SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 8-K/A AMENDMENT TO CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): August 15, 2002 UNIT CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Oklahoma 1-9260 73-1283193 (State of Incorporation) (Commission File Number) (IRS Employer Identification No.) 1000 Kensington Tower, Suite 1000 Tulsa, Oklahoma 74136 (ADDRESS OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) 918/493-7700 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) (Not Applicable) (FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT) The undersigned hereby amends its Form 8-K filed August 27, 2002 to include the historical financial statements of the CDC Drilling Company Combined Financial Statements and the related pro forma financial information.Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (a) Financial Statements of Business Acquired Set forth below are the financial statements appearing in this report: Page in CDC Drilling Company This Report ------------------------------------------ ----------- Report of Independent Accountants . . . . . . . . .F-1 Combined Balance Sheets of CDC Drilling Company as of June 30, 2001 and March 31, 2002 (unaudited). . . . . . . . . . . .F-2 Combined Statements of Operations of CDC Drilling Company for the Year Ended June 30, 2001 and the Nine Months Ended March 31, 2002 and 2001 (unaudited) . . . . . . .F-3 Combined Statements of Owner's Equity of CDC Drilling Company for the Year Ended June 30, 2001 and the Nine Months Ended March 31, 2002 (unaudited). . . . . . . . . . . .F-4 Combined Statement of Cash Flows of CDC Drilling Company for the Year Ended June 30, 2001 and the Nine Months Ended March 31, 2002 and 2001 (unaudited) . . . . . . .F-5 Notes to Combined Financial Statements of CDC Drilling Company . . . . . . . . . . . . .F-6 (b) Pro Forma Financial Information Set forth below is the pro forma financial information appearing in this report: Unaudited Pro Forma Consolidated Condensed Balance Sheet as of June 30, 2002 . . . . . . . .P-1 Unaudited Pro Forma Consolidated Condensed Statement of Operations for the Year Ended December 31, 2001 . . . . . . . . . . . . . . . .P-3 Unaudited Pro Forma Consolidated Condensed Statement of Operations for the Six Months Ended June 30, 2002. . . . . . . . . . . .P-4 Notes to Unaudited Pro Forma Consolidated Condensed Financial Statements. . . . . . . . . .P-5 Signatures. . . . . . . . . . . . . . . . . . . . .P-10 (c) Exhibits 23.1 Consent of Independent Auditors Item 7. Financial Statements and Exhibits. (a) Financial Statements of Business Acquired. REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders of CDC Drilling Company We have audited the accompanying combined balance sheet of CDC Drilling Company (see Note 1) as of June 30, 2001 and the related combined statements of operations, owner's equity and cash flows for the year ended June 30, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of CDC Drilling Company (See Note 1) at June 30, 2001 amd the combined results of its operations and its cash flows for the year ended June 30, 2001, in conformity with accounting principles generally accepted in the United States. Ernst & Young May 15, 2002, except for the matter described in the fourth paragraph of Note 1 for which the date is June 26, 2002 Tulsa, Oklahoma F-1 UNIT CORPORATION AND SUBSIDIARIES CDC DRILLING COMPANY COMBINED BALANCE SHEETS (Note 1) June 30, March 31, 2001 2002 ---------- ---------- ASSETS (Unaudited) ------ (In thousands) Current Assets: Accounts receivable, net $ 13,418 $ 12,235 Note receivable 100 100 Income tax receivable - 2,484 Deferred tax asset 160 592 Other current assets 75 270 ---------- ---------- Total current assets 13,753 15,681 ---------- ---------- Property and Equipment: Drilling equipment, net of accumulated depreciation 54,476 64,812 Transportation and other equipment, net of accumulated depreciation 889 1,076 ---------- ---------- 55,365 65,888 ---------- ---------- Total Assets $ 69,118 $ 81,569 ========== ========== LIABILITIES AND OWNER'S EQUITY ------------------------------ Current Liabilities: Accounts payable $ 3,333 $ 2,037 Payable to affiliate 4,574 862 Accrued liabilities 978 1,597 Income tax payable 145 - Note payable to shareholder 14,665 27,447 ---------- ---------- Total current liabilities 23,695 31,943 ---------- ---------- Deferred Income Taxes 2,931 6,095 ---------- ---------- Commitments and Contingencies Owner's Equity: Common stock, $1 par value, 50,000 shares authorized, 1,000 shares outstanding at March 31, 2002 and June 30, 2001 1 1 Additional contributed capital 40,592 37,339 Retained earnings 1,899 6,191 ---------- ---------- Total owner's equity 42,492 43,531 ---------- ---------- Total Liabilities and Owner's Equity $ 69,118 $ 81,569 ========== ========== The accompanying notes are an integral part of the financial statements. F-2 UNIT CORPORATION AND SUBSIDIARIES CDC DRILLING COMPANY COMBINED STATEMENTS OF OPERATIONS (Note 1) Year Nine Months Nine Months Ended Ended Ended June 30, March 31, March 31, 2001 2002 2001 ---------- ---------- ---------- (Unaudited) (In thousands, except per share amounts) Revenues: Contract drilling $ 24,216 $ 42,628 $ 11,080 Other 36 351 25 ---------- ---------- ---------- 24,252 42,979 11,105 ---------- ---------- ---------- Operating Expenses: Contract drilling 16,192 27,520 8,354 Depreciation 2,859 5,452 1,584 General and administrative 1,469 1,940 1,001 Other operating expenses 213 879 102 ---------- ---------- ---------- 20,733 35,791 11,041 ---------- ---------- ---------- Income From Operations 3,519 7,188 64 ---------- ---------- ---------- Other Income (Expenses): Interest expense - (433) (1) Other income 4 5 - ---------- ---------- ---------- 4 (428) (1) ---------- ---------- ---------- Income Before Income Taxes 3,523 6,760 63 ---------- ---------- ---------- Income Tax Provision (Benefit): Current (1,385) (264) (978) Deferred 2,711 2,732 1,001 ---------- ---------- ---------- 1,326 2,468 23 ---------- ---------- ---------- Net Income $ 2,197 $ 4,292 $ 40 ========== ========== ========== Basic and Diluted Earnings per Share $ 2,197 $ 4,292 $ 40 ========== ========== ========== Weighted Average Shares Outstanding 1,000 1,000 1,000 ========== ========== ========== The accompanying notes are an integral part of the financial statements. F-3 UNIT CORPORATION AND SUBSIDIARIES CDC DRILLING COMPANY COMBINED STATEMENTS OF OWNER'S EQUITY (Note 1) Common Stock Retained --------------- Additional Earnings Shares Contributed (Accumulated Issued Amount Capital Deficit) Total ------ ------ ----------- ------------ --------- (In thousands) Balance, June 30, 2000 1 $ 1 $ 10,418 $ (298) $ 10,121 Net income - - - 2,197 2,197 Net contributions - - 30,174 - 30,174 ------ ------ ----------- ------------ --------- Balance, June 30, 2001 1 1 40,592 1,899 42,492 Net income (unaudited) - - - 4,292 4,292 Net distributions (unaudited) - - (3,253) - (3,253) ------ ------ ----------- ------------ --------- Balance, March 31, 2002 (unaudited) 1 $ 1 $ 37,339 $ 6,191 $ 43,531 ====== ====== =========== ============ ========= The accompanying notes are an integral part of the financial statements. F-4 UNIT CORPORATION AND SUBSIDIARIES CDC DRILLING COMPANY COMBINED STATEMENTS OF CASH FLOWS (Note 1) Nine Nine Year Months Months Ended Ended Ended June 30, March 31, March 31, 2001 2002 2001 ---------- ---------- ---------- (Unaudited) (In thousands) Cash Flows From Operating Activities: Net Income $ 2,197 $ 4,292 $ 40 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,859 5,452 1,584 Bad debt expense 204 338 - Deferred income tax expense 2,711 2,732 1,001 Non-cash interest expense - 433 - Other - (63) 165 Changes in operating assets and liabilities: Accounts receivable (13,454) 845 (6,287) Note receivable (100) - - Income tax receivable - (2,484) - Other current assets (7) (195) (642) Accounts payable and payable to affiliates (546) (4,270) (18) Accrued liabilities 871 619 568 Income taxes payable 145 (145) - ---------- ---------- ---------- Net cash provided by (used in) operating activities (5,120) 7,554 (3,589) ---------- ---------- ---------- Cash Flows Used In Investing Activities: Additions to property and equipment (9,545) (8,326) (8,012) ---------- ---------- ---------- Net cash used in investing activities (9,545) (8,326) (8,012) ---------- ---------- ---------- Cash Flows From Financing Activities: Proceeds from borrowings 14,665 12,349 11,601 Cash distributions to affiliate - (11,577) - ---------- ---------- ---------- Net cash provided by financing activities 14,665 772 11,601 ---------- ---------- ---------- Net Increase in Cash and Cash Equivalents - - - Cash and Cash Equivalents at Beginning of Period - - - ---------- ---------- ---------- Cash and Cash Equivalents at End of Period $ - $ - $ - ========== ========== ========== The accompanying notes are an integral part of the financial statements. F-5 UNIT CORPORATION AND SUBSIDIARIES CDC DRILLING COMPANY NOTES TO COMBINED FINANCIAL STATEMENTS June 30, 2001 (Information as of March 31, 2002 and for the nine months ended March 31, 2002 and 2001 is unaudited) Note 1 - Summary of Accounting Policies - --------------------------------------- Business and Basis of Presentation CDC Drilling Company (formerly Cactus Drilling Company), an Oklahoma corporation, provides land contract drilling services for the oil and gas industry, primarily in Oklahoma and Texas. The term "CDC" refers to CDC Drilling Company. CDC, which has no subsidiaries, commenced drilling operations in June, 2000. The accompanying combined financial statements and notes thereto present the combined financial position, results of operations and cash flows of CDC Drilling Company, adjusted to add the contribution of the historical net cost basis and expenses directly associated with drilling rigs owned by Kaiser-Francis Oil Company ("Kaiser-Francis"), a company controlled by the sole shareholder of CDC (collectively, the "Company"). The net cost basis of drilling rigs which are used exclusively by CDC to provide contract drilling services is the historical cost of such drilling rigs to Kaiser-Francis. These statements include allocations of expenses indirectly attributable to the Company, as described in Note 6. As a result, the statements may not be indicative of the financial position or operating results of the Company had it been operated as a separate, stand-alone company. These combined financial statements present the business sold in the transaction described below. In April 2002, the drilling rigs to be sold were transferred into CREC Rig Acquisition Company, L.L.C., which is held by a charitable income trust established by Kaiser-Francis. On June 26, 2002, definitive agreements were signed under which substantially all of the assets included within these combined financial statements would be sold. The agreement includes an option whereby the acquirer has the exclusive first option to purchase any additional rigs constructed by Kaiser-Francis or a successor entity in the three years following closing. If the acquirer declines this option, then Kaiser-Francis may sell the rigs to another company or transfer the rigs to a subsidiary or affiliate for its use. The March 31, 2002 and 2001 financial statements have not been audited by independent auditors but include all adjustments consisting of only those of a normal recurring nature, which, in the opinion of the Company's management, are necessary to present fairly its financial position as of March 31, 2002 and its results of operations and cash flows for the nine months ended March 31, 2002 and 2001. Results for the nine months ended March 31, 2002 are not necessarily indicative of results to be expected for the full year 2002 or for any future period. F-6 Note 1 - Summary of Accounting Policies (continued) - --------------------------------------------------- The contact drilling business is subject to cyclical business fluctuation, which often results in irregular rig utilization. 68 percent of the Company's 2001 revenues were derived from five customers, of which one made up 24 percent of 2001 revenues. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that effect the amounts reported in financial statements and the accompanying notes. Actual results may differ from such estimates. Property and Equipment Property and equipment are stated at cost. Parts inventory is accounted for at cost using the specific identification method. Drilling, transportation and other equipment is depreciated using the straight-line method over estimated useful lives ranging from three to twelve years. Maintenance and repairs are charged to operations as incurred; renewals and betterments are capitalized to appropriate property and equipment accounts. Long-lived assets are reviewed for impairment whenever events or circumstances provide evidence that suggests the carrying amount of the asset may not be recoverable. The determination of whether an impairment loss has occurred is based on management's estimate of the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the expected future cash flows are less than the carrying amount of the assets, an impairment loss is recognized. The amount of any impairment loss is determined by estimating the fair value of the assets and recording a loss to the extent the carrying value exceeds the fair value of the asset. Accounts Receivable Accounts receivable relate primarily to billings for contract drilling, mobilization and demobilization, and reimbursement of specific contract expenses. The Company reviews the financial condition of potential customers prior to signing drilling agreements but otherwise does not normally require collateral. The Company's allowance for doubtful accounts receivable was $204,000 at June 30, 2001. Revenue Recognition Contract drilling revenues are primarily generated through day rate-basis contracts, which are recognized as income when services are performed. The Company also receives lump-sum fees for the mobilization and demobilization of equipment and personnel to contract drilling locations. Mobilization and demobilization revenue is recognized over the term of the drilling contract. Related costs are recorded as incurred. F-7 Note 1 - Summary of Accounting Policies (continued) - --------------------------------------------------- Derivatives The Company does not utilize financial derivative instruments to hedge its market risks. Income Taxes CDC files a separate tax return for its operations. The revenues and expenses directly associated with drilling rigs owned by Kaiser-Francis are included in the Kaiser-Francis tax return. The tax provision included in these financial statements is prepared on a combined basis considering the tax sharing agreement described in Note 4. The Company utilizes the asset and liability method under which deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax liabilities consists primarily of the excess of net book basis over remaining tax basis. Comprehensive Income The Company applies the provisions of Statements of Financial Standards (FAS) No. 130, Reporting Comprehensive Income. However, there was no other comprehensive income during the periods presented. Fair Value of Financial Instruments The carrying amounts of the Company's accounts receivable, note receivable and payable to affiliate approximate fair value due to the short-term maturities of these assets and liabilities. The carrying amount of the note payable to stockholder approximates fair value since it carries a variable interest rate. Recent Accounting Standards In June 2001, the Financial Accounting Standards Board issued FAS No. 143, Accounting for Asset Retirement Obligations, and in August 2001, FAS No. 144, Accounting for Impairment of Disposal of Long-Lived Assets. These statements will be effective for the Company on July 1, 2002. Management is currently evaluating the impact of FAS Nos. 143 and 144 on the Company's financial position and results of operations. F-8 Note 2 - Property and Equipment - ------------------------------- Investments in property and equipment at June 30, 2001 were as follows (amounts in thousands): Drilling Equipment Operating rigs and related equipment $ 62,368 Rigs under construction and parts inventory 7,390 ---------- 69,758 Transportation Equipment 922 Furniture, Fixtures and Other 84 ---------- 70,764 Less - Accumulated Depreciation (15,399) ---------- $ 55,365 ========== The Company capitalized interest of approximately $433,000 for the year ended June 30, 2001. The Company capitalized interest of $117,000 and $245,000 for the nine month periods ended March 31, 2002 and 2001, respectively (unaudited). Net property and equipment contributed by Kaiser-Francis, comprised of rigs included in these combined financial statements, amounted to $36.6 million for the year ended June 30, 2001 and $8.2 million and $21.0 million for the nine month periods ended March 31, 2002 and 2001, respectively (unaudited). Note 3 - Note Payable to Shareholder - ------------------------------------ On July 1, 2000, the Company entered into an unsecured demand note payable to George B. Kaiser, the sole shareholder of CDC. Discretionary loans up to a total of $50 million can be borrowed under the terms of this note. There is no stated termination date under this arrangement. Interest is calculated monthly based on an interest rate equal to LIBOR plus 1 percent (effective rate of 5.1 percent at June 30, 2001). As discussed in Note 6, since the Company maintains no cash balance, interest and other disbursements by CDC increase the note payable balance. Interest added to the note payable balance was approximately $433,000 for the year ended June 30, 2001 and $557,000 and $254,000 for the nine month periods ended March 31, 2002 and 2001, respectively (unaudited). F-9 Note 4 - Income Taxes - --------------------- Deferred tax assets and liabilities consist of the following at June 30, 2001 (amounts in thousands): Deferred Tax Assets: Accruals not deducted for tax purposes $ 160 Deferred Tax Liabilities: Excess of basis in property and equipment for financial reporting purposes over the tax basis (2,931) ---------- $ (2,771) ========== A reconciliation of the Company's income tax provision computed by applying the statutory federal income tax rate to the Company's income before income taxes for the year ended June 30, 2001 is presented in the following table (amounts in thousands): United States Federal Income Tax Provision at Statutory Rate of 35 Percent $ 1,233 Increases Resulting From: State income taxes 75 Other 18 ---------- $ 1,326 ========== The Company has a tax sharing arrangement with Kaiser-Francis with respect to the rigs and other balances recorded on Kaiser-Francis' books and combined in these financial statements as described in Note 1. Under the arrangement, the Company is allocated benefits by Kaiser-Francis for any tax benefits utilized by Kaiser-Francis, net of any tax liability assumed by Kaiser-Francis. Included in net contributions (distributions) to additional contributed capital are reimbursements by Kaiser-Francis for net operating losses of the rigs and other balances recorded on Kaiser-Francis' books of $1,597,000 for 2001. The Company paid income taxes of $67,000 during the year ended June 30, 2001 and $2.5 million (unaudited) during the nine months ended March 31, 2002 related to CDC. F-10 Note 5 - Employee Benefit Plans - ------------------------------- In July 2001, the Company created 401(k) plans in which eligible salaried and hourly employees could participate. The Company matches a portion of employee contributions, and contributed $37,000 to the plans during the nine months ended March 31, 2002. There are no other employee benefit plans. Note 6 - Related Party Transactions - ----------------------------------- Kaiser-Francis provides certain management and administrative functions, including accounting, data processing and human resources administration for the Company. For these services, the Company paid approximately $342,000 for the year ended June 30, 2001 and $299,000 and $256,000 for the nine months ended March 31, 2002 and 2001, respectively (unaudited). Kaiser-Francis allocated these indirect cost to the Company based primarily on estimates of time spent by corporate personnel. Cost incurred by Kaiser-Francis that are directly identifiable to the Company are charged directly to the Company, amounting to approximately $122,000 for the year ended June 30, 2001, and $137,000 and $76,000 for the nine months ended March 31, 2002 and 2001, respectively (unaudited). Additionally, CDC billed $535,000 for the year ended June 30, 2001 and $555,000 (unaudited) for the nine months ended March 31, 2002 for drilling services performed for Kaiser-Francis. The Company has a cash management arrangement with Kaiser-Francis. Daily, the Company's operating cash accounts are transferred into a Kaiser-Francis master account. The net activity relating to this cash management arrangement is included in the note payable to shareholder (see Note 3). Intermountain Oilfield Trucking Company, L.L.C. (Intermountain), a company effectively controlled by the sole shareholder of CDC, was engaged by CDC to move oil and gas well drilling rigs and oil field equipment during 2001. During 2001, the Company paid Intermountain $39,000. At June 30, 2001, $54,000 is included in payable to affiliate. CDC also loaned $100,000 to a third party owner of Intermountain in the form of a secured note bearing interest at prime plus 3 percent, due March 23, 2002. As of May 15, 2002, this note was unpaid and therefore past due. F-11 Note 7 - Commitments and Contingencies - -------------------------------------- Rigs under construction at June 30, 2001 amounted to $5.3 million. In order for these rigs to become operational, approximately $7.0 million was subsequently expended. All rigs under construction at June 30, 2001 were substantially complete by the end of October, 2001. The Company has entered into a three year operating lease agreement with noncancellable terms for office, shop and yard facilities. Future minimum lease payments are $108,000 $108,000 and $90,000 for the years ended June 30, 2002, 2003 and 2004. Rental expense for office, shop and yard facilities was $27,000 for the year ended June 30, 2001. The company is involved in no legal proceedings nor has contingent liabilities other than those which the Company considers ordinary and incidental to the contract drilling business. The Company believes any risks of liability are adequately covered by insurance. F-12 UNIT CORPORATION AND SUBSIDIARIES (b) Pro Forma Financial Information UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET As of June 30, 2002 CDC Drilling Pro Forma Unit Company Adjustments Corporation Combined (Note 3) Pro Forma ---------- ---------- ---------- ---------- (In thousands) Assets: - ------- Current Assets: Cash and cash equivalents $ 1,458 $ - $ - $ 1,458 Accounts receivable 27,817 10,602 (10,602) (a) 27,817 Notes Receivable - 100 (100) (a) - Materials and supplies 6,908 - - 6,908 Income tax receivable - 1,925 (1,925) (a) - Other 3,745 1,236 (1,236) (a) 3,745 ---------- ---------- ---------- ---------- Total current assets 39,928 13,863 (13,863) 39,928 ---------- ---------- ---------- ---------- Property and Equipment: Total cost 691,425 86,863 30,267 (b) 808,555 Less accumulated depreciation, depletion, amortization and impairment 321,123 23,193 (23,193) (b) 321,123 ---------- ---------- ---------- ---------- Net property and equipment 370,302 63,670 53,460 487,432 ---------- ---------- ---------- ---------- Other Assets 8,261 - 9,861 (b) 18,122 ---------- ---------- ---------- ---------- Total Assets $ 418,491 $ 77,533 $ 49,458 $ 545,482 ========== ========== ========== ========== The accompanying notes are an integral part of the pro forma consolidated condensed financial statements. P-1 UNIT CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET - CONTINUED As of June 30, 2002 CDC Drilling Pro Forma Unit Company Adjustments Corporation Combined (Note 3) Pro Forma ---------- ---------- ---------- ---------- (In thousands) LIABILITIES AND SHAREHOLDER'S EQUITY - ----------------------------- Current Liabilities: Current portion of long-term liabilities and debt $ 1,375 $ - $ - $ 1,375 Accounts payable 16,265 3,184 (3,184) (a) 16,265 Accrued liabilities 9,927 1,316 (1,316) (a) 9,927 Note payable to shareholder - 29,431 (29,431) (a) - ---------- ---------- ---------- ---------- Total current liabilities 27,567 33,931 (33,931) 27,567 ---------- ---------- ---------- ---------- Long-Term Debt 20,000 - 4,500 (c) 24,500 ---------- ---------- ---------- ---------- Other Long-Term Liabilities 4,364 - - 4,364 ---------- ---------- ---------- ---------- Deferred Income Taxes 78,381 5,761 (5,761) (a) 78,381 ---------- ---------- ---------- ---------- Shareholder's Equity: Preferred stock, $1.00 par value, 5,000,000 shares authorized, none issued - - - - Common stock $.20 par value, 75,000,000 shares authorized, 36,114,300 and 43,334,300 (pro forma) shares issued and outstanding, respectively 7,223 1 1,443 (d) 8,667 Capital in excess of par value 142,926 33,439 87,608 (d) 263,973 Retained earnings 138,030 4,401 (4,401) (a) 138,030 ---------- ---------- ---------- ---------- Total shareholder's equity 288,179 37,841 84,650 410,670 ---------- ---------- ---------- ---------- Total Liabilities and Shareholder's Equity $ 418,491 $ 77,533 $ 49,458 $ 545,482 ========== ========== ========== ========== The accompanying notes are an integral part of the pro forma consolidated condensed financial statements. P-2 UNIT CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS For the Year Ended December 31, 2001 CDC Drilling Company Pro Forma Unit Combined Adjustments Corporation (Note 2) (Note 3) Pro Forma ---------- ---------- ---------- ---------- (In thousands except per share amounts) Revenues: Contract drilling $ 167,042 $ 51,878 $ - $ 218,920 Oil and natural gas 90,237 - - 90,237 Other 1,900 47 - 1,947 ---------- ---------- ---------- ---------- Total revenues 259,179 51,925 - 311,104 ---------- ---------- ---------- ---------- Expenses: Contract drilling: Operating costs 91,006 31,896 1,735 (f) 124,637 Depreciation and amortization 13,888 5,611 233 (e) 19,732 Oil and natural gas: Operating costs 22,196 - - 22,196 Depreciation, depletion and amortization 22,116 - - 22,116 General and administrative 8,476 2,105 (2,105) (f) 8,476 Interest 2,818 264 (12) (g) 3,070 ---------- ---------- ---------- ---------- Total expenses 160,500 39,876 (149) 200,227 ---------- ---------- ---------- ---------- Income Before Income Taxes 98,679 12,049 149 110,877 ---------- ---------- ---------- ---------- Income Tax Expense 35,913 4,450 57 (h) 40,420 ---------- ---------- ---------- ---------- Net Income $ 62,766 $ 7,599 $ 92 $ 70,457 ========== ========== ========== ========== Net Income Per Common Share (Note 4): Basic $ 1.75 $ 1.63 ========== ========== Diluted $ 1.73 $ 1.62 ========== ========== The accompanying notes are an integral part of the pro forma consolidated condensed financial statements. P-3 UNIT CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS For the Six Months Ended June 30, 2002 CDC Drilling Company Pro Forma Unit Combined Adjustments Corporation (Note 2) (Note 3) Pro Forma ---------- ---------- ---------- ---------- (In thousands except per share amounts) Revenues: Contract drilling $ 52,555 $ 22,329 $ - $ 74,884 Oil and natural gas 30,629 - - 30,629 Other 299 240 - 539 ---------- ---------- ---------- ---------- Total revenues 83,483 22,569 - 106,052 ---------- ---------- ---------- ---------- Expenses: Contract drilling: Operating costs 39,269 18,683 2,889 (f) 60,841 Depreciation 5,739 4,249 (944) (e) 9,044 Oil and natural gas: Operating costs 10,109 - - 10,109 Depreciation, depletion and amortization 11,257 - - 11,257 General and administrative 4,042 3,088 (3,088) (f) 4,042 Interest 516 360 (293) (g) 583 ---------- ---------- ---------- ---------- Total expenses 70,932 26,380 (1,436) 95,876 ---------- ---------- ---------- ---------- Income (Loss) Before Income Taxes 12,551 (3,811) 1,436 10,176 ---------- ---------- ---------- ---------- Income Tax Expense (Benefit) 4,801 (1,414) 546 (h) 3,933 ---------- ---------- ---------- ---------- Net Income (Loss) $ 7,750 $ (2,397) $ 890 $ 6,243 ========== ========== ========== ========== Net Income Per Common Share (Note 4): Basic $ 0.21 $ 0.14 ========== ========== Diluted $ 0.21 $ 0.14 ========== ========== The accompanying notes are an integral part of the pro forma consolidated condensed financial statements. P-4 UNIT CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS NOTE 1 - THE ACQUISITION - ------------------------ On August 15, 2002, Unit Corporation completed the acquisition of CREC Rig Acquisition Company LLC and CDC Drilling Company (combined "CDC"). Both of the acquisitions were stock purchase transactions. Under the terms of these transactions (the "CDC Acquisition"), Unit issued 6,819,748 shares of common stock and paid $3,813,053 for all the outstanding shares of CREC Rig Acquisition Company LLC and issued 400,252 shares of common stock and paid $686,947 for all the outstanding shares of CDC Drilling Company. The consideration paid in both transactions was determined through arms-length negotiations between the parties. The calculation and allocation of the total consideration paid for the acquisition are as follows (in thousands): Calculation of Consideration Paid: Unit Corporation common stock (7,220,000 shares at $16.96556 per share) $ 122,491 Cash 4,500 ---------- Total consideration $ 126,991 ========== Allocation of Total Consideration Paid: Equipment $ 117,130 Goodwill 9,861 ---------- Total consideration $ 126,991 ========== P-5 NOTE 2 - BASIS OF PRESENTATION - ------------------------------ The accompanying unaudited Pro Forma Consolidated Condensed Financial Statements are presented to reflect the consummation of the CDC Acquisition. The unaudited Pro Forma Consolidated Condensed Balance Sheet is presented as if the acquisition, accounted for under the purchase method, occurred as of June 30, 2002. The unaudited Pro Forma Consolidated Condensed Statements of Operations are presented as if the acquisition occurred on January 1, 2001 and may not be indicative of the results that would have occurred if the acquisition had been effective on the dates indicated or of the results that may be obtained in the future. Since CDC had a fiscal year end of June 30, CDC's Combined results of operations for the six months ended June 30, 2002 and the twelve months ended December 31, 2001 were derived from unaudited information for the six months ended June 30, 2002 and the combined six month periods ending June 30, 2001 and December 31, 2001, respectively. The accompanying pro forma financial statements should be read in conjunction with the historical financial statements and notes to financial statements of both Unit Corporation and CDC Drilling Company. NOTE 3 - PRO FORMA ADJUSTMENTS - ------------------------------ The accompanying unaudited Pro Forma Consolidated Condensed Financial Statements include the following adjustments: (a) Adjustments to remove certain assets, liabilities and shareholder's equity of CDC at June 30, 2002, which were not acquired by Unit Corporation. (b) Property and equipment was adjusted to the fair market value of the assets acquired from CDC of $117,130,000, which was derived from an independent appraisal, and other assets was increased $9,861,000 for goodwill. (c) Increase in long-term debt for the additional liability incurred for payment of $4.5 million cash. (d) Adjustments to common stock and additional paid in capital represent the issuance of 7,220,000 shares of common stock to the sellers. The 7,220,000 shares were valued at $16.96556 per share. The stock was valued using the average of the closing prices for the period beginning 4 days before to 4 days after the acquisition announcement date of March 21, 2002. P-6 UNIT CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED (e) Adjustment provides depreciation expense computed on the $117,130,000 fair market value of the acquired assets. Depreciation and amortization of drilling equipment was calculated using the units-of-production method based on a useful life of 15 years for the acquired rigs, including a minimum provision of 20 percent of the active depreciation rate when the equipment is idle. Depreciation for drill pipe and drill collars was calculated using the composite method, which calculates depreciation by footage actually drilled compared to total estimated remaining footage. Depreciation of other property and equipment was computed using the straight-line method over the estimated useful lives of the assets ranging from 3 to 10 years. (f) Adjustments were made to reduce general and administrative expense for amounts CDC was billed for services provided by Kaiser-Francis for management and administrative functions, including accounting, data processing and human resources administration. Employees already working in the same capacity for Unit's existing rig fleet will provide these services. The remaining directly related general and administrative expense was reclassified to drilling operating expense to conform with Unit Corporation's financial statements. (g) Interest expense was adjusted to reflect the interest on the $4.5 million in additional long-term debt incurred in the acquisition less the debt on note payable to shareholder. (h) The adjustment to income tax expense represents the increase in taxes associated with the pro forma adjustments based on the statutory (federal and state) tax rate. P-7 UNIT CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED NOTE 4 - NET INCOME PER COMMON SHARE - ------------------------------------ The following data shows the amounts used in computing earnings per share. For the Year Ended December 31, 2001 --------------------------------------------- WEIGHTED INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT -------------- ------------- ------------ Basic Earnings per Common Share $ 62,766,000 35,967,000 Effect of Pro Forma Adjustments 7,691,000 7,220,000 -------------- ------------- Basic Pro Forma Earnings per Common Share 70,457,000 43,187,000 $ 1.63 ============ Effect of Dilutive Stock Options - 291,000 -------------- ------------- Diluted Pro Forma Earnings per Common Share $ 70,457,000 43,478,000 $ 1.62 ============== ============= ============ Options to purchase 153,000 shares of common stock at an average price of $16.79 were excluded from the computation of diluted pro forma earnings per share because the option exercise prices were greater than the average market price on common shares for the year ended December 31, 2001. P-8 UNIT CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED For the Six Months Ended June 30, 2002 ------------------------------------------- WEIGHTED INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT -------------- ------------- ------------ Basic Earnings per Common Share $ 7,750,000 36,072,000 Effect of Pro Forma Adjustments (1,507,000) 7,220,000 -------------- ------------- Basic Pro Forma Earnings per Common Share 6,243,000 43,292,000 $ 0.14 ============ Effect of Dilutive Stock Options - 264,000 -------------- ------------- Diluted Pro Forma Earnings per Common Share $ 6,243,000 43,556,000 $ 0.14 ============== ============= ============ Options to purchase 174,000 shares of common stock at an average price of $17.19 were excluded from the computation of diluted pro forma earnings per share because the option exercise prices were greater than the average market price on common shares for the six months ended June 30, 2002. P-9 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. UNIT CORPORATION Dated: September 20, 2002 By: /s/ LARRY D. PINKSTON ---------------------------- Larry D. Pinkston Chief Financial Officer Treasurer and Vice President P-10 (c) Exhibits Exhibit Number Description of Exhibits ----------------------- 23.1 -- Consent of Independent Auditors P-11
EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 No.'s 33-19652, 33-44103, 33-49724, 33-53542, 33-64323, 333-38166 and 333-39584) of Unit Corporation and (Form S-3 No. 333-83551) of Unit Corporation for the registration of debt securities, preferred stock, common stock and warrants of our report dated May 15, 2002, except for the matter described in the fourth paragraph of Note 1 for which the date is June 26, 2002, with respect to the combined financial statements of CDC Drilling Company included in Unit Corporation's Amendment to Current Report on Form 8-K dated September 20, 2002, filed with the Securities and Exchange Commission. /s/ Ernst & Young Ernst & Young Tulsa, Oklahoma September 20, 2002