##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2011
 OR
 o
    
    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 000-51471
 
 BRONCO DRILLING COMPANY, INC.
 (Exact name of registrant as specified in its charter)
 
 Delaware
    
    20-2902156(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 16217 North May Avenue
Edmond, OK 73013
(Address of principal executive offices) (Zip Code)
 (405) 242-4444
(Registrants telephone number, including area code)
 þ o
 o o
  Large Accelerated Filer o
    
    Accelerated Filer þ
    
    Non-Accelerated Filer o
    
    Smaller Reporting Company o
 o þ




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##### 



BRONCO DRILLING COMPANY, INC.
 INDEX
 PagePART IFINANCIAL INFORMATIONItem 1. Unaudited Financial StatementsBronco Drilling Company, Inc.:Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010
    
    
    3Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010
    
    
    4Consolidated Statement of Stockholders Equity and Comprehensive Income (loss) for the three months ended March 31, 2011
    
    
    5Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures about Market Risks
    
    
    29Item 4. Controls and Procedures
    
    
    29PART IIOTHER INFORMATIONItem 1. Legal Proceedings
    
    
    30Item 1A. Risk Factors
    
    
    30Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
    
    
    31Item 3. Defaults Upon Senior Securities
    
    
    31Item 4. Reserved
    
    
    31Item 5. Other Information
    
    
    31Item 6. Exhibits
    
    
    31Signatures
    
    
    33Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
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Bronco Drilling Company, Inc. and Subsidiaries
 
 
 
   March 31,
    
    
    December 31,2011
    
    
    2010(Unaudited)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    14,797
    
    
    $
    11,854Restricted cash
    
    
    
    
    
    
    2,700ReceivablesTrade and other, net of allowance for doubtful accounts of
$968 and $891 in 2011 and 2010, respectively
    
    
    22,796
    
    
    
    24,656Affiliate receivables, net of allowance of $800
    
    
    1,546
    
    
    
    1,508Unbilled receivables
    
    
    856
    
    
    
    428Income tax receivable
    
    
    5,671
    
    
    
    5,700Current deferred income taxes
    
    
    2,558
    
    
    
    2,765Current maturities of note receivable from affiliate
    
    
    1,639
    
    
    
    1,607Prepaid expenses
    
    
    1,038
    
    
    
    329Total current assets
    
    
    50,901
    
    
    
    51,547PROPERTY AND EQUIPMENT  AT COSTDrilling rigs and related equipment
    
    
    304,886
    
    
    
    315,085Transportation, office and other equipment
    
    
    16,281
    
    
    
    16,236321,167
    
    
    
    331,321Less accumulated depreciation
    
    
    104,093
    
    
    
    105,242217,074
    
    
    
    226,079OTHER ASSETSInvestment in Challenger
    
    
    38,730
    
    
    
    38,730Investment in Bronco MX
    
    
    21,433
    
    
    
    20,632Debt issue costs and other
    
    
    4,617
    
    
    
    3,362Non-current assets held for sale and discontinued operations
    
    
    7,000
    
    
    
    1,68071,780
    
    
    
    64,404$
    339,755
    
    
    $
    342,030LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    8,674
    
    
    $
    7,945Accrued liabilities
    
    
    8,757
    
    
    
    7,847Current maturities of long-term debt
    
    
    96
    
    
    
    95Total current liabilities
    
    
    17,527
    
    
    
    15,887LONG-TERM DEBT, less current maturities
    
    
    4,150
    
    
    
    6,730WARRANT
    
    
    14,690
    
    
    
    4,407DEFERRED INCOME TAXES
    
    
    17,387
    
    
    
    21,664COMMITMENTS AND CONTINGENCIES (Note 6)STOCKHOLDERS EQUITYCommon stock, $.01 par value, 100,000
shares authorized; 27,598 and 27,236 shares
issued and outstanding at March 31, 2011 and December 31, 2010
    
    
    276
    
    
    
    277Additional paid-in capital
    
    
    309,874
    
    
    
    310,580Accumulated other comprehensive income
    
    
    1,811
    
    
    
    1,012Retained earnings (Accumulated deficit)
    
    
    (25,960
    )
    
    
    (18,527
    )Total stockholders equity
    
    
    286,001
    
    
    
    293,342$
    339,755
    
    
    $
    342,030
   3




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##### Table of Contents



Bronco Drilling Company, Inc. and Subsidiaries
 
   Three Months Ended March 31,2011
    
    
    2010(Unaudited)REVENUESContract drilling revenues
    
    $
    37,006
    
    
    $
    22,295EXPENSESContract drilling
    
    
    23,801
    
    
    
    18,159Depreciation and amortization
    
    
    5,659
    
    
    
    7,705General and administrative
    
    
    4,209
    
    
    
    4,217Loss (gain) on Bronco MX transaction
    
    
    
    
    
    
    (1,058
    )Impairment of drilling rigs and related equipment
    
    
    679
    
    
    
    Loss on sale of drilling rigs and related equipment
    
    
    1,175
    
    
    
    35,523
    
    
    
    29,023Income (loss) from continuing operations
    
    
    1,483
    
    
    
    (6,728
    )OTHER INCOME (EXPENSE)Interest expense
    
    
    (571
    )
    
    
    (1,456
    )Loss from extinguishment of debt
    
    
    (1,975
    )
    
    
    Interest income
    
    
    
    
    
    
    46Equity in income (loss) of Challenger
    
    
    
    
    
    
    (599
    )Equity in income (loss) of Bronco MX
    
    
    1
    
    
    
    (209
    )Other
    
    
    25
    
    
    
    48Change in fair value of warrant
    
    
    (10,283
    )
    
    
    272(12,803
    )
    
    
    (1,898
    )Loss from continuing operations before income taxes
    
    
    (11,320
    )
    
    
    (8,626
    )Income tax benefit
    
    
    (3,981
    )
    
    
    (2,621
    )Loss from continuing operations
    
    
    (7,339
    )
    
    
    (6,005
    )Loss from discontinued operations, net of tax
    
    
    (94
    )
    
    
    (1,414
    )NET LOSS
    
    $
    (7,433
    )
    
    $
    (7,419
    )Loss per common share-BasicContinuing operations
    
    
    (0.27
    )
    
    
    (0.23
    )Discontinued operations
    
    
    (0.00
    )
    
    
    (0.05
    )Loss per common share-Basic
    
    $
    (0.27
    )
    
    $
    (0.28
    )Loss per common share-DilutedContinuing operations
    
    
    (0.27
    )
    
    
    (0.23
    )Discontinued operations
    
    
    (0.00
    )
    
    
    (0.05
    )Loss per common share-Diluted
    
    $
    (0.27
    )
    
    $
    (0.28
    )Weighted average number of shares outstanding-Basic
    
    
    27,468
    
    
    
    26,850Weighted average number of shares outstanding-Diluted
    
    
    27,468
    
    
    
    26,850
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Bronco Drilling Company, Inc. and Subsidiaries
 
    AccumulatedAdditional
    
    
    Other
    
    
    
    
    
    
    TotalCommon
    
    
    Common
    
    
    Paid In
    
    
    Comprehensive
    
    
    Retained
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Income
    
    
    Earnings
    
    
    EquityBalance as of December 31, 2010
    
    
    27,236
    
    
    $
    277
    
    
    $
    310,580
    
    
    $
    1,012
    
    
    $
    (18,527
    )
    
    $
    293,342Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,433
    )
    
    
    (7,433
    )Other Comprehensive Income:Foreign
currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    799
    
    
    
    
    
    
    
    799Total
Comprehensive Income (Loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,634
    )Stock compensation
    
    
    531
    
    
    
    1
    
    
    
    779
    
    
    
    
    
    
    
    
    
    
    
    780Stock withheld for taxes
    
    
    (169
    )
    
    
    (2
    )
    
    
    (1,485
    )
    
    
    
    
    
    
    
    
    
    
    (1,487
    )Balance as of March 31, 2011
    
    
    27,598
    
    
    $
    276
    
    
    $
    309,874
    
    
    $
    1,811
    
    
    $
    (25,960
    )
    
    $
    286,001
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Bronco Drilling Company, Inc. and Subsidiaries
 
 
 Three Months Ended March 31,2011
    
    
    2010(Unaudited)Cash flows from operating activities from continuing operations:Net loss
    
    $
    (7,433
    )
    
    $
    (7,419
    )Adjustments to reconcile net loss to net cash
provided by operating activities from continuing operations:Loss from discontinued operations, net of tax
    
    
    94
    
    
    
    1,414Depreciation and amortization
    
    
    5,860
    
    
    
    7,899Bad debt expense
    
    
    71
    
    
    
    898Loss (gain) on sale of assets
    
    
    162
    
    
    
    263Write off of debt issue costs
    
    
    1,975
    
    
    
    Loss on sale of drilling rigs and related equipment
    
    
    1,175
    
    
    
    Impairment of drilling rigs and related equipment
    
    
    679
    
    
    
    Equity in (income) loss of Challenger
    
    
    
    
    
    
    599Equity in (income) loss of Bronco MX
    
    
    (1
    )
    
    
    209Change in fair value of warrant
    
    
    10,283
    
    
    
    (272
    )Loss on Bronco MX transaction
    
    
    
    
    
    
    (1,058
    )Imputed interest expense
    
    
    229
    
    
    
    225Stock compensation
    
    
    780
    
    
    
    395Deferred income taxes
    
    
    (3,982
    )
    
    
    (2,749
    )Changes in current assets and liabilities:Receivables
    
    
    1,725
    
    
    
    (1,216
    )Affiliate receivables
    
    
    (70
    )
    
    
    6,885Unbilled receivables
    
    
    (428
    )
    
    
    65Prepaid expenses
    
    
    (1,228
    )
    
    
    (429
    )Accounts payable
    
    
    (3,648
    )
    
    
    (4,343
    )Accrued expenses
    
    
    2,445
    
    
    
    (463
    )Other
    
    
    (1,082
    )
    
    
    (65
    )Net cash provided by operating activities from continuing operations
    
    
    7,606
    
    
    
    838Cash flows from investing activities from continuing operations:Proceeds from sale of assets
    
    
    6,321
    
    
    
    3,287Purchase of property and equipment
    
    
    (7,575
    )
    
    
    (7,830
    )Net cash used in investing activities from continuing operations
    
    
    (1,254
    )
    
    
    (4,543
    )Cash flows from financing activities from continuing operations:Proceeds from borrowings
    
    
    3,000
    
    
    
    5,000Payments of debt
    
    
    (9,126
    )
    
    
    (22
    )Net cash provided by (used in) financing activities from continuing operations
    
    
    (6,126
    )
    
    
    4,978Net increase in cash and cash equivalents from continuing operations
    
    
    226
    
    
    
    1,273Cash flows from discontinued operations:Operating cash flows
    
    
    17
    
    
    
    (55
    )Investing cash flows
    
    
    
    
    
    
    (47
    )Financing cash flows
    
    
    
    
    
    
    Net increase
(decrease) in cash and cash equivalents from discontinued operations
    
    
    17
    
    
    
    (102
    )Increase in cash and cash equivalents
    
    
    243
    
    
    
    1,171Beginning cash and cash equivalents
    
    
    14,554
    
    
    
    9,497Ending cash and cash equivalents
    
    $
    14,797
    
    
    $
    10,668Supplementary disclosure of cash flow information:Interest paid, net of amount capitalized
    
    $
    526
    
    
    $
    1,255Income taxes paid
    
    
    3
    
    
    
    128Supplementary disclosure of non-cash investing and financing:Purchase of property and equipment in accounts payable
    
    
    2,865
    
    
    
    1,110
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Bronco Drilling Company, Inc. and Subsidiaries
 
    Unless the context requires otherwise, a reference in this quarterly report to Bronco, the
Company, we, us, and our are to Bronco Drilling Company, Inc., a Delaware corporation, and
its consolidated subsidiaries.
 1. Organization and Summary of Significant Accounting Policies
 Business and Principles of Consolidation
      Property and Equipment
   Accounting for the Impairment or Disposal of Long-Lived Assets Asset Sales and Held for Sale, Discontinued Operations,
  7




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Income Taxes
 Income Taxes,
   Comprehensive Income (Loss)
  Three Months Ended March 31,2011
    
    
    2010Net loss
    
    $
    (7,433
    )
    
    $
    (7,419
    )Other
comprehensive income  translation adjustment
    
    
    799
    
    
    
    827Comprehensive loss
    
    $
    (6,634
    )
    
    $
    (6,592
    )
 Equity Method Investments
  Recent Accounting Pronouncements
 Fair Value Measurements
 2. Equity Method Investments
   8




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Three Months Ended March 31,2010Condensed statement of operations:Revenues
    
    $
    9,875Gross margin
    
    $
    2,030Net Loss
    
    $
    (2,153
    )December 31,2010Condensed balance sheet:Current assets
    
    $
    56,010Noncurrent assets
    
    
    128,829Total assets
    
    $
    184,839Current liabilities
    
    $
    21,675Noncurrent liabilities
    
    
    20,722Equity
    
    
    142,442Total liabilities and equity
    
    $
    184,839
   9




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Consolidation,
      Three Months EndedMarch 31, 2011
    
    
    March 31, 2010Condensed statement of operations:Revenues
    
    $
    8,832
    
    
    $
    6,514Gross margin
    
    $
    337
    
    
    $
    (485
    )Net Income (loss)
    
    $
    7
    
    
    $
    (521
    )March 31,
    
    
    December 31,2011
    
    
    2010Condensed balance sheet:Current assets
    
    $
    29,005
    
    
    $
    25,497Noncurrent assets
    
    
    104,453
    
    
    
    100,687Total assets
    
    $
    133,458
    
    
    $
    126,184Current liabilities
    
    $
    26,299
    
    
    $
    23,031Noncurrent liabilities
    
    
    
    
    
    
    Equity
    
    
    107,159
    
    
    
    103,153Total liabilities and equity
    
    $
    133,458
    
    
    $
    126,184
  10




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3. Long-term Debt and Warrant
  March 31,
    
    
    December 31,2011
    
    
    2010Revolving credit facility with Banco Inbursa S.A., collateralized by the Companys assets,
and matures on September 17, 2014. Loans under the revolving credit facility
bear interest at variable rates as defined in the credit agreement. (1)
    
    
    3,000
    
    
    
    5,555Note payable to Ameritas Life Insurance Corp., collateralized by a building, payable in
principal and interest
installments of $14, interest on the note is 6.0%, maturity date of January 1, 2021. (2)
    
    
    1,246
    
    
    
    1,270$
    4,246
    
    
    $
    6,825Less current installments
    
    
    96
    
    
    
    954,150
    
    
    
    6,730
 (1)
    
    On September 18, 2009, the Company entered into a new senior secured revolving credit
facility with Banco Inbursa S.A., or Banco Inbursa, as lender and as the issuing bank. The
Company utilized (i) borrowings under the credit facility, (ii) proceeds from the sale of the
membership interests of Bronco MX and (iii) cash-on-hand to repay all amounts outstanding
under the Companys prior revolving credit agreement with Fortis Bank SA/NV, New York Branch,
which was replaced by this credit facility.The credit facility initially provided for revolving advances of up to $75.0 million and the
borrowing base under the credit facility was initially set at $75.0 million, subject to
borrowing base limitations. On February 9, 2011 we amended our credit facility which reduced
the commitment to $45.0 million. The Company incurred a loss from extinguishment of debt of
approximately $1,975 related to the reduction in availability under the credit facility. The
credit facility matures on September 17, 2014. Outstanding borrowings under the credit
facility bear interest at the Eurodollar rate plus 5.80% per annum, subject to adjustment
under certain circumstances. The effective interest rate was 6.51% at March 31, 2011.The Company pays a quarterly commitment fee of 0.5% per annum on the unused portion of the
credit facility and a fee of 1.50% for each letter of credit issued under the facility. In
addition, an upfront fee equal to 1.50% of the aggregate commitments under the credit
facility was paid by the Company at closing. The Companys domestic subsidiaries have
guaranteed the loans and other obligations under the credit facility. The obligations under
the credit facility and the related guarantees are secured by a first priority security
interest in substantially all of the assets of the Company and its domestic subsidiaries,
including the equity interests of the Companys direct and indirect subsidiaries. Commitment
fees expense for the three months ended March 31, 2011 and 2010 was $50 and $10,
respectively.The credit facility contains customary representations and warranties and various affirmative
and negative covenants, including, but not limited to, covenants that restrict the Companys
ability to make capital expenditures, incur indebtedness, incur liens, dispose of property,
repay debt, pay dividends, repurchase shares and make certain acquisitions, and a financial
covenant requiring that the Company maintain a ratio of consolidated debt to consolidated
earnings before interest, taxes, depreciation and amortization as defined in the credit
agreement for any four consecutive fiscal quarters of not more than 3.5 to 1.0. The Company
was in compliance with all covenants at March 31, 2011. A violation of these covenants or
any other covenant in the credit facility could result in a default under the credit facility
which would permit the lender to restrict the Companys ability to access the credit facility
and require the immediate repayment of any outstanding advances under the credit facility.In conjunction with its entry into the credit facility, the Company entered into a
Warrant Agreement with Banco Inbursa and, pursuant thereto, issued a three-year warrant (the
Warrant) to Banco Inbursa evidencing the right to purchase up to 5,440,770 shares of the
Companys common stock, $0.01 par value per share (the Common Stock) subject to the terms
and conditions set forth in the Warrant, including the limitations on exercise set forth
below, at an exercise price of $6.50 per share of Common Stock from the date of issuance of
the Warrant (the Issue Date) through the first anniversary of the Issue Date, $7.00 per
share following the first anniversary of the Issue Date through the second anniversary of the
Issue Date, and $7.50 per share following the second anniversary of the Issue Date through
the third anniversary of the Issue Date. Banco Inbursa subsequently transferred the Warrant
to CICSA.In accordance with accounting standards, the proceeds from the revolving credit facility were
allocated to the credit facility and Warrant based on their respective fair values. Based on
this allocation, $50,321 and $4,679 of the net proceeds were allocated to the credit facility
and Warrant, respectively. The Warrant has been classified as a liability on the
consolidated balance sheet due to the Companys obligation to pay the seller of the Warrant a
make-whole payment, in cash, under certain circumstances. The fair value of the Warrant was
determined using a pricing model based on a version of the Black Scholes model, which is
adjusted to account for the dilution resulting from the additional shares issued for the
Warrant. The valuation was determined by computing the value of the Warrant if exercised in
Year 1  3 with the values weighted by the probability that the warrant would actually be
exercised in that year. Some of the assumptions used in the model were a volatility of 45%
and a risk free interest rate that ranged from 0.41% to 1.57%. 
  11




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The resulting discount to the revolving credit facility is amortized to interest expense over
the term of the revolving credit facility. Accordingly, the Company will recognize annual
interest expense on the debt at an effective interest rate of Eurodollar rate plus 6.25%.
Imputed interest expense recognized for the three months ended March 31, 2011 and 2010 was
$229 and $225, respectively.In accordance with accounting standards, the Company revalued the Warrant as of March 31,
2011 and 2010 and recorded the change in the fair value of the Warrant on the consolidated
statement of operations. The fair value of the Warrant was determined using a pricing model
based on a version of the Black Scholes model, which is adjusted to account for the dilution
resulting from the additional shares issued for the Warrant. The valuation was determined by
computing the value of the Warrant if exercised in Year 2  3 with the values weighted by
the probability that the Warrant would actually be exercised in that year. Some of the
assumptions used in the model were volatility between 39% and 49% and a risk free interest
rate that ranged from 0.16% to 0.56%. The fair value of the warrant was $14,690 at March 31,
2011. The Company recorded a change in the fair value of the Warrant on the consolidated
statement of operations in the amount of $10,283 and $272 for the three months ended March
31, 2011 and 2010, respectively.(2)
    
    On January 2, 2007, the Company assumed a term loan agreement with Ameritas Life Insurance
Corp. related to the acquisition of a building. The loan provides for term installments in an
aggregate not to exceed $1,590.Long-term debt maturing each year subsequent to March 31, 2011 is as follows: 2012
    
    $
    962013
    
    
    1022014
    
    
    1082015
    
    
    3,1152016
    
    
    1222017 and thereafter
    
    
    703$
    4,246
 4. Workers Compensation and Health Insurance
   5. Transactions with Affiliates
  Equity
Method Investments
 6. Commitments and Contingencies
   12




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7. Recent Asset Sales and Assets Held for Sale
     8. Discontinued Operations
 Well Servicing
   13




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Three Months Ended March 31,2011
    
    
    2010Revenue
    
    $
    
    
    
    $
    Impairment of intangibles
    
    $
    
    
    
    $
    224Loss from
discontinued operations before income tax
    
    $
    549
    
    
    $
    1,973
 Trucking Assets
  Three Months Ended March 31,2011
    
    
    2010Revenue
    
    $
    
    
    
    $
    203Income
(loss) from discontinued operations before income tax
    
    $
    398
    
    
    $
    (333
    )
  14




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9. Net Income Per Common Share
  Three Months EndedMarch 31,2011
    
    
    2010Basic:Continuing operations
    
    
    (7,339
    )
    
    
    (6,005
    )Discontinued operations
    
    
    (94
    )
    
    
    (1,414
    )Net loss
    
    $
    (7,433
    )
    
    $
    (7,419
    )Weighted average shares (thousands)
    
    
    27,468
    
    
    
    26,651Continuing operations per share
    
    
    (0.27
    )
    
    
    (0.23
    )Discontinued operations per share
    
    
    (0.00
    )
    
    
    (0.05
    )Net loss per share
    
    $
    (0.27
    )
    
    $
    (2.16
    )Diluted:Continuing operations
    
    
    (7,339
    )
    
    
    (6,005
    )Discontinued operations
    
    
    (94
    )
    
    
    (1,414
    )Net Loss
    
    $
    (7,433
    )
    
    $
    (7,419
    )Weighted average shares:Outstanding (thousands)
    
    
    27,468
    
    
    
    26,651Restricted Stock and Options (thousands)
    
    
    
    
    
    
    27,468
    
    
    
    26,651Continuing operations per share
    
    
    (0.27
    )
    
    
    (0.23
    )Discontinued operations per share
    
    
    (0.00
    )
    
    
    (0.05
    )Income (loss) per share
    
    $
    (0.27
    )
    
    $
    (2.16
    )
  10. Fair Value Measurements
  Level 1 :
 Level 2 :
 Level 3 :
  15




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##### Table of Contents



Fair Value on Recurring Basis
   Fair Value on Non-Recurring Basis
  11. Restricted Stock
     Weighted AverageGrant DateShares
    
    
    Fair ValueOutstanding at December 31, 2010
    
    
    1,222,496
    
    
    $
    4.82Granted
    
    
    510,740
    
    
    
    6.97Vested
    
    
    (531,167
    )
    
    
    4.96Forfeited/expired
    
    
    
    
    
    
    Outstanding at March 31, 2011
    
    
    1,202,069
    
    
    $
    5.70
   16




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##### Table of Contents



12. Subsequent Event
   
 ITEM 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
  Disclosure Regarding Forward-Looking Statements
    Overview
   17




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##### Table of Contents



Recent Developments
   Operating Segments
       18




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##### Table of Contents



Contract Land Drilling 
    Three Months EndedMarch 31,
    
    
    Years Ended December 31,2011
    
    
    2010
    
    
    2010
    
    
    2009
    
    
    2008Average number of
marketed rigs
    
    
    24
    
    
    
    37
    
    
    
    33
    
    
    
    44
    
    
    
    44Revenue days
    
    
    2,088
    
    
    
    1,428
    
    
    
    7,450
    
    
    
    5,699
    
    
    
    12,712Utilization Rates
    
    
    96
    %
    
    
    43
    %
    
    
    62
    %
    
    
    36
    %
    
    
    79
    %
  Market Conditions in Our Industry
     19




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##### Table of Contents



At March 31,
    
    
    At December 31,2011
    
    
    2010
    
    
    2009
    
    
    2008Crude oil (Bbl)
    
    $
    106.72
    
    
    $
    91.38
    
    
    $
    79.36
    
    
    $
    44.60Natural gas (Mmbtu)
    
    $
    4.39
    
    
    $
    4.41
    
    
    $
    5.57
    
    
    $
    5.62U.S. Land Rig Count
    
    
    1,749
    
    
    
    1,670
    
    
    
    1,150
    
    
    
    1,653
    Critical Accounting Policies and Estimates
  Revenue and Cost Recognition
   20




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##### Table of Contents



Accounts Receivable
  Asset Impairment and Depreciation Accounting for the Impairment or Disposal of Long-Lived Assets
  21




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##### Table of Contents



Stock Based Compensation Stock Compensation,
 Deferred Income Taxes
 Equity Method Investments
 Other Accounting Estimates
 Recent Accounting Pronouncements Fair Value
Measurements
 Off Balance Sheet Arrangements
   22




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##### Table of Contents



Recent Highlights
 Asset Sales and Held for Sale
          Well Servicing Segment
    23




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##### Table of Contents



Bronco MX
     Senior Secured Revolving Credit Facility with Banco Inbursa
   24




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##### Table of Contents



Global Financial Markets
  Natural Gas Priceper Mcf
    
    
    Oil Price per BblQuarter
    
    High
    
    
    Low
    
    
    High
    
    
    Low2011:Second (through
April 30, 2011)First
    
    $
    4.74
    
    
    $
    3.78
    
    
    $
    106.72
    
    
    $
    84.322010:Fourth
    
    $
    4.61
    
    
    $
    3.29
    
    
    $
    91.51
    
    
    $
    79.49Third
    
    $
    4.92
    
    
    $
    3.65
    
    
    $
    82.55
    
    
    $
    71.63Second
    
    $
    5.19
    
    
    $
    3.91
    
    
    $
    86.79
    
    
    $
    68.01First
    
    $
    6.01
    
    
    $
    3.84
    
    
    $
    83.76
    
    
    $
    71.192009:Fourth
    
    $
    5.99
    
    
    $
    4.25
    
    
    $
    81.37
    
    
    $
    69.57Third
    
    $
    4.88
    
    
    $
    2.51
    
    
    $
    74.37
    
    
    $
    59.52Second
    
    $
    4.45
    
    
    $
    3.25
    
    
    $
    72.68
    
    
    $
    45.88First
    
    $
    6.07
    
    
    $
    3.63
    
    
    $
    54.34
    
    
    $
    33.982008:Fourth
    
    $
    7.73
    
    
    $
    5.29
    
    
    $
    98.53
    
    
    $
    33.87Third
    
    $
    13.58
    
    
    $
    7.22
    
    
    $
    145.29
    
    
    $
    95.71Second
    
    $
    13.35
    
    
    $
    9.32
    
    
    $
    140.21
    
    
    $
    100.98First
    
    $
    10.23
    
    
    $
    7.62
    
    
    $
    110.33
    
    
    $
    86.99
   
    
    In December 2008, we incurred goodwill impairment of our contract land drilling and
well servicing segments of $24.3 million due to the fair value of the segments being
less than their carrying value;
 
    
    In June 2009, we temporarily suspended operations in our well servicing segment;
 
    
    In September 2009, we incurred an impairment charge to our investment in Challenger
of $21.2 million due to the fair value of the investment being less than its carrying
value;
 
    
    In June 2010, management made a decision to sell the assets in the well servicing
segment. We recorded a $23.4 million impairment charge ($14.3 million after tax).
 
    
    In July 2010, subsequent to the end of our second quarter, we completed the sale of
the property and equipment of our trucking assets for $11.3 million in cash, net of
selling expenses in the amount of $403,000. Proceeds from this sale were used to
repay existing indebtedness under our revolving credit facility with Banco Inbursa.
 
    
    In September 2010, we sold at auction in separate lots to multiple bidders
substantially all of the assets of our discontinued well servicing segment, two
complete drilling rigs and components comprising four other drilling rigs (rigs 2, 9,
52, 70, 75 and 94), and ancillary equipment. We recorded losses of $8.9 million and
$19.9 million from the sale of the assets of our well servicing segment and drilling
rigs and related equipment, respectively.
 
    
    In September 2010, we sold two drilling rigs (rigs 41 and 42) in a private sale to
Windsor Permian LLC, an unaffiliated third party, for estimated proceeds of $7.2
million. We recorded a loss of $1.7 million on the sale of these assets.
  25




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##### Table of Contents




    
    In September 2010, management made a decision to sell five drilling rigs (rigs 5,
6, 7, 51 and 54). We recorded a $7.9 million impairment charge on these rigs.
 
    
    In November 2010, we sold at auction in separate lots to multiple bidders two
complete drilling rigs (rigs 51 and 54) and ancillary equipment. We recorded a loss
of $2.2 million on the sale of these assets.
 
    
    In November 2010, we sold two drilling rigs (rigs 5 and 7) in a private sale to
Atlas Drilling, LLC, an unaffiliated third party, for proceeds of $2.7 million. The
Company recorded a $14,000 gain on the sale.
 
    
    In February 2011, we agreed to sale two drilling rigs (rigs 56 and 62) in a private
sale to Windsor Permian LLC, an unaffiliated third party, for proceeds of $11.5
million.
 
    
    In March 2011, we sold one drilling rig (rig 6) in a private sale to Atlas
Drilling, LLC, an unaffiliated third party, for proceeds of $1.6 million. We recorded
a $4,000 loss on the sale.
 Results of Operations
 Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010
 Contract Drilling Revenue.
 Equity in Income (Loss) of Challenger.
  Equity in Income (Loss) of Bronco MX.
 Contract Drilling Expense.
 Depreciation and Amortization Expense.
 General and Administrative Expense
  26




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##### Table of Contents



Interest Expense
 Income Tax Expense
 Liquidity and Capital Resources
 Operating Activities .
 Investing Activities .
 Financing Activities .
 Sources of Liquidity .
 Debt Financing
      27




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##### Table of Contents



Working Capital.
  March 31,
    
    
    December 31,2011
    
    
    2010
    
    
    ChangeCash and cash equivalents
    
    $
    14,797
    
    
    $
    11,854
    
    
    $
    2,943Restricted cash
    
    
    
    
    
    
    2,700
    
    
    
    (2,700
    )Trade and other receivables
    
    
    22,796
    
    
    
    24,656
    
    
    
    (1,860
    )Affiliate receivables
    
    
    1,546
    
    
    
    1,508
    
    
    
    38Unbilled receivables
    
    
    856
    
    
    
    428
    
    
    
    428Income tax receivable
    
    
    5,671
    
    
    
    5,700
    
    
    
    (29
    )Current deferred income taxes
    
    
    2,558
    
    
    
    2,765
    
    
    
    (207
    )Current maturities of note receivable
    
    
    1,639
    
    
    
    1,607
    
    
    
    32Prepaid expenses
    
    
    1,038
    
    
    
    329
    
    
    
    709Current assets
    
    
    50,901
    
    
    
    51,547
    
    
    
    (646
    )Current debt
    
    
    96
    
    
    
    95
    
    
    
    1Accounts payable
    
    
    8,674
    
    
    
    7,945
    
    
    
    729Accrued
liabilities and deferred revenues
    
    
    8,757
    
    
    
    7,847
    
    
    
    910Current liabilities
    
    
    17,527
    
    
    
    15,887
    
    
    
    1,640Working capital
    
    $
    33,374
    
    
    $
    35,660
    
    
    $
    (2,286
    )
  28




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##### Table of Contents



Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risks
  
 Item 4.
    
    Controls and Procedures
 Evaluation of Disclosure Control and Procedures.
   Changes in Internal Control over Financial Reporting
   29




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##### Table of Contents



PART II: OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
   
 Item 1A.
    
    Risk Factors
  Failure to complete our proposed merger with Chesapeake could negatively impact our stock price
and our future business and financial results.
  
    
    we may experience negative reactions from our customers and employees;
 
    
    the current market price of our common stock may reflect a market assumption that the
tender offer and merger will occur and a failure to complete the tender offer or the
merger could result in a negative perception by the stock market and a resulting decline
in the market price of our common stock;
 
    
    certain costs relating to the tender offer and merger, including certain investment
banking, financing, legal and accounting fees and expenses, must be paid even if the
merger is not completed, and we may be required to pay a fee of $13.0 million plus
expense reimbursements up to $1.5 million to Chesapeake if the merger agreement is
terminated under specified circumstances; and
 
    
    there may be substantial disruption to our business and distraction of our management
and employees from day-to-day operations because matters related to the tender offer and
merger (including integration planning) may require substantial commitments of time and
resources, which could otherwise have been devoted to other opportunities that could
have been beneficial to us.
  We may have difficulty attracting, motivating and retaining officers and other key employees in
light of our recently announced merger agreement with Chesapeake.
   30




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##### Table of Contents



Business uncertainties and contractual restrictions while the proposed tender offer and merger is
pending may have an adverse effect on us.
  
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3.
    
    Defaults Upon Senior Securities
  
 Item 4.
    
    Reserved
 
 Item 5.
    
    Other Information
  
 Item 6.
    
    Exhibits
  Exhibit No.
    
    Description2.1
    
    
    Agreement and Plan of Merger, dated as of April 14, 2011,
by and among Bronco Drilling Company, Inc., Chesapeake
Energy Corporation and Nomac Acquisition, Inc.
(incorporated by reference to Exhibit 2.1 to the Current
Report on Form 8-K, File No. 000-51471, filed by the
Company with the SEC on April 18, 2011).3.1
    
    
    Amended and Restated Certificate of Incorporation of the
Company, dated August 11, 2005 (incorporated by reference
to Exhibit 2.1 to the Registration Statement on Form S-1,
File No. 333-128861, filed by the Company with the SEC on
October 6, 2005).3.2
    
    
    Bylaws of the Company (incorporated by reference to
Exhibit 3.2 to Amendment No. 1 to the Registration
Statement on Form S-1, File No. 333-125405, filed by the
Company with the SEC on July 14, 2005).4.1
    
    
    Form of Common Stock certificate (incorporated by
reference to Exhibit 4.1 to Amendment No. 2 to the
Registration Statement on Form S-1, File No. 333-125405,
filed by the Company with the SEC on August 2, 2005).*31.1
    
    
    Certification of Chief Executive Officer of Bronco
Drilling Company, Inc. pursuant to Rule 13a-14(a)
promulgated under the Securities Exchange Act of 1934, as
amended.*31.2
    
    
    Certification of Chief Financial Officer of Bronco
Drilling Company, Inc. pursuant to Rule 13a-14(a)
promulgated under the Securities Exchange Act of 1934, as
amended.
  31




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##### Table of Contents



Exhibit No.
    
    Description*32.1
    
    
    Certification of Chief Executive Officer of Bronco
Drilling Company, Inc. pursuant to Rule 13a-14(b)
promulgated under the Securities Exchange Act of 1934, as
amended, and Section 1350 of Chapter 63 of Title 18 of the
United States Code.*32.2
    
    
    Certification of Chief Financial Officer of Bronco
Drilling Company, Inc. pursuant to Rule 13a-14(b)
promulgated under the Securities Exchange Act of 1934, as
amended, and Section 1350 of Chapter 63 of Title 18 of the
United States Code.
 *
    
    Filed herewith.+
    
    Management contract, compensatory plan or arrangement  32




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##### Table of Contents



SIGNATURE
  Dated: May 9, 2011
    BRONCO DRILLING COMPANY, INC.By:
    /s/ Matthew S. PorterMatthew S. PorterChief Financial Officer(Principal Accounting and Financial Officer)Dated: May 9, 2011
    By:
    /s/ D. Frank HarrisonD. Frank HarrisonChief Executive Officer(Authorized Officer and Principal Executive Officer)  33