-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H99Vqjec+eZupvt6fHM4q1sem4AegMZmDlK6PxFyznUwIGl0Dmk5F88+tYamte+8 n6z9p2PbYEZZovbumPBc1Q== 0000950129-97-004619.txt : 19971114 0000950129-97-004619.hdr.sgml : 19971114 ACCESSION NUMBER: 0000950129-97-004619 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: UTI ENERGY CORP CENTRAL INDEX KEY: 0000912899 STANDARD INDUSTRIAL CLASSIFICATION: OIL, GAS FIELD SERVICES, NBC [1389] IRS NUMBER: 232037823 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12542 FILM NUMBER: 97713294 BUSINESS ADDRESS: STREET 1: 16800 GREENSPOINT PARK STREET 2: SUITE 225N CITY: HOUSTON STATE: TX ZIP: 77060 BUSINESS PHONE: 2818734111 MAIL ADDRESS: STREET 1: 16800 GREENSPOINT PARK STREET 2: SUITE 225N CITY: HOUSTON STATE: TX ZIP: 77060 10-Q 1 UTI ENERGY CORP. - 09/30/97 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997. or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . --------------- --------------- COMMISSION FILE NUMBER 1-12542 UTI ENERGY CORP. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 23-2037823 - ------------------------------------ ------------------------------------ (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation) Suite 225 N 16800 Greenspoint Park Houston, Texas 77060 - --------------------------------------- ------------------------------------ (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (281) 873-4111 - -------------------------------------------------------------------------------- (Former Address) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each class of issuer's common stock, as of the latest practicable date. 16,456,115 shares of Common Stock at October 31, 1997. 2 INDEX Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets at September 30, 1997 and December 31, 1996 . . . . . . . . . . . . . . . . . . . 3 Condensed Consolidated Statements of Income for the Three and Nine Months ended September 30, 1997 and 1996 . . 4 Condensed Consolidated Statement of Changes in Shareholders' Equity for the Nine Months ended September 30, 1997 . . . . . 5 Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 1997 and 1996 . . . . . . . 6 Notes to Condensed Consolidated Financial Statements . . . . 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . 11 PART II. OTHER INFORMATION Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . 18 Item 4. Submission of Matters to a Vote of Security Holders . . . . . 18 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 20 Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 - 2 - 3 PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS UTI ENERGY CORP. Condensed Consolidated Balance Sheets (All share amounts reflect the 3:1 stock split, effective September 5, 1997).
September 30, December 31, 1997 1996 (Unaudited) (See Note) ------------- -------------- (In thousands) ASSETS CURRENT ASSETS Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,718 $ 570 Accounts receivable, net of allowance for doubtful accounts of $533 in 1997 and $305 in 1996 . . . . . . . . . . . . . . . . . . . . . . . . 33,481 17,831 Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 528 598 Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,697 874 Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346 1,749 ------------- ------------- 37,770 21,622 PROPERTY AND EQUIPMENT Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 949 749 Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . 2,431 1,760 Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,892 58,421 Oil and gas working interests . . . . . . . . . . . . . . . . . . . . . . . . . 1,843 1,732 Construction in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,910 338 ------------- ------------- 120,025 63,000 Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . 29,368 23,149 ------------- ------------- 90,657 39,851 GOODWILL, less amortization of $337 in 1997 and $0 in 1996 . . . . . . . . . . . . 18,072 - OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 535 397 ------------- ------------- $ 147,034 $ 61,870 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . $ 13,212 $ 4,507 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,138 7,945 Accrued payroll costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,237 2,445 Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,905 964 ------------- ------------- 32,492 15,861 LONG-TERM DEBT, less current portion . . . . . . . . . . . . . . . . . . . . . . . 41,085 14,658 DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,277 8,305 OTHER LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350 350 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Preferred stock $.01 par value, 5,000,000 shares authorized on August 28, 1997, none issued or outstanding in 1997 and 1996 . . . . . . . . -- -- Common stock, $.001 par value, 50,000,000 (10,000,000 prior to August 28, 1997) shares authorized, 12,956,515 shares issued and outstanding in 1997, 10,807,008 shares issued and outstanding in 1996 . . . . 13 11 Additional capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,450 17,870 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,431 4,916 Restricted stock plan unearned compensation . . . . . . . . . . . . . . . . . . (64) (101) ------------- ------------- 57,830 22,696 ------------- ------------- $ 147,034 $ 61,870 ============= =============
Note: The balance sheet at December 31, 1996, has been derived from the audited financial statements but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See Note 1 to condensed consolidated financial statements. - 3 - 4 UTI ENERGY CORP. Condensed Consolidated Statements of Income (Unaudited) (All per share and share amounts reflect the 3:1 stock split effective September 5, 1997).
Three Months Nine Months Ended September 30, Ended September 30, ------------------------------ ------------------------------ 1997 1996 1997 1996 ------------ ------------ ------------ ------------ (In thousands, except share and per share amounts) REVENUES Oilfield service . . . . . . . . . . . . . . . . $ 50,257 $ 26,204 $ 126,691 $ 66,110 Other . . . . . . . . . . . . . . . . . . . . . . 53 65 427 224 ------------ ------------ ------------ ------------ 50,310 26,269 127,118 66,334 COSTS AND EXPENSES Cost of sales Oilfield service . . . . . . . . . . . . . . 36,790 20,566 97,175 53,211 Other . . . . . . . . . . . . . . . . . . . 18 278 95 335 Selling, general and administrative . . . . . . . 3,279 1,900 8,453 5,347 Depreciation and amortization . . . . . . . . . . 3,009 1,087 7,029 3,066 ------------ ------------- ------------ ------------ 43,096 23,831 112,752 61,959 ------------ ------------- ------------ ------------ OPERATING INCOME . . . . . . . . . . . . . . . . . . 7,214 2,438 14,366 4,375 OTHER INCOME (EXPENSE) Interest . . . . . . . . . . . . . . . . . . . . (1,639) (284) (3,393) (716) Other, net . . . . . . . . . . . . . . . . . . . 91 166 345 1,020 ------------ ------------- ------------ ------------ (1,548) (118) (3,048) 304 ------------ ------------- ------------ ------------ INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . 5,666 2,320 11,318 4,679 INCOME TAXES . . . . . . . . . . . . . . . . . . . . 1,772 710 3,803 1,388 ------------ ------------- ------------ ------------ NET INCOME . . . . . . . . . . . . . . . . . . . . . $ 3,894 $ 1,610 $ 7,515 $ 3,291 ============ ============= ============ =========== EARNINGS PER COMMON SHARE: Primary . . . . . . . . . . . . . . . . . . . . . $ 0.26 $ 0.14 $ 0.54 $ 0.30 ============ ============= ============ ============ Fully Diluted . . . . . . . . . . . . . . . . . . $ 0.25 $ 0.14 $ 0.52 $ 0.29 ============ ============= ============ ============ AVERAGE COMMON SHARES OUTSTANDING: Primary . . . . . . . . . . . . . . . . . . . . . 15,197,907 11,579,928 14,001,965 11,094,825 Fully Diluted . . . . . . . . . . . . . . . . . . 15,703,462 11,704,902 14,356,159 11,160,825
See notes to condensed consolidated financial statements. - 4 - 5 UTI ENERGY CORP. Condensed Consolidated Statement of Changes In Shareholders' Equity (Unaudited) For the Nine Months Ended September 30, 1997 (All share amounts reflect the 3:1 stock split effective September 5, 1997).
Restricted Stock Plan Number Par Additional Retained Unearned Of Shares $.001 Capital Earnings Compensation Total --------- ----- ------- -------- ------------ ----- Balance at December 31, 1996 . 10,807,008 $ 11 $ 17,870 $ 4,916 $ (101) $ 22,696 Net Income . . . . . . . . - - 7,515 - 7,515 Issuance of Common Stock . . 2,149,507 2 26,170 - - 26,172 Warrants Issued . . . . . . . - 1,410 - - 1,410 Vesting of Restricted Stock Plan . . . . . . . . . . - - - 37 37 ---------- -------- ---------- ----------- ---------- ------------ Balance at September 30, 1997. . 12,956,515 $ 13 $ 45,450 $ 12,431 $ (64) $ 57,830 ========== ======== ========== =========== ========== ============
See notes to condensed consolidated financial statement. - 5 - 6 UTI ENERGY CORP. Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, ---------------------------------- 1997 1996 ------------- ------------ (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,515 $ 3,291 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . 7,029 3,066 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 946 97 Amortization of debt discount . . . . . . . . . . . . . . . . . . . . . . . . . 258 23 Stock compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 61 Provision for bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228 14 Gain on disposal of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . (356) (62) Change in operating assets and liabilities, net of effect of businesses acquired: Accounts receivable and prepaids . . . . . . . . . . . . . . . . . . . . . . (11,508) (4,479) Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . (823) (239) Accounts payable, accrued expenses, accrued payroll costs and deferred income taxes . . . . . . . . . . . . . . . . . 6,567 3,618 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (149) (28) ------------- ------------ Net cash provided by operating activities . . . . . . . . . . . . . . . . . . 9,744 5,362 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,122) (2,931) Acquisition of businesses, net of cash . . . . . . . . . . . . . . . . . . . . . . . (37,542) (6,000) Proceeds from sale of property and equipment . . . . . . . . . . . . . . . . . . . 808 183 ------------- ------------ Net cash used by investing activities . . . . . . . . . . . . . . . . . . . . (46,856) (8,748) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . 58,900 3,628 Repayments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . (21,626) (1,521) Proceeds from issuance of Common Stock, options and warrants . . . . . . . . . . . 986 - ------------- ------------ Net cash provided by financing activities . . . . . . . . . . . . . . . . . 38,260 2,107 ------------- ------------ NET INCREASE (DECREASE) IN CASH . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,148 (1,279) CASH AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 570 2,273 ------------- ------------ CASH AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,718 $ 994 ============= ============
See notes to condensed consolidated financial statements. - 6 - 7 UTI ENERGY CORP. Notes to Condensed Consolidated Financial Statements (Unaudited) September 30, 1997 (All per share and share amounts reflect the 3:1 stock split effective September 5, 1997). 1. Interim Financial Statements The accompanying unaudited condensed consolidated financial statements at September 30, 1997, 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 only of normal recurring adjustments) considered necessary for a fair presentation of the financial position and operating results for the interim periods have been included. The results of operations for the three and nine months ended September 30, 1997, are not necessarily indicative of the results for the entire year ending December 31, 1997. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. 2. Impact of Recently Issued Accounting Standards In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The impact is expected to result in an increase in primary (renamed basic) earnings per share for the three months and nine months ended September 30, 1997 of $.05 and $.09 per share, respectively. The impact of Statement 128 on the calculation of fully diluted (renamed diluted) earnings per share results in an increase to the three months and nine months ended September 30, 1997 of $.01 and $.02 per share, respectively. 3. Acquisitions On August 14, 1996, the Company purchased all of the capital stock of the Viersen & Cochran Drilling Company ("Viersen"). Viersen was engaged in contract drilling in Oklahoma but had suspended its operations prior to the closing date. The consideration paid for Viersen consisted of (i) $6.0 million cash paid on August 14, 1996 (a portion of which the Company borrowed under its existing credit agreement); (ii) a two-year $8.0 million promissory note (the "Promissory Note") executed by the Company in favor of the Seller; and (iii) stock warrants with a two-year term to purchase 600,000 shares of the Company's Common Stock, at $5 per share. On April 11, 1997, the Company prepaid the Promissory Note at a contractually agreed upon discounted balance of $7.7 million plus accrued interest. Viersen's assets consisted of 13 land drilling rigs, over 500,000 feet of spare drill pipe, over 800 drill collars and other spare drilling equipment. The acquisition of Viersen was accounted for using the purchase method, and Viersen's operating results since August 14, 1996, have been consolidated with the operating results of the Company. - 7 - 8 UTI ENERGY CORP. Notes to Condensed Consolidated Financial Statements (Unaudited) September 30, 1997 (All per share and share amounts reflect the 3:1 stock split effective September 5, 1997). On January 27, 1997, the Company acquired the contract drilling assets of Quarles Drilling Corporation ("Quarles") for $16.2 million, consisting of $8.1 million cash and 733,779 shares of Common Stock as adjusted pursuant to the purchase agreement. The acquired assets consisted of nine land drilling rigs, various equipment, rig components and other equipment used in Quarles' contract drilling business. The acquisition was accounted for using the purchase method. On April 11, 1997, the Company acquired the land drilling operations of Southland Drilling Company Ltd. ("Southland") for approximately $27.1 million in cash and a five-year warrant to purchase 300,000 shares of Common Stock at an exercise price of $16 per share. The acquired assets include eight land drilling rigs, various equipment, components and other equipment used in Southland's contract drilling business. The acquisition was accounted for using the purchase method and Southland's operating results since April 11, 1997 have been consolidated with the operating results of the Company. Estimated goodwill totaling $9.9 million has been recorded relating to this acquisition. On September 11, 1997, the Company acquired J.S.M. & Associates, Inc. ("JSM") for 618,748 shares of Common Stock (including 61,874 shares to be issued following a contractual post-closing adjustment period) and $2.6 million in cash, subject to adjustment. JSM's assets at the time of acquisition included seven land drilling rigs, an office and warehouse in Odessa, Texas and approximately $950,000 in net working capital. The acquisition was accounted for using the purchase method of accounting. Estimated goodwill totaling $8.5 million has been recorded related to this acquisition. Provision for amortization of goodwill is determined by the straight-line method over 15 years. The following pro forma operating results reflect the inclusion of Viersen in 1996, and the inclusion of Quarles and Southland for 1996 and 1997:
Three Months Nine Months Ended September 30, Ended September 30, --------- --------- ------------- ------------ --------- ----------- 1997 1996 1997 1996 -------------- -------------- --------------- --------------- (in thousands, except per share amounts) Revenue . . . . . . . . . . . . . $ 50,310 $ 35,820 $ 137,872 $ 102,248 ========== ============ ============ ============ Net income (loss) . . . . . . . . $ 3,894 $ 1,135 $ 6,829 $ (98) ========== ============ ============ ============ Earnings per share: - Primary . . . . . . . . . . . . $ 0.26 $ 0.10 $ 0.49 $ (0.01) ========== ============ ============ ============ - Fully diluted . . . . . . . . . $ 0.25 $ 0.09 $ 0.48 $ (0.01) ========== ============ ============ ============
- 8 - 9 UTI ENERGY CORP. Notes To Condensed Consolidated Financial Statements (Unaudited) September 30, 1997 (All per share and share amounts reflect the 3:1 stock split effective September 5, 1997). 4. Supplemental Cash Flow Information On January 27, 1997, the Company acquired the contract drilling division of Quarles for cash and Common Stock as follows:
(in thousands) Cash paid for assets . . . . . . . . . . . . $ 8,100 Common Stock issued . . . . . . . . . . . . 8,100 ------------- Total Purchase Price . . . . . . . . . . . . $ 16,200 ==============
On April 11, 1997, the Company acquired the contract drilling operations of Southland for cash and warrants as follows:
(in thousands) Cash paid for assets . . . . . . . . . . . . $ 27,147 Warrants issued . . . . . . . . . . . . . . 10 -------------- Total Purchase Price . . . . . . . . . . . . $ 27,157 ==============
On September 11, 1997, the Company acquired JSM for cash and Common Stock as follows:
(in thousands) Cash paid for asset . . . . . . . . . . . . $ 2,550 Common Stock issued . . . . . . . . . . . . 16,086 Net cash acquired . . . . . . . . . . . . . (255) -------------- Total Purchase Price . . . . . . . . . . . . $ 18,381 ==============
On May 15, 1997, a warrant holder exercised 486,000 warrants for an equal amount of shares of Common Stock using a $1.0 million promissory note of the Company and cash of $296,000. 5. Commitments and Contingencies The Company is partially self-insured for employee health insurance claims and for workers' compensation. The Company incurs a maximum of $75,000 per employee under medical claims and a maximum of $250,000 per event for workers' compensation claims. Although the Company believes that adequate reserves have been provided for expected liabilities arising from its self-insured obligations, it is reasonably possible that management's estimates of these liabilities will change over the near term as circumstances develop. The Company is involved in several claims arising in the ordinary course of business. In the opinion of management, all of these claims are covered by insurance and these matters will not have a material adverse effect on the Company's financial position. - 9 - 10 UTI ENERGY CORP. Notes To Condensed Consolidated Financial Statements (Unaudited) September 30, 1997 (All per share and share amounts reflect the 3:1 stock split effective September 5, 1997). 6. Subsequent Events In October of 1997, the Company sold 1,792,600 shares of Common Stock in a public offering at $39.50 per share (less an underwriting discount of $1.78 per share). Various holders of warrants to purchase Common Stock exercised warrants to purchase an aggregate of 1,707,000 shares of Common Stock for sale by them in the public offering. The offering resulted in net proceeds, including proceeds from the exercise of warrants by the selling stockholders, to the Company of approximately $80.0 million. Following the public offering by the Company, the Company repaid the outstanding balances under its existing line of credit ($8.0 million at September 30, 1997) and term loan ($22.9 million at September 30, 1997). The Company plans to use the remaining net proceeds from the offering, including the proceeds from warrants exercised in the offering for general corporate purposes, including the continuation of the Company's acquisition strategy. - 10 - 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview UTI is a leading provider of onshore contract drilling services in the United States. The Company's drilling operations are currently concentrated in the prolific oil and natural gas producing basins of Oklahoma, Texas and the Gulf Coast. The Company's rig fleet currently consists of 89 land drilling rigs with effective depth capabilities ranging from 5,000 to 25,000 feet. The Company also provides drilling and pressure pumping services in the Appalachian Basin. Beginning in 1995, the Company made a strategic decision to focus its efforts on the expansion of its land drilling operations to take advantage of improving market conditions and the benefits arising from consolidation in the land drilling industry. To effect this strategy, the Company disposed of its oilfield distribution business in September 1995 and immediately embarked on a directed acquisition program aimed at expanding the Company's presence in the oil and gas producing regions of the United States. Since November 1995, the Company has acquired 66 rigs in five transactions: (i) FWA Drilling Company, Inc. ("FWA") was acquired in November 1995 for $12.9 million net of working capital; (ii) Viersen & Cochran Drilling Company ("Viersen") was acquired in August 1996 for approximately $6.0 million cash, a two-year $8.0 million note and warrants to purchase 600,000 shares of Common Stock at $5 per share; (iii) the contract drilling assets of Quarles Drilling Corporation ("Quarles") were acquired in January 1997 for $8.1 million cash and shares of Common Stock having a value at the time of $8.1 million; (iv) the contract drilling business of Southland Drilling Company, Ltd. ("Southland") was acquired in April 1997, for $27.1 million in cash and warrants to purchase 300,000 shares of Common Stock at $16 per share; and (v) J.S.M. & Associates, Inc. ("JSM") was acquired on September 11, 1997, for 618,748 shares of Common Stock and approximately $2.6 million in cash. These acquisitions have resulted in the Company realizing substantial growth in its revenues and earnings. The Company's results for the three and nine months ended September 30, 1997 also reflect a strong improvement in market conditions in the United States land drilling markets resulting from an increase in demand for drilling services. Fleet utilization (based on total rigs owned) was 75% for the three months ended September 30, 1997 compared to 63% for the three months ended September 30, 1996. The Company currently expects that its land drilling operations will continue to benefit from improved market conditions and the effects of its prior acquisitions. The Company intends to continue its strategy of growth through acquisitions of rigs and equipment that can be integrated into its fleet and operations and through acquisitions of other drilling contractors that may provide opportunities for expansion of the Company's markets and services. - 11 - 12 Results of Operations The Company views the number of rigs actively drilling in the United States as a barometer of the overall strength of the domestic oilfield service industry. Without giving effect to acquisitions, variations in revenues and gross margins of the Company's core business generally follow the rig count trend. The following table presents certain results of operations data for the Company and the average United States rig count as reported by Baker Hughes Inc.(1) for the periods indicated:
Three Months Nine Months Ended September 30, Ended September 30, ------------------------------- -------------------------------- 1997 1996 1997 1996 ------------------------------- -------------------------------- Average U.S. land rig count . . . . . 836 683 781 637 Number of owned rigs (at end of period) . . . . . . . . . 89 55 89 55 Average number of rigs owned during period . . . . . . . . . . . 84 55 79 55 Operating Days (2) . . . . . . . . . 5,810 3,176 15,381 8,096 Utilization rate (3) . . . . . . . . . 75% 63% 71% 54% Pressure Pumping: -------- ------- Cement jobs . . . . . . . . . . . . . 643 690 1,661 1,451 Stimulation jobs . . . . . . . . . . 295 288 672 657 Financial data (in thousands): --------- ---- Revenues . . . . . . . . . . . . . . $ 50,310 $ 26,269 $ 127,118 $ 66,334 =========== ============ ============ ============ Gross profit . . . . . . . . . . . . $ 13,502 $ 5,425 $ 29,848 $ 12,788 =========== ============ ============ ============ As a percentage of sales . . . . . . 26.8% 20.7% 23.5% 19.3% =========== ============ ============ ============ Operating income . . . . . . . . . . $ 7,214 $ 2,438 $ 14,366 $ 4,375 =========== ============ ============ ============
- ---------------------------------- (1) Baker Hughes, Inc. is an international oilfield service and equipment company which for more than twenty years has conducted and published a weekly census of active drilling rigs. Its active rig count is generally regarded as an industry standard for measuring industry activity levels. (2) An operating day is defined as a day during which a rig is being operated, mobilized, assembled or dismantled while under contract. (3) Utilization rates are based on a 365-day year and are calculated by dividing the number of rigs utilized by the total number of rigs in the Company's drilling fleet, including stacked rigs. A rig is considered utilized when it is being operated, mobilized, assembled or dismantled while under contract. For the three and nine months ended September 30, 1997, the utilization rate of the Company's rigs, excluding stacked rigs, was 90% and 88%, respectively. - 12 - 13 Comparison of Three Months Ended September 30, 1997 and 1996 Revenue - ------- Revenue increased 91% to $50.3 million for the three months ended September 30, 1997 from $26.3 million for the three months ended September 30, 1996 primarily due to the increase in demand for drilling services and growth in the Company's rig fleet. The revenue increase of $24.0 million consisted of a $22.6 million increase in contract drilling revenue, $1.7 million increase in pressure pumping revenue and a $300,000 decrease in other revenue. The Company's rig fleet was employed for 5,810 for the three months ended September 30, 1997 as compared to 3,176 days in the corresponding period of 1996. Revenue increases also reflected improvements in contract rates. Gross Profit - ------------ Gross profit increased 150% to $13.5 million for the three months ended September 30, 1997 compared to $5.4 million for the three months ended September 30, 1996 due to higher revenues, increased prices and consolidation savings. Contract drilling gross profit as a percentage of revenue was 23.4% in 1997 and 17.1% in 1996. Pressure pumping gross profit as a percentage of revenue was 48.3% in 1997 and 40.6% in 1996. Depreciation and Amortization - ----------------------------- Depreciation and amortization expense for the three months ended September 30, 1997 increased $1.9 million compared to the three months ended September 30, 1996 primarily due to the acquisitions of Viersen, Quarles and Southland. Depreciation and amortization expense will increase in future periods as a result of the Company's acquisitions of Quarles, Southland and JSM. Selling, General and Administrative - ----------------------------------- Selling, general and administrative expenses increased $1.4 million for the three months ended September 30, 1997 compared to the three months ended September 30, 1996 primarily due to the acquisitions of Viersen, Quarles and Southland and a related increase in the average number of rigs operating during the period. As a percentage of revenues, selling, general and administrative expenses decreased to 6.5% for the three months ended September 30, 1997 from 7.2% for the three months ended September 30, 1996. Other Income - ------------ Other income decreased $75,000 for the three months ended September 30, 1997 compared to the three months ended September 30, 1996 due to a reduction in gains from sales of miscellaneous parts and equipment. Interest Expense - ---------------- Interest expense increased $1.4 million primarily due to interest on the debt associated with the Viersen, Quarles and Southland acquisitions. Average outstanding debt for the three months ended September 30, 1997 was $54.0 million compared to $15.6 million for the three months ended September 30, 1996. - 13 - 14 Net Income - ---------- Net income for the three months ended September 30, 1997 was $3.9 million compared to $1.6 million for the three months ended September 30, 1996. This increase reflects the improved revenues and gross profit resulting from the Company's growth and improved market conditions. Comparison of Nine Months Ended September 30, 1997 and 1996 Revenue - ------- Revenue increased 92% to $127.1 million for the first nine months of 1997 from $66.3 million for the first nine months of 1996 primarily due to the increase in demand for drilling services combined with growth in the Company's rig fleet. The revenue increase of $60.8 million consisted of a $56.5 million increase in contract drilling revenue and an increase of $4.3 million in pressure pumping revenue. The Company's rig fleet was employed for 15,381 days during the first nine months of 1997 compared to 8,096 days in the corresponding period of 1996. The Company completed 2,333 pressure pumping jobs during the nine months ended September 30, 1997 as compared to 2,108 jobs in the nine months ended September 30, 1996. Revenue increases also reflected improvements in contract rates. Gross Profit - ------------ Gross profit increased 133% to $29.8 million in the first nine months of 1997 compared to $12.8 million for the same period in 1996 due to higher revenues, increased prices and consolidation savings. Contract drilling gross profit as a percentage of revenue was 21.3% in 1997 and 17.4% for the first nine months of 1996. Pressure pumping gross profit as a percentage of revenue was 39.8% for the nine months ended September 30, 1997 and 30.8% for the corresponding period of 1996. Depreciation and Amortization - ----------------------------- Depreciation and amortization expense increased $4.0 million during the nine months ended September 30, 1997, compared to the nine months ended September 30, 1996 primarily due to the acquisitions of Viersen, Quarles and Southland. Depreciation and amortization expense will increase in future periods as a result of the Company's acquisitions of Quarles, Southland and JSM. Selling, General and Administrative - ----------------------------------- Selling, general and administrative expenses increased $3.1 million primarily due to the acquisitions of Viersen, Quarles, Southland and the related increase in the average number of rigs operating during the period. As a percentage of revenues, selling, general and administrative expenses decreased to 6.6% for the nine months ended September 30, 1997 from 8.1% for the nine months ended September 30, 1996. Other Income - ------------ Other income decreased $675,000 during the nine months ended September 30, 1997, compared to the nine months ended September 30, 1996 primarily because the prior period included a one-time payment of $671,000. The Company received the payment as a result of a favorable resolution of a dispute with the United States government over mineral rights owned by the Company in Southeast New Mexico. - 14 - 15 Interest Expense - ---------------- Interest expense increased $2.7 million during the nine months ended September 30, 1997, compared to the nine months ended September 30, 1996 primarily due to interest on the debt associated with the Viersen and Quarles acquisitions. Average debt outstanding during the first nine months of 1997 was $36.7 million compared to $16.1 million for the first nine months of 1996. The Company also incurred a one time prepayment penalty of $132,000 during the second quarter of 1997 in connection with a refinancing of indebtedness during the quarter. Net Income - ---------- Net income for the first nine months of 1997 was $7.5 million compared to $3.3 million for the corresponding period in 1996. This increase reflects the improved revenues and gross profit resulting from the Company's growth and improved market conditions. Liquidity and Capital Resources Working Capital - --------------- On October 1997, the Company sold in a public offering 1,792,600 shares of Common Stock. Shares of Common Stock held by various shareholders of the Company were also sold in this offering, including 1,707,000 shares of Common Stock that were subject to outstanding warrants and options. The net proceeds from this offering to the Company, including approximately $13.0 million from the exercise of warrants and options to purchase shares of Common Stock that were sold in the offering, were approximately $80.0 million. The Company utilized approximately $27.9 million of the net proceeds to repay all of its outstanding debt other than its 12% Senior Subordinated Notes due 2001 (the "Subordinated Notes"). As a result, after giving effect to the offering and the repayment of debt, the Company currently has in excess of $52.1 million cash and cash equivalents and no borrowings under its working capital facility. The Company intends to utilize these available cash resources, together with its cash flow from operations, to continue its acquisition and growth strategy. The Company has a working capital facility that provides a revolving line of credit of $12.4 million. The revolving line of credit is secured by a pledge of the Company's accounts receivable and inventory and includes financial covenants covering tangible net worth, interest coverage and debt service coverage and prohibits the payment of cash dividends by the Company. Advances under the line are limited by levels of accounts receivable and inventory. Interest under the facility is calculated at the lower of the prime rate or such other rate options available at the time of borrowing, depending upon the Company's financial performance. The facility expires on June 30, 1998. Debt Facilities - --------------- In April 1997, in connection with the Company's acquisition of Southland and a refinancing of various loans incurred to finance prior acquisitions, the Company issued $25.0 million principal amount of Subordinated Notes and entered into a $25.0 million term loan with its bank. The Subordinated Notes were issued at a 2% discount and carried with them seven year warrants to purchase 1.2 million shares of Common Stock at an exercise price of $10.83 per share. The term note was repaid following the Company's recent public offering and 720,000 of the warrants to purchase Common Stock issued in connection with the Subordinated Notes were exercised in connection with that offering. The Subordinated Notes similarly contain various affirmative and negative covenants customary in such private placements, including restrictions on additional indebtedness unless certain pro forma financial coverage ratios are met and restrictions on dividends, distributions and other restricted payments. - 15 - 16 JSM - --- On September 11, 1997, the Company acquired JSM for 618,748 shares of Common Stock, including 61,874 escrow shares, and $2.6 million cash, subject to adjustment. The acquisition provided the Company with seven actively marketed and fully manned land drilling rigs having depth capabilities ranging from 10,000 to 14,000 feet. The acquisition also provided the Company with an additional office and warehouse in Odessa, Texas, various spare equipment and supplies and $950,000 in net working capital. Under the terms of the JSM acquisition agreement, the Company granted to the prior shareholders of JSM demand and piggyback registration rights exercisable beginning December 10, 1997. The Company also agreed to provide the prior JSM shareholders with the right, exercisable for a period of 30 days beginning December 10, 1997, to require the Company to purchase one-half of the shares of Common Stock issued in the transaction. Other - ----- The Company is continuing to review potential acquisitions of rigs and rig contractors. Although there can be no assurance that such acquisitions will be completed or as to the terms thereof, such acquisitions would further expand the Company's rig fleet and operations. The Company expects that such acquisitions will be funded with a combination of its available cash, borrowings where necessary or desirable and additional issuances of Common Stock and rights to acquire Common Stock. Management believes its existing cash, future internally generated cash and availability under its revolving line of credit will be sufficient to meet its working capital, capital expenditure and debt service requirements for the next twelve months. Impact of Recently Issued Accounting Standards In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The impact is expected to result in an increase in primary (renamed basic) earnings per share for the three months and nine months ended September 30, 1997 of $.05 and $.09 per share, respectively. The impact of Statement 128 on the calculation of fully diluted (renamed diluted) earnings per share results in an increase to the three months and nine months ended September 30, 1997 of $.01 and $.02 per share, respectively. Inflation Inflation has not had a significant impact on the Company's comparative results of operations. - 16 - 17 Risks Associated With Forward-looking Statements From time to time, the Company may make certain statements that contain "forward-looking" information (as defined in the Private Securities Litigation Reform Act of 1995). Words such as "anticipate", "believe", "expect", "estimate", "project" and similar expressions are intended to identify such forward-looking statements. Forward-looking statements may be made by management orally or in writing, including, but not limited to, in press releases, as part of this "Management's Discussion and Analysis of Financial Condition Results of Operation" contained in this Report, and in the Company's other filings with the Securities and Exchange Commission under the Securities Act of 1933 and the Securities Exchange Act of 1934. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Such forward-looking statements are subject to certain risks, uncertainties and assumptions, including without limitation those identified below. Should one or more of these risks or uncertainties materialize, or should any of the underlying assumptions prove incorrect, actual results of current and future operations may vary materially from those anticipated, estimated, or projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. Among the factors that will have a direct bearing on the Company's results of operations and the contract drilling service industry in which it operates are changes in the price of oil and natural gas and the volatility of the contract drilling service industry in general; any difficulties associated with the Company's ability to successfully integrate recent and any future acquisitions; contractual risk associated with turnkey and footage contracts; the presence of competitors with greater financial resources; operating risks inherent in the contract drilling service industry, such as blowouts, explosions, cratering, well fires and spills; labor shortages; domestic and world-wide political stability and economic growth; and other risks associated with the Company's successful execution of internal operating plans as well as regulatory uncertainties and legal proceedings. - 17 - 18 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES At the Company's annual stockholders meeting held August 28, 1997, the stockholders approved a three-for-one stock split of the Company's Common Stock through a stock dividend and related amendment to the Company's Restated Certificate of Incorporation that increased the number of authorized shares of Common Stock from 10 million to 50 million shares. The stock dividend was paid on September 5, 1997 to stockholders of record on August 25, 1997. As a result of the stock split, all share and per share data contained herein has been restated to reflect the effect of the three-for-one stock split. In addition, at the annual meeting, the stockholders approved an amendment to the Restated Certificate of Incorporation that authorizes the Company to issue up to 5,000,000 of Preferred Stock, $.01 par value. On September 11, 1997, the Company effected the acquisition of J.S.M. & Associates, Inc., ("JSM"), through a merger (the "Merger") of J Acquisition Corp., a wholly owned Texas subsidiary of the Company ("Sub"), with and into JSM. The Merger was effected pursuant to an Agreement and Plan of Merger (the "Merger Agreement"), dated September 11, 1997, between the Company, Sub, JSM, Jim A. James and James F. Silhan. The Company acquired JSM for 618,748 shares of Common Stock (including 61,874 shares to be issued following a contractual post-closing adjustment period) and $2.6 million in cash, subject to adjustment. The Purchase Price was determined by dividing $13.4 million by the contractual agreed upon price. The sale of the shares of Common Stock in the merger was exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) as a transaction not involving a public offering. Under the terms of the Merger Agreement, the Company granted to Messrs. James and Silhan the right to cause the Company to purchase one-half of the shares of Common Stock issued to them in the transaction at the Agreed Stock Price (the "Put Right"). The Put Right may only be exercised for a period of 30 days beginning December 10, 1997. The Company also granted to Messrs. James and Silhan demand and piggyback registration rights exercisable beginning December 10, 1997. The demand registration rights may not be exercised if Messrs. James and Silhan exercise their Put Right. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's Annual Meeting of Stockholders held on August 28, 1997, the following members were elected to the Board of Directors in the class specified:
AFFIRMATIVE NEGATIVE VOTES VOTES VOTES WITHHELD (All share amounts do not reflect the 3:1, stock split effective September 5, 1997). Class III Vaughn E. Drum 3,343,538 -0- 83,350 Robert B. Spears 3,343,288 -0- 83,600
- 18 - 19 In addition, the following proposals were approved at the Company's Annual Meeting:
AFFIRMATIVE NEGATIVE VOTES VOTES NOTES ABSTAINED (All share amounts do not reflect the 3:1, stock split effective September 5, 1997). 1. Approve the UTI Energy Corp. 1997 2,765,233 639,491 4,803 Long-Term Incentive Plan 2. Approve a three-for-one split of 2,750,650 673,888 2,350 the Company's Common Stock, $.001 par value, through a stock dividend and related amendment to the Company's Restated Certificate of Incorporation that would increase the number of authorized shares of the Common Stock from 10,000,000 to 50,000,000 3. Approve an amendment to the 2,215,854 819,788 4,750 Company's Restated Certificate of Incorporation that would authorize the issuance of up to 5,000,000 shares of Preferred Stock, $.01 par value
- 19 - 20 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Reports on 8-K. To report the acquisition of J.S.M. & Associates, Inc., pursuant to Item 2 of Form 8-K, the Company filed a Form 8-K with the Securities and Exchange Commission dated September 11, 1997.
Exhibit Number Title or Description - --------------------------------------------------------------------------------------------------------------------- *2.1 - Agreement and Plan of Merger dated September 11, 1997 (the "Merger Agreement"), between UTI Energy Corp., J Acquisition Corp., J.S.M. & Associates, Inc., Jim A. James and James F. Silhan. Pursuant to Item 601(b) (2) of Regulation S-K, schedules and similar attachments to the Merger Agreement have not been filed with this exhibit. The Disclosure Schedule contains information relating to the representations and warranties contained in Article IV of the Merger Agreement. The Company agrees to furnish supplementally any omitted schedule to the Securities and Exchange Commission upon request. 3.1 - Amendment to the Company's Restated Certificate of Incorporation (incorporated by reference to the Company's Registration Statement on Form 5-3, file no. 333-35109). 10.1 - 1997 Long-Term Incentive Plan 11.1 - Statement re: computation of earnings per share. 27.1 - Financial Data Schedule.
*Previously filed with the Company's Current Report on Form 8-K dated September 11, 1997. 20 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. UTI ENERGY CORP. (REGISTRANT) Date: November 12, 1997 /s/ P. Blake Dupuis --------------------------------------- P. Blake Dupuis Vice President, Chief Financial Officer and Chief Accounting Officer Signed on behalf of the registrant and as principal financial officer - 21 - 22 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION ----------- ----------- *2.1 - Agreement and Plan of Merger dated September 11, 1997 (the "Merger Agreement"), between UTI Energy Corp., J Acquisition Corp., J.S.M. & Associates, Inc., Jim A. James and James F. Silhan. Pursuant to Item 601(b) (2) of Regulation S-K, schedules and similar attachments to the Merger Agreement have not been filed with this exhibit. The Disclosure Schedule contains information relating to the representations and warranties contained in Article IV of the Merger Agreement. The Company agrees to furnish supplementally any omitted schedule to the Securities and Exchange Commission upon request. 3.1 - Amendment to the Company's Restated Certificate of Incorporation (incorporated by reference to the Company's Registration Statement on Form 5-3, file no. 333-35109). 10.1 - 1997 Long-Term Incentive Plan 11.1 - Statement re: computation of earnings per share. 27.1 - Financial Data Schedule.
*Previously filed with the Company's Current Report on Form 8-K dated September 11, 1997. EX-10.1 2 1997 LONG-TERM INCENTIVE PLAN - 09/30/97 1 EXHIBIT 10.1 ANNEX A UTI ENERGY CORP. 1997 LONG-TERM INCENTIVE PLAN ARTICLE I: GENERAL SECTION 1.1 Purpose of the Plan. The Long-Term Incentive Plan (the "Plan") of UTI Energy Corp. (the "Company") is intended to advance the best interests of the Company, its subsidiaries and its stockholders in order to attract, retain and motivate key employees by providing them with additional incentives through (i) the grant of options ("Options") to purchase shares of Common Stock, par value $.01 per share, of the Company ("Common Stock"), (ii) the grant of stock appreciation rights ("Stock Appreciation Rights"), (iii) the award of shares of restricted Common Stock ("Restricted Stock") and (iv) the award of units payable in cash or shares of Common Stock based on performance ("Performance Awards"), thereby increasing the personal stake of such key employees in the continued success and growth of the Company. SECTION 1.2 Administration of the Plan. (a) The Plan shall be administered either by the full Board of Directors of the Company (the "Board of Directors") or by the Compensation Committee or other designated committee of the Board of Directors. The Board of Directors or such committee is referred to herein as the "Committee". The Committee shall have authority to interpret conclusively the provisions of the Plan, to adopt such rules and regulations for carrying out the Plan as it may deem advisable, to decide conclusively all questions of fact arising in the application of the Plan, to establish performance criteria in respect of Awards (as defined herein) under the Plan, to certify that Plan requirements have been met for any participant in the Plan, to submit such matters as it may deem advisable to the Company's stockholders for their approval, and to make all other determinations and take all other actions necessary or desirable for the administration of the Plan. The Committee is expressly authorized to adopt rules and regulations limiting or eliminating its discretion in respect of certain matters as it may deem advisable to comply with or obtain preferential treatment under any applicable tax or other law rule, or regulation. All decisions and acts of the Committee shall be final and binding upon all affected Plan participants. (b) The Committee shall designate the eligible employees, if any, to be granted Awards and the type and amount of such Awards and the time when Awards will be granted. All Awards granted under the Plan shall be on the terms and subject to the conditions determined by the Committee consistent with the Plan. 2 SECTION 1.3 Eligible Participants. Key employees, including officers and directors, of the Company and its subsidiaries (all such subsidiaries being referred to as "Subsidiaries") shall be eligible for Awards under the Plan. SECTION 1.4 Awards Under the Plan. Awards to key employees may be in the form of (i) Options, (ii) Stock Appreciation Rights, which may be issued independent of or in tandem with Options, (iii) shares of Restricted Stock, (iv) Performance Awards, or (v) any combination of the foregoing (collectively, "Awards"). SECTION 1.5 Shares Subject to the Plan. Initially, the aggregate number of shares of Common Stock that may be issued under the Plan shall be 200,000, subject to adjustment as provided in the Plan. Shares distributed pursuant to the Plan may consist of authorized but unissued shares or treasury shares of the Company, as shall be determined from time to time by the Board of Directors. If any Award under the Plan shall expire, terminate or be canceled (including cancellation upon an Option holder's exercise of a related Stock Appreciation Right) for any reason without having been exercised in full, or if any Award shall be forfeited to the Company, the unexercised or forfeited Award shall not count against the above limits and shall again become available for Awards under the Plan (unless the holder of such Award received dividends or other economic benefits with respect to such Award, which dividends or other economic benefits are not forfeited, in which case the Award shall count against the above limits). Shares of Common Stock equal in number to the shares surrendered in payment of the option price, and shares of Common Stock which are withheld in order to satisfy Federal, state or local tax liability, shall count against the above limits. Only the number of shares of Common Stock actually issued upon exercise of a Stock Appreciation Right shall count against the above limits, and any shares which were estimated to be used for such purposes and were not in fact so used shall again become available for Awards under the Plan. Cash exercises of Stock Appreciation Rights and cash settlement of other Awards will not count against the above limits. The aggregate number of shares of Common Stock subject to Options or Stock Appreciation Rights that may be granted to any one participant in any one year under the Plan shall be 100,000. The aggregate number of shares of Common Stock that may be granted to any one participant in any one year in respect of Restricted Stock shall be 100,000. The aggregate number of shares of Common Stock that may be received by any one participant in any one year in respect of a Performance Award shall be 100,000 and the aggregate amount of cash that may be received by any one participant in any one year in respect to a Performance Award shall be $500,000. The total number of Awards (or portions thereof) settled in cash under the Plan, based on the number of shares covered by such Awards (e.g., 100 shares for a Stock Appreciation Right with respect to 100 shares), shall not exceed a number equal to (i) the number of shares initially available for issuance under the Plan plus (ii) the number of shares that have become available for issuance under the Plan pursuant to the first paragraph of this Section 1.5. 3 The aggregate number of shares of Common Stock that are available under the Plan for Options granted in accordance with Section 2.4(i) ("ISOs") is 200,000, subject to adjustments as provided in Section 5.2 of the Plan. SECTION 1.6 Other Compensation Programs. Nothing contained in the Plan shall be construed to preempt or limit the authority of the Board of Directors to exercise its corporate rights and powers, including, but not by way of limitation, the right of the Board of Directors (i) to grant incentive awards for proper corporate purposes otherwise than under the Plan to any employee, officer, director or other person or entity or (ii) to grant incentive awards to, or assume incentive awards of, any person or entity in connection with the acquisition (whether by purchase, lease, merger, consolidation or otherwise) of the business or assets (in whole or in part) of any person or entity. ARTICLE II: STOCK OPTIONS AND STOCK APPRECIATION RIGHTS SECTION 2.1 Terms and Conditions of Options. Subject to the following provisions, all Options granted under the Plan to employees of the Company and its Subsidiaries shall be in such form and shall have such terms and conditions as the Committee, in its discretion, may from time to time determine consistent with the Plan. (a) Option Price. The option price per share shall be determined by the Committee, except that in the case of an Option granted in accordance with Section 2.4(i) the option price per share shall not be less than the fair market value of a share of Common Stock (as determined by the Committee) on the date the Option is granted (other than in the case of substitute or assumed Options to the extent required to qualify such Options for preferential tax treatment under the Code as in effect at the time of such grant). (b) Term of Option. The term of an Option shall be determined by the Committee, except that in the case of an ISO the term of the Option shall not exceed ten years from the date of grant, and, notwithstanding any other provision of this Plan, no Option shall be exercised after the expiration of its term. (c) Exercise of Options. Options shall be exercisable at such time or times and subject to such terms and conditions as the Committee shall specify in the Option grant. Unless the Option grant specifies otherwise, the Committee shall have discretion at any time to accelerate such time or times and otherwise waive or amend any conditions in respect of all or any portion of the Options held by any optionee. An Option may be exercised in accordance with its terms as to any or all shares purchasable thereunder. (d) Payment for Shares. The Committee may authorize payment for shares as to which an Option is exercised to be made in cash, shares of Common Stock, a combination thereof, by "cashless exercise" or in such other manner as the Committee in its discretion may provide. 4 (e) Stockholder Rights. The holder of an Option shall, as such, have none of the rights of a stockholder. (f) Termination of Employment. The Committee shall have discretion to specify in the Option grant, or, with the consent of the optionee, an amendment thereof, provisions with respect to the period, not extending beyond the term of the Option, during which the Option may be exercised following the optionee's termination of employment. SECTION 2.2 Stock Appreciation Rights in Tandem with Options. (a) The Committee may, either at the time of grant of an Option or at any time during the term of the Option, grant Stock Appreciation Rights ("Tandem SARs") with respect to all or any portion of the shares of Common Stock covered by such Option. A Tandem SAR may be exercised at any time the Option to which it relates is then exercisable, but only to the extent the Option to which it relates is exercisable, and shall be subject to the conditions applicable to such Option. When a Tandem SAR is exercised, the Option to which it relates shall cease to be exercisable to the extent of the number of shares with respect to which the Tandem SAR is exercised. Similarly, when an Option is exercised, the Tandem SARs relating to the shares covered by such Option exercise shall terminate. Any Tandem SAR which is outstanding on the last day of the term of the related Option (as determined pursuant to Section 2.1(b)) shall be automatically exercised on such date for cash without any action by the optionee. (b) Upon exercise of a Tandem SAR, the holder shall receive, for each share with respect to which the Tandem SAR is exercised, an amount (the "Appreciation") equal to the difference between the option price per share of the Option to which the Tandem SAR relates and the fair market value (as determined by the Committee) of a share of Common Stock on the date of exercise of the Tandem SAR. The Appreciation shall be payable in cash, Common Stock, or a combination of both, at the option of the Committee, and shall be paid within 30 days of the exercise of the Tandem SAR. SECTION 2.3 Stock Appreciation Rights Independent of Options. Subject to the following provisions, all Stock Appreciation Rights granted independent of Options ("Independent SARs") under the Plan to employees of the Company and its Subsidiaries shall be in such form and shall have such terms and conditions as the Committee, in its discretion, may from time to time determine consistent with the Plan. (a) Exercise Price. The exercise price per share shall be determined by the Committee on the date the Independent SAR is granted. (b) Term of Independent SAR. The term of an Independent SAR shall be determined by the Committee, and, notwithstanding any other provision of this Plan, no Independent SAR shall be exercised after the expiration of its term. (c) Exercise of Independent SARs. Independent SARs shall be exercisable at such time or times and subject to such terms and conditions as the Committee 5 shall specify in the Independent SAR grant. Unless the Independent SAR grant specifies otherwise, the Committee shall have discretion at any time to accelerate such time or times and otherwise waive or amend any conditions in respect of all or any portion of the Independent SARs held by any participant. Upon exercise of an Independent SAR, the holder shall receive, for each share specified in the Independent SAR grant, an amount (the "Appreciation") equal to the difference between the exercise price per share specified in the Independent SAR grant and the fair market value (as determined by the Committee) of a share of Common Stock on the date of exercise of the Independent SAR. The Appreciation shall be payable in cash, Common Stock, or a combination of both, at the option of the Committee, and shall be paid within 30 days of the exercise of the Independent SAR. (d) Stockholder Rights. The holder of an Independent SAR shall, as such, have none of the rights of a stockholder. (e) Termination of Employment. The Committee shall have discretion to specify in the Independent SAR grant, or, with the consent of the holder, an amendment thereof, provisions with respect to the period, not extending beyond the term of the Independent SAR, during which the Independent SAR may be exercised following the holder's termination of employment. SECTION 2.4 Statutory Options. Subject to the limitations on Option terms set forth in Section 2.1, the Committee shall have the authority to grant (i) ISOs within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) Options containing such terms and conditions as shall be required to qualify such Options for preferential tax treatment under the Code as in effect at the time of such grant, including, if then applicable, limits with respect to minimum exercise price, duration and amounts and special limitations applicable to any individual who, at the time the Option is granted, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any affiliate. Options granted pursuant to this Section 2.4 may contain such other terms and conditions permitted by Article II of this Plan as the Committee, in its discretion, may from time to time determine (including, without limitation, provision for Stock Appreciation Rights), to the extent that such terms and conditions do not cause the Options to lose their preferential tax treatment. If an Option intended to be an ISO ceases or is otherwise not eligible to be an ISO, such Option (or portion thereof necessary to maintain the status of the remaining portion of the Option as an ISO) shall remain valid but be treated as an Option other than an ISO. SECTION 2.5 Change of Control. Notwithstanding the exercisability schedule governing any Option or Stock Appreciation Right, upon the occurrence of a Change of Control (as defined in Section 5.9) all Options and Stock Appreciation Rights outstanding at the time of such Change of Control and held by participants who are employees of the Company or its subsidiaries at the time of such Change of Control shall (unless specifically provided otherwise in the grant thereof) become immediately exercisable and, unless the participant agrees otherwise in writing, remain exercisable for three years (but not beyond the term of the Option or Stock Appreciation Right) after the employee's termination of employment for any reason other than termination by the Company or a subsidiary of the Company for 6 dishonesty, conviction of a felony, wilful unauthorized disclosure of confidential information or wilful refusal to perform the duties of such employee's position or positions with the Company or such subsidiary (termination for "cause"); provided that this Section 2.5 shall not apply to Awards granted to a participant if, in connection with a Change of Control pursuant to clause (1) of Section 5.9, such participant is the Person or forms part of the Person specified in such clause (1). ARTICLE III: RESTRICTED STOCK SECTION 3.1 Terms and Conditions of Restricted Stock Awards. Subject to the following provisions, all Awards of Restricted Stock under the Plan to employees of the Company and its Subsidiaries shall be in such form and shall have such terms and conditions as the Committee, in its discretion, may from time to time determine consistent with the Plan. (a) Restricted Stock Award. The Restricted Stock Award shall specify the number of shares of Restricted Stock to be awarded, the price, if any, to be paid by the recipient of the Restricted Stock, and the date or dates on which the Restricted Stock will vest. The vesting and number of shares of Restricted Stock may be conditioned upon the completion of a specified period of service with the Company or its Subsidiaries, upon the attainment of specified performance objectives, or upon such other criteria as the Committee may determine in accordance with the provisions hereof. Performance objectives will be based on increases in share prices, operating income, net income or cash flow thresholds on a company wide, subsidiary or division or group basis, rig utilization, safety records, return on common equity or any combination of the foregoing. (b) Restrictions on Transfer. Stock certificates representing the Restricted Stock granted to an employee shall be registered in the employee's name. Such certificates shall either be held by the Company on behalf of the employee, or delivered to the employee bearing a legend to restrict transfer of the certificate until the Restricted Stock has vested, as determined by the Committee. The Committee shall determine whether the employee shall have the right to vote and/or receive dividends on the Restricted Stock before it has vested. No share of Restricted Stock may be sold, transferred, assigned, or pledged by the employee until such share has vested in accordance with the terms of the Restricted Stock Award. Unless the grant of a Restricted Stock Award specifies otherwise, in the event of an employee's termination of employment before all the employee's Restricted Stock has vested, or in the event other conditions to the vesting of Restricted Stock have not been satisfied prior to any deadline for the satisfaction of such conditions set forth in the Award, the shares of Restricted Stock that have not vested shall be forfeited and any purchase price paid by the employee shall be returned to the employee. At the time Restricted Stock vests (and, if the employee has been issued legended certificates of Restricted Stock, upon the return of such certificates to the Company), a certificate for such vested shares shall be delivered to the employee or the employee's estate, free of all restrictions. (c) Accelerated Vesting. Notwithstanding the vesting conditions set forth in the Restricted Stock Award, (i) unless the Restricted Stock grant specifies 7 otherwise, the Committee may in its discretion at any time accelerate the vesting of Restricted Stock or otherwise waive or amend any conditions of a grant of Restricted Stock, and (ii) all shares of Restricted Stock shall vest upon a Change of Control of the Company; provided that clause (ii) above shall not apply to Awards granted to a participant if, in connection with a Change of Control pursuant to clause (1) of Section 5.9, such participant is the Person or forms part of the Person specified in such clause (1). ARTICLE IV: PERFORMANCE AWARDS SECTION 4.1 Terms and Conditions of Performance Awards. The Committee shall be authorized to grant Performance Awards, which are payable in stock, cash or a combination thereof, at the discretion of the Committee. (a) Performance Period. The Committee shall establish with respect to each Performance Award a performance period over which the performance goal of such Performance Award shall be measured. The performance period for a Performance Award shall be established prior to the time such Performance Award is granted and may overlap with performance periods relating to other Performance Awards granted hereunder to the same employee. (b) Performance Objectives. The Committee shall establish a minimum level of acceptable achievement for the holder at the time of each Award. Each Performance Award shall be contingent upon future performances and achievement of objectives described either in terms of Company-wide performance or in terms that are related to performance of the employee or of the division, subsidiary, department or function within the Company in which the employee is employed. The Committee shall have the authority to establish the specific performance objectives and measures applicable to such objectives. Such objectives, however, shall be based on increases in share prices, operating income, net income or cash flow thresholds on a company wide, subsidiary or division or group, rig utilization, safety records, return on common equity or any combination of the foregoing. (c) Size, Frequency and Vesting. The Committee shall have the authority to determine at the time of the Award the maximum value of a Performance Award, the frequency of Awards and the date or dates when Awards vest. (d) Payment. Following the end of each performance period, the holder of each Performance Award will be entitled to receive payment of an amount, not exceeding the maximum value of the Performance Award, based on the achievement of the performance measures for such performance period, as determined by the Committee. If at the end of the performance period the specified objectives have been attained, the employee shall be deemed to have fully earned the Performance Award. If the employee exceeds the specified minimum level of acceptable achievement but does not fully attain such objectives, the employee shall be deemed to have partly earned the Performance Award, and shall become entitled to receive a portion of the total Award, as determined by the Committee. If a Performance Award is granted after the start of a performance period, the Award shall be reduced to reflect the portion of the performance period during which the Award 8 was in effect. Unless the Award specifies otherwise, including restrictions in order to satisfy the conditions under Section 162(m) of the Code, the Committee may adjust the payment of Awards or the performance objectives if events occur or circumstances arise which would cause a particular payment or set of performance objectives to be inappropriate, as determined by the Committee. (e) Termination of Employment. A recipient of a Performance Award who, by reason of death, disability or retirement, terminates employment before the end of the applicable performance period shall be entitled to receive, to the extent earned, a portion of the Award which is proportional to the portion of the performance period during which the employee was employed. A recipient of a Performance Award who terminates employment for any other reason shall not be entitled to any part of the Award unless the Committee determines otherwise; however, the Committee may in no event pay the employee more than that portion of the Award which is proportional to his or her period of actual service. (f) Accelerated Vesting. Notwithstanding the vesting conditions set forth in a Performance Award, (i) unless the Award specifies otherwise, the Committee may in its discretion at any time accelerate vesting of the Award or otherwise waive or amend any conditions (including but not limited to performance objectives) in respect of a Performance Award, and (ii) all Performance Awards shall vest upon a Change of Control of the Company. In addition, each participant in the Plan shall receive the maximum Performance Award he or she could have earned for the proportionate part of the performance period prior to the Change of Control, and shall retain the right to earn any additional portion of his or her Award if he or she remains in the Company's employ. However, clause (ii) above shall not apply to Awards granted to a participant if, in connection with a Change of Control pursuant to clause (1) of Section 5.9, such participant is the Person or forms part of the Person specified in such clause (1). (g) Stockholder Rights. The holder of a Performance Award shall, as such, have none of the rights of a stockholder. ARTICLE V: ADDITIONAL PROVISIONS SECTION 5.1 General Restrictions. Each Award under the Plan shall be subject to the requirement that, if at any time the Committee shall determine that (i) the listing, registration or qualification of the shares of Common Stock subject or related thereto upon any securities exchange or under any state or Federal law, or (ii) the consent or approval of any government regulatory body, or (iii) an agreement by the recipient of an Award with respect to the disposition of shares of Common Stock, is necessary or desirable (in connection with any requirement or interpretation of any Federal or state securities law, rule or regulation) as a condition of, or in connection with, the granting of such Award or the issuance, purchase or delivery of shares of Common Stock thereunder, such Award may not be consummated in whole or in part unless such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained free of any conditions not acceptable to the Committee. 9 SECTION 5.2 Adjustments for Changes in Capitalization. In the event of any stock dividends, stock splits, recapitalizations, combinations, exchanges of shares, mergers, consolidation, liquidations, split-ups, split-offs, spin- offs, or other similar changes in capitalization, or any distribution to stockholders, including a rights offering, other than regular cash dividends, changes in the outstanding stock of the Company by reason of any increase or decrease in the number of issued shares of Common Stock resulting from a split-up or consolidation of shares or any similar capital adjustment or the payment of any stock dividend, any share repurchase at a price in excess of the market price of the Common Stock at the time such repurchase is announced or other increase or decrease in the number of such shares, the Committee shall make appropriate adjustment in the number and kind of shares authorized by the Plan (including shares available for ISOs), in the number, price or kind of shares covered by the Awards and in any outstanding Awards under the Plan; provided, however, that no such adjustment shall increase the aggregate value of any outstanding Award. In the event of any adjustment in the number of shares covered by any Award, any fractional shares resulting from such adjustment shall be disregarded and each such Award shall cover only the number of full shares resulting from such adjustment. SECTION 5.3 Amendments. (a) The Board of Directors may at any time and from time to time and in any respect amend or modify the Plan. (b) The Committee shall have the authority to amend any Award to include any provision which, at the time of such amendment, is authorized under the terms of the Plan; however, no outstanding Award may be revoked or altered in a manner unfavorable to the holder without the written consent of the holder. SECTION 5.4 Cancellation of Awards. Any Award granted under the Plan may be canceled at any time with the consent of the holder and a new Award may be granted to such holder in lieu thereof, which Award may, in the discretion of the Committee, be on more favorable terms and conditions than the canceled Award. SECTION 5.5 Withholding. Whenever the Company proposes or is required to issue or transfer shares of Common Stock under the Plan, the Company shall have the right to require the holder to pay an amount in cash or to retain or sell without notice, or demand surrender of, shares of Common Stock in value sufficient to satisfy any Federal, state or local withholding tax liability ("Withholding Tax") prior to the delivery of any certificate for such shares (or remainder of shares if Common Stock is retained to satisfy such tax liability). Whenever under the Plan payments are to be made in cash, such payments shall be net of an amount sufficient to satisfy any Federal, state or local withholding tax liability. An Award may also provide the holder with the right to satisfy the Withholding Tax with previously owned shares of Common Stock or shares of Common Stock otherwise issuable to the holder. Whenever Common Stock is so retained or surrendered to satisfy Withholding Tax, the value of shares of Common Stock so retained or surrendered shall be determined by the Committee, and the value of shares of Common Stock so sold 10 shall be the net proceeds (after deduction of commissions) received by the Company from such sale, as determined by the Committee. SECTION 5.6 Non-assignability. Except as expressly provided in the Plan or in any agreements, no Award under the Plan shall be assignable or transferable by the holder thereof except by will or by the laws of descent and distribution. During the life of the holder, Awards under the Plan shall be exercisable only by such holder or by the guardian or legal representative of such holder. SECTION 5.7 Non-uniform Determinations. Determinations by the Committee under the Plan (including, without limitation, determinations of the persons to receive Awards; the form, amount and timing of such Awards; the terms and provisions of such Awards and the agreements evidencing same; and provisions with respect to termination of employment) need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, Awards under the Plan, whether or not such persons are similarly situated. SECTION 5.8 No Guarantee of Employment. The grant of an Award under the Plan shall not constitute an assurance of continued employment for any period or any obligation of the Board of Directors to nominate any director for reelection by the Company's stockholders. SECTION 5.9 Change of Control. A "Change of Control" shall be deemed to have occurred if: (1) any Person (as defined below), other than a Designated Person, is or becomes the Beneficial Owner (as defined below) of securities of the Company representing 35% or more of the Voting Power (as defined below); (2) there shall occur a change in the composition of a majority of the Board of Directors within any period of four consecutive years which change shall not have been approved by a majority of the Board of Directors as constituted immediately prior to the commencement of such period; (3) at any meeting of the stockholders of the Company called for the purpose of electing directors, more than one of the persons nominated by the Board of Directors for election as directors shall fail to be elected; or (4) the stockholders of the Company approve a merger, consolidation, sale of substantially all assets or other reorganization of the Company, other than a reincorporation, in which the Company does not survive. For purposes of this Section 5.9, (i) "Person" shall have the meaning set forth in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934 (the "Exchange Act"), as in effect on May 1, 1997, (ii) "Beneficial Owner" shall have the meaning set forth in Rules 13d-3 and 13d-5 promulgated under the Exchange Act on May 1, 1997; (iii) "Voting Power" shall mean the voting power of the outstanding securities of the Company having the right under ordinary circumstances to vote at 11 an election of the Board of Directors; and (iv) "Designated Person" shall mean any Person whose Beneficial Ownership of securities is solely the result of such Person acquiring securities as an underwriter in an underwritten public offering of such securities. Notwithstanding anything contained herein to the contrary, a Change in Control shall not be deemed to have occurred due to the Voting Power of Remy Capital Partners III, L.P. or any of its affiliates (collectively "Remy") falling below 35% or subsequently increasing over 35%. SECTION 5.10 Duration and Termination. (a) The Plan shall be of unlimited duration. Notwithstanding the foregoing, no ISO (within the meaning of Section 422 of the Code) shall be granted under the Plan ten (10) years after the effective date of the Plan, but Awards granted prior to such date may extend beyond such date, and the terms of this Plan shall continue to apply to all Awards granted hereunder. (b) The Board of Directors may suspend, discontinue or terminate the Plan at any time. Such action shall not impair any of the rights of any holder of any Award outstanding on the date of the Plan's suspension, discontinuance or termination without the holder's written consent. SECTION 5.11 Deferred Compensation and Trust Agreements. The Committee may authorize and establish deferred compensation agreements and arrangements in connection with Awards under the Plan and may establish trusts and other arrangements including "rabbi trusts", with respect to such agreements and appoint one or more trustees for such trusts. Shares of Common Stock under the Plan may also be acquired by one or more trustees from the Company, in the open market or otherwise. SECTION 5.12 Effective Date. The Plan shall be effective as of July 23, 1997, subject to approval of the Corporation's stockholders. EX-11.1 3 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11.1 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
NINE MONTHS ENDED September 30, 1997 ------------------ Primary: Average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . 11,910,355 Net effect of dilutive stock options and warrants based on the treasury stock method using average market price . . . . . . . . . . . . . . . . . . . . 2,091,610 ------------ Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,001,965 ============ Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,515,000 ============ Per share amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.54 ============ Fully diluted: Average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . 11,910,355 Net effect of dilutive stock options and warrants based on the treasury stock method using the quarter-end price which is greater than the average market price . . . . . . . . . . . . . . . . . . . . . . . . . . 2,445,804 ------------ Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,356,159 ============ Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,515,000 ============ Per share amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.52 ============
EX-27 4 FINANCIAL DATA SCHEDULE - 09/30/97
5 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 1,718 0 34,542 533 1,697 37,770 120,025 29,368 147,034 32,492 0 0 0 13 57,817 147,034 0 127,118 0 92,270 15,482 0 3,393 11,318 3,803 7,515 0 0 0 7,515 .54 .52
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