On August 14, 2023, we completed the Ulterra acquisition. Total consideration for the acquisition included the issuance of 34.9 million shares of our common stock and payment of approximately $376 million of cash, which based on the closing price of our common stock of $14.94 on August 14, 2023, valued the transaction at approximately $897 million.

The total fair value of the consideration transferred was determined as follows (in thousands, except stock price):


Shares of our common stock issued to Ulterra		34,900
Our common stock price on August 14, 2023	$	14.94
Common stock equity consideration	$	521,406
Plus net cash consideration (1)		375,740
Total consideration transferred	$	897,146

(1)

Net cash consideration included $370 million cash consideration as adjusted for customary purchase price adjustments set forth in the Ulterra merger agreement relating to cash, net working capital, indebtedness and transaction expenses of Ulterra as of the closing. The adjustment is subject to a post-closing target net working capital adjustment in accordance with the Ulterra merger agreement.

The acquisition has been accounted for as a business combination using the acquisition method. Under the acquisition method of accounting, the fair value of the consideration transferred is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values as of the acquisition date.

The aggregate purchase price noted above was allocated to the major categories of assets acquired and liabilities assumed based on preliminary estimated fair values as of the date of the business combination. We applied significant judgment in estimating the fair value of assets acquired and liabilities assumed, which involved the use of significant estimates and assumptions with respect to future rig counts, estimated economic useful lives, operating and capital cost estimates, and a weighted average discount rate reflecting the cost of capital for market participants of 10.5%. The carrying amounts of cash and cash equivalents, accounts receivable, other assets, accounts payable and accrued liabilities approximate their fair values due to their nature or the short-term maturity of instruments. The remaining assets acquired and liabilities assumed are based on inputs that are not observable in the market and thus represent Level 3 inputs. The fair value of inventory and rental equipment was determined using a replacement cost approach. Intangible assets primarily consist of customer relationships and developed technology, the fair values of which were determined using an income approach. Property and equipment was valued using a combination of indirect cost and a market approach. Certain data necessary to complete the purchase price allocation is not yet available, including final tax returns that provide the underlying tax basis of Ulterra’s assets and liabilities. We will complete the purchase price allocation during the 12-month period following the acquisition date.


Assets acquired:
Cash and cash equivalents	$	18,426
Accounts receivable		68,467
Inventory (1)		36,313
Rental equipment (2)		109,055
Property and equipment		27,583
Intangible assets		313,000
Operating lease right of use asset		7,513
Finance lease right of use asset		5,228
Other assets		14,274
Total assets acquired		599,859

Liabilities assumed:
Accounts payable		23,258
Accrued liabilities		26,475
Operating lease liability		7,513
Finance lease liability		5,228
Deferred tax liabilities		82,851
Total liabilities assumed		145,325
Less: noncontrolling interest		(8,729	)
Net assets acquired		445,805
Goodwill		451,341
Total consideration transferred	$	897,146

(1)

We recorded an adjustment of $5.5 million to write-up acquired drill bits classified as inventory to estimated fair value. This adjustment will be recorded as direct operating expense as acquired drill bits are sold.

(2)

We recorded an adjustment of $74.4 million to write-up acquired drill bits classified as long-lived assets to estimated fair value. This adjustment will be depreciated as acquired drill bits are rented over a weighted-average estimated useful life of 7.5 runs.

The goodwill recognized in the acquisition represents the excess of the gross consideration transferred over the fair value of the underlying net tangible and identifiable intangible assets acquired and liabilities assumed. Goodwill of $451.3 million represents the potential for new growth opportunities internationally with the acquisition of Ulterra as well as the recognition of deferred taxes for the difference between the fair value of the assets acquired and liabilities assumed and the respective carry-over tax basis. Goodwill is not deductible for tax purposes. All of the goodwill was assigned to our Drilling Products segment. See Note 7.

Approximately $46.6 million of revenues and $6.6 million of net loss attributed to the Ulterra acquisition are included in the consolidated statements of operations for the period from the closing date on August 14, 2023 through September 30, 2023. During the nine months ended September 30, 2023, we incurred costs related to the Ulterra acquisition totaling $5.2 million, which are included in our consolidated statements of operations as “Merger and integration expense.”

A portion of the fair value consideration transferred has been provisionally assigned to identifiable intangible assets as follows:


	Fair Value		Weighted Average Useful Life
	(in thousands)		(in years)
Customer relationships	$	245,000		15
Trade name		16,000		11
Developed technology		52,000		8
Intangible assets	$	313,000

The following pro forma condensed combined financial information was derived from our and Ulterra’s historical financial statements and gives effect to the acquisition as if it had occurred on January 1, 2022. The below information reflects pro forma adjustments based on available information and certain assumptions we believe are reasonable, including (i) adjustments related to the depreciation and amortization of the step up to fair value of $77.6 million for acquired intangibles, $74.4 million for acquired drill bits classified as long-lived assets, and $5.5 million for acquired drill bits classified as inventory, (ii) removal of $12.8 million of historical interest expense of the acquired entity and (iii) $7.9 million of tax benefit relating to the aforementioned pro forma adjustments.

The pro forma results of operations do not include any anticipated cost savings or other synergies that may result from the Ulterra acquisition nor do they include any estimated costs that will be incurred to integrate Ulterra operations. The pro forma results of operations include our merger and integration expense of $5.2 million as if they had been incurred in the first quarter of 2022.

The pro forma condensed combined financial information has been included for comparative purposes and is not necessarily indicative of the results that might have actually occurred had the Ulterra acquisition taken place on January 1, 2022. Furthermore, the financial information is not intended to be a projection of future results. The following table summarizes our selected financial information on a pro forma basis (in thousands, except per share data):


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2023			2022		2023		2022
	(Unaudited)
Revenues	$	1,052,282		$	824,902	$	2,785,279	$	2,135,922
Net income (loss)	$	(27,925	)	$	58,762	$	163,904	$	54,365

On September 1, 2023, we completed the NexTier merger. Under the terms of the merger agreement, NexTier became our wholly-owned subsidiary. Each share of NexTier common stock issued and outstanding immediately prior to the effective time of the merger was converted into the right to receive 0.752 shares of our common stock. Additionally, certain equity awards that were granted and outstanding under NexTier long-term incentive plans were assumed by us, and such equity awards were converted into equity awards in respect of our common stock in accordance with the merger agreement.

NexTier is a predominately U.S. land-focused oilfield service company, with a diverse set of well completion and production services across a variety of active basins.

The total fair value of the consideration transferred was determined as follows (in thousands, except exchange ratio and stock price):


Number of shares of NexTier common stock outstanding as of September 1, 2023		229,022
Multiplied by the exchange ratio		0.752
Number of shares of Patterson-UTI common stock issued in connection with the merger		172,224
Patterson-UTI common stock price on September 1, 2023	$	14.91
Common stock equity consideration		2,567,872
Acceleration of RSU awards		1,997
Fair value of replacement equity awards (1)		70,416
NexTier long-term debt repaid by Patterson-UTI		161,000
Consideration transferred	$	2,801,285

(1)

In connection with the merger, each of the share-based awards held by legacy NexTier employees were replaced with our share-based awards on the merger date. The fair value of the replacement awards has been allocated between each employee’s pre-combination and post-combination services. Amounts allocated to pre-combination services have been included as consideration transferred as part of the merger. See Note 12 for replacement awards details.

The transaction has been accounted for as a business combination using the acquisition method with Patterson-UTI determined to be the acquirer. Under the acquisition method of accounting, the fair value of the consideration transferred is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values as of the acquisition date.

The aggregate purchase price noted above was allocated to the major categories of assets acquired and liabilities assumed based on preliminary estimated fair values as of the date of the business combination. We applied significant judgment in estimating the fair value of assets acquired and liabilities assumed, which involved the use of significant estimates and assumptions with respect to future rig counts, estimated economic useful lives, operating and capital cost estimates, and a weighted average discount rate reflecting the cost of capital for market participants of 14.0%. The carrying amounts of cash and cash equivalents, accounts receivable, inventory, other assets, accounts payable, accrued liabilities, and other liabilities approximate their fair values due to their nature or the short-term maturity of instruments. The remaining assets acquired and liabilities assumed are based on inputs that are not observable in the market and thus represent Level 3 inputs. The fair value of property and equipment was determined using a combination of replacement cost and indirect cost. Intangible assets were valued using an income approach. Certain data necessary to complete the purchase price

allocation is not yet available, including final tax returns that provide the underlying tax basis of NexTier’s assets and liabilities. We will complete the purchase price allocation during the 12-month period following the acquisition date.


Assets acquired:
Cash and cash equivalents	$	95,815
Accounts receivable		420,200
Inventory		71,930
Property and equipment (1)		1,045,610
Intangible assets		768,000
Operating lease right of use asset		19,091
Finance lease right of use asset		50,733
Other assets		84,677
Total assets acquired		2,556,056

Liabilities assumed:
Accounts payable		358,873
Accrued liabilities		130,597
Operating lease liability		19,091
Finance lease liability		50,733
Deferred tax liabilities		82,785
Long-term debt		22,533
Other liabilities		11,815
Total liabilities assumed		676,427
Net assets acquired		1,879,629
Goodwill		921,656
Total consideration transferred	$	2,801,285

(1)

We recorded an adjustment of $262.7 million to write-up acquired property and equipment to estimated fair value. This adjustment will be depreciated on a straight-line basis over a weighted average period of six years.

The goodwill recognized in the merger represents the excess of the gross consideration transferred over the fair value of the underlying net tangible and identifiable intangible assets acquired and liabilities assumed. Goodwill of $921.7 million largely consisted of the expected synergies and economies of scale from the combined operations of Patterson-UTI and NexTier as well as the recognition of deferred taxes for the difference between the fair value of the assets acquired and liabilities assumed and the respective carry-over tax basis. The goodwill is not deductible for tax purposes. All of the goodwill was assigned to our completion services segment. See Note 7.

Approximately $272.1 million of revenues and $9.6 million of net loss attributed to the NexTier merger are included in the consolidated statements of operations for the period from the closing date on September 1, 2023 through September 30, 2023. During the nine months ended September 30, 2023, we incurred costs related to the NexTier merger totaling $72.9 million, which are included in our consolidated statements of operations as “Merger and integration expense.”

A portion of the fair value consideration transferred has been provisionally assigned to identifiable intangible assets as follows:


	Fair Value		Weighted Average Useful Life
	(in thousands)		(in years)
Customer relationships	$	540,000		10
Trade name		85,000		10
Developed technology		143,000		8
Intangible assets	$	768,000

The following pro forma condensed combined financial information was derived from our and NexTier's historical financial statements and gives effect to the acquisition as if it had occurred on January 1, 2022. The below information reflects pro forma adjustments based on available information and certain assumptions we believe are reasonable, including (i) adjustments related to the depreciation and amortization of the step up to fair value of $720.7 million for acquired intangibles and $262.7 million for acquired

property and equipment, (ii) removal of $17.7 million of historical interest expense of the acquired entity and (iii) $8.4 million of tax expense relating to the aforementioned pro forma adjustments.

The pro forma results of operations do not include any anticipated cost savings or other synergies that may result from the NexTier merger nor do they include any estimated costs that will be incurred to integrate NexTier operations. The pro forma results of operations include our merger and integration expense of $72.9 million.

The pro forma condensed combined financial information has been included for comparative purposes and is not necessarily indicative of the results that might have actually occurred had the NexTier merger taken place on January 1, 2022. Furthermore, the financial information is not intended to be a projection of future results. The following table summarizes our selected financial information on a pro forma basis (in thousands, except per share data):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
	(Unaudited)
Revenues	$	1,589,056	$	1,623,513	$	5,020,507	$	4,233,081
Net income	$	69,256	$	140,250	$	625,020	$	45,461