAUDITED) (in thousands)
THREE MONTHS ENDED MARCH 31, ----------------------------- 2003 2002 ------------ ------------ Cash flows from operating activities: Net income ............................................................................ $ 5,756 $ 3,935 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion, and amortization ............................................. 24,136 22,202 Provision for bad debts ............................................................... 80 -- Deferred income tax expense ........................................................... 695 7,181 Tax benefit related to exercise of stock options ...................................... 1,657 3,101 Other ................................................................................. (388) (31) Changes in operating assets and liabilities: Accounts receivable ...................................................... (21,070) 40,937 Inventory and other current assets ....................................... 188 (1,762) Accrued federal income taxes receivable .................................. 1,055 (7,412) Accounts payable ......................................................... 2,393 (16,866) Other liabilities ........................................................ 7,156 (5,345) ------------ ------------ Net cash provided by operating activities ............................ 21,658 45,940 ------------ ------------ Cash flows from investing activities: Acquisitions .......................................................................... (16,500) -- Purchases of property and equipment ................................................... (19,533) (25,281) Proceeds from sales of property and equipment ......................................... 839 254 Change in other assets ................................................................ 124 243 ------------ ------------ Net cash used in investing activities ................................ (35,070) (24,784) ------------ ------------ Cash flows from financing activities: Proceeds from exercise of stock options and warrants .................................. 1,984 3,614 ------------ ------------ Net cash provided by financing activities ............................ 1,984 3,614 ------------ ------------ Net increase (decrease) in cash and cash equivalents ................. (11,428) 24,770 Foreign currency translation adjustment .............................. 70 3 Cash and cash equivalents at beginning of period ........................................... 82,154 33,584 ------------ ------------ Cash and cash equivalents at end of period ................................................. $ 70,796 $ 58,357 ============ ============ Supplemental disclosure of cash flow information: Net cash received (paid) during the period for: Interest ............................................................................ $ (72) $ (111) Income taxes ........................................................................ $ -- $ 263
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF CONSOLIDATION AND PRESENTATION The consolidated financial statements include the accounts of Patterson-UTI Energy, Inc. ("Patterson-UTI") and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The interim condensed consolidated financial statements have been prepared by management of the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations, although the Company believes the disclosures included herein are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for presentation of the information have been included. The unaudited condensed consolidated balance sheet as of December 31, 2002, as presented herein, was derived from the audited balance sheet of the Company. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the annual report on Form 10-K for the year ended December 31, 2002. The U.S. dollar is the functional currency for all of the Company's operations except for its Canadian operations, which use the Canadian dollar as functional currency. The effects of exchange rate changes are reflected in accumulated other comprehensive income, which is a separate component of stockholders' equity (see Note 4). In accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," ("SFAS No. 115"), investments in Available-for-Sale equity securities are recorded at fair value. Unrealized gains and losses of such investments, net of tax, are included in accumulated other comprehensive income (loss) in our consolidated balance sheet as of March 31, 2003 and are shown as a separate component of stockholders' equity (see Note 4). The Company provides a dual presentation of its earnings per share in its Consolidated Statements of Income: Basic Earnings per Share ("Basic EPS") and Diluted Earnings per Share ("Diluted EPS"). Basic EPS is computed using the weighted average number of shares outstanding during the periods presented. Diluted EPS includes common stock equivalents, generally stock options and warrants that are "in the money", which are dilutive to earnings per share. For the three months ended March 31, 2003, dilutive securities included in the calculation of Diluted EPS were 1.9 million shares. For the three months ended March 31, 2002, dilutive securities of 2.5 million shares were included in the calculation of Diluted EPS. For the three month periods ended March 31, 2003 and 2002, there were 15,000 and 470,000, respectively, potentially dilutive options and warrants which were excluded from the calculation of Diluted EPS as their exercise price was greater than the average market price for the period. The results of operations for the three months ended March 31, 2003, are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to the 2002 consolidated financial statements in order for them to conform with the 2003 presentation. 2. RECENT ACQUISITIONS SEI Drilling Company -- In January 2003, the Company acquired four land-based drilling rigs and related equipment from SEI Drilling Company for a purchase price of $6.0 million in cash. The transaction was accounted for as a purchase and the related purchase price was allocated among the rigs based on their estimated fair values. 7 PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED 2. RECENT ACQUISITIONS - (CONTINUED) Mesa Drilling, Inc. -- In February 2003, the Company acquired three land-based drilling rigs, a yard, top drive, inventory and other related equipment from Mesa Drilling, Inc. and related entities for a purchase price of $10.5 million in cash. The transaction was accounted for as a purchase and the related purchase price was allocated among the rigs based on their estimated fair values. 3. STOCK-BASED COMPENSATION At March 31, 2003, the Company has seven stock-based employee compensation plans, of which three are active. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation (in thousands, except per share amounts):
THREE MONTHS ENDED MARCH 31, ---------------------------- 2003 2002 ------------ ------------ Net income, as reported ................................................ $ 5,756 $ 3,935 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects ................................................ (2,264) (1,465) ------------ ------------ Pro forma net income ................................................... $ 3,492 $ 2,470 ============ ============ Net income per common share: Basic, as reported ................................................. $ 0.07 $ 0.05 ============ ============ Basic, pro forma ................................................... $ 0.04 $ 0.03 ============ ============ Diluted, as reported ............................................... $ 0.07 $ 0.05 ============ ============ Diluted, pro forma ................................................. $ 0.04 $ 0.03 ============ ============
4. COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The following table illustrates the Company's comprehensive income including the effects of foreign currency translation adjustments for the three months ended March 31, 2003 and 2002 (in thousands):
THREE MONTHS ENDED MARCH 31, ---------------------------- 2003 2002 ------------ ------------ Net income ............................................................. $ 5,756 $ 3,935 Other comprehensive income (loss): Foreign currency translation adjustment related to our Canadian operations ........................................... 2,901 (101) Change in unrealized gain on equity securities, net of tax ...... 96 -- ------------ ------------ Comprehensive income ................................................... $ 8,753 $ 3,834 ============ ============
8 PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED 5. SETTLEMENT OF MEXICO RECEIVABLE In March 2003, the Company received approximately $2.5 million in cash as settlement for contract drilling services previously provided in Mexico by Norton Drilling Company Mexico, Inc., a wholly-owned subsidiary. The Company has been party to a lawsuit for a number of years in an effort to collect the underlying receivable. As the collectibility of the receivable was not certain, a reserve for the full amount of the receivable was recorded at the time of the Company's acquisition of Norton Drilling Company Mexico, Inc. in 1999. The amount is reflected as a credit to Other Expenses and included as a component of Operating Income. 6. BUSINESS SEGMENTS Our revenues, operating profits and identifiable assets are primarily attributable to four industry segments: contract drilling of oil and natural gas wells, provision of drilling and completion fluid services and pressure pumping services to operators in the oil and natural gas industry, and the exploration, development, acquisition and production of oil and natural gas. Separate financial data for each of our four business segments is provided below (in thousands).
THREE MONTHS ENDED MARCH 31, ----------------------------- 2003 2002 ------------ ------------ Revenues: Contract drilling .......................................... $ 135,581 $ 101,940 Drilling and completion fluids ............................. 15,848 16,146 Pressure pumping ........................................... 8,511 7,428 Oil and natural gas ........................................ 5,299 2,709 ------------ ------------ Total operating revenues ....................................... $ 165,239 $ 128,223 ============ ============ Income (loss) before income taxes: Contract drilling .......................................... $ 7,512 $ 7,327 Drilling and completion fluids ............................. (894) (842) Pressure pumping ........................................... 1,185 1,481 Oil and natural gas ........................................ 1,675 293 ------------ ------------ 9,478 8,259 Corporate and other ...................................... (2,086) (1,831) Interest income .......................................... 260 225 Interest expense ......................................... (72) (111) Other .................................................... 2,460 17 ------------ ------------ Income before income taxes and cumulative effect of change in accounting principle .................................. $ 10,040 $ 6,559 ============ ============
MARCH 31, DECEMBER 31, 2003 2002 ------------ ------------ Identifiable assets: Drilling ................................ $ 717,561 $ 694,020 Drilling and completion fluids .......... 30,753 34,687 Pressure pumping ........................ 36,594 35,084 Oil and natural gas ..................... 23,697 20,854 Corporate and other (a) ................. 156,136 157,864 ------------ ------------ $ 964,741 $ 942,509 ============ ============
---------- (a) Corporate assets primarily include cash on hand managed by the parent corporation and certain deferred federal income tax assets. 9 PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED 7. RECENTLY ISSUED ACCOUNTING STANDARDS The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations," ("SFAS No. 143") in June 2001. SFAS No. 143 addresses financial accounting requirements for retirement obligations associated with tangible long-lived assets. The Company adopted SFAS No. 143 in January 2003. As a result, a charge of $469,000 (net of tax) was recorded as a cumulative effect of a change in accounting principle for the quarter ended March 31, 2003. The change relates to the cost associated with the future abandonment of oil and natural gas properties. The related effect to both basic and diluted earnings per share as a result of the change in accounting principle was a decrease of $0.01 per share. The FASB issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," ("SFAS No. 146") in June 2002. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The provisions of SFAS No. 146, which the Company adopted on January 1, 2003, did not have a material impact on the Company's consolidated financial statements. The FASB issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation," ("SFAS No. 148") in December 2002. SFAS No. 148 amends the disclosure requirements of Statement of Financial Accounting Standards No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The provisions of SFAS No. 148, which the Company adopted on January 1, 2003, did not have a material impact on the Company's consolidated financial statements (see Note 3). The FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements, Including Guarantees of Indebtedness of Others," ("FIN 45"), which the Company adopted effective January 1, 2003. FIN 45 requires that upon issuance of certain types of guarantees, a guarantor recognize and account for the fair value of the guarantee as a liability. FIN 45 contains exclusions to this requirement, including the exclusion of a parent's guarantee of its subsidiaries' debt to a third party. Upon adoption, this new accounting pronouncement had no material impact on the Company's consolidated financial position, results of operations or cash flows. The FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities," ("FIN 46"), which the Company adopted effective January 31, 2003. This statement addresses the consolidation of variable interest entities ("VIEs") by business enterprises that are the primary beneficiaries. A VIE is an entity that does not have sufficient equity investment at risk to permit it to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest. The primary beneficiary of a VIE is the enterprise that has the majority of the risks or rewards associated with the VIE. The Company believes it has no material interests in VIEs that will require disclosure or consolidation under FIN 46. 8. GOODWILL AND OTHER INTANGIBLE ASSETS Intangible assets consist primarily of goodwill and covenants-not-to-compete arising from business combinations. In accordance with Statement of Financial Standards No. 142, "Goodwill and Other Intangible Assets," all of our intangible assets that have definite lives are being amortized on a straight-line basis over their estimated useful lives and goodwill is evaluated to determine if fair value of the asset has decreased below its carrying value. At December 31, 2002, we performed the annual goodwill evaluation and determined no adjustment to impair goodwill was necessary. Goodwill and other intangible assets as of March 31, 2003 and December 31, 2002 are as follows (in thousands): 10 PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED 8. GOODWILL AND OTHER INTANGIBLE ASSETS - (CONTINUED)
MARCH 31, DECEMBER 31, 2003 2002 ------------- ------------- Goodwill .............................................. $ 69,860 $ 69,860 Accumulated amortization .............................. (19,661) (19,661) ------------- ------------- Goodwill, net ......................................... 50,199 50,199 ------------- ------------- Covenants-not-to-compete and other .................... 1,956 1,956 Accumulated amortization .............................. (885) (842) ------------- ------------- Other intangible assets, net .......................... 1,071 1,114 ------------- ------------- Intangible assets, net ................................ $ 51,270 $ 51,313 ============= =============
Change in the net carrying amount of goodwill for the three months ended March 31, 2003 is as follows (in thousands):
DRILLING & COMPLETION DRILLING FLUIDS TOTAL ------------ ------------ ------------ Balance at December 31, 2002 ........... $ 40,265 $ 9,934 $ 50,199 Changes to goodwill .................... -- -- -- ------------ ------------ ------------ Balance at March 31, 2003 .............. $ 40,265 $ 9,934 $ 50,199 ============ ============ ============
Amortization expense for the three months ended March 31, 2003 and 2002 consists of the following (in thousands):
THREE MONTHS ENDED MARCH 31, ---------------------------- 2003 2002 ------------ ------------ Goodwill ............................... $ -- $ -- Covenants-not-to-compete and other ..... 43 127 ------------ ------------ $ 43 $ 127 ============ ============
Our weighted average amortization period for other intangible assets is approximately 10 years. The following table shows the estimated amortization expense for these assets for each of the five succeeding fiscal years (in thousands): 2004 ........................ $ 97 2005 ........................ $ 97 2006 ........................ $ 97 2007 ........................ $ 97 2008 ........................ $ 97
9. INVESTMENT IN EQUITY SECURITIES In 2002, the Company purchased 1,058,673 shares of the common stock of TMBR/Sharp Drilling, Inc. ("TMBR"), $.10 par value per share, for an aggregate cash purchase price of $17.6 million, or $16.60 per share plus approximately $84,000 of additional costs incurred to acquire the shares. The Company owns approximately 19.5% of the outstanding shares of TMBR based on its shares outstanding as reported in its 10-Q for the three-month period ended December 31, 2002. 11 PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED 9. INVESTMENT IN EQUITY SECURITIES (CONTINUED) The accounting treatment of shares representing the Company's investment in the common stock of TMBR is affected by the Company's ability to sell shares within one year. As of March 31, 2003, the Company has restrictions on its ability to sell 838,547 of the TMBR shares within one year. These shares are reflected in the balance sheet at cost under the cost method of accounting in accordance with Accounting Principles Board Opinion No. 18, "The Equity Method of Accounting for Investment in Common Stock," ("APB 18"). The remaining 220,126 TMBR shares are not restricted from sale within one year. These shares are classified as Available-for-Sale and are reflected in the balance sheet at fair value in accordance with SFAS No. 115. Fair value is determined from publicly quoted market prices as of the balance sheet date. In accordance with SFAS No. 115, unrealized gains and losses recorded as a result of the adjustment to fair value are reflected directly in stockholders' equity. The following table summarizes the Company's unrealized gain on its investment in equity securities as of March 31, 2003 (in thousands, except share amounts):
COMMON UNREALIZED TMBR/Sharp Drilling, Inc.: SHARES COST GAIN TOTAL ------------ ------------ ------------ ------------ Cost method .................. 838,547 $ 13,954 $ -- $ 13,954 Available-for-Sale ........... 220,126 3,727 201 3,928 ------------ ------------ ------------ ------------ 1,058,673 $ 17,681 $ 201 $ 17,882 ============ ============ ============ ============
10. LEGAL MATTER Westfort Energy LTD and Westfort Energy (US) LTD f/k/a Canadian Delta, Inc. ("Westfort"), filed a lawsuit against two Patterson-UTI subsidiaries, Patterson Petroleum LP and Patterson Drilling Company LP, in the Circuit Court, Rankin County, Mississippi, Case No. 2002-18. The lawsuit relates to a letter agreement entered into in July 2000 between Patterson Petroleum and Westfort concerning the drilling of a daywork well in Mississippi. This lawsuit was filed by Westfort after Patterson Petroleum made demand on Westfort for payment of the contract drilling services. There have been no significant developments in these proceedings since year-end 2002. In this lawsuit, Westfort alleges breach of contract, fraud, and negligence causes of action. Westfort seeks alleged monetary damages, the return of shares of Westfort stock, unspecified damages from alleged lost profits, lost use of income stream, and additional operating expenses, along with alleged punitive damages to be determined by the jury, but not less than 25% of Patterson's net worth. The Company intends to vigorously contest the allegations made by Westfort and asserts claims against Westfort, including the monies owed Patterson Petroleum LP under the letter agreement in the amount of approximately $5,075,000. In addition to the Westfort lawsuit, we are party to various legal proceedings arising in the normal course of our business. We do not believe that the outcome of these proceedings, either individually or in the aggregate, will have a material adverse effect on our financial condition. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CRITICAL ACCOUNTING POLICIES In addition to established accounting policies, our consolidated financial statements are impacted by certain estimates and assumptions made by management. The following is a discussion of our critical accounting policies pertaining to property and equipment, oil and natural gas properties, impairment, revenue recognition, and the use of estimates. Property and equipment -- Property and equipment, including betterments which extend the useful life of the asset, are stated at cost. Maintenance and repairs are charged to expense when incurred. We provide for the depreciation of our property and equipment using the straight-line method over the estimated useful lives. No provision for salvage value is considered in determining depreciation of our property and equipment. We review our assets, including intangible assets, for impairment when events or changes in circumstances indicate that the carrying values of certain assets either exceed their respective fair values or may not be recovered over their estimated remaining useful lives. Provisions for asset impairment are charged to income when estimated future cash flows, on an undiscounted basis, are less than the asset's net book value. Impairment charges are recorded based on discounted cash flows. There were no impairment charges during the periods ended March 31, 2003 or 2002. Oil and natural gas properties -- We follow the successful efforts method of accounting, using the field as the accumulation center, for our oil and natural gas properties. Exploration and development costs which result directly in the discovery of oil and natural gas reserves are capitalized. Exploration costs which do not result directly in the discovery of oil and natural gas reserves are charged to expense. Capitalized costs, consisting of lease and well equipment, lease acquisition costs, and intangible development costs, are depreciated, depleted, and amortized on the units-of-production method, based on petroleum engineer estimates of recoverable oil and natural gas reserves of each respective field. Impairment of proved oil and natural gas properties is periodically assessed based on estimated future net cash flows at a field level as determined by an independent reserve engineer. Impairment expense is included in depreciation, depletion, and amortization in the accompanying financial statements. Revenue recognition -- Generally, revenues are recognized when services are performed. The Company follows the percentage-of-completion method of accounting for footage contract drilling arrangements. Under this method, drilling revenues and costs related to a well in progress are recognized proportionately over the time it takes to drill the well. Due to the nature of turnkey contract drilling arrangements and risks therein, the Company follows the completed contract method of accounting for such arrangements. Under this method, all drilling advances and costs (including maintenance and repairs) related to a well in progress are deferred and recognized as revenues and expenses in the period the well is completed. Provisions for losses on incomplete or in-process wells are made when estimated total costs are expected to exceed estimated total revenues. In accordance with Emerging Issues Task Force No. 00-14, the Company recognizes reimbursements received for out-of-pocket expenses incurred as revenues and accounts for out-of-pocket expenses as direct costs. Use of estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the balance sheet date and the amounts of revenues and expenses recognized during the reporting period. Actual results could differ from such estimates. Key estimates used by management include: o allowance for doubtful accounts, o depreciation, depletion, and amortization, o asset impairment, o reserves for self-insured levels of insurance coverages, and 13 o fair values of assets and liabilities assumed. LIQUIDITY AND CAPITAL RESOURCES As of March 31, 2003, we had working capital of approximately $167.1 million including cash and cash equivalents of $70.8 million. For the three months ended March 31, 2003, our significant sources of cash flow were: o $21.7 million provided by operations, o $2.0 million from the exercise of stock options and warrants, and o $839,000 from the sale of certain property and equipment. Correspondingly, we used approximately $16.5 million to acquire seven land-based drilling rigs (see Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements included as part of Item 1 to this report) and approximately $19.5 million: o to make capital expenditures for the betterment and refurbishment of our drilling rigs, o for the acquisition and procurement of drilling equipment, o to fund capital expenditures for our drilling and completion fluids and pressure pumping divisions, and o to fund leasehold acquisition and exploration and development of oil and natural gas properties. In January 2003, the Company purchased four land-based drilling rigs and related equipment from SEI Drilling Company for a purchase price of $6.0 million in cash. The transaction was accounted for as a purchase and the related purchase price was allocated among the assets based on their fair values. In February 2003, the Company purchased three land-based drilling rigs and related equipment from Mesa Drilling, Inc. and related entities for $10.5 million in cash. The transaction was accounted for as a purchase and the related purchase price was allocated among the assets based on their fair values. The Company has entered into an agreement to acquire seven land-based drilling rigs and related equipment for $10.0 million in cash. The transaction is expected to be completed in the second quarter of 2003. The Company completed the acquisition of two additional land-based drilling rigs in April 2003 for $3.9 million in cash. We believe that the current level of cash and short-term investments, together with cash generated from operations, should be sufficient to meet our capital needs. From time to time, acquisition opportunities are reviewed. The timing, size or success of any acquisition and the associated capital commitments are unpredictable. Over the longer term, should further opportunities for growth requiring capital arise, we believe we would be able to satisfy these needs through a combination of working capital, cash generated from operations, and either debt or equity financing. However, there can be no assurance that such capital would be available. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS The Company maintains letters of credit in the aggregate amount of $24.2 million for the benefit of various insurance companies as collateral for retrospective premiums and retained losses which could become payable under the terms of the underlying insurance contracts. These letters of credit expire variously during each calendar year. No amounts have been drawn under the letters of credit. Westfort Energy LTD and Westfort Energy (US) LTD f/k/a Canadian Delta, Inc. ("Westfort"), filed a lawsuit against two Patterson-UTI subsidiaries, Patterson Petroleum LP and Patterson Drilling Company LP, in the Circuit Court, Rankin County, Mississippi, Case No. 2002-18. The lawsuit relates to a letter agreement entered into in July 2000 between Patterson Petroleum and Westfort concerning the drilling of a daywork well in Mississippi. This lawsuit was filed by Westfort after Patterson Petroleum made demand on Westfort for payment of the contract drilling services. There have been no significant developments in these proceedings since year-end 2002. In this lawsuit, Westfort alleges breach of contract, fraud,and negligence causes of action. Westfort seeks alleged monetary damages, the return of shares of Westfort stock, unspecified damages from alleged lost profits, lost use of income stream, and additional operating expenses, along with alleged punitive damages to be determined by the jury, but not less than 25% of Patterson's net worth. The Company intends to vigorously contest the allegations made by Westfort and asserts claims against Westfort, including the monies owed Patterson Petroleum LP under the letter agreement in the amount of approximately $5,075,000. In addition to the Westfort lawsuit, we are party to various legal proceedings arising in the normal course of our business. We do not believe that the outcome of these proceedings, either individually or in the aggregate, will have a material adverse effect on our financial condition. 14 RESULTS OF OPERATIONS The following tables summarize operations by business segment for the three months ended March 31, 2003 and 2002:
CONTRACT DRILLING 2003 2002 % CHANGE ------------ ------------ --------- (DOLLARS IN THOUSANDS) Revenues .............................................. $ 135,581 $ 101,940 33.0% Direct operating costs ................................ $ 106,428 $ 73,432 44.9% Selling, general and administrative ................... $ 1,135 $ 1,183 (4.1)% Depreciation and amortization ......................... $ 20,506 $ 19,998 2.5% Operating income ...................................... $ 7,512 $ 7,327 2.5% Operating days ........................................ 15,869 10,550 50.4% Average revenue per operating day ..................... $ 8.54 $ 9.66 (11.6)% Average direct operating cost per operating day ....... $ 6.71 $ 6.96 (3.6)% Average margin per operating day ...................... $ 1.83 $ 2.70 (32.2)% Number of owned rigs at end of period ................. 331 324 2.2% Average number of rigs owned during period ............ 329 320 2.8% Average rigs operating ................................ 176 117 50.4% Rig utilization percentage ............................ 54% 37% 45.9% Capital expenditures .................................. $ 13,539 $ 21,667 (37.5)%
Our rig count began to decline in the third quarter of 2001 and continued until March 2002 when our rig count bottomed at 103 rigs (90 rigs in the U.S. and 13 rigs in Canada). The deterioration in our rig count was primarily the result of weakening natural gas prices through mid-February 2002. As natural gas prices improved through most of 2002 and the first quarter of 2003, our rig count also improved. Average natural gas prices increased from $2.51 per Mcf in the first quarter of 2002 to $5.91 per Mcf in the first quarter of 2003. Accordingly, our rig count continued to improve and averaged 176 rigs (161 in the U.S. and 15 rigs in Canada) in the first quarter of 2003. Increased operating results in 2003 were reflective of increased demand for our contract drilling services as evidenced by increases in the number of operating days and average rig utilization. Increased revenues and direct operating costs are attributable to increases in demand as noted above, however, increased competition for available jobs due to the weakened industry conditions experienced in 2002 resulted in downward pricing pressure and decreases in revenue per operating day and average margin per operating day. Decreased operating costs per day resulted primarily from efficiencies in payroll expenses. Payroll expenses were high on a per day basis in 2002 as experienced field personnel were retained despite the low level of rig utilization.
DRILLING AND COMPLETION FLUIDS 2003 2002 % CHANGE ------------ ------------ ------------ (DOLLARS IN THOUSANDS) Revenues .................................... $ 15,848 $ 16,146 (1.8)% Direct operating costs ...................... $ 14,381 $ 14,723 (2.3)% Selling, general and administrative ......... $ 1,777 $ 1,727 2.9% Depreciation and amortization ............... $ 584 $ 538 8.6% Operating loss .............................. $ (894) $ (842) (6.2)% Total jobs .................................. 486 321 51.4% Average revenue per job ..................... $ 32.61 $ 50.30 (35.2)% Average costs per job ....................... $ 29.59 $ 45.87 (35.5)% Average margin per job ...................... $ 3.02 $ 4.43 (31.8)% Capital expenditures ........................ $ 131 $ 663 (80.2)%
Decreases in revenues and expenses despite a significant increase in total jobs for our drilling and completion fluids operations resulted from work on significantly smaller jobs in the 2003 quarter compared to the 2002 quarter. This is further evidenced by the reduced average revenue and costs per job for the 2003 quarter compared to the 2002 quarter. The continued slow down of activity in the Gulf of Mexico was largely attributable to this shift in job mix for our drilling and completion fluids operations. 15
PRESSURE PUMPING 2003 2002 % CHANGE ------------ ------------ ------------ (DOLLARS IN THOUSANDS) Revenues .................................... $ 8,511 $ 7,428 14.6% Direct operating costs ...................... $ 5,006 $ 4,157 20.4% Selling, general and administrative ......... $ 1,511 $ 1,181 27.9% Depreciation ................................ $ 809 $ 609 32.8% Operating income ............................ $ 1,185 $ 1,481 (20.0)% Total jobs .................................. 1,061 839 26.5% Average revenue per job ..................... $ 8.02 $ 8.85 (9.4)% Average costs per job ....................... $ 4.72 $ 4.95 (4.6)% Average margin per job ...................... $ 3.30 $ 3.90 (15.4)% Capital expenditures ........................ $ 3,713 $ 936 296.7%
The increases in revenues and expenses for our pressure pumping operations were attributable to improved industry conditions, as discussed in Contract Drilling above. Expansion of our pressure pumping services in 2002 into the Appalachian regions of Kentucky and West Virginia resulted in increased depreciation and capital expenditures in the 2003 quarter compared to the 2002 quarter. Selling, general and administrative expense increased as a result of the expansion in operations as discussed above as well as increased payroll and related expenses during the first quarter of 2003. The decrease in average revenue per job was attributable to an approximate 17% decline in average revenue received on cement jobs, which comprised approximately 73% of total jobs for our pressure pumping operations in the first quarter of 2003. This decline resulted from a more competitive pricing environment in the industry.
OIL AND NATURAL GAS PRODUCTION AND EXPLORATION 2003 2002 % CHANGE ------------ ------------ ------------ (IN THOUSANDS) Revenues .................................... $ 5,299 $ 2,709 95.6% Direct operating costs ...................... $ 1,079 $ 980 10.1% Selling, general and administrative ......... $ 382 $ 453 (15.7)% Depreciation and depletion .................. $ 2,163 $ 983 120.0% Operating income ............................ $ 1,675 $ 293 471.7% Capital expenditures ........................ $ 2,150 $ 3,042 (29.3)% Average net daily oil production (Bbls) ..... 755 725 4.1% Average net daily gas production (Mcf) ...... 5,410 4,887 10.7% Average oil sales price (per Bbl) ........... $ 33.60 $ 19.72 70.4% Average gas sales price (per Mcf) ........... $ 5.16 $ 1.96 163.3%
Increased revenues and operating income are primarily attributable to increased prices received from sales of oil and natural gas as well as marginal increases in production.
CORPORATE AND OTHER 2003 2002 % CHANGE ------------ ------------ ------------ (IN THOUSANDS) Selling, general and administrative ......... $ 2,089 $ 1,799 16.1% Bad debt expense ............................ $ 80 $ -- N/A% Depreciation, depletion and amortization .... $ 74 $ 74 0.0% Other ....................................... $ (2,609) $ (42) N/A%
Increased selling, general, and administrative expenses relate primarily to an increase in insurance premiums. In 2003, Other primarily reflects a payment received in the first quarter of 2003 of approximately $2.5 million as settlement for contract drilling services previously provided in Mexico by Norton Drilling Company Mexico, Inc., a wholly-owned subsidiary. The underlying accounts receivable balance had been reserved as uncollectible at the time of the Company's acquisition of Norton Drilling Company Mexico, Inc. in 1999. VOLATILITY OF OIL AND NATURAL GAS PRICES AND ITS IMPACT ON OPERATIONS Our revenue, profitability and future rate of growth are substantially dependent upon prevailing prices for oil and natural gas, with respect to all of our operating segments. Historically, oil and natural gas prices and markets have been volatile. Prices are affected by market supply and demand factors as well as actions of state and local agencies, the United States and foreign governments and international cartels. All of these are beyond our control. 16 Any significant or extended decline in oil and/or natural gas prices would have a material adverse effect on our financial condition and results of operations. The contract drilling business has previously experienced increased demand for drilling services from 1995 through most of 1997 and from mid-1999 through the second quarter of 2001. However, except for those periods and other occasional upturns, generally, there have been substantially more drilling rigs available than necessary to meet demand in most operational and geographic segments of the North American land drilling industry. As a result, drilling contractors have had difficulty sustaining profit margins. IMPACT OF INFLATION We believe that inflation will not have a significant near-term impact on our financial position. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We currently have no significant exposure to interest rate market risk because we have no outstanding balance under our credit facility. Should we incur a balance in the future, we would have exposure associated with the floating rate of the interest charged on that balance. The revolving credit facility calls for periodic interest payments at a floating rate ranging from LIBOR plus 1.75 % to 2.75%. The applicable rate above LIBOR (1.75% at March 31, 2003) is based upon our trailing twelve-month EBITDA (earnings before interest expense, income taxes, and depreciation, depletion, and amortization expense). Our exposure to interest rate risk due to changes in LIBOR is not expected to be material. We conduct some business in Canadian dollars through our Canadian land-based drilling operations. The exchange rate between Canadian dollars and U.S. dollars has fluctuated over the last ten years. If the value of the Canadian dollar against the U.S. dollar weakens, revenues and earnings of our Canadian operations will be reduced when they are translated to U.S. dollars. Also, the value of our Canadian net assets in U.S. dollars may decline. ITEM 4. CONTROLS AND PROCEDURES Within 90 days before filing this report, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Our disclosure controls and procedures are the controls and other procedures that we designed to ensure that we record, process, summarize and report in a timely manner the information we must disclose in reports that we file with or submit to the SEC. Our disclosure controls and procedures include our internal accounting controls. Based on our evaluation, our disclosure controls and procedures were effective. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of our evaluation. 17 ---------- FORWARD LOOKING STATEMENTS AND CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Item 2 of this Report contains forward-looking statements which are made pursuant to the "safe harbor" provisions of The Private Securities Litigation Reform Act of 1995. These statements include, without limitation, statements relating to: liquidity; financing of operations; continued volatility of oil and natural gas prices; source and sufficiency of funds required for immediate capital needs and additional rig acquisitions (if further opportunities arise); and other matters. The words "believes," "plans," "intends," "expected," "estimates" or "budgeted" and similar expressions identify forward-looking statements. The forward-looking statements are based on certain assumptions and analyses we make in light of our experience and our perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances. We do not undertake to update, revise or correct any of the forward-looking information. Factors that could cause actual results to differ materially from our expectations expressed in the forward-looking statements include, but are not limited to, the following: o Changes in prices and demand for oil and natural gas; o Changes in demand for contract drilling, pressure pumping and drilling and completion fluids services; o Shortages of drill pipe and other drilling equipment; o Labor shortages, primarily qualified drilling personnel; o Effects of competition from other drilling contractors and providers of pressure pumping and drilling and completion fluids services; o Occurrence of operating hazards and uninsured losses inherent in our business operations; and o Environmental and other governmental regulation. For a more complete explanation of these various factors and others, see "Forward Looking Statements and Cautionary Statements for Purposes of the 'Safe Harbor' Provisions of the Private Securities Litigation Reform Act of 1995" included in our Annual Report on Form 10-K for the year ended December 31, 2002, beginning on page 13. You are cautioned not to place undue reliance on any of our forward-looking statements, which speak only as of the date of the document or in the case of documents incorporated by reference, the date of those documents. ---------- 18 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS. The following exhibits are filed herewith or incorporated by reference, as indicated: 2.1 Agreement and Plan of Merger dated March 10, 2002, among Patterson-UTI Energy, Inc., Patterson-UTI Drilling Company LP, LLLP and Odin Drilling, Inc.(1) 2.2 Stock Purchase Agreement dated as of June 11, 2002 by and among Patterson-UTI Energy, Inc. and Roper Family Properties, Ltd., Estate of Joe G. Roper, Patricia R. Elledge, Judy Kathleen Roper Davis, Jeanie Elisabeth Cornelius and J. Mark Roper.(2) 2.3 Stock Purchase Agreement dated as of October 28, 2002 by and between Patterson-UTI Energy, Inc. and J. Mark Roper.(3) 3.1 Restated Certificate of Incorporation.(4) 3.1.1 Certificate of Correction of Restated Certificate of Incorporation.(5) 3.2 Amended and Restated Bylaws.(5) 3.3 Rights Agreement dated January 2, 1997, between Patterson Energy, Inc. and Continental Stock Transfer & Trust Company.(6) 3.3.1 Amendment to Rights Agreement dated as of October 23, 2001.(7) 4.1 Excerpt from Restated Certificate of Incorporation of Patterson-UTI Energy, Inc. regarding authorized Common Stock and Preferred Stock.(8) 4.2 Certificate of Designation.(9) 4.2.1 Amendment to Certificate of Designation.(5) 4.3 Registration Rights Agreement with Bear, Stearns and Co. Inc., dated March 25, 1994, as assigned to REMY Capital Partners III, L.P.(5) 4.4 Patterson-UTI Energy, Inc. 1993 Stock Incentive Plan, as amended.(10)* 4.5 Patterson-UTI Energy, Inc. Non-Employee Directors' Stock Option Plan, as amended.(11)* 4.6 Patterson-UTI Energy, Inc. Amended and Restated 1997 Long-Term Incentive Plan.(12)* 4.7 Amended and Restated Non-Employee Director Stock Option Plan of Patterson-UTI Energy, Inc.(13)* 4.8 Amended and Restated Patterson-UTI Energy, Inc. 1996 Employee Stock Option Plan.(13)* 4.9 1997 Stock Option Plan of DSI Industries, Inc.(12)* 4.10 Stock Option Agreement dated July 20, 2001 between Patterson-UTI Energy, Inc. and Kenneth R. Peak (a non-employee director of Patterson-UTI Energy, Inc.).(5)* 19 4.11 Stock Option Agreement dated July 20, 2001 between Patterson-UTI Energy, Inc. and Stephen J. DeGroat (a non-employee director of Patterson-UTI Energy, Inc.).(5)* 10.1 For additional material contracts, see Exhibits 4.3 through 4.11. 10.2 Amended and Restated Loan and Security Agreement, dated July 26, 2002.(8) 10.3 Revolving Loan Promissory Note, dated July 26, 2002.(8) 10.4 Amended and Restated Guaranty Agreement, dated July 26, 2002.(8) 10.5 Amended and Restated Pledge Agreement, dated July 26, 2002.(8) 10.6 Model Form Operating Agreement.(14) 10.7 Form of Drilling Bid Proposal and Footage Drilling Contract.(14) 10.8 Form of Turnkey Drilling Agreement.(14) 99.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 USC Section 1350, as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ---------- (1) Incorporated herein by reference to Item 6, "Exhibits and Reports on Form 8-K" to Form 10-Q for the quarterly period ended March 31, 2002. (2) Incorporated herein by reference to Item 7, "Material to be Filed as Exhibits" to Amendment No. 1 to Schedule 13D filed on October 31, 2002. (3) Incorporated herein by reference to Item 6, "Exhibits and Reports on Form 8-K" to Form 10-Q for the quarterly period ended June 30, 2002. (4) Incorporated herein by reference to Item 7, "Financial Statements and Exhibits" to Form 8-K dated and filed on May 8, 2001. (5) Incorporated herein by reference to Item 14, "Exhibits, Financial Statement Schedules and Reports on Form 8-K" to Annual Report on Form 10-K for the fiscal year ended December 31, 2001. (6) Incorporated by reference to Item 2, "Exhibits" to Registration Statement on Form 8-A filed on January 14, 1997. (7) Incorporated herein by reference to Item 6, "Exhibits and Reports on Form 8-K" to Form 10-Q for the quarterly period ended September 30, 2001, filed on October 31, 2001. (8) Incorporated herein by reference to Item 6, "Exhibits and Reports on Form 8-K" to Form 10-Q for the quarterly period ended June 30, 2001, filed on August 1, 2001. (9) Incorporated herein by reference to Item 2, "Exhibits" to Registration Statement on Form 8-A (File No. 000-22664) filed on January 14, 1997. (10) Incorporated herein by reference to Item 8, "Exhibits" to Registration Statement on Form S-8 (File No. 33-39471) filed on March 13, 1998. (11) Incorporated herein by reference to Item 8, "Exhibits" to Registration Statement on Form S-8 (File No. 33-39471) filed on November 4, 1997. (12) Incorporated herein by reference to Item 8, "Exhibits" to Post-Effective Amendment No. 1 to Registration Statement on Form S-8 (file No. 333-60470) filed on July 25, 2001. (13) Incorporated herein by reference to Item 8, "Exhibits" to Post-Effective Amendment No.1 to Registration Statement on Form S-8 (file No. 333-60466) filed on July 25, 2001. (14) Incorporated by reference to Item 27, "Exhibits" to Registration Statement on Form SB-2 (File No. 33-68058-FW) filed on August 30, 1993. * Management Contract or Compensatory Plan identified as required by Item 15(a)(3) of Form 10-K. (b) Reports on Form 8-K. There were no reports on Form 8-K filed during the three months ended March 31, 2003. 20 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. PATTERSON-UTI ENERGY, INC. By: /s/ Cloyce A. Talbott ---------------------------------------- Cloyce A. Talbott Chief Executive Officer By: /s/ Jonathan D. Nelson ---------------------------------------- Jonathan D. Nelson Vice President, Chief Financial Officer, Secretary and Treasurer DATED: May 1, 2003 21 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Cloyce A. Talbott, certify that: (1) I have reviewed this quarterly report on Form 10-Q of Patterson-UTI Energy, Inc.; (2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; (3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; (4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; (5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and (6) The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weakness. Date: May 1, 2003 /s/ Cloyce A. Talbott ------------------------------- Cloyce A. Talbott Chief Executive Officer 22 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Jonathan D. Nelson, certify that: (1) I have reviewed this quarterly report on Form 10-Q of Patterson-UTI Energy, Inc.; (2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; (3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; (4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; (5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and (6) The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weakness. Date: May 1, 2003 /s/ Jonathan D. Nelson ---------------------------------------- Jonathan D. Nelson Vice President, Chief Financial Officer, Secretary and Treasurer INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION ------- ----------- 2.1 Agreement and Plan of Merger dated March 10, 2002, among Patterson-UTI Energy, Inc., Patterson-UTI Drilling Company LP, LLLP and Odin Drilling, Inc.(1) 2.2 Stock Purchase Agreement dated as of June 11, 2002 by and among Patterson-UTI Energy, Inc. and Roper Family Properties, Ltd., Estate of Joe G. Roper, Patricia R. Elledge, Judy Kathleen Roper Davis, Jeanie Elisabeth Cornelius and J. Mark Roper.(2) 2.3 Stock Purchase Agreement dated as of October 28, 2002 by and between Patterson-UTI Energy, Inc. and J. Mark Roper.(3) 3.1 Restated Certificate of Incorporation.(4) 3.1.1 Certificate of Correction of Restated Certificate of Incorporation.(5) 3.2 Amended and Restated Bylaws.(5) 3.3 Rights Agreement dated January 2, 1997, between Patterson Energy, Inc. and Continental Stock Transfer & Trust Company.(6) 3.3.1 Amendment to Rights Agreement dated as of October 23, 2001.(7) 4.1 Excerpt from Restated Certificate of Incorporation of Patterson-UTI Energy, Inc. regarding authorized Common Stock and Preferred Stock.(8) 4.2 Certificate of Designation.(9) 4.2.1 Amendment to Certificate of Designation.(5) 4.3 Registration Rights Agreement with Bear, Stearns and Co. Inc., dated March 25, 1994, as assigned to REMY Capital Partners III, L.P.(5) 4.4 Patterson-UTI Energy, Inc. 1993 Stock Incentive Plan, as amended.(10)* 4.5 Patterson-UTI Energy, Inc. Non-Employee Directors' Stock Option Plan, as amended.(11)* 4.6 Patterson-UTI Energy, Inc. Amended and Restated 1997 Long-Term Incentive Plan.(12)* 4.7 Amended and Restated Non-Employee Director Stock Option Plan of Patterson-UTI Energy, Inc.(13)* 4.8 Amended and Restated Patterson-UTI Energy, Inc. 1996 Employee Stock Option Plan.(13)* 4.9 1997 Stock Option Plan of DSI Industries, Inc.(12)* 4.10 Stock Option Agreement dated July 20, 2001 between Patterson-UTI Energy, Inc. and Kenneth R. Peak (a non-employee director of Patterson-UTI Energy, Inc.).(5)*
EXHIBIT NO. DESCRIPTION ------- ----------- 4.11 Stock Option Agreement dated July 20, 2001 between Patterson-UTI Energy, Inc. and Stephen J. DeGroat (a non-employee director of Patterson-UTI Energy, Inc.).(5)* 10.1 For additional material contracts, see Exhibits 4.3 through 4.11. 10.2 Amended and Restated Loan and Security Agreement, dated July 26, 2002.(8) 10.3 Revolving Loan Promissory Note, dated July 26, 2002.(8) 10.4 Amended and Restated Guaranty Agreement, dated July 26, 2002.(8) 10.5 Amended and Restated Pledge Agreement, dated July 26, 2002.(8) 10.6 Model Form Operating Agreement.(14) 10.7 Form of Drilling Bid Proposal and Footage Drilling Contract.(14) 10.8 Form of Turnkey Drilling Agreement.(14) 99.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 USC Section 1350, as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
---------- (1) Incorporated herein by reference to Item 6, "Exhibits and Reports on Form 8-K" to Form 10-Q for the quarterly period ended March 31, 2002. (2) Incorporated herein by reference to Item 7, "Material to be Filed as Exhibits" to Amendment No. 1 to Schedule 13D filed on October 31, 2002. (3) Incorporated herein by reference to Item 6, "Exhibits and Reports on Form 8-K" to Form 10-Q for the quarterly period ended June 30, 2002. (4) Incorporated herein by reference to Item 7, "Financial Statements and Exhibits" to Form 8-K dated and filed on May 8, 2001. (5) Incorporated herein by reference to Item 14, "Exhibits, Financial Statement Schedules and Reports on Form 8-K" to Annual Report on Form 10-K for the fiscal year ended December 31, 2001. (6) Incorporated by reference to Item 2, "Exhibits" to Registration Statement on Form 8-A filed on January 14, 1997. (7) Incorporated herein by reference to Item 6, "Exhibits and Reports on Form 8-K" to Form 10-Q for the quarterly period ended September 30, 2001, filed on October 31, 2001. (8) Incorporated herein by reference to Item 6, "Exhibits and Reports on Form 8-K" to Form 10-Q for the quarterly period ended June 30, 2001, filed on August 1, 2001. (9) Incorporated herein by reference to Item 2, "Exhibits" to Registration Statement on Form 8-A (File No. 000-22664) filed on January 14, 1997. (10) Incorporated herein by reference to Item 8, "Exhibits" to Registration Statement on Form S-8 (File No. 33-39471) filed on March 13, 1998. (11) Incorporated herein by reference to Item 8, "Exhibits" to Registration Statement on Form S-8 (File No. 33-39471) filed on November 4, 1997. (12) Incorporated herein by reference to Item 8, "Exhibits" to Post-Effective Amendment No. 1 to Registration Statement on Form S-8 (file No. 333-60470) filed on July 25, 2001. (13) Incorporated herein by reference to Item 8, "Exhibits" to Post-Effective Amendment No.1 to Registration Statement on Form S-8 (file No. 333-60466) filed on July 25, 2001. (14) Incorporated by reference to Item 27, "Exhibits" to Registration Statement on Form SB-2 (File No. 33-68058-FW) filed on August 30, 1993. * Management Contract or Compensatory Plan identified as required by Item 15(a)(3) of Form 10-K.