UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________________________________
Form 10-K
(Mark One)
| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31 |
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 No. 001-34037
Commission Company Name: SUPERIOR ENERGY SERVICES INC
______________________________________________________________________________________________
SUPERIOR ENERGY SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware | 75-2379388 | ||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||
1001 Louisiana Street, Suite 2900 | |||
Houston, TX | 77002 | ||
Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (713) (713) 654-2200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol | Name of each exchange on which registered |
|
|
|
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨No No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨No No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes xYes No ¨
IndicateIndicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesx No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated Filer | |
Non-accelerated filer | Smaller reporting company | |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No
There is 0 market for the registrant’s securities.
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No x
At June 30, 2019, the aggregate market valueThe number of the registrant’s voting stock held by non-affiliates of the registrant was $205.4 million. At February 25, 2020 there were 15,798,428 shares of the registrant’sregistrant's Class A common stock outstanding.outstanding on March 4, 2022 was 19,998,695
______________________________________________________________________________________________The number of shares of the registrant's Class B common stock outstanding on March 4, 2022 was 76,269
DOCUMENTS INCORPORATED BY REFERENCE
Certain information called for by Items 10, 11, 12, 13 and 14Not applicable.
TABLE OF CONTENTS
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 2019
TABLE OF CONTENTS
Page | |||
PART I | |||
Item 1 |
| ||
| |||
Item 1A |
| ||
Item 1B |
| ||
Item 2 |
| ||
Item 3 |
| ||
Item 4 |
| ||
PART II | |||
Item 5 |
| ||
Item 6 |
| ||
Item 7 | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| |
Item 7A |
| ||
Item 8 |
| ||
Item 9 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
| |
Item 9A |
| ||
Item 9B |
| ||
Item 9C | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | ||
PART III | |||
Item 10 |
| ||
Item 11 |
| ||
Item 12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
| |
Item 13 | Certain Relationships and Related Transactions, and Director Independence |
| |
Item 14 |
| ||
PART IV | |||
Item 15 |
|
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (the “Form 10-K”) and other documents filed by us with the Securities and Exchange Commission (SEC)(the “SEC”) contain, and future oral or written statements or press releases by us and our management may contain, forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Generally, the words “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks” and “estimates,” variations of such words and similar expressions identify forward-looking statements, although not all forward-looking statements contain these identifying words. All statements other than statements of historical fact included in this Annual Report on Form 10-K or such other materials regarding our financial position, financial performance, liquidity, strategic alternatives, market outlook, future capital needs, capital allocation plans, business strategies and other plans and objectives of our management for future operations and activities are forward-looking statements. These statements are based on certain assumptions and analyses made by our management in light of itstheir experience and prevailing circumstances on the date such statements are made. Such forward-looking statements, and the assumptions on which they are based, are inherently speculative and are subject to a number of risks and uncertainties that could cause our actual results to differ materially from such statements. Such risks and uncertainties include, but are not limited to:
our outstanding debt obligationspotential effectadverse impact thereof on our business, financial condition, results of limitingoperations and liquidity, including, but not limited to, our growth, operating costs, supply chain, labor availability, logistical capabilities, customer demand and industry demand generally, margins, utilization, cash position, taxes, the price of our securities, and our ability to fund future growth;necessaryaccess capital financing may not be available at economic rates or at all;markets, including the macroeconomic effects from the continuing COVID-19 pandemic;
volatilityour common stock;the members of Organization of Petroleum Exporting Countries (“OPEC+”) to agree on and to maintain crude oil price and production controls;
we maybebeing fully indemnified against losses incurred due to catastrophic events;
(BOEM)(“BOEM”) security and bonding requirements for offshore platforms;
consummation of the Combination (as defined herein) and the timing thereof;expenses incurred in connection with the Combination;failure to complete the Combination could negatively impact our business and financial results;business uncertainties and contractual restrictions related to the Superior Energy U.S. Business (as defined herein) until the Combination closes;the Combination may distract management personnel and other key employees;future potential litigation against us or Forbes could prevent the completion of the Combination or result in the payment of damages;the interests of some of our executive officers in the Combination may differ fromlikelihood that the interests of our significant stockholders generally;may conflict with the interests of our other stockholders;
failure to achieve anticipated return on our investment in Newcolikelihood that the Stockholders Agreement (as defined herein);below) may prevent certain transactions that could otherwise be beneficial to our stockholders.
3
These risks and other uncertainties related to our business are described in detail below in Part I, Item 1A of this Annual Report on Form 10-K. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Investors are cautioned that many of the assumptions on which our forward-looking statements are based are likely to change after such statements are made, including for example the market prices of oil and gas and regulations affecting oil and gas operations, which we cannot control or anticipate. Further, we may make changes to our business strategies and plans (including our capital spending and capital allocation plans) at any time and without notice, based on any changes in the above-listed factors, our assumptions or otherwise, any of which could or will affect our results. For all these reasons, actual events and results may differ materially from those anticipated, estimated, projected or implied by us in our forward-looking statements. We undertake no obligation to update any of our forward-looking statements for any reason, notwithstanding any changes in our
assumptions, changes in our business plans, our actual experience, or other changes. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.
4
PART I
Item 1. Business
General
We provide a wide variety of services and products to the energy industry. We serve major, national and independent oil and natural gas exploration and production companies around the world and we offer products and services with respect to the various phases of a well’s economic life cycle.
2021 was a transformative year at Superior. Following our emergence from bankruptcy, we embarked on a diligent effort to reconfigure our operations and organization to maximize shareholder value, enhance margin growth and have a more disciplined approach, both operationally and financially (the “Transformation Project”).
The Transformation Project has been focused around three sequential phases:
The evaluation and implementation of the Business Unit Review is substantially complete, which has resulted in lower revenue with increased margins. The Right Size Support and Geographic Focus components are ongoing and should be completed during 2022.
Historically, we provided a wide variety of services and products to many markets within the energy industry. During 2021, we realigned our core businesses to focus on products and services that we believe meet the criteria of (1) being critical to our customers’ oil and gas operations, (2) facing low or no competition from the three largest global oilfield service companies, (3) requiring deep technical expertise through the design or use of our product or service, and (4) being unlikely to become a commoditized product or service to our customers. The result of this approach is a portfolio of business lines grounded in our core mission of providing high quality products and services while maintaining the trust and serving the needs of our customers, with an emphasis on free cash flow generation and capital efficiency for us.
In connection with our Transformation Project, our reportable segments were changed to Rentals and Well Services.
Recent Developments
As used herein, “Superior,” “we,” “us”, “our” and similar terms refer to (i) prior to the Emergence Date (as defined below), SESI Holdings, Inc. (formerly known as Superior Energy Services, Inc.) (“Predecessor”) and its subsidiaries and (ii) after the Emergence Date, Superior Energy Services, Inc. (formerly known as Superior Newco, Inc.) and its subsidiaries (“Successor”). Additionally, the use the following terms refer to our operations:
"Predecessor Period" | January 1, 2021 through February 2, 2021 | |
"Successor Period" | February 3, 2021 through December 31, 2021 |
Voluntary Reorganization Under Chapter 11
On December 4, 2020, we and certain of our direct and indirect wholly-owned domestic subsidiaries (the “Affiliate Debtors”) entered into an Amended and Restated Restructuring Support Agreement (the “Amended RSA”) that amended and restated in its entirety the Restructuring Support Agreement (the “RSA”), dated September 29, 2020, with certain holders of SESI, L.L.C.’s (“SESI”) outstanding (i) 7.125% senior unsecured notes due 2021 (the “7.125% Notes”) and (ii) 7.750% senior unsecured notes due 2024 (the “7.750% Notes”). The parties to the Amended RSA agreed to the principal terms of a proposed financial restructuring of the Affiliate Debtors, which was implemented through the Plan (as defined below).
5
On December 7, 2020, the Affiliate Debtors filed the Chapter 11 Cases under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court, and, in connection therewith, the Affiliate Debtors filed with the Bankruptcy Court the proposed Joint Prepackaged Plan of Reorganization under the Bankruptcy Code (as amended, modified or supplemented from time to time, the “Plan”). After commencement of the Chapter 11 Cases, the Affiliate Debtors continued to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.
In connection with the Chapter 11 Cases, the Affiliate Debtors filed a motion for approval of a debtor-in-possession financing facility, and on December 8, 2020, the Bankruptcy Court approved such motion and entered an interim order approving the financing (the “Interim DIP Order”). In accordance with the Interim DIP Order, on December 9, 2020, we, as guarantor and SESI, as borrower, entered into a $120 million Senior Secured Debtor-in-Possession Credit Agreement (the “DIP Credit Facility”). On January 19, 2021, the Bankruptcy Court approved the Affiliate Debtors’ entry into the DIP Credit Facility on a final basis.
On January 19, 2021, the Bankruptcy Court entered an order, Docket No. 289, confirming and approving the Plan.
Emergence from Voluntary Reorganization Under Chapter 11
On February 2, 2021 (the “Emergence Date”), the conditions to effectiveness of the Plan were satisfied or waived and we emerged from Chapter 11.
Bankruptcy Claims
During the Chapter 11 Cases, the Affiliate Debtors filed with the Bankruptcy Court schedules and statements setting forth, among other things, the assets and liabilities of each of the Affiliate Debtors, subject to the assumptions filed in connection therewith. Certain holders of pre-petition claims that were not governmental units were required to file proofs of claim by the bar date of January 7, 2021. Certain holders of pre-petition claims that were governmental units were required to file proofs of claim by the bar date of June 7, 2021. The Affiliate Debtors’ have received proofs of claim, primarily representing general unsecured claims, of approximately $1.7 billion. The Bankruptcy Court disallows claims that have been acknowledged as duplicates. Claims totaling approximately $1.4 billion have been withdrawn or disallowed. As a result of the claims resolution process post-emergence, the Affiliate Debtors agreed to allow certain claims classified per the Plan as Class 6 General Unsecured Claims against the Parent. Per ASC 852-10, liabilities are measured at their allowed claim amount, and the result of allowing these claims increased liabilities subject to compromise prior to emergence.
On the Emergence Date and pursuant to the Plan:
Prior to the Emergence Date, the Equity Rights Offering was completed in accordance with the Plan, which resulted in the issuance of 735,189 shares of Class A Common Stock. The Class A Common Stock issued in the Equity Rights Offering was exempt from
6
registration under the Securities Act of 1933, as amended (the “Securities Act”) pursuant to section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder.
The costs of our efforts to restructure our capital, prior to and during the Chapter 11 Cases, along with all other costs incurred in connection with the Chapter 11 Cases, have been material.
On the Emergence Date, pursuant to the terms of the Plan, we filed an Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) and a Certificate of Amendment of Amended and Restated Certificate of Incorporation (the “Certificate of Amendment”).
Also, on the Emergence Date, and pursuant to the terms of the Plan, we adopted the Amended and Restated Bylaws (the “Bylaws”). The descriptions of the Certificate of Incorporation and the Bylaws are qualified in their entirety by reference to the full texts of the Certificate of Incorporation, Bylaws, and Certificate of Amendment which are incorporated by reference herein.
Credit Facility
On the Emergence Date, pursuant to the Plan, we entered into a Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders and letter of credit issuers named therein providing for a $120.0 million asset-based secured revolving Credit Facility, all of which is available for the issuance of letters of credit (the “Credit Facility”). The issuance of letters of credit will reduce availability under the Credit Facility dollar-for-dollar. On the Emergence Date, the Credit Facility replaced the DIP Credit Facility and the undrawn letters of credit outstanding under the former DIP Credit Facility were deemed outstanding under the Credit Facility. All accrued and unpaid fees and other amounts outstanding thereunder were paid in cash in full as well. The Credit Facility will mature on December 9, 2024.
The borrowing base under the Credit Facility is determined by reference to SESI’s and its subsidiary guarantors’ (i) eligible accounts receivable, (ii) eligible inventory, (iii) solely during the period from the Emergence Date until the earlier of December 9, 2022 and the date that unrestricted cash of SESI and its wholly-owned subsidiaries is less than $75.0 million, eligible premium rental drill pipe and (iv) so long as there are no loans outstanding at such time, certain cash of SESI and its subsidiary guarantors, less reserves established by the administrative agent in its permitted discretion.
Availability under the Credit Facility will be the lesser of (i) the commitments and (ii) the borrowing base. Subject to certain conditions, upon request and with the consent of the participating lenders, the total commitments under the Credit Facility may be increased to $170.0 million. SESI’s obligations under the Credit Facility are guaranteed by us and all of SESI’s material domestic subsidiaries and secured by substantially all of our, SESI’s and the subsidiary guarantors’ assets, other than real property.
Any borrowings under the Credit Facility will bear interest, at SESI’s option, at either an adjusted LIBOR rate plus an applicable margin ranging from 3.00% to 3.50% per annum, or an alternate base rate plus an applicable margin ranging from 2.00% to 2.50% per annum, in each case on the basis of the consolidated fixed charge coverage ratio. In addition, SESI is required to pay (i) a letter of credit fee, (ii) to the issuing lender of each letter of credit, a fronting fee and (iii) commitment fees. Upon the cessation of LIBOR, the Credit Facility provides for the use of alternative benchmark rates for the determination of the borrowing rate, and the cessation of LIBOR will not have a material impact on us.
Unless all loans are paid off and letters of credit outstanding are cash collateralized and the Credit Facility terminated, the Credit Facility requires, subject to permitted exceptions, compliance with various covenants, including, but not limited to, limitations on the incurrence of indebtedness, permitted investments, liens on assets, making distributions, transactions with affiliates, mergers, consolidations, dispositions of assets and other provisions customary in similar types of agreements. The Credit Facility also requires compliance with a fixed charge coverage ratio of 1.0 to 1.0 if (a) an event of default has occurred and is continuing or (b) availability under the Credit Facility is less than the greater of $20.0 million or 15% of the lesser of the aggregate commitments and the borrowing base.
On May 13, 2021, SESI, SESI Holdings, Inc. and the subsidiary guarantors party thereto entered into a first amendment and waiver to the Credit Facility (the “First Amendment and Waiver to the Credit Facility”) to, among other things, (i) extend the deadline thereunder for the delivery of our consolidated unaudited financial statements for the quarter ended March 31, 2021 to June 1, 2021 and (ii) obtain a limited waiver of potential defaults under the Credit Facility related to a delayed public filing of such financial statements after the original deadline for delivery of such financial statements.
On May 28, 2021, SESI, L.L.C., SESI Holdings, Inc. and the subsidiary guarantors party thereto entered into a waiver to the Credit Facility to (i) extend the deadline under the Credit Agreement for the delivery of Superior Energy Services, Inc.’s consolidated unaudited financial statements for the quarter ended March 31, 2021 and the calendar months ending April 30, 2021 and May 31, 2021 to July 15,
7
2021 and (ii) agree that until the unaudited financial statements and a revised borrowing base certificate in connection therewith are delivered, the lenders will not be required to make any advances requested. As discussed below, we have filed the required financial statements and delivered the revised borrowing base certificate in satisfaction of this requirement.
On July 15, 2021, SESI, the Former Parent, and the subsidiary guarantors party thereto entered into a waiver to the Credit Facility with JPMorgan Chase Bank, N.A., as administrative agent and lender, and certain other financial institutions and other parties thereto as lenders to (i) extend the deadline under the Credit Facility for the delivery of our consolidated unaudited financial statements (x) as of and for the quarter ended March 31, 2021 to September 30, 2021 and (y) as of and for the quarter ended June 30, 2021 and the calendar months ending April 30, 2021, May 31, 2021, July 31, 2021 and August 31, 2021 to October 30, 2021, (ii) obtain a limited waiver of potential defaults under the Credit Facility related to a delayed public filing of this quarterly report on Form 10-Q with respect to the fiscal quarter ended June 30, 2021 (including related financial statements) after the original deadline (and confirmation of such waiver as it pertains to the quarterly report on Form 10-Q with respect to the fiscal quarter ended March 31, 2021), and (iii) agree that until the quarterly unaudited financial statements and a revised borrowing base certificate in connection with each such quarter is delivered, the lenders will not be required to make any advances requested. We filed our consolidated unaudited financial statements as of, and for, the quarters ended March 31, 2021 and June 30, 2021 and delivered a revised borrowing base certificate within the required timeframe.
On November 15, 2021, we entered into a Second Amendment and Waiver to our Credit Agreement to (i) extend the deadline under the Credit Agreement for the delivery of our consolidated unaudited financial statements as of, and for, the quarter ended September 30, 2021 and the calendar month ending October 31, 2021 to December 10, 2021, (ii) obtain a limited waiver of potential defaults under the Credit Agreement related to a delayed public filing of the quarterly report on Form 10-Q for the quarter ended September 30, 2021 after the original deadline, and (iii) agree that until the quarterly unaudited financial statements and a revised borrowing base certificate in connection with such quarter are delivered, the lenders will not be required to make any advances requested by Borrower. We filed our operating resultsconsolidated unaudited financial statements as of, and for, the quarter ended September 30, 2021 and delivered a revised borrowing base certificate within the required timeframe. In addition, the Credit Agreement was amended to, among other things, permit the disposition of the HB Onshore Rentals Business (as defined in the Credit Agreement).
On February 10, 2022, we entered into a Third Amendment to Credit Agreement to, among other things, provide us with additional flexibility around making asset sales. Specifically, the Credit Agreement was amended to refresh the amount of properties sold, transferred or otherwise disposed of pursuant to the “Substantial Portion” exception to $0 as of January 31, 2022. The “Substantial Portion” exception allows us to sell, transfer or otherwise dispose of properties so long as the aggregate value of all such properties sold, transferred or otherwise disposed of do not exceed (a) 10% of our gross book value of the assets during the four fiscal year quarter period ending with the fiscal quarter in which such determination is made, or (b) 10% of our consolidated net sales or net income during the four fiscal year quarter period ending with the fiscal quarter in which such determination is made. The Credit Agreement was also amended to add a new asset sale exception that allows us to make additional asset sales up to $25.0 million so long as (a) liquidity is greater than $100.0 million, (ii) unused availability under the Credit Agreement is greater than $25.0 million, and (iii) we receive 100% cash consideration to the extent that the property being sold is otherwise included in the calculation of the borrowing base under the Credit Agreement.
On March 8, 2022, we entered into a Fourth Amendment and Waiver to Credit Agreement to, among other things, permit us to file SES Energy Services India Pvt. Ltd, a private limited company of India and an indirect subsidiary, for bankruptcy under the Insolvency and Bankruptcy Code of India without triggering a default under the Credit Agreement.
The foregoing description of the Credit Facility, including the related amendments thereto, is a summary only and is qualified in its entirety by reference to the Credit Agreement, which is incorporated herein by reference.
Stockholders Agreement
On the Emergence Date, in order to implement the governance related provisions reflected in the Plan, the stockholder’s agreement, dated February 2, 2021 (the “Stockholders Agreement”), was executed, to provide for certain governance matters. Other than the obligations related to Confidential Information (as defined in the Stockholders Agreement), the rights and preferences of each stockholder under the Stockholders Agreement will terminate when such stockholder ceases to own any shares of Class A common stock.
The foregoing description of the Stockholders Agreement is qualified in its entirety by the full text of the document, which is incorporated herein by reference.
Amendments to Stockholders Agreement
8
We and stockholders holding a majority of our Class A common stock entered into an amendment to the Stockholders Agreement, effective May 14, 2021, extending the deadline to provide our stockholders unaudited consolidated quarterly financial statements from 45 days after the conclusion of a quarter to 60 days after such quarter (or, if applicable, the first business segments: Drilling day thereafter).
We and stockholders holding a majority of our Class A common stock entered into the Second Amendment to the Stockholders Agreement, effective May 31, 2021, extending the deadline to provide our stockholders the unaudited consolidated quarterly financial statements for the quarter ended March 31, 2021 to no later than July 15, 2021.
We and stockholders holding a majority of our Class A common stock entered into the Third Amendment to the Stockholders Agreement, effective as of July 14, 2021, extending the deadline to provide our stockholders the unaudited consolidated quarterly financial statements for the quarters ended March 31, 2021 and June 30, 2021 to no later than September 30, 2021 and October 31, 2021, respectively.
We and stockholders holding a majority of our Class A common stock entered the Fourth Amendment to the Stockholders Agreement, effective as of November 15, 2021, extending the deadline to provide our stockholders the unaudited consolidated quarterly financial statements for the quarters ended September 30, 2021 to no later than December 10, 2021 and making certain technical amendments to the financial statement delivery mechanics.
We and stockholders holding a majority of our Class A common stock entered into the Fifth Amendment to the Stockholders Agreement, effective as of February 9, 2022, which provides that if an officer or other authorized agent has been granted authority to approve a matter or take other action pursuant to a board-approved delegation of authority matrix, prior approval of the board will be deemed obtained without any further approval from the board.
COVID-19 Pandemic and Market Conditions
During 2021, the significant business disruption resulting from the COVID-19 pandemic impacted customers, vendors and suppliers in all geographical areas where we operate as well as the broader economies of affected countries. However, there are signs that business activity around the world has adjusted and will continue to improve in 2022.
The recent wave of COVID-19 cases related to the Omicron variant somewhat dampened the expectations regarding economic recovery and higher demand for oil. For example, due to travel restrictions put in place as a result of Omicron, the global oil demand forecast for 2022 was originally revised down by forecasters, including the IEA and EIA, primarily to account for projected reduced jet fuel use. However, the Omicron variant appears to be less severe than prior waves of COVID-19 variants. Consequently, management believes that this surge should not halt the recovery in oil demand. With widespread vaccination campaigns, and the apparent lower rates of serious illness and hospitalization resulting from the recent wave, this wave is likely to have a lesser impact on the economy and demand for oil than previous COVID-19 variants.
Absent any further material COVID-related disruption, oil demand is expected to exceed pre-pandemic levels before the end of 2022. We also expect to accelerate work on projects that were delayed or slowed due to pandemic-related travel restrictions.
Products and Services; Onshore Completion and Workover Services; Production Services; and Technical Solutions. Given our long-term strategy of geographic expansion, we also provide supplemental segment revenue information in three geographic areas: U.S. land; U.S. offshore; and International.Services
We offer a wide variety of specialized oilfield services and equipment generally categorized by their typical use during the economic life of a well. A description of the products and services offered by each of our segments is as follows:
The products and service offerings of Rentals are comprised of value-added engineering and design services, rental of premium drill strings, tubing, landing strings, completion tubulars and handling accessories, manufacturing and rental of bottom hole assemblies, and rentals of accommodation units.
The products and service offerings of Well Services are comprised of risk management, well control and training solutions, hydraulic workover and snubbing services, engineering and manufacturing of premium sand control tools, and onshore international production services. The Well Services segment also includes the operations of our offshore oil and gas property.
For information about our operating segments and financial information by operating segment and geographic area, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7 of this Annual Report on Form 10-K and note 8the Notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Recent Developments
9
The Combination
On December 18, 2019, we entered into a definitive merger agreement (the Merger Agreement) to divest our U.S. service rig, coiled tubing, wireline, pressure control, flowback, fluid management and accommodations service lines (the Superior Energy U.S. Business) and combine them with Forbes Energy Services Ltd.’s (Forbes) complimentary service lines to create a new, publicly traded consolidation platform for U.S. completion, production and water solutions (the Combination).
Following the completion of the Combination, which is expected to close in the second quarter of 2020, we will remain a globally diversified oilfield services company built around the following key product and service lines: premium drill pipe, bottom hole assemblies, completion tools and products, hydraulic workover, snubbing and production services and well control services.
Under the terms of the Merger Agreement, the Superior Energy U.S. Business and Forbes will be merged into a newly formed company (Newco). At the closing of the Combination, we will receive 49.9% of Newco’s issued and outstanding voting Class A common stock (the Class A Stock) and 100% of Newco’s issued and outstanding non-voting Class B common stock (the Class B Stock), which will collectively represent an approximate 65% economic interest in Newco. Our and Forbes’ economic interests in Newco are subject to adjustment within certain parameters based on Forbes’ net debt position calculated at closing pursuant to the terms of the Merger Agreement. In addition, certain lenders under Forbes’ existing term loan (the Forbes Term Loan) will exchange their portion of the aggregate principal amount outstanding under the Forbes Term Loan for approximately $30.0 million in newly issued mandatory convertible preferred shares of Newco (the Preferred Shares), which will be entitled to cash dividends at a rate of 5% per annum, payable semi-annually, and, on the third anniversary of the closing of the Combination will be subject to mandatory conversion into shares of Newco’s Class A Stock. After giving effect to such conversion, we would own an approximate 52% economic interest in Newco and Forbes’ existing stockholders would own an approximate 48% economic interest in Newco.
The Combination has been unanimously approved by our and Forbes’ Boards of Directors as well as the special committee of the Board of Directors of Forbes. Newco filed a joint proxy statement/prospectus on February 12, 2020, pursuant to which Forbes will solicit proxies of its stockholders to approve the Combination at a special meeting of stockholders. However, certain stockholders of Forbes who will collectively own a majority of Forbes’ common stock on the record date for Forbes’ special meeting have committed to vote the shares they beneficially own in favor of the Combination and have the ability to approve the Combination without the vote of any other stockholder of Forbes.
Related Financing Transactions
As a condition of the Combination, SESI, L.L.C. (SESI), our wholly owned subsidiary, consummated an offer to exchange (the Exchange Offer) up to $635.0 million of SESI’s previously outstanding $800.0 million aggregate principal amount of 7.125% Senior Notes due 2021 (the Original Notes) for up to $635.0 million aggregate principal amount of SESI’s 7.125% Senior Notes due 2021 (the New Notes) and conducted a concurrent consent solicitation (the Consent Solicitation) to amend the liens covenant in the indenture governing the Original Notes (the Original Notes Indenture) to permit the issuance of the Superior Secured Notes described below (the Proposed Amendment) upon the terms and subject to the conditions set forth in SESI’s offering memorandum and consent solicitation statement,
dated as of January 6, 2020 (as amended by the press releases dated January 16, 2020, January 22, 2020, January 31, 2020, February 14, 2020, February 18, 2020, February 19, 2020, February 20, 2020 and February 24, 2020 issued by the Company and Supplement No. 1 to the Offering Memorandum and Consent Solicitation, dated as of January 31, 2020 (the Offering Memorandum)). A supplemental indenture by and among SESI, the guarantors party thereto and the Bank of New York Mellon Trust Company, N.A., as trustee, related to the Proposed Amendment was executed on February 14, 2020. The Original Notes outstanding after the Exchange Offer are governed by the Original Notes Indenture, as amended by the Proposed Amendment, provided that the Proposed Amendment will only become operative immediately prior to the occurrence of the Combination.
The Exchange Offer expired at 5:00 p.m., New York City time, on February 21, 2020, and $617.9 million aggregate principal amount of outstanding Original Notes were validly tendered for exchange and not withdrawn, representing 77.24% of the aggregate principal amount of Original Notes outstanding upon commencement of the Exchange Offer. SESI accepted all validly tendered Original Notes and issued $617.9 million aggregate principal amount of New Notes pursuant to an indenture dated February 24, 2020 by and among SESI, the guarantors party thereto and UMB Bank, N.A., as trustee (the New Notes Indenture).
Substantially concurrently with the consummation of the Combination, eligible note holders will receive, in exchange for $617.9 million aggregate principal amount of New Notes, on a pro rata basis: (1) $243.3 million aggregate principal amount of 9.750% Senior Second Lien Secured Notes due 2025 to be issued by Newco (the Newco Secured Notes), (2) $243.3 million aggregate principal amount of 8.750% Senior Second Lien Secured Notes due 2026 to be issued by SESI (the Superior Secured Notes), (3) $131.3 million in cash and (4) $6.35 million in cash constituting the total consent payment (the Combination Exchange). The indentures governing the Newco Secured Notes and the Superior Secured Notes will each contain restrictive covenants customary for issuances of high-yield secured notes of this type. On February 20, 2020, we entered into an amendment to the Merger Agreement (the Amendment). The Amendment amends certain covenants, among other things, to account for the amended terms of the Exchange Offer.
Exit and Discontinuation of the Hydraulic Fracturing Service Line
On December 10, 2019, our indirect, wholly owned subsidiary, Pumpco Energy Services, Inc. (Pumpco), completed its existing hydraulic fracturing field operations, and we determined to discontinue, wind down and exit Pumpco’s hydraulic fracturing operations. We intend to maintain an adequate number of employees to efficiently wind down Pumpco’s business and divest Pumpco’s assets over time. The financial results of Pumpco’s operations have historically been included in our Onshore Completion and Workover Services segment. Pumpco’s business is reflected as discontinued operations for each of the years ended December 31, 2019, 2018 and 2017 and its assets are in the process of being divested. See note 12 to our consolidated financial statements for further discussion of discontinued operations. Discontinuing hydraulic fracturing aligns with our strategic objective to divest assets and service lines that do not compete for investment in the current market environment. Net proceeds from the divestiture of Pumpco’s assets will be used to reduce debt.
Reverse Stock Split
At a special meeting of stockholders held on December 18, 2019, our stockholders voted to approve a proposal authorizing our Board of Directors to effect a reverse stock split of our issued and outstanding common stock (the Reverse Stock Split) and to proportionately reduce the number of our authorized shares of common stock. Following the special meeting of stockholders, our Board of Directors approved a 1-for-10 Reverse Stock Split.
As a result of the Reverse Stock Split, each 10 pre-split shares of common stock outstanding immediately prior to the Reverse Stock Split automatically were converted to one issued and outstanding share of common stock without any action on the part of our stockholders. No fractional shares of common stock were issued as a result of the Reverse Stock Split. Instead, any stockholder who would have been entitled to a fractional share received a cash payment in lieu of such fractional shares. The total number of shares of common stock that the Company is authorized to issue has also been reduced by the same ratio.
Unless otherwise indicated, the number of shares of common stock outstanding and per-share amounts in the consolidated financial statements and accompanying notes contained in Part II, Item 8 of this Annual Report on Form 10-K have been retroactively adjusted to reflect the effect of the Reverse Stock Split. The par value of our common stock remains at $0.001 per share.
Resumption of Trading on the New York Stock Exchange
On September 26, 2019, the New York Stock Exchange (the NYSE) suspended trading of our common stock and commenced delisting proceedings due to our “abnormally low” stock price. Following the NYSE’s suspension of trading of our common stock, we appealed the NYSE staff’s determination. On September 27, 2019, our common stock commenced trading on the OTC Markets and, on October 4, 2019, our common stock also commenced trading on the OTCQX Best Market, operated by OTC Markets Group Inc. The NYSE formally withdrew the delisting determination, and, on December 26, 2019, our common stock resumed trading on the NYSE under the ticker symbol “SPN.”
Products and Services
We offer a wide variety of specialized oilfield services and equipment generally categorized by their typical use during the economic life of a well. A description of the products and services offered by each of our four segments is as follows:
Drilling Products and Services – Includes downhole drilling tools and surface rentals.Customers
Downhole drilling tools – Includes rentals of tubulars, such as primary drill pipe strings, landing strings, completion tubulars and associated accessories, and manufacturing and rentals of bottom hole tools, including stabilizers, non-magnetic drill collars and hole openers.
Surface rentals – Includes rentals of temporary onshore and offshore accommodation modules and accessories.
Onshore Completion and Workover Services – Includes fluid management and workover services.
Fluid management – Includes services used to obtain, move, store and dispose of fluids that are involved in the exploration, development and production of oil and gas, including mobile piping systems, specialized trucks, fracturing tanks and other assets that transport, heat, pump and dispose of fluids.
Workover services – Includes a variety of well completion, workover and maintenance services, including installations, completions, sidetracking of wells and support for perforating operations.
Production Services – Includes intervention services.
Intervention services – Includes services to enhance, maintain and extend oil and gas production during the life of the well, including coiled tubing, cased hole and mechanical wireline, hydraulic workover and snubbing, pressure control services, production testing and optimization.
Technical Solutions – Includes products and services that generally address customer-specific needs with their applications, which typically require specialized engineering, manufacturing or project planning expertise. Most operations requiring our technical solutions are generally in offshore environments during the completion, production and decommissioning phase of an oil and gas well. These products and services primarily include completion tools and services, well control services and subsea well intervention.
Completion tools and services – Provides products and services used during the completion phase of an offshore well to control sand and maximize oil and gas production, including sand control systems, well screens and filters, and surface-controlled sub surface safety valves.
Well control services – Resolves well control and pressure control problems through firefighting, engineering and well control training.
The Technical Solutions segment also includes revenues from oil and gas production related to our 51% ownership interest in our sole federal offshore oil and gas property (which we refer to in this Annual Report on Form 10-K as the oil and gas property) and related assets.
Customers
Our customers are the major and independent oil and gas companies that are active in the geographic areas in which we operate. There were no customers that exceeded 10% of our total revenues in 2019, 20182021, 2020 or 2017.2019. A reduction in sales to any of our existing large customers could have a material adverse effect on our business and operations.
Competition
We provide products and services worldwide in highly competitive markets, with competitors comprised of both small or regionally focused companies, and large or international companies. Our revenues and earnings can be affected by several factors, including but not limited to changes in competition, fluctuations in drilling and completion activity, perceptions of future prices of oil and gas, government regulation, disruptions caused by factors such as weather, pandemics, and geopolitics, and general economic conditions. We believe that the principal competitive factors are price, performance, product and service quality, safety, response time and breadth of products and services.
Potential Liabilities and Insurance
Our operations involve a high degree of operational risk and expose us to significant liabilities. An accident involving our services or equipment, or the failure of a product sold by us, could result in personal injury, loss of life, and damage to property, equipment or the environment. Litigation arising from a catastrophic occurrence, such as fire, explosion, well blowout or vessel loss, may result in substantial claims for damages.
As is customary in our industry, our contracts generally provide that we will indemnify and hold harmless our customers from any claims arising from personal injury or death of our employees, damage to or loss of our equipment, and pollution emanating from our equipment and services. Similarly, our customers generally agree to indemnify and hold us harmless from any claims arising from personal injury or death of their employees, damage to or loss of their equipment or property, and pollution caused from their equipment or the well reservoir (including uncontained oil flow from a reservoir). Nonetheless, our indemnification arrangements may not protect us in every case.
We maintain a liability insurance program that covers against certain operating hazards, including product liability, property damage and personal injury claims, as well as certain limited environmental pollution claims for damage to a third party or its property arising out of contact with pollution for which we are liable, but well control costs are not covered by this program. These policies include primary and excess umbrella liability policies with limits of $350$200 million per occurrence, including sudden and accidental pollution incidents. All of the insurance policies we purchase contain specific terms, conditions, limitations and exclusions and are subject to either deductibles or self-insured retention amounts for which we are responsible. There can be no assurance that the nature and amount of insurance we maintain will be sufficient to fully protect us against all liabilities related to our business.
Government Regulation
Our business is significantly affected by Federal, Statefederal, state and local laws and other regulations. These laws and regulations relate to, among other things:
Numerous permits are required for the conduct of our business and operation of our various facilities and equipment, including our underground injection wells, trucks and other heavy equipment. These permits can be revoked, modified or renewed by issuing authorities based on factors both within and outside our control.
We cannot predict the level of enforcement of existing laws and regulations or how such laws and regulations may be interpreted by enforcement agencies or court rulings in the future. We also cannot predict whether additional laws and regulations will be adopted, including changes in regulatory oversight, increase of federal, state or local taxes, increase of inspection costs, or the effect such changes may have on us, our businesses or our financial condition.
10
Environmental Matters
Our operations, and those of our customers, are subject to extensive laws, regulations and treaties relating to air and water quality, generation, storage and handling of hazardous materials, and emission and discharge of materials into the environment. We believe we are in substantial compliance with all regulations affecting our business. Historically, our expenditures in furtherance of our compliance with these laws, regulations and treaties have not been material, and we do not expect the cost of compliance to be material in the future.
Numerous federal, state and local governmental agencies, such as the U.S. Environmental Protection Agency (the “EPA”), issue regulations that often require difficult and costly compliance measures that carry substantial administrative, civil and criminal penalties and may result in injunctive obligations for non-compliance. These laws and regulations may require the acquisition of a permit before commencing operations, restrict the types, quantities and concentrations of various substances that can be released into the environment in connection with our operations, limit or prohibit construction or drilling activities on certain lands lying within wilderness, wetlands, ecologically or seismically sensitive areas and other protected areas, require action to prevent or remediate pollution from current or former operations, such as plugging abandoned wells or closing pits, result in the suspension or revocation of necessary permits, licenses and authorizations, require that additional pollution controls be installed and impose substantial liabilities for pollution resulting from our operations or related to our owned or operated facilities. Liability under such laws and regulations is strict (i.e., no showing of “fault” is required) and can be joint and several. Moreover, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances, hydrocarbons or other waste products into the environment. Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent and costly pollution control or waste handling, storage, transport, disposal or cleanup requirements could materially adversely affect our operations and financial position, as well as the oil and natural gas industry and infrastructure industry in general. We have not experienced any material adverse effect from compliance with these environmental requirements. This trend, however, may not continue in the future.
Climate Change
In recent years, federal, state and local governments have taken steps to reduce emissions of carbon dioxide, methane and other greenhouse gases, collectively referred to as greenhouse gasses (“GHGs”). The EPA has finalized a series of GHG monitoring, reporting and emissions control rules for the oil and natural gas industry, and the U.S. Congress has, from time to time, considered adopting legislation to reduce emissions. Almost one-half of the states have already taken measures to reduce emissions of GHGs primarily through the development of GHG emission inventories and/or regional GHG cap-and-trade programs. Also, states have imposed increasingly stringent requirement related to the venting or flaring of gas during oil and gas operations. While we are subject to certain federal GHG monitoring and reporting requirements, our operations currently are not adversely impacted by existing federal, state and local climate change initiatives.
At the international level, in December 2015, the United States participated in the 21st Conference of the Parties of the United Nations Framework Convention on Climate Change in Paris, France. The resulting Paris Agreement calls for the parties to undertake “ambitious efforts” to limit the average global temperature, and to conserve and enhance sinks and reservoirs of GHGs. The Agreement went into effect on November 4, 2016. The Paris Agreement establishes a framework for the parties to cooperate and report actions to reduce GHG emissions. Although the United States withdrew from the Paris Agreement effective November 4, 2020, President Biden issued an executive order on January 20, 2021 to rejoin the Paris Agreement, which went into effect on February 19, 2021. On April 21, 2021, the United States announced that it was setting an economy-wide target of reducing its greenhouse gas emissions by 50 to 52 percent below 2005 levels in 2030. In November 2021, in connection with the 26th Conference of the Parties in Glasgow, Scotland, the United States and other world leaders made further commitments to reduce greenhouse gas emission, including reducing global methane emissions by at least 30% by 2030 to meet this objective. Furthermore, many state and local leaders have stated their intent to intensify efforts to support the international commitments.
Restrictions on emissions of methane or carbon dioxide that may be imposed could adversely affect the oil and natural gas industry by reducing demand for hydrocarbons and by making it more expensive to develop and produce hydrocarbons, either of which could have a material adverse effect on future demand for our services. At this time, it is not possible to accurately estimate how potential future laws or regulations addressing GHG emissions would impact our business.
In addition, there have also been efforts in recent years to influence the investment community, including investment advisors and certain sovereign wealth, pension and endowment funds promoting divestment of fossil fuel equities and pressuring lenders to limit funding to companies engaged in the extraction of fossil fuel reserves. Such environmental activism and initiatives aimed at limiting climate change and reducing air pollution could interfere with our business activities, operations and ability to access capital. Furthermore, claims have
11
been made against certain energy companies alleging that GHG emissions from oil and natural gas operations constitute a public nuisance under federal and/or state common law. As a result, private individuals or public entities may seek to enforce environmental laws and regulations against certain energy companies and could allege personal injury, property damages or other liabilities. While our business is not a party to any such litigation, we could be named in actions making similar allegations. An unfavorable ruling in any such case could significantly impact our operations and could have an adverse impact on our financial condition.
Moreover, climate change may cause more extreme weather conditions such as more intense hurricanes, thunderstorms, tornadoes and snow or ice storms, as well as rising sea levels and increased volatility in seasonal temperatures. Extreme weather conditions can interfere with our productivity and increase our costs and damage resulting from extreme weather may not be fully insured. However, at this time, we are unable to determine the extent to which climate change may lead to increased storm or weather hazards affecting our operations.
Raw Materials
We purchase various raw materials and component parts in connection with delivering our products and services. These materials are generally, but not always, available from multiple sources and may be subject to price volatility. While we generally do not experience significant long-term shortages of these materials, we have from time to time experienced temporary shortages of particular raw materials. We are always seeking ways to ensure the availability of resources, as well as manage costs of raw materials.
Seasonality
Seasonal weather and severe weather conditions can temporarily impair our operations and reduce demand for our products and services. Examples of seasonal events that negatively affect our operations include high seas associated with cold fronts during the winter months and hurricanes during the summer months in the Gulf of Mexico, and severe cold during winter months in the U.S. land market area.
Employees
Human Capital
At December 31, 2019,2021, we had approximately 5,2002,300 employees. Approximately 6%28% of our employees are subject to union contracts, all of which are in international locations. We believe that we have good relationships with our employees. We strive to employ a dynamic workforce to complement our core values. Our hiring policy forbids the discrimination in employment on the basis of age, culture, gender, national origin, sexual orientation, physical appearance, race or religion. We are an inclusive company with people of various backgrounds, experience, culture, styles and talents. We are committed to the health, safety and wellness of our employees, and we pride ourselves on workplace safety. We track and maintain several key safety metrics, which senior management reviews periodically and are included in the determination of their compensation and we evaluate management on their ability to provide safe working conditions on job sites and to create a safety culture.
Facilities
Our principal executive offices are located at 1001 Louisiana Street, Suite 2900, Houston, Texas, 77002. We own or lease a large number of facilities in the U.S. and in various areas in which we operateother countries throughout the world. Our international operations are primarily focused in Latin America, Asia-Pacific and the Middle East/North Africa regions. As of December 31, 2021, we owned 15 properties classified as held for sale.
Intellectual Property
We seek patent and trademark protections throughout the world for our technology when we deem it prudent, and we aggressively pursue protection of these rights. We believe our patents and trademarks are adequate for the conduct of our business, and that no single patent or trademark is critical to our business. In addition, we rely to a great extent on the technical expertise and know-how of our personnel to maintain our competitive position.
Other Information
We have our principal executive offices at 1001 Louisiana Street, Suite 2900, Houston, Texas 77002. Our telephone number is (713) 654-2200. We also have a website at http://www.superiorenergy.com. Copies of the annual, quarterly and current reports we file with or furnish to the SEC, and any amendments to those reports, are available on our website free of charge soon after such reports are filed with or furnished to the SEC. The information posted on our website is not incorporated into this Annual Report on Form 10-K. Alternatively, you may access these reports at the SEC’s website at http://www.sec.gov/.
Our Shared Core Values at Work (Code of Conduct) applies to all of our directors, officers and employees. This Code of Conduct is publicly available on the Corporate Governance page in the About Us section of our website at http://www.superiorenergy.com. Any waivers granted to directors or executive officers and any material amendment to our Code of Conduct will be posted promptly on our website and/or disclosed in a current report on Form 8-K.
Investors should be aware that whileCopies of the annual, quarterly and current reports we do, at various times, communicatefile with securities analysts, it is againstor furnish to the SEC, and any amendments to those reports, as well as our policy to selectively disclose to them any material non-public information or other confidential information. Accordingly, investors should not assume that we agree with any statement or report issued by an analyst with respect toCode of Conduct, are available on our past or projected performance. To the extent that reports issued by securities analysts contain any projections, forecasts or opinions,website free of charge soon after such reports are filed with or furnished to the SEC. The information posted on our website is not our responsibility.incorporated into this Annual Report on Form 10-K. Alternatively, you may access these reports at the SEC’s website at http://www.sec.gov/.
12
Executive Officers
The following table indicates the names and ages of our executive officers, including all offices and positions held by each in the past five years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 1A.1A. Risk Factors
The following information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Part II, Item 7 of this Annual Report on Form 10-K, the consolidated financial statements and related notes contained in Part II, Item 8 of this Annual Report on Form 10-K and the matters contained under the caption “Forward-Looking Statements” at the beginning of this Annual Report on Form 10-K.
The following discussion of “risk factors” identifies the most significant risks or uncertainties that could (i) materially and adversely affect our business, financial condition, results of operations, liquidity or prospects, as well as the market value of our securities, or (ii) cause our actual results to differ materially from our anticipated results or other expectations. These risks are not the only risks that we face. Our business operations could also be affected by additional factors that apply to all companies operating in the U.S. and globally, as well as other risks that are not presently known to us or that we currently consider to be immaterial to our operations. These risks include:
Risks Related to the Chapter 11 Cases
Despite having emerged from bankruptcy on February 2, 2021, we continue to be subject to the risks and uncertainties associated with residual Chapter 11 bankruptcy proceedings.
As discussed below (see Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations), we emerged from bankruptcy on the Emergence Date. It is possible that having filed for bankruptcy and our recent emergence from the bankruptcy could adversely affect our business and relationships with customers, vendors, employees, service providers and suppliers. Due to uncertainties, many risks exist, including the following:
Because of the residual risks and uncertainties associated with the Chapter 11 Cases, the ultimate impact that events that occurred during, or that may occur subsequent to, these proceedings will have on our business, financial condition and results of operations cannot be accurately predicted or quantified. We cannot assure you that having been subject to bankruptcy protection will not adversely affect our operations going forward.
Our actual financial results since we emerged from bankruptcy are not comparable to the Predecessor's historical financial information as a result of the implementation of the Plan and the transactions contemplated thereby and our adoption of fresh start accounting.
In connection with the disclosure statement filed with the Bankruptcy Court, and the hearing to consider confirmation of the Plan, projected financial information through the end of 2023 was prepared to demonstrate to the Bankruptcy Court the feasibility of the Plan and our ability to continue operations upon emergence from bankruptcy. Those projections were prepared solely for the purpose of the bankruptcy proceedings and have not been, and will not be, updated on an ongoing basis and should not be relied upon by investors. At the time they were prepared, the projections reflected numerous assumptions concerning anticipated future performance with respect to prevailing and anticipated market and economic conditions that were and remain beyond our control and that may not materialize. Projections are inherently subject to substantial and numerous uncertainties and to a wide variety of significant business, economic and competitive risks and the assumptions underlying the projections and/or valuation estimates may prove to be wrong in material respects. Actual results will likely vary significantly from those contemplated by the projections. The failure of any such results, or any other developments contemplated by the Plan, to materialize, or of any such results or developments to have the anticipated effect on us and our subsidiaries or our business or operations, could materially adversely impact our business and prospects as a post-emergence company.
In addition, as a result of our emergence from bankruptcy, we adopted fresh start accounting and adjusted our assets and liabilities to fair values and our accumulated deficit was restated to zero and reflected in our financial statements for the quarter ending March 31,
13
2021. We became a new entity for financial reporting purposes on February 2, 2021 (the “Emergence Date”). Accordingly, our financial condition and results of operations following our emergence from bankruptcy are not comparable to the financial condition and results of operations reflected in historical financial statements.
Risks Related to Our Business
Our business depends on conditions in the oil and gas industry, especially oil and natural gas prices and capital expenditures by oil and gas companies.
Our business depends on the level of oil and natural gas exploration, development and production activity of, and the corresponding capital spending by, oil and gas companies worldwide. The level of exploration, development and production activity is directly affected by trends in oil and natural gas prices, which historically have been volatile and difficult to predict.predict and are likely to continue to be volatile. Oil and natural gas prices are subject to large fluctuations in response to relatively minor changes in supply and demand, economic growth trends, market uncertainty and a variety of other factors beyond our control. Price volatility continued throughout 2019 and, partially due to the emergence of the COVID-19 pandemic and failure of OPEC+ and other major producers to agree on production cuts, became more extreme in 2020 and 2021. In addition, oil prices are particularly sensitive to actual and perceived threats to global political stability and to changes in production from OPEC+ member states. The ongoing conflict, and the continuation of, or any increase in, the conflict between Russia and Ukraine, has led and may continue to lead to an increase in the volatility of global oil and gas prices, which could have a corresponding negative impact on the capital expenditure of oil and gas companies as a result of the higher perceived risk. In addition, the imposition of comprehensive sanctions against Russia (including in relation to the Russian energy sector) as well as the announcement of prohibitions on Russian oil and gas imports by certain members of the European Union, the United Kingdom, the United States, and certain other countries, as of March 2022, including additional countries that may enforce prohibitions of a similar nature in the future, has led to and is expected to continue to lead to an increase in the price of global oil and gas prices. Lower oil and natural gas prices generally lead to decreased spending by our customers. Whilecustomers, while higher oil and natural gas prices generally lead to increased spending by our customers, sustained high energy prices can also be an impedimentup to economic growth and can therefore negatively impact spending by our customers.a point. Our customers may also take into account the volatility of energy oil and natural gasprices and other risk factors by requiringand require higher returns for individual projects if there is higher perceived risk. Any of these factors could significantly affect the demand for oil and natural gas, which could affect the level of capital spending by our customers and in turn could have a material effect on our business, results of operations.operations, financial condition and cash flow.
The availability of quality drilling prospects, exploration success, relative production costs, expectations about future oil and natural gas demand and prices, the stage of reservoir development, the availability of financing, and political and regulatory environments are also expected to affect levels of exploration, development, and production activity, which would impact the demand for our services. Any prolonged reduction of oil and natural gas prices, as well as anticipated declines, could also result in lower levels of exploration, development, and production activity.
The demand for our services may be affected by numerous factors, including the following:
Organization of Petroleum Exporting Countries (OPEC)OPEC+ and other key oil-producing countries to set and maintain production levels for oil;
futurefutures markets, including trading by commodity price speculators and others;
• 14 The oil and gas industry has historically experienced periodic downturns, which have been characterized by significantly reduced demand for oilfield services and downward pressure on the prices we charge. Sustained lower oil and natural gas prices have led to a significant decrease in spending by our customers over the past several years, which have led to significantly decreased revenues. Further decreases in oil and natural gas prices could lead to further cuts in spending and potential lower revenues for us. Moreover, weakness in the oil and gas industry may adversely impact the financial position of our customers, which in turn could cause them to fail to pay amounts owed to us in a timely manner or at all. We expect continued volatility in both crude oil and natural gas prices (including the possibilities that such prices could remain at current levels or decline further for an extended period of time), as well as in the level of drilling and production related activities as a result of the continuing COVID-19 pandemic, decisions of OPEC+ and other oil exporting nations regarding production, and the other factors listed above. Any of these events have affected, and could further affect, the demand for oil and natural gas and has and could further have a material adverse effect on our business, results of operations, financial condition and cash flow. Our business may also be affected by new sanctions and export controls targeting Russia and other responses to Russia’s invasion of Ukraine. As a result of Russia’s invasion of Ukraine, certain members of the European Union, the United Kingdom and the United States, among others, have developed coordinated sanctions and export-control measure packages. Based on actions taken and other public statements to date, these packages may include: As the invasion of Ukraine continues, there can be no certainty regarding whether such governments or other governments will impose additional sanctions, export-controls or other economic or military measures against Russia. Although, we have minimal operational exposure in Russia, representing less than $0.2 million of our revenues for the year ended December 31, 2021, and we do not intend to commit further capital towards projects in Russia, the impact the invasion of Ukraine, including economic sanctions and export controls or additional war or military conflict, as well as potential responses to them by Russia, is currently unknown and they could adversely affect oil and gas companies, including many of which are our customers, as well as the global supply chain. In addition, the continuation of the invasion of Ukraine by Russia could lead to other disruptions, instability and volatility in global markets and industries, which could have a material adverse effect on our business, results of operations, financial condition and Our long-term liquidity requirements and the adequacy of our capital resources are difficult to predict at this time. We face uncertainty regarding the adequacy of our liquidity and capital resources and have 15 acceptable to us, or at all. Any such failure to obtain additional financing could jeopardize our ability to repay, refinance or reduce our debt obligations, or to meet our other financial commitments. Restrictive covenants in the Credit Facility could limit our The Credit Facility imposes operating and financial restrictions. Unless all loans are paid off and letters of credit outstanding are cash collateralized and the Credit Agreement terminated, these restrictions limit the ability to, among other things, subject to permitted exceptions: The restrictions contained in the Credit Facility could: The Credit Facility includes provisions that require mandatory prepayment of outstanding borrowings and/or a borrowing base redetermination when there are asset dispositions over a certain threshold, which could limit the ability to generate liquidity from asset sales. Also, the Credit Facility requires compliance with a specified financial ratio if triggered by an event of default or availability beneath specified thresholds. The ability to comply with this ratio may be affected by events beyond our control and, as a result, this ratio may not be met in circumstances when it is tested. This financial ratio restriction could limit the ability to obtain future financings, make needed capital expenditures, withstand a continued downturn in our business or a downturn in the economy in general or otherwise conduct necessary corporate activities. Declines in oil and natural gas prices could result in failure to meet one or more of the financial covenants under the Credit Facility, which could require refinancing or amendment of such obligations resulting in the payment of consent fees or higher interest rates, or require a capital raise at an inopportune time or on terms not favorable. A breach of any of these covenants or the inability to comply with the required financial ratios or financial condition tests could result in a default under the Credit Facility. A default under the Credit Facility, if not cured or waived, could result in acceleration of all indebtedness outstanding thereunder and/or a requirement to cash collateralize letters of credit issued thereunder. The COVID-19 pandemic continues to adversely affect our business, and the ultimate effect on our operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted. The COVID-19 pandemic has had, and continues to have, a material impact on businesses around the world and the economic environments in which they operate. A number of jurisdictions in which we operate have implemented severe restrictions on the movement of their respective populations. The COVID-19 pandemic and efforts to mitigate its effect have had a substantial negative impact on the global economy and demand for oil, which has directly affected our business and progress of the Transformation Project. Although oil prices are back to pre-pandemic levels, driven by global vaccine distribution, an unfolding demand recovery, OPEC+ agreement on production volume, and a declining production base, if the demand for or price of crude oil does not further increase, our In addition, the COVID-19 pandemic and certain related government mandated restrictions and limitations on business activities have caused disruptions and delays, which have strained certain domestic and international supply chains, and could continue to negatively affect the flow or availability of machinery, equipment, consumables, parts and vehicles. As a result of the 16 andconsumption.consumption; andprospects.cash flow.outstanding debt obligationsextremely limited, if any, access to additional financing. We cannot assure you that could limit our abilitycash on hand, letters of credit under the Credit Facility, and cash flow from operations will be sufficient to continue to fund future growth and operations and increase our exposure to risk during adverse economic conditions.operations.At December 31, 2019, we had $1.3 billion in outstanding debt obligations, $800.0 million of which matures in December 2021. Pursuant to the Exchange Offer, on February 24, 2020, $617.9 million of outstanding $800.0 million of 7.125% Senior Notes due 2021 were exchanged for $617.9 million of newly issued 7.125% Senior Notes due 2021 (referred to herein as the New Notes). Many factors, including factors beyond our control, may affect our ability to make payments on our outstanding indebtedness. These factors include those discussed elsewhere in these Risk Factors and those listed in the “Forward-Looking Statements” section included in this Annual Report on Form 10-K.Our existing debt and associated commitments could have important adverse consequences. For example, these commitments could:make it more difficult for us to satisfy our contractual obligations;increase our vulnerability to general adverse economic and industry conditions;limit our ability to refinance our debt in the future or borrow additional funds;limit our ability to fund future working capital, capital expenditures, acquisitions or other corporate requirements;limit our flexibility in planning for, or reacting to, changes in our business and our industry; andplace us at a disadvantage compared to our competitors that have less debt or less restrictive covenants in such debt.Necessary capital financing may not be available at economic rates or at all.TurmoilFurthermore, turmoil in the credit and financial markets could adversely affect financial institutions, inhibit lending and limit our access to funding through borrowings under our credit facilitythe Credit Facility or obtaining other financing in the public or private capital markets on terms we believe to be reasonable. Prevailing market conditions could be adversely affected by the ongoing disruptions in domestic or overseas sovereign or corporate debt markets, low commodity prices or other factors impacting our business, contractions or limited growth in the economy or other similar adverse economic developments in the U.S. or abroad. Instability in the global financial markets has from time to time resulted in periodic volatility in the capital markets. In addition, there has been a relatively recent increased focus of debt and equity capital providers on environmental, social and governance (“ESG”) investing, and the energy industry faces growing negative sentiment in the market. This volatility, as well as this increased focus on ESG investing and growing negative sentiment, could limit our access to the credit markets, leading to higher borrowing costs or, in some cases, the inability to obtain financing on terms that areThe price ofcommon stock has been volatilegrowth and our ability to finance our operations, fund our capital needs, respond to changing conditions and engage in other business activities that may continue to fluctuate substantially.be in our best interests.common stockbusiness, financial condition, results of operation and liquidity may be highly volatilefurther materially and adversely affected. Our operations also may be further adversely affected if significant portions of our workforce continue to be unable to work effectively due to illness, quarantines, government actions or other restrictions in connection with the future. SomeCOVID-19 pandemic.factors that could affect the price of our common stock are quarterly increases or decreases in revenue or earnings, changes in revenue or earnings estimates by the investment community and speculation in the press or investment community about our financial condition or results of operations. General market conditions and U.S. or international economic factors and political events unrelated to our performance may also affect our stock price. For these reasons, investors should not rely on recent trends in the price of our common stock to predict the future price of our common stock or our financial results.COVID-19 pandemic, we
are currently experiencing and may continue to experience shortages and delays in the shipments of key machinery, parts and consumables from our suppliers. If any of the foregoing were to continue to occur, we may not be able to find alternative suppliers on commercially reasonable terms or a timely basis, if at all. Any prolonged or subsequent disruptions or delays in our equipment, consumables, parts and other machinery, could have a material adverse effect on our business, results of operations, financial condition and cash flow.
We believe that the well-known impacts described above and other potential impacts include, but are not limited to, the following:
At this time, it is not possible to quantify these risks, but the combination of these factors could have a further material impact on our financial results. The ultimate extent to which the COVID-19 pandemic adversely affects our business, financial condition, results of operation and liquidity will depend on future developments, which are highly uncertain and cannot be predicted. These future developments include, but are not limited to, vaccine availability and acceptance, the effectiveness of vaccines against different strains of COVID-19, the scope and duration of the COVID-19 pandemic and actions taken by governmental authorities and other third parties in response to the COVID-19 pandemic. Disruptions and/or uncertainties related to the COVID-19 pandemic for a sustained period of time could result in, and have resulted to date in, delays or modifications to our strategic plans and initiatives and could hinder our ability to achieve our strategic goals. The COVID-19 pandemic, and the volatile regional and global economic conditions stemming from the COVID-19 pandemic, will likely have the effect of heightening many of the other risks included in this Annual Report on Form 10-K. However, because the COVID-19 pandemic is unprecedented and continuously evolving, the other potential impacts to our risk factors are uncertain.
There are operating hazards inherent in the oil and gas industry that could expose us to substantial liabilities.
Our operations are subject to hazards inherent in the oil and gas industry that may lead to property damage, personal injury, death or the discharge of hazardous materials into the environment. Many of these events are outside of our control. Typically, we provide products and services at a well site where our personnel and equipment are located together with personnel and equipment of our customer and other service providers. From time to time, personnel are injured or equipment or property is damaged or destroyed as a result of accidents, failed equipment, faulty products or services, failure of safety measures, uncontained formation pressures or other dangers inherent in oil and natural gas exploration, development and production. Any of these events can be the result of human error or purely accidental, and it may be difficult or impossible to definitively determine the ultimate cause of the event or whose personnel or equipment contributed thereto. All of these risks expose us to a wide range of significant health, safety and environmental risks and potentially substantial litigation claims for damages. With increasing frequency, our products and services are deployed in more challenging exploration, development and production locations. From time to time, customers and third parties may seek to hold us accountable for damages and costs incurred as a result of an accident, including pollution, even under circumstances where we believe we did not cause or contribute to the accident. Our insurance policies are subject to exclusions, limitations and other conditions, and may not protect us against liability for some types of events, including events involving a well blowout, or against losses from business interruption. Our insurance also may not cover losses associated with pandemics such as the COVID-19 pandemic. Moreover, we may not be able to maintain insurance at levels of risk coverage or policy limits that we deem adequate or on terms that we deem commercially reasonable.reasonable,
17
or at all. Any damages or losses that are not covered by insurance, or are in excess of policy limits or subject to substantial deductibles or retentions, could adversely affect our financial condition, results of operations and cash flows.
We may not be fully indemnified against losses incurred due to catastrophic events.
As is customary in our industry, our contracts generally provide that we will indemnify and hold harmless our customers from any claims arising from personal injury or death of our employees, damage to or loss of our equipment, and pollution emanating from our equipment and services. Similarly, our customers generally agree to indemnify and hold us harmless from any claims arising from personal injury or death of their employees, damage to or loss of their equipment or property, and pollution caused from their equipment or the well reservoir (including uncontained oil flow from a reservoir). Our indemnification arrangements may not protect us in every case. For example, from time to time we may enter into contracts with less favorable indemnities or perform work without a contract that protects us. In addition, our indemnification rights may not fully protect us if we cannot prove that we are entitled to be indemnified or if the customer is bankrupt or insolvent, does not maintain adequate insurance or otherwise does not possess sufficient resources to indemnify us. In addition, our indemnification rights may be held unenforceable in some jurisdictions.
Our customers’ changing views on risk allocation could cause us to accept greater risk to win new business or could result in us losing business if we are not prepared to take such risks. To the extent that we accept such additional risk, and insure against it, our insurance premiums could rise.
From time to time, we are subject to various claims, litigation and other proceedings that could ultimately be resolved against us, requiring material future cash payments or charges, which could impair our financial condition or results of operations.
The size, nature and complexity of our business make us susceptible to various claims, both in litigation and binding arbitration proceedings. We may in the future become subject to various claims, which, if not resolved within amounts we have accrued, could have a material adverse effect on our financial position, results of operations or cash flows. Similarly, any claims, even if fully indemnified or insured, could negatively impact our reputation among our customers and the public, and make it more difficult for us to compete effectively or obtain adequate insurance in the future.
The credit risks of our customer base could result in losses.
Many of our customers are oil and gas companies that are facing liquidity constraints in light of the current commodity price environment. These customers impact our overall exposure to credit risk as they are also affected by prolonged changes in economic and industry conditions. If a significant number of our customers experience a prolonged business decline or disruptions, we may incur increased exposure to credit risk and bad debts.
We are subject to environmental and worker health and safety laws and regulations, which could reduce our business opportunities and revenue, and increase our costs and liabilities.
Our business is significantly affected by a wide range of environmental and worker health and safety laws and regulations in the areas in which we operate, including increasingly rigorous environmental laws and regulations governing air emissions, water discharges and waste management. Generally, these laws and regulations have become more stringent and have sought to impose greater liability on a larger number of potentially responsible parties. The Macondo well explosion in 2010 resulted in additional regulation of our offshore operations, and similar onshore or offshore accidents in the future could result in additional increases in regulation. Failure to comply with these laws and regulations may result in a variety of administrative, civil and criminal enforcement measures, including the assessment of monetary penalties, imposition of remedial requirements and issuance of injunctions as to future compliance.
Environmental laws and regulations may provide for “strict liability” for remediation costs, damages to natural resources or threats to public health and safety as a result of our conduct that was lawful at the time it occurred or the conduct of, or conditions caused by, prior owners or operators or other third parties. Strict liability can render a party liable for damages without regard to negligence or fault on the part of the party. Some environmental laws provide for joint and several strict liability for remediation of spills and releases of hazardous substances. For example, our well service and fluids businesses routinely involve the handling of significant amounts of waste materials, some of which are classified as hazardous substances. We also store, transport and use radioactive and explosive materials in certain of our operations. In addition, many of our current and former facilities are, or have been, used for industrial purposes. Accordingly, we could become subject to material liabilities relating to the containment and disposal of hazardous substances, oilfield waste and other waste materials, the use of radioactive materials, the use of underground injection wells, and to claims alleging personal injury or property damage as the result of exposures to, or releases of, hazardous substances. In addition, stricter enforcement of existing laws and regulations, new domestic or foreign laws and regulations, the discovery of previously unknown contamination or the imposition of new or increased requirements could require us to incur costs or become the basis of new or increased liabilities that could reduce our earnings and our cash available for operations.
In addition, we and our customers may need to apply for or amend facility permits or licenses from time to time with respect to storm water or wastewater discharges, waste handling, or air emissions relating to manufacturing activities or equipment operations, which subjects us and our customers to new or revised permitting conditions that may be onerous or costly to comply with.
Climate change legislation or regulations restricting emissions of greenhouse gases (GHGs) could result in increased operating costs and reduced demand for the oil and natural gas our customers produce.
18
Increasing concerns that emissions of carbon dioxide, methane and other greenhouse gases (GHGs)(“GHGs”) may endanger public health and produce climate changes with significant physical effects, such as increased frequency and severity of storms, floods, droughts and other climatic events, have drawn significant attention from government agencies, and environmental advocacy groups.groups and technological initiatives aimed at reducing the use of hydrocarbons. In response, additional costly requirements and restrictions have been imposed on the oil and gas industry to regulate and reduce the emission of GHGs.GHGs and transition to a global low carbon economy.
Specifically, the EPA has adopted regulations under existing provisions of the federal Clean Air Act (CAA) which increase operational costs by requiring the monitoring and annual reporting of GHG emissions from oil and gas production, processing, transmission and storage facilities in the United States. Although the U.S. Congress has considered legislation to reduce emissions of GHGs, significant legislation has not yet been adopted to reduce GHG emissions at the federal level. In the absence of such federal climate legislation, a number of state and regional efforts have emerged that are aimed at tracking and/or reducing GHG emissions through the completion of GHG emissions inventories and through cap and trade programs that typically require major sources of GHG emissions to acquire and surrender emission allowances in return for emitting GHGs. Other non-U.S. governmental bodies such as the European Union have implemented similar policies aimed at reducing GHG emissions, including but not limited to carbon taxes, cap and trade programs, renewable fuel mandates, or other regulations targeting carbon intensive activities. Given the long-term trend towards increasing regulation, future federal and international GHG regulations of the oil and gas industry remain a possibility. Additionally,
Climate change, environmental, social and governance, and sustainability are growing global movements. Continuing political and social attention to these issues has resulted in both existing and pending international agreements and national, regional or local legislation and regulatory measures, as well as society pressure in some areas, to limit GHG emissions and has been stated in the U.S. to be a priority of the new Biden Administration, as well as other initiatives. In December 2015, the United States joined the international community at the 21st Conference of the Parties of the United Nations Framework Convention on Climate Change in Paris, France that proposed an agreement (the “Paris Agreement”) requiring member countries to review and “represent a progression” in their intended nationally determined contributions, which set GHG emission reduction goals every five years beginning in 2020. This agreement was signed by the United States in April 2016 and entered into force in November 2016. The United States is one of over 120 nations having ratified or otherwise consented to the agreement; however this agreement does not create any binding obligations for nations to limit their GHG emissions, but rather includes pledges to voluntarily limit or reduce future emissions. In June 2017, President Trump announced thatAlthough the prior administration formally withdrew the United States intended to withdraw from the Paris Agreement andeffective November 4, 2020, the new administration issued an executive order to seek negotiations either to reenterrejoin the Paris Agreementclimate agreement on different terms or a separate agreement. In August 2017, the U.S. Department of State officially informed the United Nations of the intent of the United States to withdraw from the Paris Agreement. The Paris Agreement provides for a four-year exit process beginning when it took effect in November 2016, which would result in anJanuary 20, 2021, effective exit date of November 2020. The United States’ adherence to the exit process and/or the terms on which the United States may re-enter the Paris Agreement or a separately negotiated agreement are unclear at this time.February 19, 2021.
In addition to governmental regulations, our customers are also requiring additional equipment upgrades to address the growing concerns of GHG emission and climate change which result in higher operational costs for service providers such as us. Despite taking additional
measures to reduce GHG emissions, there is the possibility that the demand for fossil fuels may nevertheless decrease due to such concerns.
Furthermore, there have also been efforts in recent years aimed at the investment community, including investment advisors, sovereign wealth funds, public pension funds, universities and other groups, promoting the divestment of fossil fuel equities as well as to pressure lenders and other financial services companies to limit or curtail activities with companies engaged in the extraction of fossil fuel reserves. If these efforts are successful, our ability and the ability of our customers to access capital markets may be limited.
At this stage, we cannot predict the impact of these or other initiatives on our or our customerscustomers’ operations, nor can we predict whether, or which of, other currently pending greenhouse gasGHG emission proposals will be adopted, or what other actions may be taken by domestic or international regulatory bodies. The potential passage of climate change regulation may curtail production and demand for fossil fuels such as oil and gas in areas of the world where our customers operate and thus adversely affect future demand for our products and services, which may in turn adversely affect future results of operations.
Adverse and unusual weather conditions may affect our operations.
Our operations may be materially affected by severe weather conditions in areas where we operate. Severe weather, such as hurricanes, high winds and seas, blizzards and extreme temperatures may cause evacuation of personnel, curtailment of services and suspension of operations, inability to deliver materials to jobsites in accordance with contract schedules, loss of or damage to equipment and facilities and reduced productivity. In addition, variations from normal weather patterns can have a significant impact on demand for oil and natural gas, thereby reducing demand for our services and equipment.
Our inability to retain key employees and skilled workers could adversely affect our operations.
Our performance could be adversely affected, especially in light of our emergence from bankruptcy, if we are unable to retain certain key employees and skilled technical personnel. Our ability to continue to expand the scope of our services and products depends in part
19
on our ability to increase the size of our skilled labor force. The loss of the services of one or more of our key employees or the inability to employ or retain skilled technical personnel could adversely affect our operating results. In the past, the demand for skilled personnel has been high and the supply limited. We may also face a loss of workers and labor shortages as a result of vaccine mandates or requirements and enforcement of other COVID-19 regulations in jurisdictions where we operate. We have experienced increases in labor costs in recent years and may continue to do so in the future. Furthermore, these internal and external factors may also be impacted by our recent emergence from bankruptcy, the uncertainties currently facing us and the business environment and changes we may make to the organizational structure to adjust to changing circumstances.
We face significant competition in attracting and retaining talented employees. Further, managing succession for, and retention of, key executives is critical to our success, and our failure to do so could adversely affect our future performance.
Our ability to attract and retain qualified and experienced employees is essential to meet our current and future goals and objectives. There is no guarantee we will be able to attract and retain such employees or that competition among potential employers will not result in increased salaries or other benefits. If we are unable to retain existing employees or attract additional employees, we could experience a material adverse effect on our business and results of operations. We may not be able to locate or employ on acceptable terms qualified replacements for key executives if their services are no longer available. Furthermore, our business could be affected adversely if suitable replacement personnel are not recruited quickly or effectively. Our failure to adequately plan for succession of senior management and other key management roles or the failure of key employees to successfully transition into new roles could have a material adverse effect on our businesses and results of operations.
Our international operations and revenue are affected by political, economic and other uncertainties worldwide.
In 2019, we conducted business in more than 50 countries.
Our international operations are subject to varying degrees of regulation in each of the foreign jurisdictions in which we provide services. Local laws and regulations, and their interpretation and enforcement, differ significantly among those jurisdictions, and can change significantly over time. Future regulatory, judicial and legislative changes or interpretations may have a material adverse effect on our ability to deliver services within various foreign jurisdictions.
In addition to these international regulatory risks, our international operations are subject to a number of other risks inherent in any business operating in foreign countries, including, but not limited to, the following:
assets;assets, or other governmental actions;
civil
• 20 These and the other risks outlined above could cause us to curtail or terminate operations, result in the loss of personnel or assets, disrupt financial and commercial markets and generate greater political and economic instability in some of the geographic areas in which we operate. International areas where we operate that have significant risk include the Middle East, Indonesia, Nigeria and Angola. Laws, regulations or practices in foreign countries could materially restrict our operations or expose us to additional risks. In many countries around the world where we do business, all or a significant portion of the decision making regarding procuring our services and products is controlled by state-owned oil companies. State-owned oil companies or prevailing laws may (i) require us to meet local content or hiring requirements or other local standards, (ii) restrict with whom we can contract or (iii) otherwise limit the scope of operations that we can legally or practically conduct. Our inability or failure to meet these requirements, standards or restrictions may adversely impact our operations in those countries. In addition, our ability to work with state-owned oil companies is subject to our ability to negotiate and agree upon acceptable contract terms, and to enforce those terms. In addition, many state-owned oil companies may require integrated contracts or turnkey contracts that could require us to provide services outside our core businesses. Providing services on an integrated or turnkey basis generally requires us to assume additional risks. Moreover, in order to effectively compete in certain foreign jurisdictions, it is frequently necessary or required to establish joint ventures or strategic alliances with local contractors, partners or agents. In certain instances, these local contractors, partners or agents may have interests that are not always aligned with ours. Reliance on local contractors, partners or agents could expose us to the risk of being unable to control the scope or quality of our overseas services or products, or being held liable under the FCPA, or other anti-corruption laws for actions taken by our strategic or local contractors, partners or agents even though these contractors, partners or agents may not themselves be subject to the FCPA or other applicable anti-corruption laws. Any determination that we have violated the FCPA or other anti-corruption laws could have a material adverse effect on our business, results of operations, reputation or prospects. If we are not able to design, develop, and produce commercially competitive products and to implement commercially competitive services in a timely manner in response to changes in the market, customer requirements, competitive pressures, and technology trends, our business and results of operations could be materially and adversely affected. The market for oilfield services in which we operate is highly competitive and includes numerous small companies capable of competing effectively in our markets on a local basis, as well as several large companies that possess substantially greater financial resources than we do. Contracts are traditionally awarded on the basis of competitive bids or direct negotiations with customers. The market for our services and products is characterized by continual technological developments to provide better and more reliable performance and services. If we are not able to design, develop, and produce commercially competitive products and to implement commercially competitive services in a timely manner in response to changes in the market, customer requirements, competitive pressures, and technology trends, our business and consolidated results of operations could be materially and adversely affected. Likewise, if our proprietary technologies, equipment, facilities, or work processes become obsolete, we may no longer be competitive, and our business and results of operations could be materially and adversely affected. In addition, we may be disadvantaged competitively and financially by a significant movement of exploration and production operations to areas of the world in which we are not currently active. We depend on particular suppliers and are vulnerable to product shortages and price increases. 21 Some of the materials that we use are obtained from a limited group of suppliers. Our reliance on these suppliers involves several risks, including price increases, supply chain disruptions, inferior quality and a potential inability to obtain an adequate supply in a timely manner. We do not have long-term contracts with most of these sources, and the partial or complete loss of certain of these sources could have a negative impact on our results of operations and could damage our customer relationships. Further, a significant increase in the price of one or more of these materials could have a negative impact on our results of operations. Estimates of our potential liabilities relating to our oil and natural gas property may be incorrect. Actual abandonment expenses may vary substantially from those estimated by us and any significant variance in these assumptions could materially affect the estimated liability recorded in our consolidated financial statements. Therefore, the risk exists we may underestimate the cost of plugging wells and abandoning production facilities. If costs of abandonment are materially greater than our estimates, this could have an adverse effect on our financial condition, results of operations and cash flows. Potential changes of Bureau of Ocean Energy Management security and bonding requirements for offshore platforms could impact our operating cash flows and results of operations. Federal oil and natural gas leases contain standard terms and require compliance with detailed Bureau of Safety and Environmental Enforcement (“BSEE”) and BOEM regulations and orders issued pursuant to various federal laws, including the Outer Continental Shelf Lands Act. In 2016, BOEM undertook a review of its historical policies and procedures for determining a lessee’s ability to decommission platforms on the Outer Continental Shelf (“OCS”) and whether lessees should furnish additional security, and in July 2016, BOEM issued a new Notice to Lessees requiring additional security for decommissioning activities. In January 2017, BOEM extended the implementation timeline for properties with co-lessees by an additional six months, and in June 2017 announced that the Notice to Lessees would be stayed while BOEM continued to review its implementation issues and continued industry engagement to gather additional information on the financial assurance program. During the second half of 2016, BSEE increased its estimates of many offshore operator’s decommissioning costs, including the decommissioning costs at our sole federal offshore oil and gas property, in which our subsidiary owns a 51% non-operating interest. In October 2016, BOEM sent an initial proposal letter to the operator of the oil and gas property, proposing an increase in the supplemental bonding requirement for the property’s sole fixed platform that was eight to ten times higher than the revised supplemental bonding requirement requested for any other deep-water fixed platform in the U.S. Gulf of Mexico. Both the operator and our subsidiary submitted formal dispute notices, asserting that the estimates in the October 2016 proposal letter may be based on erroneous or arbitrary estimates of the potential decommissioning costs, and requesting in-person meetings to discuss the estimate. We asked that BSEE and BOEM reduce the estimate to an amount that more closely approximates actual decommissioning costs, consistent with estimates identified by BSEE and BOEM for similar deep-water platforms. BSEE and BOEM have not yet responded to our dispute notice. On September 17, 2020, BOEM issued a proposed rule addressing OCS oil and gas decommissioning costs (BOEM-2018-0033). The proposed rule contains updated criteria for determining decommissioning costs. Under the proposed rule, BOEM would only require additional security when (1) a lessee or grant holder poses a substantial risk of becoming financially unable to meet its obligations; (2) there is no co-lessee, co-grant holder or predecessor that is liable for those obligations with sufficient financial capacity; and (3) the property is at or near the end of its productive life. BSEE would typically issue orders to predecessors in title in a reverse chronological order. The proposed rule would also require that a party appealing any final decommissioning decision or order provide a surety bond to ensure that funding for decommissioning is available if the order is affirmed and the liable party then defaults. Based on the proposed framework, BOEM estimates its amount of financial assurance would decrease from $3.3 billion to $3.1 billion, although BOEM expects the rule would provide greater protection as the financial assurance would be focused on the riskiest properties. We cannot predict when these laws and regulations may be adopted or change in the future, particularly as a result of the U.S. presidential administration changing in January 2021. If BOEM withdraws the September 2020 rule proposal and proceeds to implement a rule or other regulatory action requiring additional security similar to the Notice to Lessees issued in July 2016 and we are unable to obtain the additional required bonds or post other acceptable security to secure of decommissioning obligations, BOEM may suspend or cancel operations at the oil and gas property or otherwise impose monetary penalties. Any of these actions could have a material adverse effect on our financial condition, operating cash flows and liquidity. Moreover, under existing BOEM and BSEE rules relating to assignment of offshore leases and other legal interests on the OCS, assignors of such interests may be held jointly and severally liable for decommissioning of OCS facilities existing at the time the assignment was approved by BOEM, in the event that the assignee or any subsequent assignee is unable or unwilling to conduct required decommissioning. Risks Related to Our Class A Common Stock 22 There may be circumstances in which the interests of our significant stockholders could conflict with the interests of our other stockholders. On the Emergence Date, in order to implement certain transactions contemplated by the Plan, the Stockholders Agreement was executed with each stockholder pursuant to the Plan (constituting all of the stockholders on the Emergence Date) and all other stockholders from time to time, to provide for certain of our governance matters. Two groups of these stockholders currently hold approximately 50.5% of our Class A Common Stock. Furthermore, pursuant to the Stockholders Agreement, these two groups of stockholders have appointed three of our six directors. Circumstances may arise in which these groups of stockholders may have an interest in pursuing or preventing acquisitions, divestitures or other transactions, including the issuance of additional shares or debt, that, in their judgment, could enhance their investment in us, and their interests may not in all cases be aligned with our interests. There is no public market for shares of our Class A Common Stock, and we do not expect there to be a market for shares of our Class A Common Stock. There is no existing trading market for shares of our Class A Common Stock, and no market for our shares may develop in the future. If developed, any such market may not be sustained. In the absence of a trading market, our stockholders may be unable to liquidate an investment in our Class A Common Stock. Upon our emergence from bankruptcy, the Predecessor’s common stock was canceled and we issued new Class A Common Stock. The Class A Common Stock is not currently traded on a national securities exchange. There is no active market in the Class A Common Stock. No assurance can be given that an active market will develop for our Class A Common Stock or as to the liquidity of the trading market for our Class A Common Stock. Our Class A Common Stock may be traded only infrequently, if at all, and reliable market quotations may not be available. Holders of our Class A Common Stock may experience difficulty in reselling, or an inability to sell, their shares. In addition, if an active trading market does not develop or is not maintained, significant sales of our Class A Common Stock, or the expectation of these sales, could materially and adversely affect the market price of our Class A Common Stock. For so long as our Class A Common Stock is not listed on a national securities exchange, our ability to access equity markets, obtain financing and provide equity incentives could be negatively impaired. Furthermore, certain transfers of our Class A Common Stock require an exemption from the registration requirements of the Securities Act and applicable state securities laws. Provisions in the Stockholders Agreement could delay or prevent a change in control. Certain provisions of our Stockholders Agreement may delay, discourage, prevent or render more difficult an attempt to obtain control of us, whether through a tender offer, business combination, proxy contest or otherwise. These provisions include, among other things, those that: We do not intend to pay dividends on our Class A Common Stock and our ability to pay dividends on our common stock is restricted. We currently intend to retain all available funds and any future earnings to finance our operations. As a result, we do not anticipate declaring or paying any cash dividends on our Class A Common Stock in the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of our Board of Directors and will depend on, among other things, our business prospects, results of operations, financial condition, cash requirements and availability, industry trends and other factors that our Board of Directors may deem relevant. Any such decision will also be subject to compliance with contractual restrictions and covenants in the agreements governing our current and future indebtedness. We do not have a class of our securities registered under Section 12 of the Exchange Act. Until we do, we will not be required to provide certain reports to our stockholders. We do not have a class of our securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Until we do, we will not be required to provide certain reports to our stockholders. We are currently required to file periodic reports with the SEC by virtue of Section 15(d) of the Exchange Act. However, until we register a class of our securities under Section 12 of the Exchange Act, we are not subject to the SEC’s proxy rules, and large holders of our capital stock will not be subject to beneficial 23 ownership reporting requirements under Sections 13 or 16 of the Exchange Act and their related rules. As a result, our stockholders and potential investors may not have available to them as much or as robust information as they may have if and when we become subject to those requirements. General Risk Factors From time to time, we are subject to various claims, litigation and other proceedings that could ultimately be resolved against us, requiring material future cash payments or charges, which could impair our financial condition or results of operations. The size, nature and complexity of our business make us susceptible to various claims, both in litigation and binding arbitration proceedings. We may in the future become subject to various claims, which, if not resolved within amounts we have accrued, could have a material adverse effect on our financial position, results of operations or cash flows. In addition, during periods of depressed market conditions we may be subject to an increased risk of our customers, vendors, former employees and others initiating legal proceedings against us. Any litigation or claims, even if fully indemnified or insured, could negatively impact our reputation among our customers and the public, and make it more difficult for us to compete effectively or obtain adequate insurance in the future. Changes in tax laws or tax rates, adverse positions taken by taxing authorities and tax audits could impact our operating results. We are subject to the jurisdiction of a significant number of domestic and foreign taxing authorities. Changes in tax laws or tax rates, the resolution of tax assessments or audits by various tax authorities could impact our operating results. In addition, we may periodically restructure our legal entity organization. If taxing authorities were to disagree with our tax positions in connection with any such restructurings, our effective income tax rate could be impacted. The final determination of our income tax liabilities involves the interpretation of local tax laws, tax treaties and related authorities in each taxing jurisdiction, as well as the significant use of estimates and assumptions regarding future operations and results and the timing of income and expenses. We may be audited and receive tax assessments from taxing authorities that may result in assessment of additional taxes that are ultimately resolved with the authorities or through the courts. We believe these assessments may occasionally be based on erroneous and even arbitrary interpretations of local tax law. Resolution of any tax matter involves uncertainties and there are no assurances that the outcomes will be favorable. If U.S. or•FCPA)“FCPA”) as well as other anti-corruption laws;•
other foreign tax authorities change applicable tax laws, our overall taxes could increase, and our business, financial condition or results of operating may be adversely impacted.
If we are not able to design, develop, and produce commercially competitive products and to implement commercially competitive services in a timely manner in response to changes in the market, customer requirements, competitive pressures, and technology trends, our business and results of operations could be materially and adversely affected.
The market for oilfield services in which we operate is highly competitive and includes numerous small companies capable of competing effectively in our markets on a local basis, as well as several large companies that possess substantially greater financial resources than we do. Contracts are traditionally awarded on the basis of competitive bids or direct negotiations with customers.
The market for our services and products is characterized by continual technological developments to provide better and more reliable performance and services. If we are not able to design, develop, and produce commercially competitive products and to implement commercially competitive services in a timely manner in response to changes in the market, customer requirements, competitive pressures, and technology trends, our business and consolidated results of operations could be materially and adversely affected. Likewise, if our proprietary technologies, equipment, facilities, or work processes become obsolete, we may no longer be competitive, and our business and results of operations could be materially and adversely affected. In addition, we may be disadvantaged competitively and financially by a significant movement of exploration and production operations to areas of the world in which we are not currently active.
We are affected by global economic factors and political events.
Our financial results depend on demand for our services and products in the U.S. and the international markets in which we operate. Declining economic conditions, or negative perceptions about economic conditions, energy costs and supply chain disruptions, could result in a substantial decrease in demand for our services and products. World political events could also result in further U.S. military actions, terrorist attacks and related unrest. Military action by the U.S. or other nations could escalate and further acts of terrorism may occur in the U.S. or elsewhere. Such acts of terrorism could lead to, among other things, a loss of our investment in the country, impairment of the safety of our employees, extortion or kidnapping, and impairment of our ability to conduct our operations. Such developments have caused instability in the world’s financial and insurance markets in the past, and many experts believe that a confluence of worldwide factors could result in a prolonged period of economic uncertainty and slow growth in the future. In addition, any of these developments could lead to increased volatility in prices for oil and gas and could negatively affect the markets for our products and services. Insurance premiums could also increase and coverages may be unavailable.
Uncertain economic conditions and instability make it particularly difficult for us to forecast demand trends. The timing and extent of any changes to currently prevailing market conditions is uncertain and may affect demand for many of our services and products. Consequently, we may not be able to accurately predict future economic conditions or the effect of such conditions on demand for our services and products and our results of operations or financial condition.
Our operations may be subject to cyber-attacks that could have an adverse effect on our business operations.
Like most companies, we rely heavily on information technology networks and systems, including the Internet, to process, transmit and store electronic information, to manage or support a variety of our business operations, and to maintain various records, which may include information regarding our customers, employees or other third parties, and the integrity of these systems are essential for us to conduct our business and operations. We make significant efforts to maintain the security and integrity of these types of information and systems (and maintain contingency plans in the event of security breaches or system disruptions). However, we cannot provide assurance that our security efforts and measures will prevent security threats from materializing, unauthorized access to our systems,
24
loss or destruction of data, account takeovers, or other forms of cyber-attacks or similar events, whether caused by mechanical failures, human error, fraud, malice, sabotage or otherwise. We have office employees who work remotely. Remote work relies heavily on the use of remote networking and online conferencing services that enable employees to work outside of our corporate infrastructure and, in some cases, use their own personal devices, which exposes us to additional cybersecurity risks, including unauthorized access to sensitive information as a result of increased remote access and other cybersecurity related incidents. Cyber-attacks include, but are not limited to, malicious software, attempts to gain unauthorized access to data, unauthorized release of confidential or otherwise protected information and corruption of data. It is possible that our business, financial and other systems could be compromised, which could go unnoticed for a prolonged period of time. While various procedures and controls are being utilized to mitigate exposure to such risk, there can be no assurance that the procedures and controls that we implement, or which we cause third party service providers to implement, will be sufficient to protect our systems, information or other property. Additionally, customers as well as other third parties upon whom we rely face similar cybersecurity threats, which could directly or indirectly impact our business and operations. The frequency, scope and sophistication of cyber-attacks continue to grow, which increases the possibility that our security measures will be unable to prevent our systems’ improper functioning or the improper disclosure of proprietary information. Any failure of our information or communication systems, whether caused by attacks, mechanical failures, natural disasters or otherwise, could interrupt our operations, damage our reputation, or subject us to claims, any of which could materially adversely affect us.
We depend on particular suppliers and are vulnerable to product shortages and price increases.
Some of the materials that we use are obtained from a limited group of suppliers. Our reliance on these suppliers involves several risks, including price increases, inferior quality and a potential inability to obtain an adequate supply in a timely manner. We do not have long-term contracts with most of these sources, and the partial or complete loss of certain of these sources could have a negative impact on our results of operations and could damage our customer relationships. Further, a significant increase in the price of one or more of these materials could have a negative impact on our results of operations.
Estimates of our potential liabilities relating to our oil and natural gas property may be incorrect.
Actual abandonment expenses may vary substantially from those estimated by us and any significant variance in these assumptions could materially affect the estimated liability recorded in our consolidated financial statements. Therefore, the risk exists we may underestimate the cost of plugging wells and abandoning production facilities. If costs of abandonment are materially greater than our estimates, this could have an adverse effect on our financial condition, results of operations and cash flows.
Potential changes of Bureau of Ocean Energy Management security and bonding requirements for offshore platforms could impact our operating cash flows and results of operations.
Federal oil and natural gas leases contain standard terms and require compliance with detailed Bureau of Safety and Environmental Enforcement (BSEE) and BOEM regulations and orders issued pursuant to various federal laws, including the Outer Continental Shelf Lands Act. In 2016 BOEM undertook a review of its historical policies and procedures for determining a lessee’s ability to decommission platforms on the Outer Continental Shelf and whether lessees should furnish additional security, and in July 2016, BOEM issued a new Notice to Lessees requiring additional security for decommissioning activities. In January 2017, BOEM extended the implementation timeline for properties with co-lessees by an additional six months, and in June 2017 announced that the Notice to Lessees would be stayed while BOEM continued to review its implementation issues and continued industry engagement to gather additional information on the financial assurance program. We cannot predict whether these laws and regulations may change in the future, particularly in connection with the transition of presidential administrations.
During the second half of 2016, BSEE increased its estimates of many offshore operator’s decommissioning costs, including the decommissioning costs at our sole federal offshore oil and gas property, in which our subsidiary owns a 51% non-operating interest. In October 2016, BOEM sent an initial proposal letter to the operator of the oil and gas property, proposing an increase in the supplemental bonding requirement for the property’s sole fixed platform that was eight to ten times higher than the revised supplemental bonding requirement requested for any other deep-water fixed platform in the U.S. Gulf of Mexico. Both the operator and our subsidiary submitted formal dispute notices, asserting that the estimates in the October 2016 proposal letter may be based on erroneous or arbitrary estimates of the potential decommissioning costs, and requesting in-person meetings to discuss the estimate. We asked that BSEE and BOEM reduce the estimate to an amount that more closely approximates actual decommissioning costs, consistent with estimates identified by BSEE and BOEM for similar deep-water platforms. BSEE and BOEM have not yet responded to our dispute notice. If BOEM ultimately issues a formal order and we are unable to obtain the additional required bonds or assurances, BOEM may suspend or cancel operations at the oil and gas property or otherwise impose monetary penalties. Any of these actions could have a material adverse effect on our financial condition, operating cash flows and liquidity.
Risks Relating to the Combination
There can be no assurances when or if the Combination will be completed.
Although we expect to complete the Combination in the second quarter of 2020, there can be no assurances as to the exact timing of completion of the Combination or that the Combination will be completed at all. The completion of the Combination is subject to customary approvals and conditions, many of which are outside of our control, including, among others, (i) the consummation of the Combination Exchange, (ii) entrance into an asset-based loan facility by Newco, (iii) the absence of a material adverse effect on the Superior Energy U.S. Business or Forbes, (iv) the accuracy of the representations and warranties of the parties to the Merger Agreement in all material respects, (v) material compliance by the parties with their respective covenants and agreements under the Merger Agreement and (vi) amending our existing credit facility.
There can be no assurance that the conditions required to complete the Combination will be satisfied or waived on the anticipated schedule, or at all. If the Merger Agreement is terminated under certain circumstances, we may be obligated to pay Forbes a termination fee.
If the Combination does not close, we will not benefit from the expenses incurred in connection therewith.
The Combination may not be completed. If the Combination is not completed, we will have incurred substantial expenses for which no ultimate benefit will have been received. We have incurred out-of-pocket expenses in connection with the Combination for investment
banking, legal and accounting fees and financial printing and other costs and expenses, much of which will be incurred even if the Combination is not completed.
Termination of the Merger Agreement or failure to otherwise complete the Combination could negatively impact our business and financial results.
Termination of the Merger Agreement or any failure to otherwise complete the Combination may result in various consequences, including the following:
our business may have been adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the Combination, without realizing any of the anticipated benefits of completing the Combination.
our management has and will continue to expend a significant amount of capital and time and resources on the Combination, and a failure to consummate the Combination as currently contemplated could have a material adverse effect on our business and results of operations;
the market price of our common stock may decline to the extent that the market price prior to the closing of the Combination reflects a market assumption that the Combination will be completed;
we may be required, under certain circumstances, to pay Forbes a termination fee of up to $5.0 million under the Merger Agreement, which could adversely affect our financial condition and liquidity; and
negative reactions from the financial markets may occur if the anticipated return on our investment in Newco is not realized.
If the Combination is not consummated, we cannot assure our stockholders that the risks described above will not negatively impact our business or financial results.
We are subject to business uncertainties with respect to the operation of the Superior Energy U.S. Business until the Combination closes.
In connection with the pendency of the Combination, it is possible that some customers, suppliers and other persons with whom we have a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationships with us, as the case may be, as a result of the Combination, which could negatively affect our revenues, earnings and cash flows, as well as the market price of our common stock, regardless of whether the Combination is completed. Such risks may be exacerbated by delays or other adverse developments with respect to the completion of the Combination.
Furthermore, the historical financial information we have included in this Form 10-K has been derived from our consolidated financial statements and does not necessarily reflect what our financial position, results of operations and cash flows would have been as a separate, stand-alone entity during the periods presented if the Combination had been consummated.
Uncertainties associated with the Combination may distract management personnel and other key employees and divert their attention away from growing our business, which could adversely affect our future business and operations.
We are dependent on the experience and industry knowledge of our officers and other key employees to execute our business plans. In connection with the Combination, it is expected that some of our executive officers will resign from their roles within our business to become executive officers of Newco. Prior to completion of the Combination, as a result of our expected management changes, our current and prospective employees may experience uncertainty about their roles following the completion of the Combination, which may have an adverse effect on our ability to attract or retain key management and other key personnel.
Furthermore, in connection with the Combination, we will enter into various agreements, including a separation agreement and transition services agreement with Newco, to effect the separation of the Superior Energy U.S. Business from our other businesses and provide a framework for our relationship with Newco after the Combination. The performance of these agreements following the closing of the Combination will require significant amounts of our management’s time and effort, which may divert management’s attention from operating and growing our remaining business.
Potential litigation against us or Forbes could result in an injunction preventing the completion of the Combination or a judgment resulting in the payment of damages.
Stockholders of our company and/or Forbes may file lawsuits against us or Forbes, respectively, and/or the directors and officers of such companies in connection with the Combination. As of the date of this filing, there have been no such lawsuits filed against either Forbes or us. However, if filed in the future, these lawsuits could prevent or delay the completion of the Combination and result in significant costs to us, including any costs associated with the indemnification of directors and officers. The defense or settlement of any lawsuit or claim against us that remains unresolved at the time the Combination is completed may adversely affect our business, financial condition, results of operations and cash flows.
Some of our executive officers have interests in the Combination that are different from the interests of our stockholders generally.
Some of our executive officers have interests in the Combination that are different from, or are in addition to, the interests of our stockholders generally. These interests may include their expected designation as directors and/or executive officers of Newco following the completion of the Combination.
If the Combination is completed, we may not achieve the anticipated return on our investment in Newco.
The success of our investment in Newco as a result of the Combination will depend, in part, on Newco’s ability to realize the anticipated benefits and cost savings from combining the Superior Energy U.S. Business and Forbes’ business. There can be no assurance that the Superior Energy U.S. Business and Forbes will be able to successfully integrate, which may negatively impact our investment in Newco. Difficulties in integrating the Superior Energy U.S. Business and Forbes may result in Newco performing differently than expected, in operational challenges, or in the failure to realize anticipated expense-related efficiencies that may have a negative impact on our investment in Newco.
Furthermore, we may not be able to achieve the full strategic and financial benefits expected from the Combination. Following the Combination, our business will be less diversified than our business prior to the Combination and the actions required to separate the Superior Energy U.S. Business from the remaining businesses, including an internal restructuring to effectuate the Combination, could disrupt our operations.
Item 1B.1B. Unresolved Staff Comments
None.
Item 2.2. Properties
Information on properties is contained in Part I, Item 1 of this Annual Report on Form 10-K.
Item 3.3. Legal Proceedings
From time to time, we are involved in various legal actions incidental to our business. The outcome of these proceedings is not predictable. However, based on current circumstances, we do not believe that the ultimate resolution of these proceedings, including any such proceedings described in the following two paragraphs hereof, after considering available defenses and any insurance coverage or indemnification rights, will have a material adverse effect on our financial position, results of operations or cash flows. See note 10the Notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further information.
A subsidiary of ours is involved in legal proceedings with two former employees regarding the payment of royalties for a patentable product paid for by the subsidiary and developed while they worked for the subsidiary. On April 2, 2018, the former employees and their corporation filed a lawsuit (the “First Case”) in the Harris County District Court (the “District Court”) alleging that the royalty payments they had invoiced at 25% and for which they received payments since 2010, should have been paid at a rate of 50%. In May 2019, the jury issued a verdict in favor of the plaintiffs. On October 25, 2019, the court issued a final judgment against us, which we have fully secured with a bond. Oral arguments in front of the Court of Appeals are scheduled for April 2022. We strongly disagree with the verdict and believe the District Court committed several legal errors that should result in a reversal or remand of the case by the Court of Appeals.
A second case (the “Second Case”) was filed in District Court against the same subsidiary of ours bringing the same claims and seeking damages post judgment from the First Case until discontinuation of the sale of the product at issue by the subsidiary. In December 2020, the Court entered a final judgement for the Plaintiffs’ and the Second Case was stayed for the duration of our bankruptcy. We have filed an appeal and a Motion to Abate the Second Case pending the appeal of the First Case. The Motion to Abate the Second Case was granted on October 26, 2021 by the Court of Appeals. As of December 31, 2021, we have reserved $7.0 million for the judgements in the First Case and Second Case.
For the disclosure of environmental proceedings with a governmental entity as a party pursuant to Item 103(c)(3)(iii) of Regulation S-K, we have elected to disclose matters where we reasonably believe such proceeding would result in monetary sanctions, exclusive of interest and costs, of $1.0 million or more.
Item 4.4. Mine Safety Disclosures
Not Applicable.
PART II
Item 5.5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common equity consists of common stock trades on the New York Stock Exchange under the symbol “SPN.” At February 25, 2020,that is privately held and there is no established public trading market. As of March 4, 2022, there were 15,798,428622 stockholders of record for our Class A common stock and six stockholders of record for our Class B common stock.
As part of the transactions undertaken pursuant to the Plan, the record holders of certain of the 7.125% Notes and the 7.750% Notes contributed all of their allowed claims described in the Plan in exchange for either (i) a cash payout to be entirely funded by the Equity Rights Offering, or (ii) shares of ourthe Class A common stock outstanding, which were held by 26 record holders.stock.
Performance Graph
The following graph comparesBy the yearly percentage changeEmergence Date, we had completed the Equity Rights Offering in cumulative total stockholder return on ouraccordance with the Plan, which resulted in the issuance of 735,189 shares of Class A common stock for the five years ended December 31, 2019 with the cumulative total return on the Standard & Poor’s 500 Index (the S&P 500 Index) and our Self-Determined Peer Group, as described below, for the same period. The informationto certain Accredited Cash Opt-Out Noteholders (as defined in the graph is based on the assumption of a $100 investment on January 1, 2015. Plan). The comparisonsClass A common stock issued in the graph are required by the SEC and are not intended to be a forecast or indicative of possible future performance of our common stock. The following performance graph and related information shall not be deemed “soliciting material” or “filed” with the SEC, nor shall such information be incorporated by reference into any future filingEquity Rights Offering was exempt from registration under the Securities Act pursuant to Section 4(a)(2) of 1933, as amended, or the Securities Exchange Act of 1934, as amended (the Exchange Act), except to the extent that we specifically incorporate it by reference into such filing.and/or Regulation D promulgated thereunder.
On June 1, 2021, our Board of Directors (the “Board”) and the Compensation Committee of the Board (the “Compensation Committee”) approved and adopted our Management Incentive Plan, which provides for the grant of share-based and cash-based awards and, in connection therewith, the issuance from time to time of up to 1,999,869 shares of our Class B common stock, par value $0.01 per share.
2015 | 2016 | 2017 | 2018 | 2019 | |||||||||||
Superior Energy Services, Inc. | $ | 68 | $ | 86 | $ | 49 | $ | 17 | $ | 3 | |||||
S&P 500 Index | $ | 101 | $ | 114 | $ | 138 | $ | 132 | $ | 174 | |||||
Peer Group | $ | 68 | $ | 103 | $ | 89 | $ | 42 | $ | 42 |
NOTES:Dividend Policy
The lines represent monthly index levels derived from compounded daily returns that reflect the reinvestment of all dividends.
The indexes are reweighted daily, usingWe may determine to pay a cash dividend on our Class A Common Stock in the market capitalizationfuture. Any decision to declare and pay dividends in the future will be made at the discretion of our Board of Directors and will depend on, among other things, our business prospects, results of operations, financial condition, cash requirements and availability, industry trends and other factors that our Board of Directors may deem relevant. Any such decision will also be subject to compliance with contractual restrictions and covenants in the previous trading day.agreements governing our current and future indebtedness.
If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used.
The index level for all securities was set to $100.00 on December 31, 2014.
Our Self-Determined Peer Group consisted of 12 companies whose average stockholder return levels comprised part of the performance criteria established by the Compensation Committee of our Board of Directors under grants made in 2019 as part of our long-term incentive compensation program: Basic Energy Services, Inc., C&J Energy Services, Ltd., Halliburton Company, Helix Energy Solutions Group, Inc., Key Energy Services, Inc., Nabors Industries Ltd., Nine Energy Services, Inc., Oil States International, Inc., Patterson-UTI Energy, Inc., RPC, Inc., Schlumberger N.V. and Weatherford International plc.
Equity Compensation Plan Information
Information required by this item with respect to compensation plans under which our equity securities are authorized for issuance is incorporated by reference from Part III, Item 12 of this Annual Report Form 10-K, which will be contained in our definitive proxy statement to be filed pursuant to Regulation 14A and is incorporated herein by reference.
Common Stock Repurchases
The following table provides information about shares of our common stock repurchased during each month for the three months ended December 31, 2019.
Period | (a) | (b) | (c) | (d) | |||||
October 1 - 31, 2019 | 972,412 | $ 4.36 | 972,412 | $ | 10,709,806 | ||||
November 1 - 30, 2019 | - | $ - | - | $ | - | ||||
December 1 - 31, 2019 | - | $ - | - | $ | - | ||||
Total | 972,412 | $ 4.36 | 972,412 | $ | 10,709,806 | ||||
(1) On October 1, 2019, our Board of Directors authorized a program to repurchase up to $15.0 million of our common stock, which will expire on March 31, 2020.
Item 6. Selected Financial Data
The following selected consolidated financial data should be read in conjunction with both “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form 10-K in order to understand factors which may affect the comparability of the Selected Financial Data.Operations
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||
(in thousands, except per share data) | ||||||||||||||
Revenues | $ | 1,425,369 | $ | 1,478,857 | $ | 1,305,529 | $ | 1,200,977 | $ | 2,360,466 | ||||
Income (loss) from operations | 18,417 | (369,251) | (207,123) | (836,908) | (1,556,321) | |||||||||
Net loss from continuing operations | (77,753) | (427,403) | (180,315) | (684,834) | (1,430,290) | |||||||||
Loss from discontinued operations, net of tax | (177,968) | (430,712) | (25,606) | (202,065) | (424,428) | |||||||||
Net loss | (255,721) | (858,115) | (205,921) | (886,899) | (1,854,718) | |||||||||
Net loss from continuing operations per share: | ||||||||||||||
Basic and diluted | $ | (5.05) | $ | (27.69) | $ | (11.79) | $ | (45.19) | $ | (95.06) | ||||
Net loss from discontinued operations per share: | ||||||||||||||
Basic and diluted | (11.56) | (27.90) | (1.68) | (13.33) | (28.21) | |||||||||
Net loss per share: | ||||||||||||||
Basic and diluted | (16.61) | (55.59) | (13.47) | (58.52) | (123.27) | |||||||||
Cash dividends declared per share | - | - | - | 0.08 | 0.32 | |||||||||
Cash | $ | 272,624 | $ | 158,050 | $ | 172,000 | $ | 187,591 | $ | 564,017 | ||||
Working capital | 663,882 | 410,128 | 385,622 | 437,017 | 846,549 | |||||||||
Total assets | 1,993,230 | 2,215,962 | 3,110,225 | 3,470,255 | 4,914,244 | |||||||||
Long-term debt, net | 1,286,629 | 1,282,921 | 1,279,771 | 1,284,600 | 1,588,263 | |||||||||
Decommissioning liabilities, less current portion | 132,632 | 126,558 | 103,136 | 101,513 | 98,890 | |||||||||
Stockholders' equity | 49,573 | 290,739 | 1,132,429 | 1,303,920 | 2,210,812 |
For 2019, 2018, 2017, 2016 and 2015 net loss from continuing operations included $17.2 million, $322.7 million, $10.4 million, $436.0 million and $1,391.5 million, respectively, of reduction in value of assets.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our consolidated financial statements and applicable notes to our consolidated financial statements and other information included elsewhere in this Annual Report on Form 10-K, including risk factors“Risk Factors” disclosed in Part I, Item 1A. The following information contains forward-looking statements, which are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize, our actual results may differ from those expressed or implied by the forward-looking statements. See “Forward-Looking Statements” at the beginning of this Annual Report on Form 10-K.
As used herein, “we,” “us”, “our” and similar terms refer to (i) prior to the Emergence Date (as defined below), SESI Holdings, Inc. (formerly known as Superior Energy Services, Inc.) (“Predecessor”) and its subsidiaries and (ii) after the Emergence Date, Superior Energy Services, Inc. (formerly known as Superior Newco, Inc.) and its subsidiaries (“Successor”). Additionally, as used herein, the following terms refer to our operations:
"Predecessor Period" | January 1, 2021 through February 2, 2021 | |
"Successor Period" | February 3, 2021 through December 31, 2021 |
Executive Summary
General
We provide a wide variety of services and products to the energy industry. We serve major, national and independent oil and natural gas exploration and production companies around the world and we offer products and services with respect to the various phases of a well’s economic life cycle. We currently report
2021 was a transformative year at Superior. Following our operating resultsemergence from bankruptcy, we embarked on a diligent effort to reconfigure our operations and organization to maximize shareholder value, enhance margin growth and have a more disciplined approach, both operationally and financially (the “Transformation Project”).
The Transformation Project has been focused around three sequential phases:
The evaluation and implementation of the Business Unit Review is substantially complete, which has resulted in four business segments: Drilling Productslower revenue with increased margins. The Right Size Support and Services; Onshore CompletionGeographic Focus components are ongoing and Workover Services; Production Services; and Technical Solutions. Given our long-term strategy of geographic expansion, we also provide supplemental segment revenue information in three geographic areas: U.S. land; U.S. offshore; and International.should be completed during 2022.
Recent DevelopmentsHistorically, we provided a wide variety of services and products to many markets within the energy industry. During 2021, we realigned our core businesses to focus on products and services that we believe meet the criteria of (1) being critical to our customers’ oil and gas operations, (2) facing low or no competition from the three largest global oilfield service companies, (3) requiring deep technical expertise through the design or use of our product or service, and (4) being unlikely to become a commoditized product or service to our customers. The result of this approach is a portfolio of business lines grounded in our core mission of providing high quality products and services while maintaining the trust and serving the needs of our customers, with an emphasis on free cash flow generation and capital efficiency for us.
In connection with our Transformation Project, our reportable segments were changed to Rentals and Well Services.
Rentals Segment
27
Well Services Segment
In addition to the specific product lines mentioned above, the Company operates a basket of services globally called International Production Services (included in the Well Services Segment). This business has value accretive operations particularly in Argentina and Kuwait. International Production Services is a key part of the “Geographic Focus” portion of our ongoing transformation efforts discussed above as we look to focus on geographies that allow us to maximize return on investments.
2021 Accomplishments and Transformation Initiatives
In 2021, we substantially completed the Business Unit Review segment of the transformation initiative. We believe this positions us to build on a simplified, post-transformation business model, which, through operational efficiencies and improving market conditions, is driving enhanced margins and returns. Additionally, we believe our strategy provides us with the opportunity to grow our most value-added businesses such as premium drill pipe and bottom hole drilling assembly rental businesses. We expect this, in turn, to reduce our dependency on an increasingly competitive oilfield labor, and higher risk company-owned transportation fleets.
We also narrowed our geographic focus to key countries the we believe are more favorable to US based companies. We will continue to align our global footprint with our strategy, staying streamlined, focused, and operating where customers most value our products, services and expertise.
28
Throughout the significant transformation initiatives, we have remained focused on sustainability through the lens of Safety and Our Shared Core Values, with businesses continuing to execute our plan that puts worker safety, environmental stewardship and service quality as top priorities.
The core values of respect without discrimination and a commitment to being good citizens in communities where we live and work are part of our culture. This is most evident in how our employees show up for their colleagues in need. In 2021, the employee-led Catastrophic Relief Fund provided grants to employees who experienced property loss and damage due to the effects of winter storm Uri and Hurricane Ida. This resulted in at least 50 grants for employees totaling more than $120,000. We will continue to build on the trust and care we cultivate as part of our culture moving into the next phases of our transformation.
In response to an active dialog with customers, who are focused on ESG performance and accountability within their own supply chains, our strategic initiatives and divestitures support the goal of having a continually improving sustainability program. In 2021, the divestitures of our water hauling and storage business and land service rigs greatly reduced our truck and trailer fleet, reducing our overall carbon footprint.
Substantial transformation efforts in 2021 were focused on the divestitures and liquidation of our US onshore service operations and assets, including our fluid and well service businesses to consolidators. These businesses are labor intensive and we believe would have required significant capital investment to refurbish existing units and acquire new upgraded models in order to remain competitive.
The onshore segment of HB Rentals’ accommodations business and the Gulf of Mexico coil tubing business were both divested as going concerns. We completed the liquidation of hydraulic fracturing equipment, along with the US onshore coiled tubing equipment of IPS and the non-P&A wireline and slickline assets of Warrior’s Gulf of Mexico shelf operations. In total, the divestitures of non-core assets generated $98.3 million in cash and substantial go-forward G&A savings.
With these divestitures, our employees were an important consideration; most of our employees were retained by the acquirors.
Further strategic realignment within the remaining business units was critical to improving our operational efficiencies and increasing our margins. We believe we are realizing significant efficiencies by consolidating businesses that operated primarily in South Louisiana. For example, our HB Rentals, ISS, Stabil Drill, and Warrior businesses were merged into one division - Rental and Specialty. These businesses continue to operate under their existing brands, but now have common leadership and consolidated support services.
These tireless and continued efforts to execute on our transformation directives position us as a streamlined and healthy business with the ability to withstand industry cycles, focused on the operational excellence our businesses are known for throughout the world.
Strategic Outlook
As we embark on 2022 and look ahead to the future, we believe Superior is positioned as an attractive, value-added participant in the oilfield service sector, demonstrating operational excellence and generating cash flow through industry cycles. The companyemerged from bankruptcy without any debt, significant cash, and optionality to participate in accretive opportunities that may arise through further sector consolidation. In 2022, we expect capital expenditures to be invested primarily in our high-value product lines. While we have been more focused recently on organic growth and operational excellence, our significant and growing cash balance provides us with the opportunity to consider both complementary product lines building on our existing portfolio as well as returning capital to our shareholders in the form of dividends or stock repurchases.
Throughout the remainder of 2022 and into 2023, we will continue our focus on executing the final phases of the transformation strategies set forth in 2021, reducing our geographic footprint and streamlining our operational support function to align with the current size of our operations. Maintaining an opportunistic and disciplined approach to growth, along with consolidating and controlling costs within our portfolio of core product lines, will further our mission of providing high quality products, maintaining the trust of our customers, and creating value for our stakeholders.
Voluntary Reorganization Under Chapter 11
On December 18, 2019,4, 2020, we and certain of our direct and indirect wholly-owned domestic subsidiaries (the “Affiliate Debtors”) entered into an Amended and Restated Restructuring Support Agreement (the “Amended RSA”) that amended and restated in its entirety the MergerRestructuring Support Agreement (the “RSA”), dated September 29, 2020, with certain holders of SESI, L.L.C.’s (“SESI”) outstanding (i) 7.125% senior unsecured notes due 2021 (the “7.125% Notes”) and (ii) 7.750% senior unsecured notes due 2024 (the “7.750% Notes”). The parties to divest the Superior Energy U.S. BusinessAmended RSA agreed to the principal terms of a proposed financial restructuring of the Affiliate Debtors, which was implemented through the Plan (as defined below).
29
On December 7, 2020, the Affiliate Debtors filed the Chapter 11 Cases under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court, and, combine itin connection therewith, the Affiliate Debtors filed with Forbes’ complimentary service linesthe Bankruptcy Court the proposed Joint Prepackaged Plan of Reorganization under the Bankruptcy Code (as amended, modified or supplemented from time to createtime, the “Plan”). After commencement of the Chapter 11 Cases, the Affiliate Debtors continued to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.
In connection with the Chapter 11 Cases, the Affiliate Debtors filed a new, publicly traded consolidation platformmotion for U.S. completion, productionapproval of a debtor-in-possession financing facility, and water solutions.on December 8, 2020, the Bankruptcy Court approved such motion and entered an interim order approving the financing (the “Interim DIP Order”). In accordance with the Interim DIP Order, on December 9, 2020, we, as guarantor and SESI, as borrower, entered into a $120 million Senior Secured Debtor-in-Possession Credit Agreement (the “DIP Credit Facility”). On January 9, 2021, the Bankruptcy Court approved the Affiliate Debtors’ entry into the DIP Credit Facility on a final basis.
On January 19, 2021, the Bankruptcy Court entered an order, Docket No. 289, confirming and approving the Plan.
Emergence from Voluntary Reorganization Under Chapter 11
On February 2, 2021 (the “Emergence Date”), the conditions to effectiveness of the Plan were satisfied or waived and we emerged from Chapter 11.
Bankruptcy Claims
During the Chapter 11 Cases, the Affiliate Debtors filed with the Bankruptcy Court schedules and statements setting forth, among other things, the assets and liabilities of each of the Affiliate Debtors, subject to the assumptions filed in connection therewith. Certain holders of pre-petition claims that were not governmental units were required to file proofs of claim by the bar date of January 7, 2021. Certain holders of pre-petition claims that were governmental units were required to file proofs of claim by the bar date of June 7, 2021. The Affiliate Debtors’ have received proofs of claim, primarily representing general unsecured claims, of approximately $1.7 billion. The Bankruptcy Court disallows claims that have been acknowledged as duplicates. Claims totaling approximately $1.4 billion have been withdrawn or disallowed. As a result of the claims resolution process post-emergence, the Affiliate Debtors agreed to allow certain claims classified per the Plan as Class 6 General Unsecured Claims against the Parent. Per ASC 852-10, liabilities are measured at their allowed claim amount, and the result of allowing these claims increased liabilities subject to compromise prior to emergence.
On the Emergence Date and pursuant to the Plan:
Under the terms2% of the Merger Agreement,principal amount of 7.125% Notes or 7.750% Notes held by all holders who did not opt out of receiving a cash payout; or
30
Prior to the Emergence Date, the Equity Rights Offering was completed in accordance with the Plan, which resulted in the issuance of 735,189 shares of Class A Common Stock. The Class A Common Stock of Newco and 100%issued in the Equity Rights Offering was exempt from registration under the Securities Act pursuant to section 4(a)(2) of the issuedSecurities Act and/or Regulation D promulgated thereunder.
The costs of our efforts to restructure our capital, prior to and outstanding non-voting Class B Stock of Newco, which will collectively represent an approximate 65% economic interestduring the Chapter 11 Cases, along with all other costs incurred in Newco. Our and Forbes’ economic interest in Newco are subject to adjustment within certain parameters based on Forbes’ net debt position calculated at closingconnection with the Chapter 11 Cases, have been material.
On the Emergence Date, pursuant to the terms of the Merger Agreement.Plan, we filed an Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) and a Certificate of Amendment of Amended and Restated Certificate of Incorporation (the “Certificate of Amendment”).
Also, on the Emergence Date, and pursuant to the terms of the Plan, we adopted the Amended and Restated Bylaws (the “Bylaws”). The descriptions of the Certificate of Incorporation and the Bylaws are qualified in their entirety by reference to the full texts of the Certificate of Incorporation, Bylaws, and Certificate of Amendment which are incorporated by reference herein.
Credit Facility
On the Emergence Date, pursuant to the Plan, we entered into a Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders and letter of credit issuers named therein providing for a $120.0 million asset-based secured revolving Credit Facility, all of which is available for the issuance of letters of credit (the “Credit Facility”). The issuance of letters of credit will reduce availability under the Credit Facility dollar-for-dollar. On the Emergence Date, the Credit Facility replaced the DIP Credit Facility and the undrawn letters of credit outstanding under the former DIP Credit Facility were deemed outstanding under the Credit Facility. All accrued and unpaid fees and other amounts outstanding thereunder were paid in cash in full as well. The Credit Facility will mature on December 9, 2024.
The borrowing base under the Credit Facility is determined by reference to SESI’s and its subsidiary guarantors’ (i) eligible accounts receivable, (ii) eligible inventory, (iii) solely during the period from the Emergence Date until the earlier of December 9, 2022 and the date that unrestricted cash of SESI and its wholly-owned subsidiaries is less than $75.0 million, eligible premium rental drill pipe and (iv) so long as there are no loans outstanding at such time, certain cash of SESI and its subsidiary guarantors, less reserves established by the administrative agent in its permitted discretion.
Availability under the Credit Facility will be the lesser of (i) the commitments and (ii) the borrowing base. Subject to certain conditions, upon request and with the consent of the participating lenders, the total commitments under the Credit Facility may be increased to $170.0 million. SESI’s obligations under the Credit Facility are guaranteed by us and all of SESI’s material domestic subsidiaries and secured by substantially all of our, SESI’s and the subsidiary guarantors’ assets, other than real property.
Any borrowings under the Credit Facility will bear interest, at SESI’s option, at either an adjusted LIBOR rate plus an applicable margin ranging from 3.00% to 3.50% per annum, or an alternate base rate plus an applicable margin ranging from 2.00% to 2.50% per annum, in each case on the basis of the consolidated fixed charge coverage ratio. In addition, certain lendersSESI is required to pay (i) a letter of credit fee, (ii) to the issuing lender of each letter of credit, a fronting fee and (iii) commitment fees. Upon the cessation of LIBOR, the Credit Facility provides for the use of alternative benchmark rates for the determination of the borrowing rate, and the cessation of LIBOR will not have a material impact on us.
The Credit Facility requires compliance with various covenants, including, but not limited to, limitations on the incurrence of indebtedness, permitted investments, liens on assets, making distributions, transactions with affiliates, mergers, consolidations, dispositions of assets and other provisions customary in similar types of agreements. The Credit Facility also requires compliance with a fixed charge coverage ratio of 1.0 to 1.0 if (a) an event of default has occurred and is continuing or (b) availability under the Forbes Term Loan will exchange their portionCredit Facility is less than the greater of $20.0 million or 15% of the lesser of the aggregate principal amount outstanding undercommitments and the Forbes Term Loan for approximately $30.0 million in Preferred Shares, which will be entitled to cash dividends at a rate of 5% per annum, payable semi-annually, and, on the third anniversary of the closing of the Combination will be subject to mandatory conversion into shares of Newco’s Class A Stock. After giving effect to such conversion, we would own an approximate 52% economic interest and Forbes’ existing stockholders would own an approximate 48% economic interest in Newco.borrowing base.
The Combination has been unanimously approved by our and Forbes’ Boards of Directors as well as the special committee of the Board of Directors of Forbes. Newco filed a proxy statement/prospectus on February 12, 2020, pursuant to which Forbes will solicit proxies of its stockholders to approve the Combination at a special meeting of stockholders. However, certain stockholders of Forbes who will collectively own a majority of Forbes’ common stock on the record date for the Forbes special meeting have committed to vote the shares they beneficially own in favor of the Combination and have the ability to approve the Combination without the vote of any other stockholder of Forbes.
Related Financing Transactions
As a condition ofOn May 13, 2021, SESI, SESI Holdings, Inc. and the Combination, SESI, our wholly owned subsidiary consummated the Exchange Offer of SESI’s previously outstanding $800.0 million aggregate principal amount of Original Notes for up to $635.0 million aggregate principal amount of New Notes and conducted the Consent Solicitation to amend the liens covenant in the Original Notes Indenture to permit the Proposed Amendment upon the terms and subject to the conditions set forth in SESI’s Offering Memorandum. A supplemental indenture by and among SESI, the guarantors party thereto entered into a first amendment and waiver to the Credit Facility (the “First Amendment and Waiver to the Credit Facility”) to, among other things, (i) extend the deadline thereunder for the delivery of our consolidated unaudited financial statements for the quarter ended March 31, 2021 to June 1, 2021 and (ii) obtain a limited waiver of potential defaults under the Credit Facility related to a delayed public filing of such financial statements after the original deadline for delivery of such financial statements.
On May 28, 2021, SESI, L.L.C., SESI Holdings, Inc. and the Bank of New York Mellon Trust Company, N.A., as trustee, relatedsubsidiary guarantors party thereto entered into a waiver to the Proposed Amendment was executed on February 14, 2020. The Original Notes outstanding afterCredit Facility to (i) extend the Exchange Offer are governed bydeadline under the Original Notes Indenture, as amended byCredit Agreement for the Proposed Amendment, provided thatdelivery of Superior Energy Services, Inc.’s consolidated unaudited financial statements for the Proposed Amendment will only become operative immediately priorquarter ended March 31, 2021 and the calendar months ending April 30, 2021 and May 31, 2021 to the occurrence of the Combination.July 15,
The Exchange Offer expired at 5:00 p.m., New York City time, on February 21, 2020, and $617.9 million aggregate principal amount of outstanding Original Notes were validly tendered for exchange and not withdrawn, representing 77.24% of the aggregate principal31
2021 and (ii) agree that until the unaudited financial statements and a revised borrowing base certificate in connection therewith are delivered, the lenders will not be required to make any advances requested. As discussed below, we have filed the required financial statements and delivered the revised borrowing base certificate in satisfaction of this requirement.
On July 15, 2021, SESI, the Former Parent, and the subsidiary guarantors party thereto entered into a waiver to the Credit Facility with JPMorgan Chase Bank, N.A., as administrative agent and lender, and certain other financial institutions and other parties thereto as lenders to (i) extend the deadline under the Credit Facility for the delivery of our consolidated unaudited financial statements (x) as of and for the quarter ended March 31, 2021 to September 30, 2021 and (y) as of and for the quarter ended June 30, 2021 and the calendar months ending April 30, 2021, May 31, 2021, July 31, 2021 and August 31, 2021 to October 30, 2021, (ii) obtain a limited waiver of potential defaults under the Credit Facility related to a delayed public filing of this quarterly report on Form 10-Q with respect to the fiscal quarter ended June 30, 2021 (including related financial statements) after the original deadline (and confirmation of such waiver as it pertains to the quarterly report on Form 10-Q with respect to the fiscal quarter ended March 31, 2021), and (iii) agree that until the quarterly unaudited financial statements and a revised borrowing base certificate in connection with each such quarter is delivered, the lenders will not be required to make any advances requested. We filed our consolidated unaudited financial statements as of, and for, the quarters ended March 31, 2021 and June 30, 2021 and delivered a revised borrowing base certificate within the required timeframe.
On November 15, 2021, we entered into a Second Amendment and Waiver to our Credit Agreement to (i) extend the deadline under the Credit Agreement for the delivery of our consolidated unaudited financial statements as of, and for, the quarter ended September 30, 2021 and the calendar month ending October 31, 2021 to December 10, 2021, (ii) obtain a limited waiver of potential defaults under the Credit Agreement related to a delayed public filing of the quarterly report on Form 10-Q for the quarter ended September 30, 2021 after the original deadline, and (iii) agree that until the quarterly unaudited financial statements and a revised borrowing base certificate in connection with such quarter are delivered, the lenders will not be required to make any advances requested by Borrower. We filed our consolidated unaudited financial statements as of, and for, the quarter ended September 30, 2021 and delivered a revised borrowing base certificate within the required timeframe. In addition, the Credit Agreement was amended to, among other things, permit the disposition of the HB Onshore Rentals Business (as defined in the Credit Agreement).
On February 10, 2022, we entered into a Third Amendment to Credit Agreement to, among other things, provide us with additional flexibility around making asset sales. Specifically, the Credit Agreement was amended to refresh the amount of Original Notes outstanding upon commencementproperties sold, transferred or otherwise disposed of the Exchange Offer. SESI accepted all validly tendered Original Notes and issued $617.9 million aggregate principal amount of New Notes pursuant to the New Notes Indenture.“Substantial Portion” exception to $0 as of January 31, 2022. The “Substantial Portion” exception allows us to sell, transfer or otherwise dispose of properties so long as the aggregate value of all such properties sold, transferred or otherwise disposed of do not exceed (a) 10% of our gross book value of the assets during the four fiscal year quarter period ending with the fiscal quarter in which such determination is made, or (b) 10% of our consolidated net sales or net income during the four fiscal year quarter period ending with the fiscal quarter in which such determination is made. The Credit Agreement was also amended to add a new asset sale exception that allows us to make additional asset sales up to $25.0 million so long as (a) liquidity is greater than $100.0 million, (ii) unused availability under the Credit Agreement is greater than $25.0 million, and (iii) we receive 100% cash consideration to the extent that the property being sold is otherwise included in the calculation of the borrowing base under the Credit Agreement.
Substantially concurrently with the consummation of the Combination, eligible note holders will receive, in exchange for $617.9 million aggregate principal amount of New Notes, on a pro rata basis: (1) $243.3 million aggregate principal amount of Newco Secured Notes, (2) $243.3 million aggregate principal amount of the Superior Secured Notes, (3) $131.3 million in cash and (4) $6.35 million in cash constituting the total consent payment. The indentures governing the Newco Secured Notes and the Superior Secured Notes will each contain restrictive covenants customary for issuances of high-yield secured notes of this type.
On February 20, 2020,March 8, 2022, we entered into thea Fourth Amendment which amends certain covenants,and Waiver to Credit Agreement to, among other things, permit us to accountfile SES Energy Services India Pvt. Ltd, a private limited company of India and an indirect subsidiary, for bankruptcy under the amended termsInsolvency and Bankruptcy Code of India without triggering a default under the Credit Agreement.
The foregoing description of the Exchange Offer.Credit Facility, including the related amendments thereto, is a summary only and is qualified in its entirety by reference to the Credit Agreement, which is incorporated herein by reference.
Exit and Discontinuation of the Hydraulic Fracturing Service LineStockholders Agreement
On December 10, 2019, our indirect, wholly owned subsidiary, Pumpco, completed its existing hydraulic fracturing field operationsthe Emergence Date, in order to implement the governance related provisions reflected in the Plan, the stockholder’s agreement, dated February 2, 2021 (the “Stockholders Agreement”), was executed, to provide for certain governance matters. Other than the obligations related to Confidential Information (as defined in the Stockholders Agreement), the rights and determinedpreferences of each stockholder under the Stockholders Agreement will terminate when such stockholder ceases to discontinue, wind down and exit its hydraulic fracturing operations. We intend to maintain an adequate numberown any shares of employees to efficiently wind down Pumpco’s business and divest assets over time. Class A common stock.
The financial results of Pumpco’s operations have historically been included in our Onshore Completions and Workover Services segment. Pumpco’s business is reflected as discontinued operations for eachforegoing description of the years ended December 31, 2019, 2018 and 2017 andStockholders Agreement is qualified in its assets are inentirety by the processfull text of being divested. See note 12 to our consolidated financial statements for further discussion of discontinued operations. Discontinuing hydraulic fracturing aligns with our strategic objective to divest assets and service lines that do not compete for investment in the current market environment. Net proceeds from the divestiture of Pumpco’s assets will be used to reduce debt.document, which is incorporated herein by reference.
Reverse Stock SplitAmendments to Stockholders Agreement
At a special meeting of stockholders held on December 18, 2019, our stockholders voted to approve a proposal authorizing our Board of Directors to effect the Reverse Stock Split and to proportionately reduce the number of our authorized shares of common stock. Following the special meeting of stockholders, our Board of Directors approved a 1-for-10 Reverse Stock Split.32
As a result of the Reverse Stock Split, each 10 pre-split shares of common stock outstanding immediately prior to the Reverse Stock Split automatically were converted to one issued and outstanding share of common stock without any action on the part of our stockholders. No fractional shares of common stock were issued as a result of the Reverse Stock Split. Instead, any stockholder who would have been entitled to a fractional share received a cash payment in lieu of such fractional shares. The total number of shares of common stock that we are authorized to issue has also been reduced by the same ratio.
Resumption of Trading on the NYSE
On September 26, 2019, the NYSE suspended trading of our common stock and commenced delisting proceedings due to our “abnormally low” stock price. Following the NYSE’s suspension of trading of our common stock, we appealed the NYSE staff’s determination. On September 27, 2019, our common stock commenced trading on the OTC Markets and, on October 4, 2019, our common stock also commenced trading on the OTCQX Best Market, operated by OTC Markets Group Inc. Subsequently, the NYSE formally withdrew the delisting determination, and, on December 26, 2019, our common stock resumed trading on the NYSE under the ticker symbol “SPN.”
Financial Results
During 2019, we continued to manage challenging market dynamics as a divergence of operating results in the U.S. and international markets remained prevalent. We generated $1,425.4 million of revenue in 2019, which represents a 4% decrease from $1,478.9 million of revenue generated during 2018. The decrease in revenue is largely attributable to our U.S. land market area, in which revenue decreased by 14% during 2019.
In North America, the negative pricing pressures that began during the fourth quarter of 2018 continued to impact the demand for our completion services during 2019. The decrease in revenue generated in the U.S. land market area was primarily due to decreased revenues from our coiled tubing services, fluid management and well servicing rigs. The decrease in revenue is also attributable to the disposition of our land drilling rigs service line during the second quarter of 2019.
Revenue in our international market areas increased 13% during 2019, as compared to 2018, outpacing the 11% increase in international rig count. The increase in revenue generated in our international market areas was primarily driven by increased revenue from rentals of premium drill pipe and bottom hole assemblies, increased revenue from hydraulic workover and snubbing services, electric line and pressure control services. We experienced revenue growth primarily in our Asia-Pacific, Middle East and African regions. Revenue generated from the U.S. offshore market increased 4%, primarily due to increased revenues from rentals of premium drill pipe and bottom hole assemblies and increased revenue from hydraulic workover and snubbing and pressure control services.
We and stockholders holding a majority of our Class A common stock entered into an amendment to the Stockholders Agreement, effective May 14, 2021, extending the deadline to provide our stockholders unaudited consolidated quarterly financial statements from 45 days after the conclusion of a quarter to 60 days after such quarter (or, if applicable, the first business day thereafter).
We and stockholders holding a majority of our Class A common stock entered into the Second Amendment to the Stockholders Agreement, effective May 31, 2021, extending the deadline to provide our stockholders the unaudited consolidated quarterly financial statements for the quarter ended March 31, 2021 to no later than July 15, 2021.
We and stockholders holding a majority of our Class A common stock entered into the Third Amendment to the Stockholders Agreement, effective as of July 14, 2021, extending the deadline to provide our stockholders the unaudited consolidated quarterly financial statements for the quarters ended March 31, 2021 and June 30, 2021 to no later than September 30, 2021 and October 31, 2021, respectively.
Despite
We and stockholders holding a majority of our Class A common stock entered the challenging year,Fourth Amendment to the Stockholders Agreement, effective as of November 15, 2021, extending the deadline to provide its stockholders the unaudited consolidated quarterly financial statements for the quarters ended September 30, 2021 to no later than December 10, 2021 and making certain technical amendments to the financial statement delivery mechanics.
We and stockholders holding a majority of our Class A common stock entered into the Fifth Amendment to the Stockholders Agreement, effective as of February 9, 2022, which provides that if an officer or other authorized agent has been granted authority to approve a matter or take other action pursuant to a board-approved delegation of authority matrix, prior approval of the board will be deemed obtained without any further approval from the board.
COVID-19 Pandemic and Market Conditions
Our operations continue to be disrupted due to the circumstances surrounding the COVID-19 pandemic. The significant business disruption resulting from the COVID-19 pandemic has impacted customers, vendors and suppliers in all geographical areas where we generated $235.4 millionoperate. The closure of non-essential business facilities and restrictions on travel put in adjusted earnings beforeplace by governments around the world have significantly reduced economic activity. In particular, as a result of the COVID-19 pandemic and certain related government mandated restrictions, we are currently experiencing and may continue to experience shortages and delays in the shipments of key drilling tools and certain consumables from our suppliers. See “Risk Factors – The COVID-19 pandemic has had and may continue to have an adverse effect on our supply chain in ways that remain unpredictable.”
Also, the COVID-19 pandemic has impacted and may further impact the broader economies of affected countries, including negatively impacting economic growth, the proper functioning of financial and capital markets, foreign currency exchange rates, and interest taxes, depreciationrates. For example, the continued spread of COVID-19 has led to disruption and amortization (EBITDA),volatility in the global capital markets, which represents a modest decreaseincreases the cost of 2% from $241.3 millioncapital and adversely impacts access to capital. Additionally, recognized health risks associated with the COVID-19 pandemic have altered the policies of adjusted EBITDA generated during 2018. companies operating around the world, resulting in these companies instituting safety programs similar to what both domestic and international governmental agencies have implemented, including stay at home orders, social distancing mandates, and other community oriented health objectives. We are complying with all such ordinances in our operations across the globe. Management believes it has proactively addressed many of the known operational impacts of the COVID-19 pandemic to the extent possible and will strive to continue to do so, but there can be no guarantee the measures will be fully effective.
In addition, vaccine mandates may be announced in jurisdictions in which our businesses operate. Our implementation of any such requirements if and when they are deemed to be enforceable may result in attrition, including attrition of critically skilled labor, and difficulty securing future labor needs, which could have a material adverse effect on our business and financial condition, and may result in costs of compliance that are difficult to quantify at this time and may also impact our financial condition.
Commodity prices continue to be impacted by the global containment of the virus, pace of economic recovery, as well as changes to OPEC+ production levels. There is increased economic optimism as governments worldwide continue to distribute the COVID-19 vaccines. However, although vaccination campaigns are underway, several regions, including areas of the United States, have been and continue to deal with a rebound in the pandemic. There is also concern about whether vaccines will be effective against different strains of the virus that have developed and may develop in the future. West Texas Intermediate (“WTI”) oil spot prices have recovered to pre-pandemic levels. WTI oil prices and rig count averages have both increased during 2019, we generated $5.9 million of free cash flow,2021 as compared to 2020. OPEC+ continues to meet regularly to review the state of global oil supply, demand and inventory levels. With the current shortage of other sources of energy, and the economic growth associated with what appears to be a $56.3 million free cash flow deficit generated during 2018. Referglobal emergence from the pandemic, the demand for and price of oil has improved. In addition, Russia’s military incursion into Ukraine has led to, and could continue to, give a rise to regional instability and result in heightened economic sanctions by the “Non-GAAP Financial Measures” section below for a further discussion and a reconciliationcertain members of adjusted EBITDA to net loss from continuing operations and a reconciliation of free cash flow to cash flows from operating activities.the European Union, the United Kingdom, the United
During 2019, we focused on growing our cash balance, reducing capital expenditures33
States, and divesting non-core assets. Our capital expenditures decreased by 37% during 2019, while our cash balance increased by 72% ascertain other members of December 31, 2019 comparedthe international community that, in turn, could increase uncertainty with respect to December 31, 2018. During 2019, we divested several non-core assets resulting in cash proceeds of $110.0 million. In January of 2020, we received the remaining payment of $24.0 million relating to an asset sale which occurred during the fourth quarter of 2019.global financial markets and production output from OPEC+ and other crude oil producing nations.
During 2020, we expect to limit capital spending within our operational cash flow levels to generate free cash flow and allocate capital to businesses with higher returns on invested capital. Additionally, we intend to carefully manage our liquidity by continuously monitoring cash flow and capital spending and timing of debt retirement. We intend to reduce long-term indebtedness through generation of free cash flow, successful execution of the Combination outlined herein and further divestiture of non-core assets.
Industry Trends
The oil and gas industry is both cyclical and seasonal. The level of spending by oil and gas companies is highly influenced by current and expected demand as well as future prices of oil and natural gas. Changes in spending resultresulted in an increased or decreased demand for our services and products. Rig count iscounts are an indicator of the level of spending by oil and gas companies.
Our financial performance is significantly affected by the rig count in the U.S. land and offshore market areas as well as oil and natural gas prices and worldwide rig count, which are summarized in the table below.
2019 | 2018 | 2019 to 2018 Change | 2017 | 2018 to 2017 Change | ||||||||||
Worldwide Rig Count (1) | ||||||||||||||
U.S.: | ||||||||||||||
Land | 920 | 1,013 | -9% | 856 | 18% | |||||||||
Offshore | 23 | 19 | 21% | 20 | -5% | |||||||||
Total | 943 | 1,032 | -9% | 876 | 18% | |||||||||
International (2) | 1,098 | 988 | 11% | 948 | 4% | |||||||||
Worldwide Total | 2,041 | 2,020 | 1% | 1,824 | 11% | |||||||||
Commodity Prices (average) | ||||||||||||||
Crude Oil (West Texas Intermediate) | $ | 56.98 | $ | 65.23 | -13% | $ | 50.80 | 28% | ||||||
Natural Gas (Henry Hub) | $ | 2.57 | $ | 3.15 | -18% | $ | 2.99 | 5% | ||||||
|
|
|
|
|
|
|
| 2021 to 2020 |
|
|
|
|
| 2020 to 2019 |
| |||||
|
| 2021 |
|
| 2020 |
|
| Change |
|
| 2019 |
|
| Change |
| |||||
Worldwide Rig Count (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
U.S.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Land |
|
| 464 |
|
|
| 417 |
|
|
| 11 | % |
|
| 920 |
|
|
| (55 | )% |
Offshore |
|
| 14 |
|
|
| 16 |
|
|
| (13 | )% |
|
| 23 |
|
|
| (30 | )% |
Total |
|
| 478 |
|
|
| 433 |
|
|
| 10 | % |
|
| 943 |
|
|
| (54 | )% |
International (2) |
|
| 755 |
|
|
| 825 |
|
|
| (8 | )% |
|
| 1,098 |
|
|
| (25 | )% |
Worldwide Total |
|
| 1,233 |
|
|
| 1,258 |
|
|
| (2 | )% |
|
| 2,041 |
|
|
| (38 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commodity Prices (average) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Crude Oil (West Texas Intermediate) |
| $ | 68.14 |
|
| $ | 39.16 |
|
|
| 74 | % |
| $ | 56.98 |
|
|
| (31 | )% |
Natural Gas (Henry Hub) |
| $ | 3.91 |
|
| $ | 2.03 |
|
|
| 93 | % |
| $ | 2.57 |
|
|
| (21 | )% |
(2)
34
Overview of our business segments
We attribute revenue to major geographic regions based on the location where services are performed or the destination of the rental or sale of products. The following table compares our revenues generated from major geographic regions (in thousands).
Revenue | |||||||||||||
2019 | % | 2018 | % | Change | |||||||||
U.S. Land | $ | 698,305 | 49% | $ | 809,196 | 55% | $ | (110,891) | |||||
U.S. Offshore | 340,565 | 24% | 327,874 | 22% | 12,691 | ||||||||
International | 386,499 | 27% | 341,787 | 23% | 44,712 | ||||||||
Total | $ | 1,425,369 | 100% | $ | 1,478,857 | 100% | $ | (53,488) | |||||
The Drilling Products and Services segment is moderately capital intensive with higher operating margins relative to our other segments as a result of relatively low operating expenses. The largest fixed cost is depreciation as there is little labor associated with our drilling products and services businesses. In 2019, 43% of segment revenue was derived from U.S. land market area (down from 46% in 2018), while 30% of segment revenue was from the U.S. offshore market area (up from 26% in 2018) and 26% of segment revenue was from international market areas (down from 28% in 2018). Premium drill pipe accounted for more than 60% of this segment’s revenue in 2019, while bottom hole assemblies accounted for approximately 24% of this segment’s revenue in 2019.
The Onshore Completion and Workover Services segment consists primarily of services used in the completion and workover of oil and gas wells on land. These services include well service rigs and fluid management services. All of this segment’s revenue is derived in the U.S. land market areas. Demand for these services in the U.S. land market can change quickly and is highly dependent on the number of oil and natural gas wells drilled and completed. Given the cyclical nature of these drilling and completion activities in the U.S. land market, coupled with the high labor intensity of these services, operating margins can fluctuate widely depending on supply and demand at a given point in the cycle. Fluid management and well service rigs each accounted for approximately 50% of this segment’s revenue in 2019.
The Production Services segment consists of intervention services primarily used to maintain and extend oil and gas production during the life of a producing well. These services are labor intensive and margins fluctuate based on how much capital our customers allocate towards enhancing existing oil and gas production from mature wells. In 2019, 34% of segment revenue was derived from the U.S. land market area (down from 47% in 2018), while 18% of segment revenue was from the U.S. offshore market area (up from 16% in 2018) and 48% of this segment’s revenue was from international market areas (up from 37% in 2018). Coiled tubing services represented approximately 17% of this segment’s revenue in 2019. Hydraulic workover and snubbing and pressure control services each represented approximately 25% of this segment’s revenue in 2019 and electric wireline accounted for approximately 13% of this segment’s revenue in 2019.
The Technical Solutions segment consists of products and services that address customer-specific needs and include offerings such as completion tools and services, well control services, subsea well intervention and the production and sale of oil and gas. Given the project-specific nature associated with several of the service offerings in this segment and the seasonality associated with Gulf of Mexico activity, revenue and operating margins in this segment can have significant variations from quarter to quarter. In 2019, revenue derived from the U.S. land market area was 15% of segment revenue (up from 12% in 2018), while 53% of segment revenue was from the U.S. offshore market area (down from 59% in 2018) and 32% of segment revenue was from international market areas (up from 29% in 2018). Completion tools and products accounted for approximately 40% of this segment’s revenue in 2019, while well control services represented more than 30% of this segment’s revenue in 2019.
The following table sets forth consolidated results of operations for the periods indicated. The Successor Period and the Predecessor Period are distinct reporting periods as a result of our emergence from bankruptcy. References in these results of operations to changes in comparison to the year ended December 31, 2020 combine the Successor Period and Predecessor Period (the “Combined Year”) results for the year ended December 31, 2021 in order to provide some comparability of such information to the year ended December 31, 2020. While this combined presentation is not presented according to generally accepted accounting principles in the United States of America (“GAAP”) and no comparable GAAP measures are presented, management believes that providing this financial information is the most relevant and useful method for making comparisons to the year ended December 31, 2020 as reviewing the Successor Period results in isolation would not be useful in identifying trends in or reaching conclusions regarding our overall operating performance.
|
| Successor |
|
|
| Predecessor |
|
| Non-GAAP |
|
| Predecessor |
|
|
|
| |||||
|
| For the Period |
|
|
| For the Period |
|
| For the Combined Year ended December 31, 2021 |
|
| For the Year |
|
| Change |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Revenues |
| $ | 648,754 |
|
|
| $ | 45,928 |
|
| $ | 694,682 |
|
| $ | 667,249 |
|
| $ | 27,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cost of revenues |
|
| 422,252 |
|
|
|
| 29,773 |
|
|
| 452,025 |
|
|
| 408,131 |
|
|
| 43,894 |
|
Depreciation, depletion, amortization and accretion |
|
| 219,859 |
|
|
|
| 8,358 |
|
|
| 228,217 |
|
|
| 115,771 |
|
|
| 112,446 |
|
General and administrative expenses |
|
| 117,575 |
|
|
|
| 11,052 |
|
|
| 128,627 |
|
|
| 205,773 |
|
|
| (77,146 | ) |
Restructuring expenses |
|
| 22,952 |
|
|
|
| 1,270 |
|
|
| 24,222 |
|
|
| 47,055 |
|
|
| (22,833 | ) |
Other expenses |
|
| 16,726 |
|
|
|
| - |
|
|
| 16,726 |
|
|
| - |
|
|
| 16,726 |
|
Reduction in value of assets |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| 23,775 |
|
|
| (23,775 | ) |
Loss from operations |
|
| (150,610 | ) |
|
|
| (4,525 | ) |
|
| (155,135 | ) |
|
| (133,256 | ) |
|
| (21,879 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest income (expense), net |
|
| 2,331 |
|
|
|
| 202 |
|
|
| 2,533 |
|
|
| (92,426 | ) |
|
| 94,959 |
|
Reorganization items, net |
|
| - |
|
|
|
| 335,560 |
|
|
| 335,560 |
|
|
| (19,520 | ) |
|
| 355,080 |
|
Other expense |
|
| (7,128 | ) |
|
|
| (2,105 | ) |
|
| (9,233 | ) |
|
| (9,229 | ) |
|
| (4 | ) |
Income (loss) from continuing operations before income taxes |
|
| (155,407 | ) |
|
|
| 329,132 |
|
|
| 173,725 |
|
|
| (254,431 | ) |
|
| 428,156 |
|
Income tax (expense) benefit |
|
| 33,298 |
|
|
|
| (60,003 | ) |
|
| (26,705 | ) |
|
| 26,888 |
|
|
| (53,593 | ) |
Net income (loss) from continuing operations |
|
| (122,109 | ) |
|
|
| 269,129 |
|
|
| 147,020 |
|
|
| (227,543 | ) |
|
| 374,563 |
|
Loss from discontinued operations, net of income tax |
|
| (40,069 | ) |
|
|
| (352 | ) |
|
| (40,421 | ) |
|
| (168,687 | ) |
|
| 128,266 |
|
Net income (loss) |
| $ | (162,178 | ) |
|
| $ | 268,777 |
|
| $ | 106,599 |
|
| $ | (396,230 | ) |
| $ | 502,829 |
|
Net income for the Combined Year was $106.6 million, which compares to a net loss for the prior year of $396.2 million. The Combined Year net income was driven primarily by recognition of a $335.6 million gain in Reorganization items, net primarily due to debt forgiveness as part of our emergence from bankruptcy. Also included in the results for the Combined Year was a pre-tax charge of $24.2 million related to restructuring activities and other expense of $16.7 million, which primarily relate to charges associated with asset disposals.
Revenues and Cost of Revenues
Revenue for the Combined Year was $694.7 million, an increase of $27.4 million, or 4.1%, from the prior year. Cost of revenues for the Combined Year was $452.0 million, an increase of $43.9 million, or 10.8%, from the prior year. Both revenues and cost of revenues in the prior year were severely impacted by the effects of COVID-19, and the increase in our results in the Combined Year were driven by improvements in our Well Services business related to operations in Latin America and improvements in our well control services, partially offset by declines in well completion services. Additionally, during the Combined Year, we incurred shut down costs of $8.7 million at certain locations primarily in our Well Services segment which include costs associated with the severance of personnel and write-down of inventory at these locations.
35
Depreciation, Depletion, Amortization and Accretion
Depreciation, depletion, amortization and accretion was $228.2 million during the Combined Year compared to $115.8 million during the prior year. The increase is related to both an increase in the carrying value of our assets and lower average remaining useful lives as a result of fair value adjustments recorded as a part of fresh start accounting. Depreciation expense in the Combined Year was impacted by the valuation process under fresh start accounting. Certain fully depreciated assets were assigned an estimated fair value of approximately $197.5 million and a remaining useful life of less than 36 months which significantly increased the amount of depreciation expense recorded in the Combined Year. Depreciation expense for these previously fully depreciated assets was $167.5 million for the Combined Year. Depreciation expense for the year ending December 31, 2022 is expected to decline significantly from the Combined Year.
General and Administrative Expenses
General and administrative expense was $128.6 million during the Combined Year compared to $205.8 million during the prior year. The decrease is the result of our continued focus on limiting spending and reducing our cost structure.
Restructuring Expenses
Restructuring expenses during the Combined Year were $24.2 million and primarily relate to severance expenses and costs related to executive officers that resigned during the period as well as professional fees associated with our previously discussed Transformation Project.
Restructuring expenses for the year ended December 31, 2020 were $47.1 million, and include $31.5 million of advisory and professional fees relating to the Chapter 11 Cases and $15.6 million related to the RSA premium paid to certain Consenting Noteholders pursuant to the RSA (the “RSA Premium”).
Other Expenses
Other expenses during the Combined Year were $16.7 million. Other expenses comprised $13.1 million related to our Wells Services segment, which includes approximately $11.7 million from exit activities related to SES Energy Services India Pvt. Ltd, and $3.6 million related to our Rentals segment. Other expenses primarily relate to charges recorded as part of our strategic disposal of low margin assets in line with our Transformation Project strategy and includes gains/losses on asset sales, as well as impairments primarily related to long-lived assets.
Reduction in Value of Assets
The reduction in value of assets recorded in 2020 was $23.8 million and was related to impairment of our long-lived assets, primarily in our Well Services segment.
Reorganization items, net
Reorganization items, net were $335.6 million during the Combined Year. See Note 3 – Fresh Start Accounting to our consolidated financial statements for additional information.
Interest Income (Expense), net
Interest income was $2.5 million for the Combined Year ascompared to interest expense of $92.4 million for the prior year. Interest expense for the prior year was a result of outstanding debt which was subsequently eliminated as a liability subject to compromise and settled in accordance with the Plan. See Note 3 – Fresh Start Accounting to our consolidated financial statements for additional information.
Income Taxes
The effective tax rate for the Successor Period and the Predecessor Period was 21.4%, and 18.2%, respectively.
The tax rate in the Successor Period is different from the blended federal and state statutory rate of 22.5% primarily from non-deductible items and foreign losses for which no tax benefit was recorded.
36
The tax rate in the Predecessor Period is different from the blended federal and state statutory rate of 22.5% primarily from the adoption of fresh start accounting during the period. The cancellation of indebtedness income resulting from the restructuring has significantly reduced our US tax attributes, including but not limited to net operating loss carryforwards. We experienced an ownership change under Sec. 382 of the Internal Revenue Code of 1986, as amended (the “Code”), which is anticipated to limit certain remaining tax attributes.
The effective tax rate for the prior year was 10.6%. The tax rate is different from the blended federal and state statutory rate of 22.5% primarily from foreign losses for which no tax benefit was recorded.
Discontinued Operations
Loss from discontinued operations, net of tax, was $40.4 million for the Combined Year as compared to $168.7 million for the prior year. See Note 14 - Discontinued Operations to our consolidated financial statements for further discussion.
Comparison of the Results of Operations for the Years Ended December 31, 2020 and 2019
For 2019,2020, our revenue was $1,425.4$667.2 million, a decrease of $53.5$304.8 million or 4%31%, as compared to 2018.2019. Net loss from continuing operations was $77.8$227.5 million, or a $5.05 loss per share. Netand net loss was $396.2 million. Included in the results for 2020 were pre-tax charges of $47.1 million related to restructuring expenses, $23.8 million related to a reduction in value of assets, and $19.5 million related to reorganization items. For 2019, our revenue was $972.1 million, resulting in a loss from continuing operations of $90.3 million, and a net loss of $255.7 million, or a $16.61 loss per share.million. Included in the results for 2019 was a pre-tax charge of $17.2$9.3 million related to a reduction in value of assets. For 2018, our revenue was $1,478.9 million, resulting in a loss from continuing operations of $427.4 million, or a $27.69 loss per share. Net loss was $858.1 million, or a $55.59 loss per share. Included in the results for 2018 was a pre-tax charge of $322.7 million related to a reduction in value of assets.
The following table compares our operating results for 20192020 and 20182019 (in thousands). Cost of revenues excludes depreciation, depletion, amortization and accretion for each of our business segments.
|
| Year ended December 31, |
|
|
|
| ||||||
|
| 2020 |
|
| 2019 |
|
| Change |
| |||
|
|
|
|
|
|
|
|
|
| |||
Revenues |
| $ | 667,249 |
|
| $ | 972,052 |
|
| $ | (304,803 | ) |
|
|
|
|
|
|
|
|
|
| |||
Cost of revenues |
|
| 408,131 |
|
|
| 558,265 |
|
|
| (150,134 | ) |
Depreciation, depletion, amortization and accretion |
|
| 115,771 |
|
|
| 146,791 |
|
|
| (31,020 | ) |
General and administrative expenses |
|
| 205,773 |
|
|
| 244,403 |
|
|
| (38,630 | ) |
Restructuring expenses |
|
| 47,055 |
|
|
| - |
|
|
| 47,055 |
|
Other expenses |
|
| - |
|
|
| - |
|
|
| - |
|
Reduction in value of assets |
|
| 23,775 |
|
|
| 9,293 |
|
|
| 14,482 |
|
Loss from operations |
|
| (133,256 | ) |
|
| 13,300 |
|
|
| (146,556 | ) |
|
|
|
|
|
|
|
|
|
| |||
Other income (expense): |
|
|
|
|
|
|
|
|
| |||
Interest income (expense), net |
|
| (92,426 | ) |
|
| (98,339 | ) |
|
| 5,913 |
|
Reorganization items, net |
|
| (19,520 | ) |
|
| - |
|
|
| (19,520 | ) |
Other expense |
|
| (9,229 | ) |
|
| (2,484 | ) |
|
| (6,745 | ) |
Income (loss) from continuing operations before income taxes |
|
| (254,431 | ) |
|
| (87,523 | ) |
|
| (166,908 | ) |
Income tax (expense) benefit |
|
| 26,888 |
|
|
| (2,733 | ) |
|
| 29,621 |
|
Net income (loss) from continuing operations |
|
| (227,543 | ) |
|
| (90,256 | ) |
|
| (137,287 | ) |
Loss from discontinued operations, net of income tax |
|
| (168,687 | ) |
|
| (165,465 | ) |
|
| (3,222 | ) |
Net income (loss) |
| $ | (396,230 | ) |
| $ | (255,721 | ) |
| $ | (140,509 | ) |
Revenues and Cost of Revenues
Revenue | Cost of Services and Rentals | ||||||||||||||||||||||
2019 | 2018 | Change | % | 2019 | % | 2018 | % | Change | |||||||||||||||
Drilling Products and | |||||||||||||||||||||||
Services | $ | 411,573 | $ | 383,719 | $ | 27,854 | 7% | $ | 154,503 | 38% | $ | 148,019 | 39% | $ | 6,484 | ||||||||
Onshore Completion and | |||||||||||||||||||||||
Workover Services | 341,297 | 406,248 | (64,951) | -16% | 274,162 | 80% | 315,291 | 78% | (41,129) | ||||||||||||||
Production Services | 405,830 | 418,525 | (12,695) | -3% | 328,527 | 81% | 342,420 | 82% | (13,893) | ||||||||||||||
Technical Solutions | 266,669 | 270,365 | (3,696) | -1% | 167,890 | 63% | 164,758 | 61% | 3,132 | ||||||||||||||
Total | $ | 1,425,369 | $ | 1,478,857 | $ | (53,488) | -4% | $ | 925,082 | 65% | $ | 970,488 | 66% | $ | (45,406) | ||||||||
Operating Segments:
Drilling Products and Services Segment
Revenue for our Drilling Products and Services segment increased 7% to $411.62020 was $667.2 million, for 2019, as compared to $383.7a decrease of $304.8 million, for 2018.or 31.4%, from the prior year. Cost of revenues asfor 2020 was $408.1 million, a percentagedecrease of revenue decreased to 38% of segment revenue in 2019, as compared to 39% in 2018. Revenue$150.1 million, or 26.9%, from the U.S. offshoreprior year. Both revenues and cost of revenues in 2020 were severely impacted by the effects of COVID-19, as we experienced declines in each geographic market area increased 24% as a result of increased revenuein which we operated, from rentals of premium drill pipe, bottom hole assembliesdeclines in demand and accommodation units, as demand for these rental products increased along with the increase in offshore rig count. Revenue from the U.S. land market area and international market areas remained flat.counts.
Onshore Completion and Workover Services Segment
37
Revenue for our Onshore Completion and Workover Services segment decreased 16% to $341.3 million for 2019, as compared to $406.2 million in 2018. All of this segment’s revenue is derived from the U.S. land market area, in which rig count was down 9%. Cost of revenues as a percentage of revenue increased to 80% of segment revenue in 2019, as compared to 78% in 2018. During 2019, we recorded a $8.2 million in reduction in value of assets as compared to $227.8 million in reduction in value of assets for goodwill and long-lived assets impairments recorded during 2018.
Production Services Segment
Revenue for our Production Services segment decreased 3% to $405.8 million for 2019, as compared to $418.5 million in 2018. Cost of revenues as a percentage of revenues decreased to 81% of segment revenue in 2019, as compared to 82% in 2018. Revenue from the U.S. land market area decreased 29%, primarily due to decreased activity in coiled tubing services. Revenue from international market areas increased 24% primarily due to increased activity from hydraulic workover and snubbing services, electric line and pressure control services. Revenue derived from the U.S. offshore market area increased 11%, primarily due to an increase in hydraulic workover and snubbing activities and electric line services. During 2018, we recorded $92.3 million in reduction in value of assets for goodwill and long-lived assets impairments.
Technical Solutions Segment
Revenue for our Technical Solutions segment decreased 1% to $266.7 million for 2019, as compared to $270.4 million in 2018. Cost of revenues as percentage of revenue increased to 63% in 2019, as compared to 61% in 2018. Revenue derived from the U.S. offshore market area decreased 12%, primarily due to decline in revenue from subsea intervention services. Revenue from the U.S. land market area increased 30% primarily due to an increase in demand for completion tools and products. Revenue from international market areas
increased 7%, primarily due to an increase in subsea intervention services. During 2019, we recorded $7.0 million in reduction in value of assets.
Depreciation, Depletion, Amortizationand Accretion
Depreciation, depletion, amortization and accretion decreased to $196.5$115.8 million during 20192020 from $278.4$146.8 million in 2018. Depreciation and amortization expense decreased for our Drilling Products and Services segment by $28.1 million, or 25%; for our Onshore Completion and Workover Services segment by $34.5 million, or 50%; for our Production Services segment by $15.6 million, or 23%; and for our Technical Solutions segment by $3.0 million, or 12%.2019. The decrease in depreciation, depletion, amortization and accretion iswas primarily due to impairments of long-lived assets during 2020 and 2019 in addition to assets becoming fully depreciated and impairments of long-lived assets recorded during 2019 and 2018.depreciated.
Other Operating Items:
General and Administrative Expenses
General and administrative expenses decreased to $268.2$205.8 million during 20192020 from $276.5$244.4 million in 2018.2019. Total general and administrative expenses decreased 3%primarily due to our continued focus on limiting spending and reducing our cost structure and an increase in gains on sales of assets.structure.
Restructuring Expenses
Restructuring expenses were $47.1 million for the year ended December 31, 2020. These prepetition restructuring expenses include $31.5 million of advisory and professional fees relating to the Chapter 11 Cases and $15.6 million related to the RSA Premium. There were no prepetition charges during 2019.
Reduction in Value of Assets
The reduction in value of assets recorded in 20192020 was $17.2$23.8 million as compared to $322.7$9.3 million in 2018. In 2019, the2019. The reduction in value of assets primarilyduring both 2020 and 2019 was related to impairment of our long-lived assets, primarily in our Technical Solutions and ProductionWell Services segments. In 2018,segment. See the reduction in value of assets was comprised of $251.8 million related to impairment of the remaining goodwill at our Onshore Completion and Workover Services and Production Services segments and $70.8 million impairment related to reduction in value of long-lived assets, primarily in our Onshore Completion and Workover Services and Production Services segments. See note 11Notes to our consolidated financial statements for further discussion of the reduction in value of assets.discussion.
Non-operating Items:
Reorganization Expenses
Reorganization expenses were $19.5 million for the year ended December 31, 2020. These post-petition reorganization expenses are comprised primarily of unamortized debt issuance costs, expenses related to rejected leases, and post-petition professional fees related to the Chapter 11 Cases. There were no reorganization expenses during 2019.
Income Taxes
Our effective income tax rate for 20192020 was a 6% tax benefit10.6% compared to a 9% tax benefitnegative 3.1% for 2018. The change in the effective income tax rate was primarily impacted by a deferred tax assets valuation allowance recorded during 2019.
Discontinued Operations
Loss from discontinued operations, net of tax, was $177.9$168.7 million for 2019 and represented Pumpco’s operating results. Loss from discontinued operations, net of tax, was $430.72020 as compared to $165.5 million for 2018 and included operating results for both Pumpco and our subsea construction business which was wound down during 2018.2019. See note 12the Notes to our consolidated financial statements for further discussion of the discontinued operations.discussion.
For 2018, our revenue was $1,478.9 million, an increase of $173.3 million or 13%, as compared to 2017. The increase is largely attributable to an increase in land-based activity, particularly in the U.S. land market, where the average rig count increased 18% as compared to 2017. Net loss from continuing operations was $427.4 million, or $27.69 loss per share. Net loss was $858.1 million, or $55.59 loss per share. Included in the results for 2018 were pre-tax charges of $322.7 million related to the reduction in value of assets. For 2017, our revenue was $1,305.5 million, resulting in a loss from continuing operations of $180.3 million, or $11.79 loss per share. Net loss was $205.9 million, or $13.47 loss per share. Included in the results for 2017 were pre-tax charges of $10.4 million related to the reduction in value of assets.
The following table compares our operating results for 2018 and 2017 (in thousands). Cost of revenues excludes depreciation, depletion, amortization and accretion for each of our business segments.
Revenue | Cost of Services and Rentals | ||||||||||||||||||||||
2018 | 2017 | Change | % | 2018 | % | 2017 | % | Change | |||||||||||||||
Drilling Products and | |||||||||||||||||||||||
Services | $ | 383,719 | $ | 293,690 | $ | 90,029 | 31% | $ | 148,019 | 39% | $ | 128,381 | 44% | $ | 19,638 | ||||||||
Onshore Completion and | |||||||||||||||||||||||
Workover Services | 406,248 | 366,636 | 39,612 | 11% | 315,291 | 78% | 282,695 | 77% | 32,596 | ||||||||||||||
Production Services | 418,525 | 372,781 | 45,744 | 12% | 342,420 | 82% | 303,256 | 81% | 39,164 | ||||||||||||||
Technical Solutions | 270,365 | 272,422 | (2,057) | -1% | 164,758 | 61% | 175,477 | 64% | (10,719) | ||||||||||||||
Total | $ | 1,478,857 | $ | 1,305,529 | $ | 173,328 | 13% | $ | 970,488 | 66% | $ | 889,809 | 68% | $ | 80,679 | ||||||||
Operating Segments:
Drilling Products and Services Segment
Revenue for our Drilling Products and Services segment increased 31% to $383.7 million for 2018, as compared to $293.7 million for 2017. Cost of revenues as a percentage of revenue decreased to 39% of segment revenue in 2018, as compared to 44% in 2017. Revenue from the U.S. land market area increased 50% as a result of increased revenue from rentals of premium drill pipe, bottom hole assemblies and accommodation units, as demand for these rental products increased along with the increase in U.S. land rig count. Revenue from the U.S. offshore market area and from the international market areas increased 10% and 26%, respectively, primarily due to an increase in revenue from rentals of premium drill pipe.
Onshore Completion and Workover Services Segment
Revenue for our Onshore Completion and Workover Services segment increased 11% to $406.2 million for 2018, as compared to $366.6 million in 2017. All of this segment’s revenue is derived from the U.S. land market area, in which rig count increased 18%. Cost of revenues as a percentage of revenue increased to 78% of segment revenue in 2018, as compared to 77% in 2017. The increase in revenue is primarily attributable to an increase in activity in our fluid management and drilling rigs businesses. During 2018, we recorded $227.8 million in reduction in value of assets for goodwill and long-lived assets impairments.
Production Services Segment
Revenue for our Production Services segment increased 12% to $418.5 million for 2018, as compared to $372.8 million in 2017. Cost of revenues as a percentage of revenue increased to 82% of segment revenue in 2018, as compared to 81% in 2017. Revenue from the U.S. land market area increased 29%, primarily due to increased activity in coiled tubing and hydraulic workover and snubbing services. Revenue from international market areas increased 7% primarily due to increased activity from coiled tubing and hydraulic workover and snubbing services. Revenue derived from the U.S. offshore market area decreased 10%, primarily due to a decrease in hydraulic workover and snubbing activities. During 2018, we recorded $92.3 million in reduction in value of assets for goodwill and long-lived assets impairments.
Technical Solutions Segment
Revenue for our Technical Solutions segment remained flat at $270.4 million for 2018. Cost of revenues as percentage of revenue decreased to 61% in 2018, as compared to 64% in 2017. Revenue derived from the U.S. offshore market area remained unchanged from
2017. Revenue from the U.S. land market area decreased 9% and revenue from international market areas increased 3% primarily due to an increase in demand for completion tools and products. During 2017, we recorded $8.1 million in reduction in value of assets.
Depreciation, Depletion, Amortizationand Accretion
Depreciation, depletion, amortization and accretion decreased to $278.4 million during 2018 from $326.9 million in 2017. Depreciation and amortization expense decreased for our Drilling Products and Services segment by $19.3 million, or 15%; for our Onshore Completion and Workover Services segment by $13.1 million, or 16%; for our Production Services segment by $12.0 million, or 15%, and for our Technical Solutions segment by $3.8 million, or 13%. The decrease in depreciation, depletion, amortization and accretion is primarily due to assets becoming fully depreciated.
Other Operating Items:
General and Administrative Expenses
General and administrative expenses decreased to $276.5 million during 2018 from $285.6 million in 2017. Total general and administrative expenses decreased 3% due to our continued focus on reducing our cost structure and an increase in gains on sales of assets.
Reduction in Value of Assets
The reduction in value of assets recorded in 2018 was $322.7 million as compared to $10.4 million in 2017. In 2018, the reduction in value of assets was comprised of $251.8 million related to impairment of the remaining goodwill at our Onshore Completion and Workover Services and Production Services segments and $70.8 million impairment related to reduction in value of long-lived assets, primarily in our Onshore Completion and Workover Services and Production Services segments. In 2017, the reduction in value of assets was comprised of $8.1 million related to property, plant and equipment in the Technical Solutions segment and $2.3 million related to property, plant and equipment primarily in the Onshore Completion and Workover Services segment. See note 11 to our consolidated financial statements for further discussion of the reduction in value of assets.
Non-operating Items:
Income Taxes
Our effective income tax rate for 2018 was a 9% tax benefit compared to a 42% tax benefit for 2017. The change in the effective income tax rate was primarily impacted by the reduction in value of goodwill recorded during the fourth quarter of 2018, which is non-deductible for income tax purposes. Our 2017 effective income tax rate was impacted by the Tax Cuts and Jobs Act of 2017 (U.S. Tax Reform). See note 7 to our consolidated financial statements.
Discontinued Operations
Loss from discontinued operations, net of tax, was $430.7 million for 2018 as compared to $25.6 million for 2017. Loss from discontinued operations included results for both Pumpco and subsea construction business which was sold during 2018. See note 12 to our consolidated financial statements for further discussion of the discontinued operations.
Liquidity and Capital Resources
Our cash
Cash flows depend, to a large degree, on the level of spending by oil and gas companies for exploration, development and production activities. Certain sources and uses of cash, such as our level of discretionary capital expenditures and divestitures of non-core assets, issuances and repurchases of debt and of our common stock are within our control and are adjusted as necessary based on market conditions.
Also impacting liquidity is the state of the global economy, which impacts oil and natural gas consumption. Our operations continue to be disrupted due to the circumstances surrounding the COVID-19 pandemic. The significant business disruption resulting from the COVID-19 pandemic has impacted customers, vendors and suppliers in all geographical areas where we operate. The closure of non-essential business facilities and restrictions on travel put in place by governments around the world have significantly reduced economic activity. Also, the COVID-19 pandemic has impacted and may further impact the broader economies of affected countries, including negatively impacting economic growth, the proper functioning of financial and capital markets, foreign currency exchange rates and interest rates. There is increased economic optimism in 2022 as governments worldwide continue to distribute the COVID-19 vaccines and supplemental vaccine boosters. However, although vaccination campaigns are underway, several regions, including areas of the United States, have been and continue to deal with a rebound in the pandemic. There is also concern about whether vaccines will be effective against different strains of the virus that have developed and may develop in the future. Even though signs of economic recovery centered on COVID-19 mitigation, global vaccine distribution, and re-opening efforts make demand for oil and gas difficult to project, we believe demand is recovering and prices will be positively impacted.
38
Debt Instruments
On the Emergence Date, pursuant to the Plan, we entered into a Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders and letter of credit issuers named therein providing for a $120.0 million asset-based secured revolving Credit Facility, all of which is available for the issuance of letters of credit. The issuance of letters of credit will reduce availability under the Credit Facility dollar-for-dollar. The Credit Facility will mature on December 9, 2024.
The borrowing base under the Credit Facility is determined by reference to SESI’s and its subsidiary guarantors’ (i) eligible accounts receivable, (ii) eligible inventory, (iii) solely during the period from the Emergence Date until the earlier of December 9, 2022 and the date that unrestricted cash of SESI and its wholly-owned subsidiaries is less than $75.0 million, eligible premium rental drill pipe and (iv) so long as there are no loans outstanding at such time, certain cash of SESI and its subsidiary guarantors, less reserves established by the administrative agent in its permitted discretion.
Availability under the Credit Facility at any time is equal to the lesser of (i) the aggregate commitments under the Credit Facility and (ii) the borrowing base at such time. Subject to certain conditions, upon request and with the consent of the participating lenders, the total commitments under the Credit Facility may be increased to $170.0 million. SESI’s obligations under the Credit Facility are guaranteed by us and all of SESI’s material domestic subsidiaries and secured by substantially all of the personal property of ours, SESI and SESI’s material domestic subsidiaries, in each case, subject to certain customary exceptions.
On the Emergence Date, the Credit Facility replaced the DIP Credit Facility, and the undrawn letters of credit outstanding under the DIP Credit Facility were deemed outstanding under the Credit Facility.
Financial Condition and Sources of Liquidity
Our primary sources of liquidity arehave been cash and cash equivalents, availability under our revolving credit facility, cash generated from operations and proceeds from divestiture of non-core assets.asset sales, and availability under our Credit Facility. As of December 31, 2019,2021, we had cash, and cash equivalents and restricted cash of $272.6
$394.5 million. During the Successor Period and the Predecessor Period net cash provided by operating activities was $58.9 million and $117.5$5.4 million, of availability remaining under our revolving credit facility.respectively. During 2019, we generated net cash from operating activities of $146.4the Successor Period and the Predecessor Period, $97.5 million and $0.8 million were received $110.0 million in cash proceeds from the sale of assets.assets, respectively.
As of December 31, 2021, the borrowing base under the Credit Facility was approximately $114.9 million and we had $37.1 million of letters of credit outstanding that reduced the borrowing availability under the revolving credit facility.
The energy industry faces growing negative sentiment in the market which may affect our ability to access capital on terms favorable to us. While we have confidence in the level of support from our lenders, this negative sentiment in the energy industry has not only impacted our customers in North America, but also affects the availability and pricing for most credit lines extended to participants in the industry. From time to time we may enter into transactions to dispose of businesses or capital assets that no longer fit our long-term strategy.
Uses of Liquidity
OurThe primary uses of liquidity are to provide support for our operating activities, debt service obligationsrestructuring activities and capital expenditures. We spent $140.5$34.2 million of cash on capital expenditures during 2019. Capitalthe Successor Period and $3.0 million of cash on capital expenditures during the Predecessor Period. We incurred significant costs associated with the Chapter 11 Cases, including fees for legal, financial and restructuring advisors to us, and certain of $63.3our creditors. During the Predecessor Period, we incurred $18.3 million primarily relatedof advisory and professional fees relating to the expansionChapter 11 Cases and maintenance of our equipment inventory at our Drilling Products and Services segment; $42.6 million (which includes $36.7 million spent by Pumpco) primarily related to maintenance of equipment inventory at our Onshore Completion and Workover Services segment and the remaining $34.6$12.0 million of capital expenditures primarily relatedfees paid in consideration for the commitment by the Backstop Commitment Parties to provide the maintenance of our equipment for our Production Services and Technical Solutions segments.Delayed-Draw Term Loan Facility upon the emergence from bankruptcy (which we did not ultimately utilize).
During 2020, we expect to limit capital spending within our operational cash flow levels to generate free cash flow and allocate capital to businesses with higher returns on invested capital. Furthermore, in connection with the Combination, we will pay down $131.3 million of our 7.125 % senior unsecured notes due December 2021. In addition, we will pay the $6.35 million consent fee and related transaction costs using available cash on hand.
Debt Instruments
We have an asset-based revolving credit facility which matures in October 2022. The borrowing base under the credit facility is calculated based on a formula referencing the borrower’s and the subsidiary guarantors’ eligible accounts receivable, eligible inventory and eligible premium rental drill pipe less reserves. Availability under the credit facility is the lesser of (i) the commitments, (ii) the borrowing base and (iii) the highest principal amount permitted to be secured under the indenture governing the 7.125% senior unsecured notes due 2021. The credit agreement contains various covenants, including, but not limited to, limitations on the incurrence of indebtedness, permitted investments, liens on assets, making distributions, transactions with affiliates, merger, consolidations, dispositions of assets and other provisions customary in similar types of agreements. At December 31, 2019, we were in compliance with all such covenants.
We have outstanding $500 million of 7.75% senior unsecured notes due September 2024. The indenture governing the 7.75% senior unsecured notes due 2024 requires semi-annual interest payments on March 15 and September 15 of each year through the maturity date of September 15, 2024. The indenture contains customary events of default and requires that we satisfy various covenants. At December 31, 2019, we were in compliance with all such covenants.
At December 31, 2019, we had outstanding $800 million of 7.125% senior unsecured notes due December 2021 (referred to herein as the Original Notes). In connection with the Exchange Offer, $617.9 million aggregate principal amount of outstanding Original Notes were validly tendered for exchange and not withdrawn, representing 77.24% of the aggregate principal amount of Original Notes outstanding upon commencement of the Exchange Offer. SESI accepted all validly tendered Original Notes and issued $617.9 million aggregate principal amount of New Notes pursuant to the New Notes Indenture. As a result of the Exchange Offer, as of February 24, 2020, we have outstanding $182.1 million of Original Notes and $617.9 million of New Notes. The Original Notes Indenture requires semi-annual interest payments on June 15 and December 15of each year through the maturity date of December 15, 2021. The New Notes Indenture and the Original Notes Indenture each contain customary events of default and require that we satisfy various covenants. At December 31, 2019, we were in compliance with all such covenants in the Original Notes Indenture.
Combination
Substantially concurrently with the consummation of the Combination, eligible note holders will receive, in exchange for $617.9 million aggregate principal amount of New Notes, on a pro rata basis: (1) $243.3 million aggregate principal amount of Newco Secured Notes, (2) $243.3 million aggregate principal amount of Superior Secured Notes, (3) $131.3 million in cash and (4) $6.35 million in cash constituting the total consent payment. As a result, upon consummation of the Combination, we will retire $374.6 million of the New Notes, comprised of the $131.3 cash payment and $243.3 million aggregate principal amount of the Newco Secured Notes. Subsequent to the completion of the Combination, we expect to have $0.9 billion of outstanding debt obligations, of which $182.1 million will mature in December 2021. Additionally, in connection with the Combination, we will amend our current credit facility, to among other things, reduce the total commitments thereunder from $300.0 million to $200.0 million.
Contractual Obligations
The following table summarizes our contractual cash obligations and commercial commitments at December 31, 2019 (in thousands):
Contractual Obligations | Total | < 1 Year | 1 - 3 Years | 3 - 5 Years | More Than 5 Years | ||||||||||
Long-term debt, including estimated interest | $ | 1,607,750 | $ | 95,750 | $ | 934,500 | $ | 577,500 | $ | - | |||||
Decommissioning liabilities, undiscounted | 198,234 | 3,649 | 3,210 | 7,419 | 183,956 | ||||||||||
Operating leases | 126,101 | 29,796 | 34,981 | 16,943 | 44,381 | ||||||||||
Other long-term liabilities | 135,679 | 1,827 | 52,340 | 12,493 | 69,019 | ||||||||||
Total | $ | 2,067,764 | $ | 131,022 | $ | 1,025,031 | $ | 614,355 | $ | 297,356 | |||||
The table above reflects only contractual obligations at December 31, 2019 and excludes, among other things, (i) commitments made thereafter, (ii) options to purchase assets, (iii) contingent liabilities, (iv) capital expenditures that we plan, but are not committed, to make and (v) open purchase orders.
Non-GAAP Financial Measures
We define adjusted EBITDA as net income (loss) before net interest expense, income tax expense (benefit) and depreciation, amortization and depletion, adjusted for reduction in value of assets and other charges, which management does not consider representative of our ongoing operations. We define free cash flow (deficit) as cash flows provided by operating activities less capital expenditures. These non-GAAP measures are not calculated in accordance with, or a substitute for, measures provided in accordance with generally accepted accounting principles (GAAP), and may be different from non-GAAP measures used by other companies. These financial measures are provided to enhance investors’ overall understanding of the Company’s current financial performance.
The following table reconciles net loss from continuing operations, which is the directly comparable financial measure determined in accordance with GAAP, to adjusted EBITDA (in thousands):
Years ended December 31, | ||||||
2019 | 2018 | |||||
Reported net loss from continuing operations | $ | (77,753) | $ | (427,403) | ||
Reduction in value of assets | 17,185 | 322,713 | ||||
Restructuring and other related costs | 6,035 | 9,374 | ||||
Gain on legal settlement | (5,776) | - | ||||
Merger-related costs | 3,095 | - | ||||
Interest expense, net | 98,312 | 99,477 | ||||
Other expense | 2,484 | 1,678 | ||||
Income taxes | (4,626) | (43,003) | ||||
Depreciation, depletion, amortization and accretion | 196,459 | 278,439 | ||||
Adjusted EBITDA | $ | 235,415 | $ | 241,275 | ||
The following table reconciles cash provided by operating activities, which is the directly comparable financial measure determined in accordance with GAAP, to free cash flow (deficit) (in thousands):
Years ended December 31, | ||||||
2019 | 2018 | |||||
Net cash provided by operating activities | $ | 146,428 | $ | 165,057 | ||
Less: capital expenditures | (140,465) | (221,370) | ||||
Free cash flow (deficit) | $ | 5,963 | $ | (56,313) | ||
Critical Accounting Policies and Estimates
The accounting policies described below are considered critical in obtaining an understanding of our consolidated financial statements because their application requires significant estimates and judgments by management in preparing our consolidated financial statements. Management’s estimates and judgments are inherently uncertain and may differ significantly from actual results achieved. Management considers an accounting estimate to be critical if the following conditions apply:
39
It is management’s view that the current assumptions and other considerations used to estimate amounts reflected in our consolidated financial statements are appropriate. However, actual results can differ significantly from those estimates under different assumptions and conditions. The sections below contain information about our most critical accounting estimates.
Bankruptcy We applied Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. 852 – Reorganizations (“ASC 852”) in preparing the consolidated financial statements. ASC 852 requires distinguishing transactions associated with the reorganization separate from activities related to the ongoing operations of the business. Accordingly, pre-petition liabilities that could have been impacted by the Chapter 11 Cases were classified as liabilities subject to compromise in our consolidated balance sheet as of December 31, 2020. These liabilities were reported at the amounts we anticipated would be allowed by the Bankruptcy Court. Additionally, certain expenses, realized gains and losses and provisions for losses that were realized or incurred during and directly related to the Chapter 11 Cases, including fresh start valuation adjustments and gains on liabilities subject to compromise were recorded as reorganization items, net in the consolidated statements of operations. See Note 2 – Emergence from Voluntary Reorganization under Chapter 11 for more information on the events of the Chapter 11 Cases as well as the accounting and reporting impacts of the reorganization during the Predecessor Period.
Long-Lived Assets.Assets Valuation We review long-lived assets, such as property, plant and equipment and purchased intangibles subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. We record impairment losses on long-lived assets to be held and used in operations when the fair value of those assets is less than their respective carrying amount. Impairment losses are recorded in the amount by which the carrying amount of such assets exceeds the fair value. Fair value is measured, in part, by the estimated cash flows to be generated by those assets. Our cash flow estimates are based upon, among other things, historical results adjusted to reflect our best estimate of future market rates, utilization levels and operating performance. Our estimates of cash flows may differ from actual cash flows due to, among other things, changes in economic conditions or changes in an asset’s operating performance. Assets are generally grouped by subsidiary or division for the impairment testing, which represent the lowest level of identifiable cash flows. Assets to be disposed ofheld for sale are reported at the lower of the carrying amount or fair value less estimated costs to sell. Our estimate of fair value represents our best estimate based on industry trends and reference to market transactions and is subject to variability. The oil and gas industry is cyclical and our estimates of the period over which future cash flows will be generated, as well as the predictability of these cash flows, can have a significant impact on the carrying value of these assets and, in periods of prolonged down cycles, may result in impairment charges. During 2019, we recorded $17.2 million in expense in connection with the reduction in value of long-lived assets in our Onshore Completion and Workover Services, Production Services and Technical Solutions segments. See note 11 to our consolidated financial statements for further information about these impairments.
Goodwill.
Decommissioning liabilities We perform the goodwill impairment test on an annual basis as of October 1 or more often if events or circumstances indicate there may be impairment. Goodwill impairment testing is performed at the reporting unit level, which is consistentOur decommissioning liabilities are associated with our reporting segments.oil and gas property and include liabilities related to the plugging of wells, removal of the related platform and equipment and site restoration. We assess whether anyreview the adequacy of our decommissioning liabilities whenever indicators suggest that the estimated cash flows and/or relating timing needed to satisfy the liability have changed materially. Estimates of impairment exist, which requires a significant amountour decommissioning liabilities are calculated using the income approach. Estimates of judgment. Such indicators may include a sustained decrease in our stock pricefuture retirement costs are adjusted for an estimated inflation rate over the expected time period prior to retirement and market capitalization; a decline in our expected future cash flows; overall weakness in our industry; and slower growth rates.outflows are discounted by a credit adjusted risk-free rate.
Goodwill impairment exists when the estimated fair value of the reporting unit is below the carrying value. In estimating the fair value of the reporting units, we use a combination of an income approach and a market-based approach.
Income approach – We discount the expected cash flows of each reporting unit. The discount rate used represents the estimated weighted average cost of capital, which reflects the overall level of inherent risk involved in our operations and cash flows and the rate of return an outside investor would expect to earn.
Market-based approach – We use the guideline public company method, which focuses on comparing our risk profile and growth prospects to select reasonably similar publicly traded companies.
We weigh the income approach 80% and the market-based approach 20% due to differences between our reporting units and the peer companies’ size, profitability and diversity of operations. In order to validate the reasonableness of the estimated fair values obtained for the reporting units, a reconciliation of fair value to market capitalization is performed for each unit on a standalone basis. A control premium, derived from market transaction data, is used in this reconciliation to ensure that fair values are reasonably stated in conjunction with the Company’s capitalization. A significant amount of judgment is involved in performing these evaluations given that the results are based on estimated future events.
Income Taxes.Taxes We use the asset and liability method of accounting for income taxes. This method takes into account the differences between financial statement treatment and tax treatment of certain transactions. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Our deferred tax calculation requires us to make certain estimates about our future operations. Changes in state, federal and foreign tax laws, as well as changes in our financial condition or the carrying value of existing assets and liabilities, could affect these estimates. The effect of a change in tax rates is recognized as income or expense in the period that the rate is enacted.
Revenue Recognition. Revenues are recognized when performance obligations are satisfied in accordance with contractual terms, in an amount that reflects the consideration the Company expects to be entitled to in exchange for services rendered, rentals provided or products sold. A performance obligation arises under contracts with customers and is the unit of account under Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers. The Company accounts for services rendered and rentals provided separately if they are distinct and the service or rental is separately identifiable from other items provided to a customer and if a customer can benefit from the services rendered or rentals provided on its own or with other resources that are readily available to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. A contract’s standalone selling prices are determined based on the prices that the Company charges for its services rendered, rentals provided and products sold. The majority of the Company’s performance obligations are satisfied over time, which is generally represented by a period of 30 days or less. The Company’s payment terms vary by the type of products or services offered. The term between invoicing and when the payment is due is typically 30 days.
Off-Balance Sheet Arrangements and Hedging Activities
At December 31, 2019, we had no off-balance sheet arrangements and no hedging contracts.
Recently Adopted and Issued Accounting Guidance
See Part II, Item 8, “Financial Statements and Supplementary Data – Note 1 – Summary of Significant Accounting Policies – New Accounting Pronouncements.”
Item 7A.7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks associated with foreign currency fluctuations and changes in interest rates. A discussion of our market risk exposure in financial instruments follows.
Foreign Currency Exchange Rate Risk
Because we operate in a numberPrior to the Emergence Date, the functional currency of countries throughout the world, we conduct a portionmajority of our business in currencies other thaninternational subsidiaries was US dollars and the U.S. dollar. The functional currency for certain of our international operations, other than certain operations insubsidiaries was the United Kingdom and Europe, is the U.S. dollar, but a portion of the revenues from our international operations is paid in foreign currencies. The effects of foreign currency fluctuations are partly mitigated because local expenses of such international operations are also generally denominated in the same currency. We continually monitor the currency exchange risks associated with all contracts not denominated in the U.S. dollar.
Assets and liabilitiesCommencing on the Emergence Date, as part of adopting a new accounting policy at fresh start accounting, the functional currency of certain international subsidiaries changed from the local currency to US dollars. This change brings alignment so that our functional currency is US dollars. Management considered the economic factors outlined in FASB ASC Topic No. 830 - Foreign Currency Matters in the United Kingdom and Europe are translated at enddetermination of period exchange rates, while income and expenses are translated at average rates for the period. Translation gains and losses are reportedfunctional currency. Management concluded that the predominance of factors support the use of the US Dollar as the foreignfunctional currency which resulted in a change in functional currency to US dollars for all international subsidiaries.
The change in functional currency is applied on a prospective basis beginning on the Emergence Date and translation adjustments will continue to remain as a component of prior periods accumulated other comprehensive loss in stockholders’ equity.loss.
We do not hold derivatives for trading purposes or use derivatives with complex features. When we believe prudent, we enter into forward foreign exchange contracts to hedge the impact of foreign currency fluctuations. We do not enter into forward foreign exchange contracts for trading purposes. At December 31, 2019,2021 and 2020, we had no outstanding foreign currency forward contracts.
Interest Rate Risk
At December 31, 2019,2021 and 2020, we had no variable rate debt outstanding.
Commodity Price Risk
Our revenues, profitability and future rate of growth significantly depend upon the market prices of oil and natural gas. Lower prices may also reduce the amount of oil and gas that can economically be produced. For additional information on the impact of changes in commodities prices on our business and prospects, see Item 1A to this Annual Report on Form 10-K.
Item 8. Financial Statements and Supplementary Data
Consolidated Financial Statements and Notes | Page |
Reports of Independent Registered Public Accounting Firm (PCAOB ID 238) | 43 |
Report of Independent Registered Public Accounting Firm (PCAOB ID 185) | 45 |
48 | |
49 | |
50 | |
Consolidated Statements of Changes in Stockholders' Equity (Deficit) | 51 |
52 | |
53 |
42
Report of Independent Registered Public Accounting Firm
TheTo the Board of Directors and Stockholders of Superior Energy Services, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Superior Energy Services, Inc. and its subsidiaries (Successor) (the “Company”) as of December 31, 2021, and the related consolidated statements of operations, of comprehensive income (loss), of changes in stockholders’ equity (deficit) and of cash flows for the period from February 3, 2021 through December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the period from February 3, 2021 through December 31, 2021 in conformity with accounting principles generally accepted in the United States of America.
Basis of Accounting
As discussed in Note 1 to the consolidated financial statements, Superior Energy Services, Inc. and certain of its direct and indirect wholly-owned domestic subsidiaries (collectively the “Affiliate Debtors”) filed petitions on December 7, 2020 with the United States Bankruptcy Court for the Southern District of Texas (Bankruptcy Court) for reorganization under the provisions of Chapter 11 of the Bankruptcy Code. The Bankruptcy Court confirmed the Affiliate Debtor’s Joint Prepackaged Plan of Reorganization on January 19, 2021 and the Affiliate Debtor’s emerged from bankruptcy on February 2, 2021. In connection with its emergence from bankruptcy, the Company adopted fresh start accounting as of February 2, 2021.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Decommissioning Liabilities Assessment
As described in Notes 1 and 3 to the consolidated financial statements, the Company has decommissioning liabilities associated with oil and gas property related to the plugging of wells, removal of the related platform and equipment, and site restoration. Management reviews the adequacy of the decommissioning liabilities whenever indicators suggest that the estimated cash flows and/or related timing
43
needed to satisfy the liability have changed materially. The decommissioning liabilities are valued using the income approach. As disclosed by management, estimates of future retirement costs are adjusted for an estimated inflation rate over the expected time period prior to retirement and future cash outflows are discounted by a credit adjusted risk-free rate. As of December 31, 2021, the decommissioning liabilities were approximately $190 million.
The principal considerations for our determination that performing procedures relating to the decommissioning liabilities assessment is a critical audit matter are the significant judgment by management when estimating its decommissioning liabilities, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumption related to future retirement costs. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, testing management’s process for estimating the decommissioning liabilities by evaluating the appropriateness of the cash flow model, testing the completeness and accuracy of data used by management, and evaluating the reasonableness of management’s significant assumption related to future retirement costs. Professionals with specialized skill and knowledge were used to assist in evaluating the assumption related to future retirement costs.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
March 21, 2022
We have served as the Company’s auditor since 2021.
44
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Superior Energy Services, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of operations, of comprehensive income (loss), of changes in stockholders' equity (deficit) and of cash flows of Superior Energy Services, Inc. and its subsidiaries (Predecessor) (the “Company”) for the period from January 1, 2021 through February 2, 2021,including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the period from January 1, 2021 through February 2, 2021 in conformity with accounting principles generally accepted in the United States of America.
Basis of Accounting
As discussed in Note 1 to the consolidated financial statements, Superior Energy Services, Inc. and certain of its direct and indirect wholly-owned domestic subsidiaries (collectively the “Affiliate Debtors”) filed petitions on December 7, 2020 with the United States Bankruptcy Court for the Southern District of Texas (Bankruptcy Court) for reorganization under the provisions of Chapter 11 of the Bankruptcy Code. The Bankruptcy Court confirmed the Affiliate Debtor’s Joint Prepackaged Plan of Reorganization on January 19, 2021 and the Affiliate Debtors emerged from bankruptcy on February 2, 2021. In connection with its emergence from bankruptcy, the Company adopted fresh start accounting as of February 2, 2021. This matter is also described in the “Critical Audit Matters” section of our report.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Liabilities Subject to Compromise
As described above and in Notes 1, 2 and 3 to the consolidated financial statements, the Affiliate Debtors filed petitions for reorganization under the provisions of Chapter 11 of the Bankruptcy Code (the “Chapter 11 Cases”) on December 7, 2020. As disclosed by management, pre-petition liabilities that could have been impacted by the Chapter 11 Cases were classified as liabilities
45
subject to compromise. During the Chapter 11 Cases, the Affiliate Debtors filed with the Bankruptcy Court schedules and statements setting forth, among other things, the assets and liabilities of each of the Affiliate Debtors, subject to the assumptions filed in connection therewith. The Affiliate Debtors received proofs of claim, primarily representing general unsecured claims. Differences in amounts recorded and claims filed by creditors are investigated and resolved, including through filing objections with the Bankruptcy Court, where appropriate. The Company may ask the Bankruptcy Court to disallow claims that it believes are duplicative, have been later amended or superseded, are without merit, are overstated or should be disallowed for other reasons. In light of the substantial number of claims filed, the claims resolution process took considerable time to complete and continued even after the Affiliate Debtors emerged from bankruptcy. Prior to emergence from bankruptcy, liabilities are measured at their allowed claim amount. Liabilities subject to compromise as of February 2, 2021 was $1.6 billion prior to applying the effects of fresh start accounting. Reorganization items, net of $336 million recorded in the period ended February 2, 2021 included the gain on settlement of liabilities subject to compromise of $667 million, in addition to certain expenses, realized gains and losses, and provisions for losses that were realized or incurred during and directly related to the Chapter 11 Cases, including fresh start valuation adjustments.
The principal considerations for our determination that performing procedures relating to liabilities subject to compromise is a critical audit matter are the significant complexity in management’s claims resolution process to determine liabilities subject to compromise were complete and measured at the allowed claim amount, which in turn led to a high degree of auditor effort in performing procedures and evaluating audit evidence related to the completeness of the bankruptcy claims and measurement of the liabilities subject to compromise. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, testing the completeness and measurement of the liabilities subject to compromise, and the involvement of professionals with specialized skill and knowledge to assist in (i) identifying the source claims from publicly available information, (ii) assessing completeness of management’s listing of claims by comparing the claims independently identified to management’s listing, and (iii) evaluating management’s claims resolution process to determine liabilities subject to compromise were complete and measured at the allowed claim amount.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
March 21, 2022
We have served as the Company’s auditor since 2021.
46
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Superior Energy Services, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheetssheet of Superior Energy Services, Inc. and subsidiaries (the Company) as of December 31, 2019 and 2018,2020 (Predecessor), the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity (deficit), and cash flows for each of the years in the three-yeartwo year period ended December 31, 2019,2020 (Predecessor), and the related notes and financial statement schedule II (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018,2020 (Predecessor), and the results of its operations and its cash flows for each of the years in the three-yeartwo year period ended December 31, 2019,2020 (Predecessor), in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 3 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of ASU 2016-02, Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have audited the accompanying consolidated balance sheets of Superior Energy Services, Inc. and subsidiaries (“the Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, the related notes and financial statement schedules as listed in the accompanying index (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
We have served as the Company’s auditor since 1996.from 1996 to 2021.
Houston, TexasTX
February 28, 2020March 26, 2021, except as to Note 14, as to which the date is March 21, 2022
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
e(in thousands, except share data)
|
| Successor |
|
|
| Predecessor |
| ||
|
| December 31, 2021 |
|
|
| December 31, 2020 |
| ||
ASSETS |
|
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 314,974 |
|
|
| $ | 188,006 |
|
Accounts receivable, net |
|
| 182,432 |
|
|
|
| 158,516 |
|
Income taxes receivable |
|
| 5,099 |
|
|
|
| 8,891 |
|
Prepaid expenses |
|
| 15,861 |
|
|
|
| 31,793 |
|
Inventory |
|
| 60,603 |
|
|
|
| 77,027 |
|
Other current assets |
|
| 6,701 |
|
|
|
| 9,171 |
|
Investment in equity securities |
|
| 25,735 |
|
|
|
| - |
|
Assets held for sale |
|
| 37,528 |
|
|
|
| 242,104 |
|
Total current assets |
|
| 648,933 |
|
|
|
| 715,508 |
|
Property, plant and equipment, net |
|
| 356,274 |
|
|
|
| 408,107 |
|
Operating lease right-of-use assets |
|
| 25,154 |
|
|
|
| 33,317 |
|
Goodwill |
|
| - |
|
|
|
| 138,677 |
|
Notes receivable |
|
| 60,588 |
|
|
|
| 72,129 |
|
Restricted cash |
|
| 79,561 |
|
|
|
| 80,178 |
|
Intangible and other long-term assets, net |
|
| 28,998 |
|
|
|
| 53,163 |
|
Total assets |
| $ | 1,199,508 |
|
|
| $ | 1,501,079 |
|
|
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
|
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
|
| ||
Accounts payable |
| $ | 43,080 |
|
|
| $ | 50,330 |
|
Accrued expenses |
|
| 116,882 |
|
|
|
| 114,777 |
|
Liabilities held for sale |
|
| 5,607 |
|
|
|
| 46,376 |
|
Total current liabilities |
|
| 165,569 |
|
|
|
| 211,483 |
|
Decommissioning liabilities |
|
| 190,380 |
|
|
|
| 134,436 |
|
Operating lease liabilities |
|
| 19,193 |
|
|
|
| 29,464 |
|
Deferred income taxes |
|
| 12,441 |
|
|
|
| 5,288 |
|
Other long-term liabilities |
|
| 70,192 |
|
|
|
| 123,261 |
|
Total non-current liabilities |
|
| 292,206 |
|
|
|
| 292,449 |
|
Liabilities Subject to Compromise |
|
| - |
|
|
|
| 1,335,794 |
|
Total liabilities |
|
| 457,775 |
|
|
|
| 1,839,726 |
|
|
|
|
|
|
|
|
| ||
Stockholders’ equity (deficit): |
|
|
|
|
|
|
| ||
Predecessor common stock $0.001 par value; 25,000,000 shares authorized; |
|
| - |
|
|
|
| 16 |
|
Successor Class A common stock $0.01 par value; 50,000,000 shares authorized; |
|
| 200 |
|
|
|
| - |
|
Successor Class B common stock $0.01 par value; 2,000,000 shares authorized; |
|
| 1 |
|
|
|
| - |
|
Class A Additional paid-in capital |
|
| 902,486 |
|
|
|
| 2,756,889 |
|
Class B Additional paid-in capital |
|
| 1,224 |
|
|
|
| 0 |
|
Predecessor Treasury stock, at cost, 972,412 shares at December 31, 2020 |
|
| - |
|
|
|
| (4,290 | ) |
Accumulated other comprehensive loss, net |
|
| - |
|
|
|
| (67,947 | ) |
Accumulated deficit |
|
| (162,178 | ) |
|
|
| (3,023,315 | ) |
Total stockholders’ equity (deficit) |
|
| 741,733 |
|
|
|
| (338,647 | ) |
Total liabilities and stockholders’ equity (deficit) |
| $ | 1,199,508 |
|
|
| $ | 1,501,079 |
|
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | |||||
Consolidated Balance Sheets | |||||
(in thousands, except share data) | |||||
December 31, | |||||
2019 | 2018 | ||||
ASSETS | |||||
Current assets: | |||||
Cash and cash equivalents | $ | 272,624 | $ | 158,050 | |
Accounts receivable, net of allowance for doubtful accounts of $12,156 and | |||||
$12,080 at December 31, 2019 and 2018, respectively | 332,047 | 447,353 | |||
Income taxes receivable | 740 | - | |||
Prepaid expenses | 49,132 | 45,802 | |||
Inventory and other current assets | 117,629 | 121,700 | |||
Assets held for sale | 216,197 | - | |||
Total current assets | 988,369 | 772,905 | |||
Property, plant and equipment, net of accumulated depreciation and depletion | 664,949 | 1,109,126 | |||
Operating lease right-of-use assets | 80,906 | - | |||
Goodwill | 137,695 | 136,788 | |||
Notes receivable | 68,092 | 63,993 | |||
Restricted cash | 2,764 | 5,698 | |||
Intangible and other long-term assets, net of accumulated amortization | 50,455 | 127,452 | |||
Total assets | $ | 1,993,230 | $ | 2,215,962 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||
Current liabilities: | |||||
Accounts payable | $ | 92,966 | $ | 139,325 | |
Accrued expenses | 182,934 | 219,180 | |||
Income taxes payable | - | 734 | |||
Current portion of decommissioning liabilities | 3,649 | 3,538 | |||
Liabilities held for sale | 44,938 | - | |||
Total current liabilities | 324,487 | 362,777 | |||
Long-term debt, net | 1,286,629 | 1,282,921 | |||
Decommissioning liabilities | 132,632 | 126,558 | |||
Operating lease liabilities | 62,354 | - | |||
Deferred income taxes | 3,247 | - | |||
Other long-term liabilities | 134,308 | 152,967 | |||
Stockholders’ equity: | |||||
Preferred stock of $0.01 par value. Authorized - 5,000,000 shares; NaN issued | - | - | |||
Common stock of $0.001 par value | |||||
Authorized - 25,000,000, Issued - 15,689,463, Outstanding - 14,717,051 at December 31, 2019 | 16 | 155 | |||
Authorized - 25,000,000, Issued and Outstanding - 15,488,542 as of December 31, 2018 | |||||
Additional paid in capital | 2,752,859 | 2,735,125 | |||
Treasury stock at cost, 972,412 and 0 shares at December 31, 2019 and 2018, respectively | (4,290) | - | |||
Accumulated other comprehensive loss, net | (71,927) | (73,177) | |||
Retained deficit | (2,627,085) | (2,371,364) | |||
Total stockholders’ equity | 49,573 | 290,739 | |||
Total liabilities and stockholders’ equity | $ | 1,993,230 | $ | 2,215,962 | |
See accompanying notes to consolidated financial statements. | |||||
See accompanying notes to consolidated financial statements.
48
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | ||||||||
Consolidated Statements of Operations | ||||||||
(in thousands, except per share data) | ||||||||
Years Ended December 31, | ||||||||
2019 | 2018 | 2017 | ||||||
Revenues: | ||||||||
Services | $ | 885,252 | $ | 933,029 | $ | 868,211 | ||
Rentals | 376,247 | 380,296 | 279,936 | |||||
Product sales | 163,870 | 165,532 | 157,382 | |||||
Total revenues | 1,425,369 | 1,478,857 | 1,305,529 | |||||
Costs and expenses: | ||||||||
Cost of services | 698,150 | 699,322 | 675,896 | |||||
Cost of rentals | 128,695 | 136,135 | 114,128 | |||||
Cost of sales | 98,237 | 135,031 | 99,785 | |||||
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) | 925,082 | 970,488 | 889,809 | |||||
Depreciation, depletion, amortization and accretion - services | 121,805 | 175,417 | 218,994 | |||||
Depreciation, depletion, amortization and accretion - rentals | 59,189 | 71,661 | 65,929 | |||||
Depreciation, depletion, amortization and accretion - sales | 15,465 | 31,361 | 41,933 | |||||
General and administrative expenses | 268,226 | 276,468 | 285,597 | |||||
Reduction in value of assets | 17,185 | 322,713 | 10,390 | |||||
Income (loss) from operations | 18,417 | (369,251) | (207,123) | |||||
Other expense: | ||||||||
Interest expense, net | (98,312) | (99,477) | (101,455) | |||||
Other expense | (2,484) | (1,678) | (3,299) | |||||
Loss from continuing operations before income taxes | (82,379) | (470,406) | (311,877) | |||||
Income taxes | (4,626) | (43,003) | (131,562) | |||||
Net loss from continuing operations | (77,753) | (427,403) | (180,315) | |||||
Loss from discontinued operations, net of income tax | (177,968) | (430,712) | (25,606) | |||||
Net loss | $ | (255,721) | $ | (858,115) | $ | (205,921) | ||
Basic and diluted loss per share: | ||||||||
Net loss from continuing operations | $ | (5.05) | $ | (27.69) | $ | (11.79) | ||
Loss from discontinued operations | (11.56) | (27.90) | (1.68) | |||||
Net loss | $ | (16.61) | $ | (55.59) | $ | (13.47) | ||
Weighted average shares outstanding | 15,393 | 15,437 | 15,293 | |||||
See accompanying notes to consolidated financial statements. | ||||||||
Consolidated Statements of Operations
(in thousands, except share data)
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | ||||||||
Consolidated Statements of Comprehensive Loss | ||||||||
Years Ended December 31, | ||||||||
2019 | 2018 | 2017 | ||||||
Net loss | (255,721) | (858,115) | (205,921) | |||||
Change in cumulative translation adjustment, net of tax | 1,250 | (5,750) | 12,821 | |||||
Comprehensive loss | $ | (254,471) | $ | (863,865) | $ | (193,100) | ||
See accompanying notes to consolidated financial statements. |
|
| Successor |
|
|
| Predecessor |
| ||||||||||
|
|
|
|
|
|
|
|
| Year ended December 31, |
| |||||||
|
| For the Period |
|
|
| For the Period |
|
| 2020 |
|
| 2019 |
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Services |
| $ | 305,699 |
|
|
| $ | 19,234 |
|
| $ | 299,383 |
|
| $ | 482,347 |
|
Rentals |
|
| 208,951 |
|
|
|
| 14,434 |
|
|
| 225,363 |
|
|
| 326,126 |
|
Product sales |
|
| 134,104 |
|
|
|
| 12,260 |
|
|
| 142,503 |
|
|
| 163,579 |
|
Total revenues |
|
| 648,754 |
|
|
|
| 45,928 |
|
|
| 667,249 |
|
|
| 972,052 |
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Services |
|
| 236,784 |
|
|
|
| 15,080 |
|
|
| 230,341 |
|
|
| 345,653 |
|
Rentals |
|
| 86,354 |
|
|
|
| 5,876 |
|
|
| 88,535 |
|
|
| 114,552 |
|
Product sales |
|
| 99,114 |
|
|
|
| 8,817 |
|
|
| 89,255 |
|
|
| 98,060 |
|
Total cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 422,252 |
|
|
|
| 29,773 |
|
|
| 408,131 |
|
|
| 558,265 |
|
Depreciation, depletion, amortization and accretion: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Services |
|
| 105,426 |
|
|
|
| 3,500 |
|
|
| 51,754 |
|
|
| 77,237 |
|
Rentals |
|
| 69,443 |
|
|
|
| 2,627 |
|
|
| 38,561 |
|
|
| 54,089 |
|
Product sales |
|
| 44,990 |
|
|
|
| 2,231 |
|
|
| 25,456 |
|
|
| 15,465 |
|
Total depreciation, depletion, amortization and accretion |
|
| 219,859 |
|
|
|
| 8,358 |
|
|
| 115,771 |
|
|
| 146,791 |
|
General and administrative expenses |
|
| 117,575 |
|
|
|
| 11,052 |
|
|
| 205,773 |
|
|
| 244,403 |
|
Restructuring expenses |
|
| 22,952 |
|
|
|
| 1,270 |
|
|
| 47,055 |
|
|
| - |
|
Other expenses |
|
| 16,726 |
|
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Reduction in value of assets |
|
| 0 |
|
|
|
| 0 |
|
|
| 23,775 |
|
|
| 9,293 |
|
(Loss) income from operations |
|
| (150,610 | ) |
|
|
| (4,525 | ) |
|
| (133,256 | ) |
|
| 13,300 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest income (expense), net |
|
| 2,331 |
|
|
|
| 202 |
|
|
| (92,426 | ) |
|
| (98,339 | ) |
Reorganization items, net |
|
| 0 |
|
|
|
| 335,560 |
|
|
| (19,520 | ) |
|
| 0 |
|
Other expense |
|
| (7,128 | ) |
|
|
| (2,105 | ) |
|
| (9,229 | ) |
|
| (2,484 | ) |
Income (loss) from continuing operations before income taxes |
|
| (155,407 | ) |
|
|
| 329,132 |
|
|
| (254,431 | ) |
|
| (87,523 | ) |
Income tax (expense) benefit |
|
| 33,298 |
|
|
|
| (60,003 | ) |
|
| 26,888 |
|
|
| (2,733 | ) |
Net income (loss) from continuing operations |
|
| (122,109 | ) |
|
|
| 269,129 |
|
|
| (227,543 | ) |
|
| (90,256 | ) |
Loss from discontinued operations, net of income tax |
|
| (40,069 | ) |
|
|
| (352 | ) |
|
| (168,687 | ) |
|
| (165,465 | ) |
Net income (loss) |
| $ | (162,178 | ) |
|
| $ | 268,777 |
|
| $ | (396,230 | ) |
| $ | (255,721 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income (loss) per share -basic |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) from continuing operations |
| $ | (6.11 | ) |
|
| $ | 18.13 |
|
| $ | (15.35 | ) |
| $ | (5.86 | ) |
Loss from discontinued operations, net of income tax |
|
| (2.00 | ) |
|
|
| (0.02 | ) |
|
| (11.38 | ) |
|
| (10.75 | ) |
Net income (loss) |
| $ | (8.11 | ) |
|
| $ | 18.11 |
|
| $ | (26.73 | ) |
| $ | (16.61 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income (loss) per share - diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) from continuing operations |
| $ | (6.11 | ) |
|
| $ | 18.06 |
|
| $ | (15.35 | ) |
| $ | (5.86 | ) |
Loss from discontinued operations, net of income tax |
|
| (2.00 | ) |
|
|
| (0.03 | ) |
|
| (11.38 | ) |
|
| (10.75 | ) |
Net income (loss) |
| $ | (8.11 | ) |
|
| $ | 18.03 |
|
| $ | (26.73 | ) |
| $ | (16.61 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted-average shares outstanding - basic |
|
| 19,998 |
|
|
|
| 14,845 |
|
|
| 14,822 |
|
|
| 15,393 |
|
Weighted-average shares outstanding - diluted |
|
| 19,998 |
|
|
|
| 14,905 |
|
|
| 14,822 |
|
|
| 15,393 |
|
See accompanying notes to consolidated financial statements.
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||||
Consolidated Statements of Changes in Stockholders’ Equity | ||||||||||||||||||||
Years Ended December 31, 2019, 2018 and 2017 | ||||||||||||||||||||
(in thousands, except share data) | ||||||||||||||||||||
Accumulated | ||||||||||||||||||||
Common | Additional | other | ||||||||||||||||||
stock | Common | paid-in | Treasury | comprehensive | Retained | |||||||||||||||
shares | stock | capital | stock | loss, net | deficit | Total | ||||||||||||||
Balances, December 31, 2016 | 151,861,661 | $ | 152 | $ | 2,691,553 | $ | - | $ | (80,248) | $ | (1,307,537) | $ | 1,303,920 | |||||||
Net loss | - | - | - | - | - | (205,921) | (205,921) | |||||||||||||
Foreign currency translation adjustment | - | - | - | - | 12,821 | - | 12,821 | |||||||||||||
Stock-based compensation expense, | ||||||||||||||||||||
net of forfeitures | - | - | 26,221 | - | - | - | 26,221 | |||||||||||||
Exercise of stock options | 5,998 | 99 | - | - | - | 99 | ||||||||||||||
Transactions under stock plans | 1,034,973 | 1 | (8,327) | - | - | - | (8,326) | |||||||||||||
Shares issued under Employee Stock Purchase Plan | 360,465 | - | 3,615 | - | - | 3,615 | ||||||||||||||
Balances, December 31, 2017 | 153,263,097 | $ | 153 | $ | 2,713,161 | $ | - | $ | (67,427) | $ | (1,513,458) | $ | 1,132,429 | |||||||
Net loss | - | - | - | - | - | (858,115) | (858,115) | |||||||||||||
Foreign currency translation adjustment | - | - | - | - | (5,750) | - | (5,750) | |||||||||||||
Forfeited dividends | - | - | - | - | - | 209 | 209 | |||||||||||||
Stock-based compensation expense, | ||||||||||||||||||||
net of forfeitures | - | - | 24,076 | - | - | - | 24,076 | |||||||||||||
Transactions under stock plans | 1,071,371 | 2 | (5,200) | - | - | - | (5,198) | |||||||||||||
Shares issued under Employee Stock Purchase Plan | 550,950 | - | 3,088 | - | - | - | 3,088 | |||||||||||||
Balances, December 31, 2018 | 154,885,418 | $ | 155 | $ | 2,735,125 | $ | - | $ | (73,177) | $ | (2,371,364) | $ | 290,739 | |||||||
Net loss | - | - | - | - | - | (255,721) | (255,721) | |||||||||||||
Foreign currency translation adjustment | - | - | - | - | 1,250 | - | 1,250 | |||||||||||||
Purchases of treasury stock | - | - | - | (4,290) | - | - | (4,290) | |||||||||||||
Stock-based compensation expense, | ||||||||||||||||||||
net of forfeitures | - | - | 18,459 | - | - | - | 18,459 | |||||||||||||
Transactions under stock plans | 1,187,961 | 2 | (1,677) | - | - | - | (1,675) | |||||||||||||
Shares issued under Employee Stock Purchase Plan | 532,292 | - | 811 | - | - | - | 811 | |||||||||||||
1-for-10 Reverse Stock Split | (140,916,208) | (141) | 141 | - | - | - | - | |||||||||||||
Balances, December 31, 2019 | 15,689,463 | $ | 16 | $ | 2,752,859 | $ | (4,290) | $ | (71,927) | $ | (2,627,085) | $ | 49,573 | |||||||
See accompanying notes to consolidated financial statements. | ||||||||||||||||||||
|
| Successor |
|
|
| Predecessor |
| ||||||||||
|
|
|
|
|
|
|
|
| Year ended December 31, |
| |||||||
|
| For the Period |
|
|
| For the Period |
|
| 2020 |
|
| 2019 |
| ||||
Net income (loss) |
| $ | (162,178 | ) |
|
| $ | 268,777 |
|
| $ | (396,230 | ) |
| $ | (255,721 | ) |
Change in cumulative translation adjustment, net of tax |
|
| 0 |
|
|
|
| 67,947 |
|
|
| 3,980 |
|
|
| 1,250 |
|
Comprehensive income (loss) |
| $ | (162,178 | ) |
|
| $ | 336,724 |
|
| $ | (392,250 | ) |
| $ | (254,471 | ) |
See accompanying notes to consolidated financial statements.
50
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | |||||||||||
Consolidated Statements of Cash Flows | |||||||||||
(in thousands) | |||||||||||
Years Ended December 31, | |||||||||||
2019 | 2018 | 2017 | |||||||||
Cash flows from operating activities: | |||||||||||
Net loss | $ | (255,721) | $ | (858,115) | $ | (205,921) | |||||
Adjustments to reconcile net loss to net cash provided by operating | |||||||||||
Depreciation, depletion, amortization and accretion | 271,410 | 400,848 | 438,716 | ||||||||
Deferred income taxes | 3,247 | (61,058) | (182,553) | ||||||||
Reduction in value of assets | 93,763 | 739,725 | 14,155 | ||||||||
Right-of-use assets amortization | 20,613 | - | - | ||||||||
Stock based compensation expense | 19,814 | 31,451 | 36,503 | ||||||||
Other reconciling items, net | (16,023) | (9,545) | 2,505 | ||||||||
Changes in operating assets and liabilities: | |||||||||||
Accounts receivable | 104,538 | (50,116) | (93,309) | ||||||||
Prepaid expenses | (4,956) | (2,373) | (5,441) | ||||||||
Inventory and other current assets | (6,137) | (7,559) | (2,455) | ||||||||
Accounts payable | (12,278) | 8,912 | 23,648 | ||||||||
Accrued expenses | (37,482) | (21,113) | (8,458) | ||||||||
Income taxes | (1,258) | 2,320 | 99,089 | ||||||||
Other, net | (33,102) | (8,320) | (20,053) | ||||||||
Net cash provided by operating activities | 146,428 | 165,057 | 96,426 | ||||||||
Cash flows from investing activities: | |||||||||||
Payments for capital expenditures | (140,465) | (221,370) | (164,933) | ||||||||
Proceeds from sales of assets | 110,008 | 33,299 | 28,269 | ||||||||
Net cash used in investing activities | (30,457) | (188,071) | (136,664) | ||||||||
Cash flows from financing activities: | |||||||||||
Proceeds from issuance of long-term debt | - | - | 500,000 | ||||||||
Principal payments on long-term debt | - | - | (500,000) | ||||||||
Payment of debt issuance costs | - | - | (11,967) | ||||||||
Purchases of treasury stock | (4,290) | - | - | ||||||||
Tax withholdings for vested restricted stock units | (1,677) | (5,199) | (8,326) | ||||||||
Other | 675 | 2,613 | 3,268 | ||||||||
Net cash used in financing activities | (5,292) | (2,586) | (17,025) | ||||||||
Effect of exchange rate changes on cash | 961 | (3,135) | 3,654 | ||||||||
Net change in cash, cash equivalents, and restricted cash | 111,640 | (28,735) | (53,609) | ||||||||
Cash, cash equivalents, and restricted cash at beginning of period | 163,748 | 192,483 | 246,092 | ||||||||
Cash, cash equivalents, and restricted cash at end of period | $ | 275,388 | $ | 163,748 | $ | 192,483 | |||||
Supplemental Disclosure of Cash Flow Information: | |||||||||||
Cash Payments: | |||||||||||
Interest paid | $ | 99,585 | $ | 101,056 | $ | 88,125 | |||||
Income taxes paid (net of income tax refunds received) | 5,354 | 3,137 | (117,376) | ||||||||
Non-cash investing activity: | |||||||||||
Capital expenditures included in accounts payable and accrued expenses | 10,567 | 26,259 | 11,522 | ||||||||
See accompanying notes to consolidated financial statements. |
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
For the Three Years Ended December 31, 2021
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
| ||||||||||
|
| Common Stock |
|
| Additional |
|
|
|
|
| other |
|
|
|
|
|
|
| ||||||||||||||||||||||
|
| Class A |
|
| Class B |
|
| paid-in capital |
|
| Treasury |
|
| comprehensive |
|
| Accumulated |
|
|
|
| |||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Class A |
|
| Class B |
|
| stock |
|
| loss, net |
|
| deficit |
|
| Total |
| ||||||||||
Balances, December 31, 2018 (Predecessor) |
|
| 154,885,418 |
|
| $ | 155 |
|
| $ | - |
|
| $ | - |
|
| $ | 2,735,125 |
|
| $ | - |
|
| $ | - |
|
| $ | (73,177 | ) |
| $ | (2,371,364 | ) |
| $ | 290,739 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (255,721 | ) |
|
| (255,721 | ) |
Foreign currency translation adjustment |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,250 |
|
|
| - |
|
|
| 1,250 |
|
Purchases of treasury stock |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (4,290 | ) |
|
| - |
|
|
| - |
|
|
| (4,290 | ) |
Stock-based compensation expense, net of forfeitures |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 18,459 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 18,459 |
|
Transactions under stock plans |
|
| 1,187,961 |
|
|
| 2 |
|
|
| - |
|
|
| - |
|
|
| (1,677 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,675 | ) |
Shares issued under Employee Stock Purchase Plan |
|
| 532,292 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 811 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 811 |
|
1-for-10 Reverse Stock Split |
|
| (140,916,208 | ) |
|
| (141 | ) |
|
| - |
|
|
| - |
|
|
| 141 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Balances, December 31, 2019 (Predecessor) |
|
| 15,689,463 |
|
|
| 16 |
|
|
| - |
|
|
| - |
|
|
| 2,752,859 |
|
|
| - |
|
|
| (4,290 | ) |
|
| (71,927 | ) |
|
| (2,627,085 | ) |
|
| 49,573 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (396,230 | ) |
|
| (396,230 | ) |
Foreign currency translation adjustment |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,980 |
|
|
| - |
|
|
| 3,980 |
|
Stock-based compensation expense, net of forfeitures |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,238 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,238 |
|
Transactions under stock plans |
|
| 109,855 |
|
|
| - |
|
|
|
|
|
| - |
|
|
| (208 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (208 | ) | |
Balances, December 31, 2020 (Predecessor) |
|
| 15,799,318 |
|
|
| 16 |
|
|
| - |
|
|
| - |
|
|
| 2,756,889 |
|
|
| - |
|
|
| (4,290 | ) |
|
| (67,947 | ) |
|
| (3,023,315 | ) |
|
| (338,647 | ) |
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 268,777 |
|
|
| 268,777 |
|
Foreign currency translation adjustment |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 67,947 |
|
|
| - |
|
|
| 67,947 |
|
Extinguishment of unrecognized compensation expense |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 988 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 988 |
|
Stock-based compensation expense, net of forfeitures |
|
| - |
|
|
|
|
|
| - |
|
|
| - |
|
|
| 935 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| 935 |
| ||||
Restricted stock units vested |
|
| 48,903 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Shares withheld and retired |
|
| (14,701 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
| |||
Cancellation of Predecessor equity |
|
| (15,833,520 | ) |
|
| (16 | ) |
|
| - |
|
|
| - |
|
|
| (2,758,812 | ) |
|
| - |
|
|
| 4,290 |
|
|
| - |
|
|
| 2,754,538 |
|
|
| - |
|
Issuance of Successor Class A common stock |
|
| 19,995,581 |
|
|
| 200 |
|
|
| - |
|
|
| - |
|
|
| 902,486 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 902,686 |
|
Balances, February 2, 2021 (Predecessor) |
|
| 19,995,581 |
|
| $ | 200 |
|
|
| - |
|
| $ | - |
|
| $ | 902,486 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 902,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balances, February 3, 2021 (Successor) |
|
| 19,995,581 |
|
| $ | 200 |
|
| $ | - |
|
| $ | - |
|
| $ | 902,486 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 902,686 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (162,178 | ) |
|
| (162,178 | ) |
Stock-based compensation expense, net of forfeitures |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,710 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,710 |
|
Common stock issued |
|
| 3,114 |
|
|
| - |
|
|
| 113,840 |
|
|
| 1 |
|
|
| - |
|
|
| (1 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Shares withheld and retired |
|
| - |
|
|
| - |
|
|
| (37,571 | ) |
|
| - |
|
|
| - |
|
|
| (1,485 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,485 | ) |
Balances, December 31, 2021 (Successor) |
|
| 19,998,695 |
|
| $ | 200 |
|
|
| 76,269 |
|
| $ | 1 |
|
| $ | 902,486 |
|
| $ | 1,224 |
|
| $ | - |
|
| $ | - |
|
| $ | (162,178 | ) |
| $ | 741,733 |
|
See accompanying notes to consolidated financial statements.
51
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
|
| Successor |
|
|
| Predecessor |
| ||||||||||
|
|
|
|
|
|
|
|
| Year ended December 31, |
| |||||||
|
| For the Period |
|
|
| For the Period |
|
| 2020 |
|
| 2019 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) |
| $ | (162,178 | ) |
|
| $ | 268,777 |
|
| $ | (396,230 | ) |
| $ | (255,721 | ) |
Adjustments to reconcile net loss to net cash from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Depreciation, depletion, amortization and accretion |
|
| 251,361 |
|
|
|
| 10,499 |
|
|
| 146,793 |
|
|
| 271,410 |
|
Deferred income taxes |
|
| (48,975 | ) |
|
|
| 54,322 |
|
|
| 2,041 |
|
|
| 3,247 |
|
Reduction in value of assets |
|
| 0 |
|
|
|
| 0 |
|
|
| 141,110 |
|
|
| 93,763 |
|
Right-of-use assets amortization |
|
| 8,380 |
|
|
|
| 1,372 |
|
|
| 20,224 |
|
|
| 20,613 |
|
Amortization of credit facility costs |
|
| 452 |
|
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Stock based compensation expense |
|
| 2,710 |
|
|
|
| 935 |
|
|
| 2,628 |
|
|
| 19,814 |
|
Reorganization items, net |
|
| 0 |
|
|
|
| (354,279 | ) |
|
| 18,087 |
|
|
| 0 |
|
Bad debt |
|
| (4,908 | ) |
|
|
| (210 | ) |
|
| 12,473 |
|
|
| 76 |
|
Gain on sale of assets and businesses |
|
| 0 |
|
|
|
| 58 |
|
|
| 0 |
|
|
| 0 |
|
Gain on sale of equity securities |
|
| (383 | ) |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Unrealized gain on investment in equity securities |
|
| (2,147 | ) |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
Other expenses |
|
| 30,707 |
|
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Other reconciling items, net |
|
| 6,687 |
|
|
|
| (355 | ) |
|
| (8,309 | ) |
|
| (16,023 | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts receivable |
|
| (28,676 | ) |
|
|
| 3,602 |
|
|
| 111,948 |
|
|
| 104,462 |
|
Prepaid expenses |
|
| 4,854 |
|
|
|
| (340 | ) |
|
| 0 |
|
|
| 0 |
|
Inventory and other current assets |
|
| 22,866 |
|
|
|
| (221 | ) |
|
| 27,933 |
|
|
| (6,137 | ) |
Accounts payable |
|
| 735 |
|
|
|
| (2,365 | ) |
|
| (35,170 | ) |
|
| (12,278 | ) |
Accrued expenses |
|
| (21,770 | ) |
|
|
| 23,489 |
|
|
| (18,154 | ) |
|
| (37,482 | ) |
Income taxes |
|
| 11,535 |
|
|
|
| 340 |
|
|
| 0 |
|
|
| 0 |
|
Operating lease liabilities and other, net |
|
| (12,366 | ) |
|
|
| (241 | ) |
|
| (23,157 | ) |
|
| (39,316 | ) |
Net cash from operating activities |
|
| 58,884 |
|
|
|
| 5,383 |
|
|
| 2,217 |
|
|
| 146,428 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Payments for capital expenditures |
|
| (34,152 | ) |
|
|
| (3,035 | ) |
|
| (47,653 | ) |
|
| (140,465 | ) |
Proceeds from sales of assets |
|
| 97,505 |
|
|
|
| 775 |
|
|
| 50,039 |
|
|
| 110,008 |
|
Proceeds from sales of equity securities |
|
| 4,099 |
|
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Net cash from investing activities |
|
| 67,452 |
|
|
|
| (2,260 | ) |
|
| 2,386 |
|
|
| (30,457 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Credit facility costs |
|
| (14 | ) |
|
|
| (1,920 | ) |
|
| (1,554 | ) |
|
| 0 |
|
Tax withholdings for vested restricted stock units |
|
| (1,485 | ) |
|
|
| 0 |
|
|
| (208 | ) |
|
| (1,677 | ) |
Purchases of treasury stock |
|
| 0 |
|
|
|
| 0 |
|
|
| 0 |
|
|
| (4,290 | ) |
Delayed draw term loan commitment fee |
|
| 0 |
|
|
|
| 0 |
|
|
| (12,000 | ) |
|
| 0 |
|
Other |
|
| 0 |
|
|
|
| 0 |
|
|
| (432 | ) |
|
| 675 |
|
Net cash from financing activities |
|
| (1,499 | ) |
|
|
| (1,920 | ) |
|
| (14,194 | ) |
|
| (5,292 | ) |
Effect of exchange rate changes on cash |
|
| 0 |
|
|
|
| 311 |
|
|
| 2,387 |
|
|
| 961 |
|
Net change in cash, cash equivalents, and restricted cash |
|
| 124,837 |
|
|
|
| 1,514 |
|
|
| (7,204 | ) |
|
| 111,640 |
|
Cash, cash equivalents, and restricted cash at beginning of period |
|
| 269,698 |
|
|
|
| 268,184 |
|
|
| 275,388 |
|
|
| 163,748 |
|
Cash, cash equivalents, and restricted cash at end of period |
| $ | 394,535 |
|
|
| $ | 269,698 |
|
| $ | 268,184 |
|
| $ | 275,388 |
|
See accompanying notes to consolidated financial statements.
52
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of and For the Years Ended December 31, 2019, 20182021, 2020 and 20172019
(1) Summary of Significant Accounting Policies
Basis of Presentation
TheAs used herein, “we,” “us”, “our” and similar terms refer to (i) prior to February 2, 2021 (the “Emergence Date”), SESI Holdings, Inc. (formerly known as Superior Energy Services, Inc.) and its subsidiaries (“Predecessor”) and (ii) after the Emergence Date, Superior Energy Services, Inc. (formerly known as Superior Newco, Inc.) and its subsidiaries (“Successor”).
As used herein, the following terms refer to our operations:
"Predecessor Period" | January 1, 2021 through February 2, 2021 | |
"Successor Period" | February 3, 2021 through December 31, 2021 |
Our consolidated financial statements include the accounts of Superior Energy Services, Inc. and subsidiaries (the Company). All significant intercompanyour accounts and those of our wholly-owned subsidiaries. All intercompany transactions areand balances have been eliminated in consolidation.the accompanying consolidated financial statements. Certain previously reported amounts, specifically related to assets held for sale and discontinued operations, have been reclassified to conform to the 2019current year presentation.
Due to the lack of comparability with historical financials, our consolidated financial statements and related footnotes are presented with a “black line” division to emphasize the lack of comparability between amounts presented as of, and after, February 2, 2021 and amounts presented for all prior periods. Our financial results for future periods following the application of fresh start accounting will be different from historical trends and the differences may be material.
Business
The Company provides a wide variety of services and products to the energy industry. The Company servesWe serve major, national and independent oil and natural gas exploration and production companies around the world and offersoffer products and services with respect to the various phases of a well’s economic life cycle. The Company reports its operating results in 4 business segments: Drilling Products and Services; Onshore Completion and Workover Services; Production Services; and Technical Solutions. Given the Company’s long-term strategy of expanding geographically, the Company also provides supplemental segment revenue information in 3 geographic areas: U.S. land; U.S. offshore; and International.
Recent Developments
2021 was a transformative year at Superior. Following our emergence from bankruptcy, we embarked on a diligent effort to reconfigure our operations and organization to maximize shareholder value, enhance margin growth and have a more disciplined approach, both operationally and financially (the “Transformation Project”).
Combination
On December 18, 2019, the Company entered into a definitive merger agreement (the Merger Agreement) to divest its U.S. service rig, coiled tubing, wireline, pressure control, flowback, fluid management and accommodations service lines (the Superior Energy U.S. Business) and combine them with Forbes Energy Services Ltd.’s (Forbes) complimentary service lines to create a new, publicly traded consolidation platform for U.S. completion, production and water solutions (the Combination).
Following the completion of the Combination, which is expected to close in the second quarter of 2020, the Company will remain a globally diversified oilfield services company built around the following key product and service lines: premium drill pipe, bottom hole assemblies, completion tools and products, hydraulic workover, snubbing and production services and well control services.
Under the terms of the Merger Agreement, the Superior Energy U.S. Business and Forbes will be merged into a newly formed company (Newco). At the closing of the Combination, the Company will receive 49.9% of Newco’s issued and outstanding voting Class A Stock (the Class A Stock) and 100% of the issued and outstanding non-voting Class B Stock of Newco (the Class B stock), which will collectively represent an approximate 65% economic interest in Newco. The Company’s and Forbes’ economic interests in Newco are subject to adjustment within certain parameters based on Forbes’ net debt position calculated at closing pursuant to the terms of the Merger Agreement. In addition, certain lenders under Forbes’ existing term loan (the Forbes Term Loan) will exchange their portion of the aggregate principal amount outstanding under the Forbes Term Loan for approximately $30.0 million in newly issued mandatory convertible preferred shares of Newco (the Preferred Shares), which will be entitled to cash dividends at a rate of 5% per annum, payable semi-annually, and, on the third anniversary of the closing of the Combination will be subject to mandatory conversion into shares of Newco’s Class A Stock. After giving effect to such conversion, the Company would own an approximate 52% economic interest and Forbes ’existing stockholders would own an approximate 48% economic interest in Newco.
The CombinationTransformation Project has been unanimously approvedfocused around three sequential phases:
The evaluation and implementation of the CompanyBusiness Unit Review is substantially complete, which has resulted in lower revenue with increased margins. The Right Size Support and ForbesGeographic Focus components are ongoing and the special committee of the Board of Directors of Forbes. Newco filed a proxy statement/prospectus on February 12, 2020, pursuant to which Forbes will solicit proxies of its stockholders to approve the Combination at a special meeting of Forbes’ stockholders. However, certain stockholders of Forbes who will collectively own a majority of Forbes’ common stock on the record date for the Forbes special meeting have committed to vote the shares they beneficially own in favor of the Combination and have the ability to approve the Combination without the vote of any other stockholder of Forbes.should be completed during 2022.
Historically, we provided a wide variety of services and products to many markets within the energy industry. During 2021, we realigned our core businesses to focus on products and services that we believe meet the criteria of (1) being critical to our customers’ oil and gas operations, (2) facing low or no competition from the three largest global oilfield service companies, (3) requiring deep technical expertise through the design or use of our product or service, and (4) being unlikely to become a commoditized product or service to our customers. The result of this approach is a portfolio of business lines grounded in our core mission of providing high quality products and services while maintaining the trust and serving the needs of our customers, with an emphasis on free cash flow generation and capital efficiency for us.Related Financing Transactions
As a condition of the Combination, SESI, L.L.C. (SESI), the Company’s wholly owned subsidiary, consummated an offerIn connection with our Transformation Project, our reportable segments were changed to exchange (the Exchange Offer) up to $635.0 million of SESI’s previously outstanding $800.0 million aggregate principal amount of 7.125% Senior Notes due 2021 (the Original Notes) for up to $635.0 million aggregate principal amount of SESI’s 7.125% Senior Notes due 2021 (the New Notes)Rentals and conducted a concurrent consent solicitation (the Consent Solicitation) to amend the liens covenant in the indenture governing the Original Notes (the Original Notes Indenture) to permit the issuance of the Superior Secured Notes described below (the Proposed Amendment) upon the terms and subject to the conditions set forth in SESI’s offering memorandum and consent
solicitation statement, dated as of January 6, 2020 (as amended by the press releases dated January 16, 2020, January 22, 2020, January 31, 2020, February 18, 2020, February 19, 2020, February 20, 2020 and February 24, 2020 issued by the Company and Supplement No. 1 to the Offering Memorandum and Consent Solicitation, dated as of January 31, 2020 (the Offering Memorandum)). A supplemental indenture by and among SESI, the guarantors party thereto and the Bank of New York Mellon Trust Company, N.A., as trustee, related to the Proposed Amendment was executed on February 14, 2020. The Original Notes outstanding after the Exchange Offer are governed by the Original Notes Indenture, as amended by the Proposed Amendment, provided that the Proposed Amendment will only become operative immediately prior to the consummationVoluntary Reorganization Under Chapter 11 of the Combination.Bankruptcy Code
The Exchange Offer expired at 5:00 p.m., New York City time, on February 21,On December 4, 2020, we and $617.9 million aggregate principal amountcertain of outstanding Original Notes were validly tendered for exchangeour direct and not withdrawn, representing 77.24% of the aggregate principal amount of Original Notes outstanding upon commencement of the Exchange Offer. SESI accepted all validly tendered Original Notes and issued $617.9 million aggregate principal amount of New Notes pursuant to an indenture dated February 24, 2020 by and among SESI, the guarantors party thereto and UMB Bank, N.A., as trusteeindirect wholly-owned domestic subsidiaries (the New Notes Indenture).
Substantially concurrently with the consummation of the Combination, eligible note holders will receive, in exchange for $617.9 million aggregate principal amount of New Notes, on a pro rata basis: (1) $243.3 million aggregate principal amount of 9.750% Senior Second Lien Secured Notes due 2025 to be issued by Newco (the Newco Secured Notes), (2) $243.3 million aggregate principal amount of 8.750% Senior Second Lien Secured Notes due 2026 to be issued by SESI (the Superior Secured Notes), (3) $131.3 million in cash and (4) $6.35 million in cash constituting the total consent payment (the Combination Exchange). The indentures governing the Newco Secured Notes and the Superior Secured Notes will each contain restrictive covenants customary for issuances of high-yield secured notes of this type. On February 20, 2020, the Company"Affiliate Debtors") entered into an amendmentAmended and Restated Restructuring Support Agreement (the “Amended RSA”) that amended and restated in its entirety the Restructuring Support Agreement (the “RSA”), dated September 29, 2020, with certain holders of SESI, L.L.C.’s (“SESI”) outstanding (i) 7.125% senior unsecured notes due 2021 (the “7.125% Notes”) and (ii) 7.750% senior unsecured notes due 2024 (the “7.750% Notes”). The parties to the Merger Agreement (the Amendment). The Amendment amends certain covenants, among other things,Amended RSA agreed to account for the amendedprincipal terms of a proposed financial restructuring of the Exchange Offer.Affiliate Debtors, which was implemented through the Plan (as defined below).
Exit and Discontinuation of the Hydraulic Fracturing Service Line
On December 10, 2019,7, 2020, the Company’s indirect, wholly owned subsidiary, Pumpco Energy Services, Inc. (Pumpco), completed its existing hydraulic fracturing field operations and determined to discontinue, wind down and exit its hydraulic fracturing operations. The Company intends to maintain an adequate numberAffiliate Debtors filed the Chapter 11 Cases under Chapter 11 of employees to efficiently wind down Pumpco’s business and dispose of its assets over time. The financial results of Pumpco’s operations have historically been includedthe Bankruptcy Code in the Company’s Onshore CompletionsBankruptcy Court, and, Workover Services segment. Pumpco’s business is reflected as discontinued operations for eachin connection therewith, the Affiliate Debtors filed with the Bankruptcy Court the proposed Joint Prepackaged Plan of Reorganization under the Bankruptcy Code (as amended, modified or supplemented from time to time, the “Plan”). After commencement of the years ended December 31, 2019, 2018Chapter 11 Cases, the Affiliate Debtors continued to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and 2017 and its assets are in the process of being divested. See note 12 to the Company’s consolidated financial statements for further discussion of discontinued operations. Discontinuing hydraulic fracturing alignsaccordance with the Company’s strategic objective to divest assetsapplicable provisions of the Bankruptcy Code and service lines that do not competeorders of the Bankruptcy Court.
In connection with the Chapter 11 Cases, the Affiliate Debtors filed a motion for investment inapproval of a debtor-in-possession financing facility, and on December 8, 2020, the current market environment. Net proceeds fromBankruptcy Court approved such motion and entered an interim order approving the divestiture of Pumpco’s assets will be used to reduce debt.financing (the “Interim DIP Order”). In accordance with the Interim DIP Order, on December 9, 2020, we, as guarantor and SESI, as borrower, entered into a $120 million Senior Secured Debtor-in-Possession Credit Agreement (the “DIP Credit Facility”). On January 9, 2021, the Bankruptcy Court approved the Affiliate Debtors’ entry into the DIP Credit Facility on a final basis.
On January 19, 2021, the Bankruptcy Court entered an order, Docket No. 289, confirming and approving the Plan.
Reverse Stock Split
AtOn the Emergence Date, we qualified for and adopted fresh start accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. 852 – Reorganizations (ASC 852), which specifies the accounting and financial reporting requirements for entities reorganizing through Chapter 11 bankruptcy proceedings. The application of fresh start accounting resulted in a special meetingnew basis of stockholders held on December 18, 2019, the Company’s stockholders voted to approveaccounting and we became a proposal authorizing the Board of Directors of the Company to effect a reverse stock split of the Company’s issued and outstanding common stock (the Reverse Stock Split) and to proportionately reduce the number of the Company’s authorized shares of common stock. Following the special meeting of stockholders, the Board of Directors of the Company approved a 1-for-10 Reverse Stock Split.
new entity for financial reporting purposes. As a result of the Reverse Stock Split, each 10 pre-split sharesimplementation of common stock outstanding immediately priorthe Plan and the application of fresh start accounting, our historical financial statements on or before the Emergence Date are not a reliable indicator of our financial condition and results of operations for any period after our adoption of fresh start accounting.
We applied ASC 852 in preparing the consolidated financial statements, which requires distinguishing transactions associated with the reorganization separate from activities related to the Reverse Stock Split automaticallyongoing operations of the business. Accordingly, pre-petition liabilities that could have been impacted by the Chapter 11 Cases were convertedclassified as liabilities subject to one issuedcompromise in our consolidated balance sheet as of December 31, 2020. These liabilities were reported at the amounts we anticipated would be allowed by the Bankruptcy Court. Additionally, certain expenses, realized gains and outstanding sharelosses and provisions for losses that were realized or incurred during and directly related to the Chapter 11 Cases, including fresh start valuation adjustments and gains on liabilities subject to compromise were recorded as reorganization items, net in the consolidated statements of common stock without any actionoperations. See Note 2 – Emergence from Voluntary Reorganization under Chapter 11 for more information on the partevents of the stockholder. No fractional shares of common stock were issuedChapter 11 Cases as a resultwell as the accounting and reporting impacts of the Reverse Stock Split. Instead, any stockholder who would have been entitled to a fractional share received a cash payment in lieu of such fractional shares. The total number of shares of common stock thatreorganization during the Company is authorized to issue has also been reduced by the same ratio.Predecessor Period.
Resumption of Trading on the NYSE
On September 26, 2019, the New York Stock Exchange (the NYSE) suspended trading of the Company’s common stock and commenced delisting proceedings due to the Company’s “abnormally low” stock price. Following the NYSE’s suspension of trading of our common stock, the Company appealed the NYSE staff’s determination. On September 27, 2019, the Company’s common stock commenced trading on the OTC Markets and, on October 4, 2019, the Company’s common stock also commenced trading on the OTCQX Best Market, operated by OTC Markets Group Inc. The NYSE formally withdrew the delisting determination, and, on December 26, 2019, the Company’s common stock resumed trading on the NYSE under the ticker symbol “SPN.”
Use of Estimates
The preparation ofIn preparing the accompanying financial statements, in conformity with accounting principles generally accepted in the United States of America requires management towe make significantvarious estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities reported as of the dates of the balance sheets and the amounts of revenues and expenses reported for the periods shown in the income statements and statements of cash flows. All estimates, assumptions, valuations and financial projections related to fresh start accounting, including the fair value adjustments, the enterprise value and equity value projections, are inherently subject to significant uncertainties and the resolution of contingencies beyond our control. See Note 3 –
Changes in Accounting Policies
As part of the adoption of fresh start accounting and effective upon emergence from bankruptcy, we have adopted new presentations for certain items within our consolidated balance sheets and statement of operations. The presentation changes related to foreign currencies, bad debt expense, gains/losses on sales of assets and reduction in value of assets are further described within their relevant discussion below.
54
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Major Customers and Concentration of Credit Risk
The majority of the Company’sour business is conducted with major and independent oil and gas companies. The Company evaluatesWe evaluate the financial strength of itsour customers and providesprovide allowances for probable credit losses when deemed necessary.
The market for the Company’sour services and products is the oil and gas industry in the U.S. land and Gulf of Mexico areas and select international market areas. Oil and gas companies make capital expenditures on exploration, development and production operations. The level of these expenditures historically has been characterized by significant volatility.
The Company derives
We derive a large amount of revenue from a small number of major and independent oil and gas companies. There were no0 customers that exceeded 10% of the Company’sour total revenues in 2019, 20182021, 2020 or 2017.2019.
The Company’s
Our assets that are potentially exposed to concentrations of credit risk consist primarily of cash, cash equivalents, and trade receivables. The financial institutions inwith which the Company transactswe transact business are large, investment grade financial institutions which are “well capitalized” under applicable regulatory capital adequacy guidelines, thereby minimizing itsour exposure to credit risks for deposits in excess of federally insured amounts.
Cash Equivalents
The Company considersWe consider all short-term investments with a maturity of 90 days or less when purchased to be cash equivalents.
Accounts Receivable and Allowances
Trade accounts receivable are recorded at the invoiced amount or the earned amount but not yet invoiced and do not bear interest. The Company maintains allowancesWe maintain our allowance for estimated uncollectible receivables, including bad debts and other items.doubtful accounts at net realizable value. The allowance for doubtful accounts is based on the Company’sour best estimate of probable uncollectible amounts in existing accounts receivable. We assess individual customers and overall receivables balances to identify amounts that are believed to be uncertain of collection. The Company determinesaging of the receivable balance as well as economic factors concerning the customer factor into the judgment and estimation of allowances, which often involve significant dollar amounts. Adjustments to the allowance in future periods may be made based on historical write-off experiencechanging customer conditions. Our allowance for doubtful accounts as of December 31, 2021 and specific identification.2020 was $2.2 million and $23.0 million, respectively.
As part of the adoption of fresh start accounting and effective upon emergence from bankruptcy, we have adopted new presentations for certain items within our consolidated balance sheets and statement of operations. Prior to emergence from bankruptcy, we recognized bad debt expense within general and administrative expenses. These expenses are now recognized within cost of revenues. During the Successor Period and Predecessor Period, we recognized $4.9 million, $0.2 million, respectively in bad debt recoveries. During the years ended December 31, 2020 and 2019, we recognized $11.9 million and $2.3 million, respectively, in bad debt expense.
Revenue Recognition
Revenues are recognized when performance obligations are satisfied in accordance with contractual terms, in an amount that reflects the consideration we expect to be entitled to in exchange for services rendered, rentals provided or products sold. Taxes collected from customers and remitted to governmental authorities and revenues are reported on a net basis.
A performance obligation arises under contracts with customers and is the unit of account under Topic 606. We account for services rendered and rentals provided separately if they are distinct and the service or rental is separately identifiable from other items provided to a customer and if a customer can benefit from the services rendered or rentals provided on their own or with other resources that are readily available to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. A contract’s standalone selling prices are determined based on the prices charged for services rendered, rentals provided or products sold. Our payment terms vary by the type of products or services offered. The term between invoicing and when the payment is due is typically 30 days.
Services revenue: primarily represents amounts charged to customers for the completion of services rendered, including labor, products and supplies necessary to perform the service. Rates for these services vary depending on the type of services provided and are primarily based on a per hour or per day basis.
Rentals revenue: primarily priced on a per day, per man hour or similar basis and consists of fees charged to customers for use of rental equipment over the term of the rental period, which is generally less than twelve months.
55
Product sales: products are generally sold based upon purchase orders or contracts with our customers that include fixed or determinable prices but do not include right of return provisions or other significant post-delivery obligations. We recognize revenue from product sales when title passes to the customer, the customer assumes risks and rewards of ownership, collectability is reasonably assured and delivery occurs as directed by the customer.
We expense sales commissions when incurred as the amortization period would have been one year or less.
Inventory
Inventories are stated at the lower of cost or net realizable value. The Company appliesWe apply net realizable value and obsolescence to the gross value of the inventory. Cost is determined using the first-in, first-out or weighted-average cost methods for finished goods and work-in-process. Supplies and consumables consist principally of products used in the Company’s services provided to itsour customers. The components of inventory balances are as follows (in thousands):
|
| December 31, 2021 |
|
|
| December 31, 2020 |
| ||
Finished goods |
| $ | 26,187 |
|
|
| $ | 35,074 |
|
Raw materials |
|
| 9,753 |
|
|
|
| 5,139 |
|
Work-in-process |
|
| 4,253 |
|
|
|
| 2,994 |
|
Supplies and consumables |
|
| 20,410 |
|
|
|
| 33,820 |
|
Total |
| $ | 60,603 |
|
|
| $ | 77,027 |
|
December 31, | ||||||
2019 | 2018 | |||||
Finished goods | $ | 45,127 | $ | 54,144 | ||
Raw materials | 16,130 | 16,795 | ||||
Work-in-process | 9,360 | 5,544 | ||||
Supplies and consumables | 33,322 | 30,822 | ||||
Total | $ | 103,939 | $ | 107,305 | ||
Property, Plant and Equipment
Property, plant and equipment are stated at cost, except for assets for which reduction in value is recorded during the period and assets acquired using purchase accounting, which are recorded at fair value as of the date of acquisition. Depreciation is computed using the straight linestraight-line method over the estimated useful lives of the related assets as follows:
Buildings and improvements | 5 | to | 40 | years |
Machinery and equipment | 2 | to | 25 | years |
Automobiles, trucks, tractors and trailers | 3 | to | 10 | years |
Furniture and fixtures | 2 | to | 10 | years |
Machinery and equipment | 3-12 years | |
Buildings, improvements and leasehold improvements | 10-30 years | |
Automobiles, trucks, tractors and trailers | 4-7 years | |
Furniture and fixtures | 3-10 years |
TableAs part of Contentsthe adoption of fresh start accounting and effective upon emergence from bankruptcy, certain fully depreciated assets were assigned a new remaining useful life of less than 36 months. Prior to emergence from bankruptcy, we recognized gains/losses on sales of assets within general and administrative expenses. Gains/losses on sales of assets are now recognized within other expenses as a component of operating income.
In connection with changes in estimates of our decommissioning liability for our oil and gas property and related notes receivable as of December 31, 2021, we established an asset retirement cost (“ARC”) of $24.2 million which will be depreciated over the estimated life of the oil and gas reserves. See further discussion of our decommissioning liability and notes receivable below.
Reduction in Value of Long-Lived Assets
Long-livedWe review long-lived assets, such as property, plant and equipment and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of any such assetsasset may not be recoverable. RecoverabilityThe carrying amount of an asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. We record impairment losses on long-lived assets to be held and used in operations when the fair value of those assets is assessedless than their respective carrying amount. Impairment losses are recorded in the amount by a comparison ofwhich the carrying amount of such assets to theirexceeds the fair value. Fair value calculated,is measured, in part, by the estimated undiscounted future cash flows expected to be generated by thethose assets. CashOur cash flow estimates are based upon, among other things, historical results adjusted to reflect theour best estimate of future market rates, utilization levels and operating performance. EstimatesOur estimates of cash flows may differ from actual cash flows due to, among other things, changes in economic conditions or changes in an asset’s operating performance. The Company’s assetsAssets are generally grouped by subsidiary or division for the impairment testing, which represent the lowest level of identifiable cash flows. If the asset grouping’s fair value is less than the carrying amount of those items, impairment losses are recorded in the amount by which the carrying amount of such assets exceeds the fair value. Assets to be disposed ofheld for sale are reported at the lower of the carrying amount or fair value less estimated costs to sell. The net carrying value of assets not fully recoverable is reduced to fair value. TheOur estimate of fair value represents the Company’sour best estimate based on industry trends and reference to market transactions and is subject to variability. The oil and gas industry is cyclical and our estimates of the period over which future cash flows will be generated, as well as the predictability of these cash flows, can have a significant impact on the carrying valuesvalue of these assets and, in periods of prolonged down cycles, may result in impairment charges. See note 11 for a discussion
56
During 2020 and 2019, we recorded $23.8 million and $9.3 million, respectively, in connection with the reduction in value of our long-lived assets recorded during 2019, 2018 and 2017.
Goodwill
assets. The following table summarizes the Company’s goodwill (in thousands):
Onshore | |||||||||||
Drilling | Completion | ||||||||||
Products | and Workover | Production | |||||||||
and Services | Services | Services | Total | ||||||||
Balance, December 31, 2017 | $ | 138,493 | $ | 583,550 | $ | 85,817 | $ | 807,860 | |||
Foreign currency translation adjustment | (1,705) | - | (529) | (2,234) | |||||||
Reduction in value of assets | - | (583,550) | (1) | (85,288) | (668,838) | ||||||
Balance, December 31, 2018 | 136,788 | - | - | 136,788 | |||||||
Foreign currency translation adjustment | 907 | - | - | 907 | |||||||
Balance, December 31, 2019 | $ | 137,695 | $ | - | $ | - | $ | 137,695 | |||
(1)$417.0 million of reduction in value of assets was allocatedrelated to Pumpco and is reportedlong-lived assets primarily in the loss from discontinued operations for the year ended December 31, 2018.our Well Services segment.
The Company performs the goodwill impairment test on an annual basis as of October 1 or more often if events or circumstances indicate there may be impairment. Goodwill impairment testing is performed at the reporting unit level, which is consistent with the reporting segments. The Company assesses whether any indicators of impairment exist, which requires a significant amount of judgment. Such indicators may include a sustained decrease in the Company’s stock price and market capitalization; a decline in the expected future cash flows; overall weakness in the industry; and slower growth rates.
Goodwill impairment exists when the estimated fair value of the reporting unit is below the carrying value. In estimating the fair value of the reporting units, the Company uses a combination of an income approach and a market-based approach.
Income approach – The Company discounts the expected cash flows of each reporting unit. The discount rate used represents the estimated weighted average cost of capital, which reflects the overall level of inherent risk involved in the Company’s operations and cash flows and the rate of return an outside investor would expect to earn.
Market-based approach – The Company uses the guideline public company method, which focuses on comparing the Company’s risk profile and growth prospects to select reasonably similar publicly traded companies.
The Company weighs the income approach 80% and the market-based approach 20% due to differences between the Company’s reporting units and the peer companies’ size, profitability and diversity of operations. In order to validate the reasonableness of the estimated fair values obtained for the reporting units, a reconciliation of fair value to market capitalization is performed for each unit on a standalone basis. A control premium, derived from market transaction data, is used in this reconciliation to ensure that fair values are reasonably stated in conjunction with the Company’s capitalization. The Company uses all available information to estimate fair value of the reporting units, including discounted cash flows. A significant amount of judgment was involved in performing these evaluations given that the results are based on estimated future events.
During the fourth quarter of 2018, the industry climate deteriorated rapidly duePrior to the dramatic decline in crude oil prices and the related large sell-off in the equity markets for issuers in the energy industry. As a result of the adverse changes in the business environment that occurred during the fourth quarter of 2018 and the strategic review of the Company’s expected near-term cash flowsemergence from operations, the Company reviewed the goodwill for impairment. It was concluded that at December 31, 2018, the Onshore Completion and Workover Services segment’s goodwill of $583.6 million and the Production Services segment’s goodwill of $85.3 million were fully impaired. The fair value of the Drilling Products and Services segment was substantially in excess of its carrying value. See note 11 for a discussion ofbankruptcy, we recognized the reduction in value assets separately on the consolidated statement of operations. Reduction in value of assets are now recognized within other expenses as a component of operating income. The bankruptcy filings required an assessment whether the carrying amounts of our long-lived assets would be recoverable. Management’s evaluation at the Emergence Date indicated that no additional impairment was necessary as a direct result of the bankruptcy filings.
Other Expenses
Other expenses during the Successor Period were $16.7 million. Other expenses comprised $13.1 million related to our Wells Services segment, which includes approximately $11.7 million from exit activities related to SES Energy Services India Pvt. Ltd, and $3.6 million related to our Rentals segment. Other expenses primarily relate to charges recorded as part of our strategic disposal of low margin assets in line with our Transformation Project strategy and includes gains/losses on asset sales, as well as impairments primarily related to long-lived assets.
Goodwill
As part of our emergence from the Chapter 11 Cases, we adopted fresh start accounting and began reporting as a new accounting entity as of the Emergence Date. Due to the fair value measurement of our assets and liabilities as required by ASC 852, we determined that we retained no goodwill recorded during 2018. Atbalance based on the assignment of reorganization value to our identifiable assets and liabilities. As noted in Note 3 – Fresh Start Accounting, our goodwill balance of $138.9 million was eliminated as of the Emergence Date. During the Predecessor Period and the years ended December 31, 2020 and 2019, and 2018, the Company’s accumulatedwe did not recognize any reduction in value of goodwill. Fluctuations in the carrying amount of goodwill was $2,417.1 million.from period to period were from the impacts of foreign currency and were not material for any period.
Notes Receivable
The Company’s wholly owned subsidiary, Wild Well Control, Inc., hasWe have decommissioning obligationsliabilities related to its ownershipthe acquisition of thea single oil and gas property and related assets. Notesproperty. Our notes receivable consist of a commitment from the seller of the property’s sole platform towards its eventual abandonment.oil and gas property for costs associated with the abandonment of the property. Pursuant to an agreement with the seller, the Company willwe invoice the seller an agreed upon amount at the completion of certain decommissioning activities. The gross amount of thisthe seller’s obligation totaled $115.0to us totals $115.0 million and is recorded at its present value.
In December 2021, it was determined that the interest rate applied to calculate the fair value usingof our notes receivable was not revised to reflect the appropriate credit adjusted risk-free rate at the time of our emergence from bankruptcy, and in December 2021, we recorded an increase in the carrying value of our notes receivable of approximately $4.8 million to correct this immaterial misstatement.
Additionally, in December 2021, we revised our estimates relating to the timing of decommissioning work on our oil and gas property, resulting in a three year extension of the expected completion of the platform decommissioning to an estimated date of 2031. This change in estimate resulted in a $20.6 million reduction of the carrying value of the note receivable, which totaled $60.6 million as of December 31, 2021.
The discount on the notes receivable, which is currently based on an effective interest rate of 6.58%. The related discount6.6%, is amortized to interest income based onover the expected timing of the platform’s removal. The Companycompletion of the decommissioning activities. Interest receivable is considered paid in kind and is compounded into the carrying amount of the note.
During the Successor Period, the Predecessor Period and the years ended December 31, 2020 and 2019, we recorded non-cash interest income of $3.9 million, $0.4 million, $4.5 million and $4.2 million related to our notes receivable, which is included in other reconciling items, net in the Consolidated Statements of $4.2 million, $3.9 million and $3.6 million during 2019, 2018 and 2017, respectively.Cash Flows.
Restricted Cash
Restricted cash represents cashas of December 31, 2021 includes approximately $76.9 million held in a collateral account for the payment and performance of secured obligations including the reimbursement of letters of credit. Additionally, we hold approximately $2.7 million in escrow to secure the future decommissioning obligations related to the oil and gas property.
Intangible and Other Long-Term Assets
Intangible assets consist of the following (in thousands):
December 31, | ||||||||||||||||||||
2019 | 2018 | |||||||||||||||||||
Estimated | Gross | Accumulated | Net | Gross | Accumulated | Net | ||||||||||||||
Useful Lives | Amount | Amortization | Balance | Amount | Amortization | Balance | ||||||||||||||
Customer relationships | 17 years | $ | 19,902 | $ | (14,680) | $ | 5,222 | $ | 133,374 | $ | (59,711) | $ | 73,663 | |||||||
Tradenames | 10 years | 8,907 | (5,413) | 3,494 | 20,717 | (13,334) | 7,383 | |||||||||||||
Non-compete agreements | 3 years | 3,464 | (3,106) | 358 | 4,474 | (3,313) | 1,161 | |||||||||||||
Total | $ | 32,273 | $ | (23,199) | $ | 9,074 | $ | 158,565 | $ | (76,358) | $ | 82,207 | ||||||||
Amortization expense was $2.1 million during 2019 and $5.6 million in each57
The Company recorded $57.7 million of expense related to the reduction in carrying values of intangibles at Pumpco, which is included in the loss from discontinued operations for the year ended December 31, 2019. In addition, during 2019, the Company recorded $7.6 million of expense related to the reduction in carrying values of intangibles in the Onshore Completion and Workover Services segment (see note 11).
Decommissioning Liabilities
The Company’sWe account for decommissioning liabilities under ASC 410 – Asset Retirement Obligations. Our decommissioning liabilities are associated with theour oil and gas property and its related assets consist of costsinclude liabilities related to the plugging of wells, the removal of the related platform and equipment and site restoration. The Company reviewsWe review the adequacy of itsour decommissioning liabilities whenever indicators suggest that the estimated cash flows and/or relating timing needed to satisfy the liability have changed materially.
In December 2021, we revised our estimates relating to the timing and the cost of decommissioning work on our oil and gas property, which included a three year extension of the completion of the platform decommissioning to an estimated date of 2031. This change in estimate resulted in an increase in the present value of decommissioning liabilities of $3.6 million as of December 31, 2021. Additionally, during the revision of the decommissioning estimates as of December 31, 2021, it was determined that certain wells, primarily conductor and methanol wells, were historically excluded from the estimate of the decommissioning liability, including as part of our fresh start accounting. We also identified an error in the accretion calculation for the successor period. At December 31, 2021, we recognized a combined $11.0 million increase in the decommissioning liability and recorded incremental accretion of $3.1 million to correct these immaterial misstatements. In applying ASC 852, the additional decommissioning liability as of fresh start led to an increase to intangible assets, specifically trademarks of $3.1 million after considering the effects of the notes receivable adjustment, that was also recognized at December 31, 2021.
The following table summarizes the activity for the Company’s
We had decommissioning liabilities (in thousands): of $190.4 million as of December 31, 2021. We had decommissioning liabilities of $142.7 million as of December 31, 2020, including decommissioning liabilities included within liabilities held for sale. In connection with fresh start accounting, we now present all decommissioning liabilities separately on the balance sheet. Previously, certain decommissioning liabilities were included as a component of other long-term liabilities.
During the Successor Period, the Predecessor Period and the years ended December 31, 2020 and 2019, we recognized $9.3 million, $0.5 million, $6.5 million and $6.1 million of accretion expense associated with our decommissioning liabilities.
December 31, | ||||||
2019 | 2018 | |||||
Balance at beginning of period | $ | 130,096 | $ | 130,397 | ||
Accretion | 6,332 | 4,906 | ||||
Liabilities settled | (147) | (5,207) | ||||
Balance at end of period | $ | 136,281 | $ | 130,096 | ||
Income Taxes
The Company accounts for income taxes and the related accounts underWe use the asset and liability method. Deferredmethod of accounting for income taxes reflecttaxes. This method takes into account the impact of temporary differences between amountsfinancial statement treatment and tax treatment of certain transactions. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial reporting purposesstatement carrying amounts of existing assets and such amounts asliabilities and their respective tax bases. Deferred tax assets and liabilities are measured byusing enacted tax laws and rates that areexpected to apply to taxable income in effect when the years in which those temporary differences are expected to reverse.be recovered or settled. Our deferred tax calculation requires us to make certain estimates about our future operations. Changes in state, federal and foreign tax laws, as well as changes in our financial condition or the carrying value of existing assets and liabilities, could affect these estimates. The effect of a change in tax rates on the deferred income taxes is recognized inas income or expense in the period that the rate is enacted.
We recognize DTAs to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of recent operations. If we determine that we would be able to realize our DTAs in the future in excess of their net recorded amount, we would make an adjustment to the DTA valuation allowance, which would reduce the provision for income taxes.
We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which the change occurs. A valuation allowance is recorded when management believes(1) we determine whether it is more likely than not that at least some portion of any deferred tax asset will not be realized. It is the Company’s policy to recognize interest and applicable penalties related to uncertain tax positions in incomewill be sustained on the basis of the technical merits of the position and (2) for those tax expense.positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
58
Earnings per Share
Our common equity consists of Class A Common Stock, par value $0.01 per share (the “Class A Common Stock”) and Class B common stock, par value $0.01 per share (“Class B Common Stock”). See Note 2 - Emergence from Voluntary Reorganization under Chapter 11 and Note 9 - Stock-Based Compensation Plans for further discussion of our Class A and Class B Common Stock.
Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed in the same manner as basic earnings per share except that the denominator is increased to include the number of additional shares of common stock that could have been outstanding assuming the exercise of stock options and conversion of restricted stock units.
During the Successor Period and the years ended December 31, 2020 and 2019, 2018 and 2017, the Companywe incurred losses from continuing operations; as such, the impact of any incremental shares would be anti-dilutive.Diluted earnings per share for the Predecessor Period includes the impact of approximately 0.1 million dilutive securities. At December 31, 2021, we have 0.1 million shares of unvested restricted stock and $1.4 million in unvested restricted stock units outstanding which will be converted into Class B common shares upon vesting.
Foreign Currency
ResultsAs part of operationsthe adoption of fresh start accounting and effective upon emergence from bankruptcy, we have adopted new presentations for foreigncertain items. The functional currency of certain international subsidiaries with functional currencies other thanchanged from the local currency to U.S. dollar are translated using average exchange rates duringdollars. Management considered the period. Assets and liabilities of these foreign subsidiaries are translated using the exchange rateseconomic factors outlined in effect at the balance sheet dates, and the resulting translation adjustments are reported as accumulated other comprehensive lossFASB ASC Topic No. 830 - Foreign Currency Matters in the Company’s stockholders’ equity.
For international subsidiaries wheredetermination of the functional currency. Management concluded that the predominance of factors support the use of the Successor's parent currency as the functional currency is thewhich resulted in a change in functional currency to U.S. dollar, dollars for all international subsidiaries.
financial
Financial statements of our international subsidiaries are remeasured into U.S. dollars using the historical exchange rate for most ofaffected the long-term assets and liabilities and the balance sheet date exchange rate for most of theaffected current assets and liabilities. An average exchange rate is used for each period for revenues and expenses. These transaction gains and losses, as well as any other transactions in a currency other than the functional currency, are included in other income (expense) in the consolidated statements of operations in the period in which the currency exchange rates change. During the Successor Period, the Predecessor Period and the years ended December 31, 2020 and 2019, 2018 and 2017, the Companywe recorded foreign currency losses of $0.8$8.8 million, $1.9$2.1 million, $8.9 million and $2.2$0.8 million, respectively.
Stock-Based Compensation
The Company recordsWe record compensation costs relating to share-based payment transactions and includesinclude such costs in general and administrative expenses in the consolidated statements of operations. The cost is measured at the grant date, based on the calculatedestimated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity award).
Self-Insurance Reserves
The Company isWe are self-insured, through deductibles and retentions, up to certain levels for losses under itsour insurance programs. The Company accruesWe accrue for these liabilities based on estimates of the ultimate cost of claims incurred as of the balance sheet date. The CompanyWe regularly reviewsreview the estimates of asserted and unasserted claims and providesprovide for losses through reserves. The Company obtainsWe obtain actuarial reviews to evaluate the reasonableness of internal estimates for losses related to workers’ compensation, auto liability and group medical on an annual basis.
New Accounting Pronouncements
Recently Issued Accounting Standards
In June 2016, the Financial Accounting Standards Board (FASB)FASB issued ASU 2016-13 - Measurement of Credit LosesLosses on Financial Instruments.Instruments (“ASU 2016-13”). This update improves financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope by using the Current Expected Credit Losses model (CECL).(the “CECL”) model. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses on financial instruments at the time the asset is originated or acquired. This update will apply to receivables arising from revenue transactions. The new standard is effective for the Companyus beginning on January 1, 2023. The Company is evaluatingWe have concluded that the effectadoption of ASU 2016-13 will not have a material impact on itsour consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This update aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The capitalized implementation costs of a hosting arrangement that is a service contract will be expensed over the term of the hosting arrangement. The Company adopted the new standard on January 1, 2020 on a prospective basis with respect to all implementation costs incurred after the date of adoption.
In December 2019, the FASB issued ASU 2019-12 - Simplifying the Accounting for Income Taxes. The new standardTaxes (“ASU 2019-12”). This update simplifies the accounting for income taxes by removing the following exceptions: (1) the incremental approach for intra-period tax allocation when there is effectivea loss from continuing operations and income or a gain from other items; (2) the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; (3) the Company beginning on January 1, 2021. The Company is evaluatingability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and (4) the effect ASU 2019-12 will have on its consolidated financial statements.
Subsequent Events59
In accordance with authoritative guidance, the Company has evaluated and disclosed all material subsequent events that occurred after the balance sheet date, but before financial statements were issued.
(2) Revenue
Revenue Recognition
Revenues are recognized when performance obligations are satisfied in accordance with contractual terms, in an amount that reflects the consideration the Company expects to be entitled to in exchange for services rendered, rentals provided and products sold. Taxes collected from customers and remitted to governmental authorities and revenues are reported on a net basis in the Company’s financial statements.
Performance Obligations
A performance obligation arises under contracts with customers and is the unit of account under Topic 606. The Company accounts for services rendered and rentals provided separately if they are distinct and the service or rental is separately identifiable from other items provided to a customer and if a customer can benefit from the services rendered or rentals provided on its own or with other resources that are readily available to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. A contract’s standalone selling prices are determined based on the prices that the Company charges for its services rendered, rentals provided and products sold. The majority of the Company’s performance obligations are satisfied over time, which is generally represented by a period of 30 days or less. The Company’s payment terms vary by the type of products or services offered. The term between invoicing and when the payment is due is typically 30 days.
general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The update also (1) requires an entity to recognize a franchise tax that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax; (2) requires an entity to evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction; (3) specifies that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements; (4) requires an entity to reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date; and (5) makes minor codification improvements for income taxes related to employee stock ownership plans. Our adoption of ASU 2019-12 as of January 1, 2021 has not had a material impact on our financial position, results of operations or cash flows.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform — Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848). This update provides an optional expedient and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates (“IBORs”) and, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction-based and less susceptible to manipulation. The ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. In January 2021, the FASB issued ASU No. 2021-01, which clarifies that certain provisions in Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The amendments in these ASUs are effective for all entities as of March 12, 2020 through December 31, 2022. As our credit agreement allows for alternative benchmark rates to be applied to any borrowings, we do not expect the cessation of LIBOR to have a material impact on our financial position, results of operations, cash flows or disclosures.
Subsequent Events
We and stockholders holding a majority of our Class A common stock entered into the Fifth Amendment to the Stockholders Agreement, effective as of February 9, 2022, which provides that if an officer or other authorized agent has been granted authority to approve a matter or take other action pursuant to a board-approved delegation of authority matrix, prior approval of the board will be deemed obtained without any further approval from the board.
On February 10, 2022, we entered into a Third Amendment to Credit Agreement to, among other things, provide us with additional flexibility around making asset sales. Specifically, the Credit Agreement was amended to refresh the amount of properties sold, transferred or otherwise disposed of pursuant to the “Substantial Portion” exception to $0 as of January 31, 2022. The “Substantial Portion” exception allows us to sell, transfer or otherwise dispose of properties so long as the aggregate value of all such properties sold, transferred or otherwise disposed of do not exceed (a) 10% of our gross book value of the assets during the four fiscal year quarter period ending with the fiscal quarter in which such determination is made, or (b) 10% of our consolidated net sales or net income during the four fiscal year quarter period ending with the fiscal quarter in which such determination is made. The Credit Agreement was also amended to add a new asset sale exception that allows us to make additional asset sales up to $25.0 million so long as (a) liquidity is greater than $100.0 million, (ii) unused availability under the Credit Agreement is greater than $25.0 million, and (iii) we receive 100% cash consideration to the extent that the property being sold is otherwise included in the calculation of the borrowing base under the Credit Agreement.
On March 8, 2022, we entered into a Fourth Amendment and Waiver to Credit Agreement to, among other things, permit us to file SES Energy Services India Pvt. Ltd, a private limited company of India and an indirect subsidiary, for bankruptcy under the Insolvency and Bankruptcy Code of India without triggering a default under the Credit Agreement.
(2) Emergence from Voluntary Reorganization under Chapter 11
On the Emergence Date, the conditions to effectiveness of the Plan were satisfied or waived and we emerged from Chapter 11.
Services revenue:
Bankruptcy Claims
During the Chapter 11 Cases, the Affiliate Debtors filed with the Bankruptcy Court schedules and statements setting forth, among other things, the assets and liabilities of each of the Affiliate Debtors, subject to the assumptions filed in connection therewith. Certain holders of pre-petition claims that were not governmental units were required to file proofs of claim by the bar date of January 7, 2021. Certain holders of pre-petition claims that were governmental units were required to file proofs of claim by the bar date of June 7, 2021. The Affiliate Debtors’ have received proofs of claim, primarily representsrepresenting general unsecured claims, of approximately $1.7 billion. The
60
Bankruptcy Court disallows claims that have been acknowledged as duplicates. Claims totaling approximately $1.4 billion have been withdrawn or disallowed. Differences in amounts chargedrecorded and claims filed by creditors were investigated and resolved, including through filing objections with the Bankruptcy Court, where appropriate. We may ask the Bankruptcy Court to customersdisallow claims that we believe are duplicative, have been later amended or superseded, are without merit, are overstated or should be disallowed for other reasons. In light of the substantial number of claims filed, the claims resolution process took considerable time to complete and continued even after the Affiliate Debtors emerged from bankruptcy. As a result of the claims resolution process post-emergence, the Affiliate Debtors agreed to allow certain claims classified per the Plan as Class 6 General Unsecured Claims against the Parent. Per ASC 852-10, liabilities are measured at their allowed claim amount, and the result of allowing these claims increased liabilities subject to compromise prior to emergence.
On the Emergence Date and pursuant to the Plan:
Prior to the Emergence Date, the Equity Rights Offering was completed in accordance with the Plan, which resulted in the issuance of 735,189 shares of Class A Common Stock. The Class A Common Stock issued in the Equity Rights Offering was exempt from registration under the Securities Act pursuant to section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder.
Rentals revenue: primarily priced on a per day, per man hour or similar basis and consists of fees charged to customers for use of the Company’s rental equipment over the term of the rental period, which is generally less than twelve months.
Product sales: products are generally sold based upon purchase orders or contracts within the Company’s customers that include fixed or determinable prices but do not include right of return provisions or other significant post-delivery obligations. The Company recognizes revenue from product sales when title passes to the customer, the customer assumes risks and rewards of ownership, collectability is reasonably assured and delivery occurs as directed by the customer.
The Company expenses sales commissions whencosts of our efforts to restructure our capital, prior to and during the Chapter 11 Cases, along with all other costs incurred becausein connection with the amortization period wouldChapter 11 Cases, have been one year or less.material.
On the Emergence Date, pursuant to the terms of the Plan, we filed an Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) and a Certificate of Amendment of Amended and Restated Certificate of Incorporation (the “Certificate of Amendment”).
Also, on the Emergence Date, and pursuant to the terms of the Plan, we adopted the Amended and Restated Bylaws (the “Bylaws”). The descriptions of the Certificate of Incorporation and the Bylaws are qualified in their entirety by reference to the full texts of the Certificate of Incorporation, Bylaws, and Certificate of Amendment which are incorporated by reference herein.
(3) Fresh Start Accounting
In connection with the emergence from bankruptcy and in accordance with ASC 852, we qualified for and adopted fresh start accounting on the Emergence Date because (1) the holders of our then existing common shares received less than 50 percent of our new common shares outstanding upon emergence and (2) the reorganization value of our assets immediately prior to confirmation of the Plan of $1,456.8 million was less than the total of all post-petition liabilities and allowed claims of $2,076.1 million.
Reorganization Value
61
In accordance with ASC 852, upon adoption of fresh start accounting, the reorganization value derived from the enterprise value as disclosed in the Plan was allocated to our assets and liabilities based on their fair values (except for deferred income taxes) in accordance with FASB ASC Topic No. 805 - Business Combinations (ASC 805) and FASB ASC Topic No. 820 - Fair Value Measurements (ASC 820). The amount of deferred income taxes recorded due to the fair value adjustments to assets and liabilities was determined in accordance with FASB ASC Topic No. 740 - Income Taxes.
The reorganization value represents the fair value of our total assets before considering certain liabilities and is intended to approximate the amount a willing buyer would pay for our assets immediately after restructuring. The Plan confirmed by the Bankruptcy Court estimated a range of enterprise values between $710.0 million and $880.0 million.
The following table reconciles the enterprise value to the reorganization value of our assets that has been allocated to our individual assets as of the Emergence Date (in thousands):
|
| Emergence Date |
| |
Selected Enterprise Value within Bankruptcy Court Range |
| $ | 729,918 |
|
Plus: Cash and cash equivalents |
|
| 172,768 |
|
Plus: Liabilities excluding the decommissioning liabilities |
|
| 380,496 |
|
Plus: Decommissioning liabilities, including decommissioning liabilities classified as held for sale |
|
| 173,622 |
|
Reorganization Value |
| $ | 1,456,804 |
|
Management determined the enterprise and corresponding equity value using various valuation methods, including (i) discounted cash flow analysis (“DCF”), (ii) comparable company analysis and (iii) precedent transaction analysis. The use of each approach provides corroboration for the other approaches.
In order to estimate the enterprise value using the DCF analysis approach, management’s estimated future cash flow projections, plus a terminal value which was calculated by applying a multiple based on our internal rate of return (“IRR”) of 17.6% and a perpetuity growth rate of 3.0% to the terminal year’s projected earnings before interest, tax, depreciation and amortization (“EBITDA”). These estimated future cash flows were then discounted to an assumed present value using our estimated weighted-average cost of capital, which is represented by our IRR.
The comparable company analysis provides an estimate of our value relative to other publicly traded companies with similar operating and financial characteristics, by which a range of EBITDA multiples of the comparable companies was then applied to management’s projected EBITDA to derive an estimated enterprise value.
Precedent transaction analysis provides an estimate of enterprise value based on recent sale transactions of similar companies, by deriving the implied EBITDA multiple of those transactions, based on sales prices, which was then applied to management’s projected EBITDA.
The enterprise value and corresponding equity value are dependent upon achieving the future financial results set forth in our valuations, as well as the realization of certain other assumptions. All estimates, assumptions, valuations and financial projections, including the fair value adjustments, the enterprise value and equity value projections, are inherently subject to significant uncertainties and the resolution of contingencies beyond our control. Accordingly, we cannot assure you that the estimates, assumptions, valuations or financial projections will be realized, and actual results could vary materially.
Valuation Process
The reorganization value was allocated to the Successor’s reporting segments using the discounted cash flow approach. The reorganization value was then allocated to the Successor’s identifiable assets and liabilities using the fair value principle as contemplated in ASC 820. The specific approach, or approaches, used to allocate reorganization value by asset class are noted below.
Inventory
The fair value of the inventory was determined by using both a cost approach and income approach. Inventory was segregated into raw materials, spare parts, work in process (“WIP”), and finished goods. Fair value of raw materials and spare parts inventory were determined using the cost approach. Fair value of finished goods and WIP inventory were determined by using the net realizable value approach. The fair value of finished goods was measured using an estimate of the costs to sell or dispose of the inventory plus a reasonable profit allowance on those efforts adjusted for holding costs. The fair value of WIP was measured using an estimate of the costs to complete and sell or consume the inventory plus a reasonable profit allowance on those efforts adjusted for holding costs.
62
Property, Plant and Equipment
Real Property
The fair values of real property locations were estimated using the sales comparison (market) approach and cost approach. As part of the valuation process, information was obtained on the Successor’s current usage, building type, year built, and cost history for all properties valued. In determining the fair value and remaining useful life for real property assets, functional and economic obsolescence was considered and taken as an adjustment at the asset level.
Tangible Assets Excluding Real Property and Oil and Gas Assets
The fair values of our tangible assets were calculated using either the cost or market approach. For most tangible asset categories, a cost approach was utilized relying on purchase year, historic costs, and industry/equipment based trend factors to determine replacement cost new of the assets. Readily available market transaction data was used and adjusted for current market conditions for asset categories with active secondary markets such as heavy trucks and computer equipment. In both approaches, consideration was made for the effects of physical deterioration as well as functional and economic obsolescence in determining both estimates of fair value and the remaining useful lives of the assets.
Oil and Gas Assets
The oil and gas assets were valued using estimates of the reserve volumes and associated income data based on escalated price and cost parameters.
Internally-Developed Software
Internally-developed software was valued using the cost approach in which a replacement cost was estimated based on the software developer time, materials, and other supporting services required to replicate the software.
Decommissioning Liabilities
In accordance with FASB ASC Topic No. 410 – Asset Retirement and Environmental Obligations (“ASC 410”), the decommissioning liabilities associated with our oil and gas assets were valued using the income approach. Estimates of future retirement costs were adjusted for an estimated inflation rate over the expected time period prior to retirement and future cash outflows were discounted by a credit adjusted risk-free rate. We changed our presentation to consolidate the decommissioning liabilities previously recorded to other long-term liabilities into decommissioning liabilities.
Intangible Assets
Intangible assets were identified apart from goodwill using the guidance provided in ASC 805. Intangible assets that were identified as either separable or arose from contract or other legal rights were valued using either the cost or income approaches. The principal intangible assets identified were trademarks and patents. Trademarks and patents were valued using the relief from royalty method in which the subject intangible asset is valued by reference to the amount of royalty income it could generate if it was licensed in an arm’s length transaction to a third party.
Lease Liabilities and Right of Use Assets
The fair value of lease liabilities was measured as the present value of the remaining lease payments, as if the lease were a new lease as of the Emergence Date. The Successor used its incremental borrowing rate of 5.3% commensurate with the Successor's capital structure as the discount rate in determining the present value of the remaining lease payments.
Consolidated Balance Sheet
The adjustments included in the following fresh start consolidated balance sheet as of February 2, 2021 reflect the effects of the transactions contemplated by the Plan and executed by the Successor on the Emergence Date (reflected in the column Reorganization Adjustments), and fair value and other required accounting adjustments resulting from the adoption of fresh start accounting (reflected in the column Fresh Start Adjustments). The explanatory notes provide additional information with regard to the adjustments recorded, the methods used to determine the fair values and significant assumptions.
The consolidated balance sheet as of the Emergence Date was as follows (in thousands):
As of February 2, 2021 | ||||||||||||||||
Reorganization | Fresh Start |
63
|
| Predecessor |
|
| Adjustments |
|
|
|
| Adjustments |
|
|
|
| Successor |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 194,671 |
|
| $ | (21,903 | ) |
| (1) |
| $ | - |
|
|
|
| $ | 172,768 |
|
Restricted cash - current |
|
| - |
|
|
| 16,751 |
|
| (2) |
|
| - |
|
|
|
|
| 16,751 |
|
Accounts receivable, net |
|
| 153,518 |
|
|
| 11 |
|
| (3) |
|
| - |
|
|
|
|
| 153,529 |
|
Income taxes receivable |
|
| 9,146 |
|
|
| - |
|
|
|
|
| (170 | ) |
| (16) |
|
| 8,976 |
|
Prepaid expenses |
|
| 31,630 |
|
|
| - |
|
|
|
|
| - |
|
|
|
|
| 31,630 |
|
Inventory and other current assets |
|
| 90,073 |
|
|
| - |
|
|
|
|
| 11,067 |
|
| (17) |
|
| 101,140 |
|
Assets held for sale |
|
| 240,761 |
|
|
| - |
|
|
|
|
| (20,402 | ) |
| (18) |
|
| 220,359 |
|
Total current assets |
|
| 719,799 |
|
|
| (5,141 | ) |
|
|
|
| (9,505 | ) |
|
|
|
| 705,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Property, plant and equipment, net |
|
| 401,263 |
|
|
| - |
|
|
|
|
| 139,587 |
|
| (19) |
|
| 540,850 |
|
Operating lease right-of-use assets |
|
| 32,488 |
|
|
| - |
|
|
|
|
| 1,430 |
|
| (20) |
|
| 33,918 |
|
Goodwill |
|
| 138,934 |
|
|
| - |
|
|
|
|
| (138,934 | ) |
| (21) |
|
| - |
|
Notes receivable |
|
| 72,484 |
|
|
| - |
|
|
|
|
| - |
|
|
|
|
| 72,484 |
|
Restricted cash - non-current |
|
| 80,179 |
|
|
| - |
|
|
|
|
| - |
|
|
|
|
| 80,179 |
|
Intangible and other long-term assets, net |
|
| 52,264 |
|
|
| (10,080 | ) |
| (4) |
|
| (17,964 | ) |
| (22) |
|
| 24,220 |
|
Total assets |
| $ | 1,497,411 |
|
| $ | (15,221 | ) |
|
|
| $ | (25,386 | ) |
|
|
| $ | 1,456,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
| |||||||||||||||||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts payable |
| $ | 51,816 |
|
| $ | (700 | ) |
| (5) |
| $ | - |
|
|
|
| $ | 51,116 |
|
Accrued expenses |
|
| 126,768 |
|
|
| 9,042 |
|
| (6) |
|
| 1,406 |
|
| (23) |
|
| 137,216 |
|
Liabilities held for sale |
|
| 39,642 |
|
|
| 1,614 |
|
| (7) |
|
| (3,992 | ) |
| (24) |
|
| 37,264 |
|
Total current liabilities |
|
| 218,226 |
|
|
| 9,956 |
|
|
|
|
| (2,586 | ) |
|
|
|
| 225,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Decommissioning liabilities |
|
| 134,934 |
|
|
| - |
|
|
|
|
| 34,581 |
|
| (25) |
|
| 169,515 |
|
Operating lease liabilities |
|
| 23,584 |
|
|
| - |
|
|
|
|
| (29 | ) |
| (26) |
|
| 23,555 |
|
Deferred income taxes |
|
| 4,853 |
|
|
| 3,100 |
|
| (8) |
|
| 51,569 |
|
| (27) |
|
| 59,522 |
|
Other long-term liabilities |
|
| 121,756 |
|
|
| - |
|
|
|
|
| (45,826 | ) |
| (28) |
|
| 75,930 |
|
Total non-current liabilities |
|
| 285,127 |
|
|
| 3,100 |
|
|
|
|
| 40,295 |
|
|
|
|
| 328,522 |
|
Liabilities subject to compromise |
|
| 1,572,772 |
|
|
| (1,572,772 | ) |
| (9) |
|
| - |
|
|
|
|
| - |
|
Total liabilities |
|
| 2,076,125 |
|
|
| (1,559,716 | ) |
|
|
|
| 37,709 |
|
|
|
|
| 554,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Stockholders’ equity (deficit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Predecessor common stock $0.001 par value |
|
| 16 |
|
|
| (16 | ) |
| (10) |
|
| - |
|
|
|
|
| - |
|
Predecessor Additional paid-in capital |
|
| 2,757,824 |
|
|
| (2,757,824 | ) |
| (11) |
|
| - |
|
|
|
|
| - |
|
Predecessor Treasury stock at cost |
|
| (4,290 | ) |
|
| 4,290 |
|
| (12) |
|
| - |
|
|
|
|
| - |
|
Successor Class A common stock $0.001 par value |
|
| - |
|
|
| 200 |
|
| (13) |
|
| - |
|
|
|
|
| 200 |
|
Successor Additional paid-in capital |
|
| - |
|
|
| 902,486 |
|
| (14) |
|
| - |
|
|
|
|
| 902,486 |
|
Accumulated other comprehensive loss, net |
|
| (67,532 | ) |
|
| - |
|
|
|
|
| 67,532 |
|
| (29) |
|
| - |
|
Accumulated deficit |
|
| (3,264,732 | ) |
|
| 3,395,359 |
|
| (15) |
|
| (130,627 | ) |
| (30) |
|
| - |
|
Total stockholders’ equity (deficit) |
|
| (578,714 | ) |
|
| 1,544,495 |
|
|
|
|
| (63,095 | ) |
|
|
|
| 902,686 |
|
Total liabilities and stockholders’ equity (deficit) |
| $ | 1,497,411 |
|
| $ | (15,221 | ) |
|
|
| $ | (25,386 | ) |
|
|
| $ | 1,456,804 |
|
Reorganization Adjustments (in thousands)
Payment of debtor in possession financing fees | $ | (183 | ) | |
Payment of professional fees at the Emergence Date | (2,649 | ) | ||
Payment of lease rejection damages classified as liabilities subject to compromise | (400 | ) | ||
Transfers from cash to restricted cash for Professional Fees Escrow and General | (16,751 | ) | ||
Payment of debt issuance costs for the Credit Facility | (1,920 | ) | ||
Net change in cash and cash equivalents | $ | (21,903 | ) |
64
Transfer from cash for Professional Fee Escrow |
| $ | 16,626 |
|
Transfer from cash for General Unsecured Creditors Escrow |
|
| 125 |
|
Net change in restricted cash - current |
| $ | 16,751 |
|
Write-off of deferred financing costs related to the Delayed-Draw Term Loan | $ | (12,000 | ) | |
Capitalization of debt issuance costs associated with the Credit Facility | 1,920 | |||
Net change in intangibles and other long-term assets | $ | (10,080 | ) |
Payment of professional fees at the Emergence Date | $ | (2,649 | ) | |
Professional fees recognized and payable at the Emergence Date | 1,949 | |||
Net change in accounts payable | $ | (700 | ) |
Payment of debtor in possession financing fees |
| $ | (183 | ) |
Accrual of professional fees |
|
| 6,500 |
|
Accrual for transfer taxes |
|
| 1,900 |
|
Reinstatement of lease rejection liabilities to be settled post-emergence |
|
| 700 |
|
Accrual of general unsecured claims against parent |
|
| 125 |
|
Net change in accrued liabilities |
| $ | 9,042 |
|
Prepetition 7.125% and 7.750% notes including accrued interest and unpaid interest |
| $ | 1,335,794 |
|
Rejected lease liability claims |
|
| 4,956 |
|
Allowed Class 6 General Unsecured Claims against Parent |
|
| 232,022 |
|
Liabilities subject to compromise settled in accordance with the Plan |
|
| 1,572,772 |
|
Reinstatement of accrued liabilities for lease rejection claims |
|
| (700 | ) |
Reinstatement of liabilities held for sale for lease rejection claims |
|
| (1,614 | ) |
Payment to settle lease rejection claims |
|
| (400 | ) |
Cash proceeds from rights offering |
|
| 963 |
|
Cash payout provided to cash opt-in noteholders |
|
| (952 | ) |
Cash Pool to settle GUCs against Parent |
|
| (125 | ) |
Issuance of common stock to prepetition noteholders, incremental to rights |
|
| (193 | ) |
Additional paid-in capital attributable to successor common stock issuance |
|
| (869,311 | ) |
Successor common stock issued to cash opt-out noteholders in the rights |
|
| (7 | ) |
Additional paid-in capital attributable to rights offering shares |
|
| (33,175 | ) |
Gain on settlement of liabilities subject to compromise |
| $ | 667,258 |
|
The Equity Rights Offering generated $963 million in proceeds used to settle $952 million in Cash Opt-in Noteholder claims. The Equity Rights Offering shares were offered at a price of $1.31/share to Cash Opt-out Noteholders. As such, the Equity Rights Offering shares generated the $963 million in cash proceeds from the share issuance as well as an implied discount to the Cash Opt-in claimants of $32.2 million, recorded as a loss on share issuance in reorganization items, net. The loss on the Equity Rights Offering share issuance
65
is offset by the gain on share issuance of $32.2 million implied by the issuance of shares to settle Cash Opt-out Noteholder claims at a value of $46.82/share compared to the reorganization value implied share price of $45.14/share.
Extinguishment of APIC related to Predecessor's outstanding equity interests | $ | (2,758,812 | ) | |
Extinguishment of RSUs for the Predecessor's incentive plan | 988 | |||
Net change in Predecessor's additional paid-in capital | $ | (2,757,824 | ) |
Issuance of successor Class A common stock to prepetition noteholders, |
| $ | 193 |
|
Successor Class A common stock issued to cash opt-out noteholders in |
|
| 7 |
|
Net change in Successor Class A common stock |
| $ | 200 |
|
Additional paid-in capital (Successor Class A common stock) |
| $ | 869,311 |
|
Additional paid-in capital (rights offering shares) |
|
| 33,175 |
|
Net change in Successor additional paid-in capital |
| $ | 902,486 |
|
Gain on settlement of liabilities subject to compromise |
| $ | 667,258 |
|
Accrual for transfer tax |
|
| (1,900 | ) |
Extinguishment of RSUs for Predecessor incentive plan |
|
| (988 | ) |
Adjustment to net deferred tax liability taken to tax expense |
|
| (3,100 | ) |
Professional fees earned and payable as a result of consummation of the Plan of Reorganization |
|
| (8,449 | ) |
Write-off of deferred financing costs related to the Delayed-Draw Term Loan |
|
| (12,000 | ) |
Extinguishment of Predecessor equity (par value, APIC, and treasury stock) |
|
| 2,754,538 |
|
Net change in retained earnings (deficit) |
| $ | 3,395,359 |
|
Fresh Start Adjustments (in thousands)
Fair value adjustment to inventory - Global Segment |
| $ | 12,137 |
|
Fair value adjustment to other current assets |
|
| (1,070 | ) |
Net change in inventory and other current assets due to the adoption of fresh |
| $ | 11,067 |
|
66
|
| Successor Fair |
|
|
| Predecessor Book |
| ||
Land, Buildings, and Associated Improvements |
| $ | 117,341 |
|
|
| $ | 205,237 |
|
Machinery and Equipment |
|
| 290,593 |
|
|
|
| 1,103,501 |
|
Rental Services Equipment |
|
| 92,861 |
|
|
|
| 617,762 |
|
Other Depreciable or Depletable Assets |
|
| 35,143 |
|
|
|
| 46,403 |
|
Construction in Progress |
|
| 4,912 |
|
|
|
| 4,912 |
|
|
|
| 540,850 |
|
|
|
| 1,977,815 |
|
Less: Accumulated Depreciation and Depletion |
|
| - |
|
|
|
| (1,576,552 | ) |
Property, Plant and Equipment, net |
| $ | 540,850 |
|
|
| $ | 401,263 |
|
The fair value changes of $1.4 million to intangibles assets are reflected in the table below:
|
| Successor Fair Value |
|
|
| Predecessor Net Book Value |
| ||
Customer Relationships |
| $ | - |
|
|
| $ | 4,901 |
|
Trademarks |
|
| 4,166 |
|
|
|
| 11 |
|
Patents |
|
| 2,120 |
|
|
|
| - |
|
Intangible Assets, Net |
| $ | 6,286 |
|
|
| $ | 4,912 |
|
Fresh start valuation adjustments | $ | (77,376 | ) | |
Adjustment to net deferred tax liability taken to tax expense | (53,251 | ) | ||
Net impact to accumulated other comprehensive loss and accumulated deficit | $ | (130,627 | ) |
67
Reorganization Items, net
The Predecessor incurred costs associated with the reorganization, primarily unamortized debt issuance costs, expenses related to rejected leases and post-petition professional fees. In accordance with applicable guidance, costs associated with the Chapter 11 Cases have been recorded as reorganization items, net within the accompanying consolidated statement of operations for the Predecessor Period. Reorganization items, net was zero for the Successor Period, with $13.7 million used in operating activities during the Successor Period. Reorganization items, net was $335.6 million for the Predecessor Period, with $3.1 million representing cash used in operating activities during the Predecessor Period, $2.7 million and $0.4 million paid for professional fees and to settle lease rejection damages, respectively.
|
| Predecessor |
| |
|
| For the Period |
| |
Gain on settlement of liabilities subject to compromise |
| $ | 667,258 |
|
Allowed claim adjustment for Class 6 claims |
|
| (232,022 | ) |
Fresh Start valuation adjustments (1) |
|
| (77,376 | ) |
Professional fees |
|
| (16,005 | ) |
Predecessor lease liabilities rejected per the Plan |
|
| 13,347 |
|
Write off of deferred financing costs related to the Delayed-Draw Term Loan |
|
| (12,000 | ) |
Lease rejection damages |
|
| (4,956 | ) |
Extinguishment of RSU's for the Predecessor's incentive plan |
|
| (988 | ) |
Other items |
|
| (1,698 | ) |
Total reorganization items, net |
| $ | 335,560 |
|
(1) Includes approximately $16.4 million in adjustments to assets and liabilities classified as held for sale. See Note 14 - Discontinued Operations.
Restructuring expenses
In connection with the Transformation Project, during the Successor Period and Predecessor Period, we incurred costs of $23.0 million and $1.3 million, respectively, which primarily relate to professional fees and separation costs related to former executives and personnel. These costs are included in Restructuring expenses in the consolidated statements of operations. Additionally, during the Successor Period, we have incurred shut down costs of $8.9 million at certain locations in our Well Services segment. These shut down costs include the write-down of inventory of $6.5 million which is reflected in cost of sales and the severance of personnel and other shut down costs of $2.4 million which is primarily reflected in cost of services.
68
(4) Revenue
Disaggregation of revenue
The following table presents the Company’s revenues by segment disaggregated by geography (in thousands):
Years Ended December 31, | ||||||||
2019 | 2018 | 2017 | ||||||
U.S. land | ||||||||
Drilling Products and Services | $ | 178,345 | $ | 176,448 | $ | 117,856 | ||
Onshore Completion and Workover Services | 341,297 | 406,248 | 366,636 | |||||
Production Services | 138,300 | 195,363 | 151,632 | |||||
Technical Solutions | 40,363 | 31,137 | 34,283 | |||||
Total U.S. land | $ | 698,305 | $ | 809,196 | $ | 670,407 | ||
U.S. offshore | ||||||||
Drilling Products and Services | $ | 125,104 | $ | 100,855 | $ | 91,507 | ||
Onshore Completion and Workover Services | - | - | - | |||||
Production Services | 73,610 | 66,512 | 74,033 | |||||
Technical Solutions | 141,851 | 160,507 | 161,766 | |||||
Total U.S. offshore | $ | 340,565 | $ | 327,874 | $ | 327,306 | ||
International | ||||||||
Drilling Products and Services | $ | 108,124 | $ | 106,416 | $ | 84,327 | ||
Onshore Completion and Workover Services | - | - | - | |||||
Production Services | 193,920 | 156,650 | 147,116 | |||||
Technical Solutions | 84,455 | 78,721 | 76,373 | |||||
Total International | $ | 386,499 | $ | 341,787 | $ | 307,816 | ||
Total Revenues | $ | 1,425,369 | $ | 1,478,857 | $ | 1,305,529 | ||
|
| Successor |
|
|
| Predecessor |
| ||||||||||
|
|
|
|
|
|
|
|
| Year ended December 31, |
| |||||||
|
| For the Period |
|
|
| For the Period |
|
| 2020 |
|
| 2019 |
| ||||
U.S. land |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rentals |
| $ | 87,432 |
|
|
| $ | 4,917 |
|
| $ | 78,537 |
|
| $ | 178,345 |
|
Well Services |
|
| 20,133 |
|
|
|
| 3,379 |
|
|
| 26,924 |
|
|
| 66,643 |
|
Total U.S. land |
|
| 107,565 |
|
|
|
| 8,296 |
|
|
| 105,461 |
|
|
| 244,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. offshore |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rentals |
|
| 103,646 |
|
|
|
| 8,196 |
|
|
| 129,021 |
|
|
| 143,973 |
|
Well Services |
|
| 93,412 |
|
|
|
| 7,371 |
|
|
| 104,559 |
|
|
| 196,592 |
|
Total U.S. offshore |
|
| 197,058 |
|
|
|
| 15,567 |
|
|
| 233,580 |
|
|
| 340,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
International |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rentals |
|
| 77,617 |
|
|
|
| 5,226 |
|
|
| 90,277 |
|
|
| 108,124 |
|
Well Services |
|
| 266,514 |
|
|
|
| 16,839 |
|
|
| 237,931 |
|
|
| 278,375 |
|
Total International |
|
| 344,131 |
|
|
|
| 22,065 |
|
|
| 328,208 |
|
|
| 386,499 |
|
Total Revenues |
| $ | 648,754 |
|
|
| $ | 45,928 |
|
| $ | 667,249 |
|
| $ | 972,052 |
|
The following table presents the Company’s revenues by segment disaggregated by type (in thousands):
|
| Successor |
|
|
| Predecessor |
| ||||||||||
|
|
|
|
|
|
|
|
| Year ended December 31, |
| |||||||
|
| For the Period |
|
|
| For the Period |
|
| 2020 |
|
| 2019 |
| ||||
Services |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rentals |
| $ | 33,629 |
|
|
| $ | 2,005 |
|
| $ | 45,226 |
|
| $ | 69,958 |
|
Well Services |
|
| 272,070 |
|
|
|
| 17,229 |
|
|
| 254,157 |
|
|
| 412,389 |
|
Total Services |
|
| 305,699 |
|
|
|
| 19,234 |
|
|
| 299,383 |
|
|
| 482,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rentals |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rentals |
|
| 197,050 |
|
|
|
| 14,082 |
|
|
| 215,163 |
|
|
| 310,844 |
|
Well Services |
|
| 11,901 |
|
|
|
| 352 |
|
|
| 10,200 |
|
|
| 15,282 |
|
Total Rentals |
|
| 208,951 |
|
|
|
| 14,434 |
|
|
| 225,363 |
|
|
| 326,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Product Sales |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rentals |
|
| 38,016 |
|
|
|
| 2,252 |
|
|
| 37,446 |
|
|
| 49,640 |
|
Well Services |
|
| 96,088 |
|
|
|
| 10,008 |
|
|
| 105,057 |
|
|
| 113,939 |
|
Total Product Sales |
|
| 134,104 |
|
|
|
| 12,260 |
|
|
| 142,503 |
|
|
| 163,579 |
|
Total Revenues |
| $ | 648,754 |
|
|
| $ | 45,928 |
|
| $ | 667,249 |
|
| $ | 972,052 |
|
Years Ended December 31, | |||||
2019 | 2018 | ||||
Services | |||||
Drilling Products and Services | $ | 69,958 | $ | 54,997 | |
Onshore Completion and Workover Services | 303,542 | 364,500 | |||
Production Services | 348,168 | 352,590 | |||
Technical Solutions | 163,584 | 160,942 | |||
Total services | $ | 885,252 | $ | 933,029 | |
Rentals | |||||
Drilling Products and Services | $ | 291,975 | $ | 281,750 | |
Onshore Completion and Workover Services | 37,755 | 41,748 | |||
Production Services | 32,402 | 36,568 | |||
Technical Solutions | 14,115 | 20,230 | |||
Total rentals | $ | 376,247 | $ | 380,296 | |
Product Sales | |||||
Drilling Products and Services | $ | 49,640 | $ | 46,972 | |
Onshore Completion and Workover Services | - | - | |||
Production Services | 25,260 | 29,367 | |||
Technical Solutions | 88,970 | 89,193 | |||
Total product sales | $ | 163,870 | $ | 165,532 | |
Total Revenues | $ | 1,425,369 | $ | 1,478,857 | |
(3)(5) Leases
Adoption of ASU 2016-02, Leases
The Company adopted the new standard on January 1, 2019 and used the effective date as the date of initial application. Therefore, prior period financial information has not been adjusted and continues to be reflected in accordance with the Company’s historical accounting policy. The standard establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months.
The standard provides a number of optional practical expedients in transition. The Company elected the “package of practical expedients,” which, among other things, allows the Company to carry forward its historical lease classification.
The adoption of this standard resulted in the recording of operating lease assets and operating lease liabilities of approximately $100.0 million as of January 1, 2019, with 0 related impact on the Company’s condensed consolidated statement of equity or condensed consolidated statement of operations. Short-term leases have not been recorded on the balance sheet.
Accounting Policy for Leases
The Company determinesWe determine if an arrangement is a lease at inception. All of the Company’sour leases are operating leases and are included in ROU assets, accounts payable and operating lease liabilities in the condensed consolidated balance sheet.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligations to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the respective lease term. The Company uses itsWe use our incremental borrowing rate based on the information available
69
at the commencement date in determining the present value of lease payments. The Company’sOur lease terms may include options to extend or terminate the lease.
Overview
The Company’sOur operating leases are primarily for real estate, machinery and equipment, and vehicles. The terms and conditions for these leases vary by the type of underlying asset. Total operating lease expense was as follows (in thousands):
|
| Successor |
|
|
| Predecessor |
| ||||||||||
|
|
|
|
|
|
|
|
| Year ended December 31, |
| |||||||
|
| For the Period |
|
|
| For the Period |
|
| 2020 |
|
| 2019 |
| ||||
Long-term fixed lease expense |
| $ | 12,579 |
|
|
| $ | 1,824 |
|
| $ | 18,454 |
|
| $ | 22,882 |
|
Long-term variable lease expense |
|
| - |
|
|
|
| 19 |
|
|
| 10 |
|
|
| 54 |
|
Short-term lease expense |
|
| 10,165 |
|
|
|
| 789 |
|
|
| 4,322 |
|
|
| 3,205 |
|
Total operating lease expense |
| $ | 22,744 |
|
|
| $ | 2,632 |
|
| $ | 22,786 |
|
| $ | 26,141 |
|
Years Ended December 31, | |||||
2019 | 2018 | ||||
Long-term fixed lease expense | $ | 33,577 | $ | 33,642 | |
Long-term variable lease expense | 406 | 749 | |||
Short-term lease expense | 17,670 | 14,367 | |||
Total operating lease expense | $ | 51,653 | $ | 48,758 | |
Supplemental Balance Sheet Information
Operating leases were as follows (in thousands):
|
| Successor |
|
|
| Predecessor |
| ||
|
| December 31, 2021 |
|
|
| December 31, 2020 |
| ||
Operating lease ROU assets |
| $ | 25,154 |
|
|
| $ | 33,317 |
|
|
|
|
|
|
|
|
| ||
Accrued expenses |
| $ | 5,650 |
|
|
| $ | 10,698 |
|
Operating lease liabilities |
|
| 19,193 |
|
|
|
| 29,464 |
|
Total operating lease liabilities |
| $ | 24,843 |
|
|
| $ | 40,162 |
|
|
|
|
|
|
|
|
| ||
Weighted average remaining lease term |
| 15 years |
|
|
| 11 years |
| ||
Weighted average discount rate |
| 5.34% |
|
|
| 6.35% |
| ||
|
|
|
|
|
|
|
| ||
Cash paid for operating leases |
| $ | 13,591 |
|
|
| $ | 24,657 |
|
ROU assets obtained in exchange for lease obligations |
| $ | 2,820 |
|
|
| $ | 5,259 |
|
During the Predecessor Period, cash paid for operating leases totaled $1.6 million and ROU assets obtained in exchange for lease obligation were $0.4 million.
| ||
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
| |
Maturities of operating lease liabilities at December 31, 20192021 are as follows (in thousands):
2020 | $ 29,796 | ||||
2021 | 21,653 | ||||
2022 | 13,328 |
| $ | 8,002 |
|
2023 | 9,632 |
| 5,735 |
| |
2024 | 7,311 |
| 3,611 |
| |
2025 |
| 2,905 |
| ||
2026 |
| 1,854 |
| ||
Thereafter | 44,381 |
|
| 16,628 |
|
Total lease payments | 126,101 |
| 38,735 |
| |
Less imputed interest | (42,675) |
|
| (13,892 | ) |
Total | $ 83,426 |
| $ | 24,843 |
|
49(6) Intangibles
Intangible assets, net as of December 31, 2021 and 2020 consist of the following (in thousands):
|
|
|
|
| Successor |
|
|
| Predecessor |
| |||||||||||||||||||
|
|
|
|
| December 31, 2021 |
|
|
| December 31, 2020 |
| |||||||||||||||||||
|
| Estimated |
|
| Gross |
|
| Accumulated |
|
| Net |
|
|
| Gross |
|
| Accumulated |
|
| Net |
| |||||||
|
| Useful Lives |
|
| Amount |
|
| Amortization |
|
| Balance |
|
|
| Amount |
|
| Amortization |
|
| Balance |
| |||||||
Trademarks |
|
| 10 |
|
| $ | 7,294 |
|
| $ | (655 | ) |
| $ | 6,639 |
|
|
| $ | 4,744 |
|
| $ | (4,263 | ) |
| $ | 481 |
|
Patents |
|
| 10 |
|
|
| 2,120 |
|
|
| (195 | ) |
|
| 1,925 |
|
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Customer Relationships |
|
| 17 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
|
| 14,592 |
|
|
| (10,077 | ) |
|
| 4,515 |
|
Non-Compete Agreements |
|
| 3 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
|
| 3,478 |
|
|
| (3,478 | ) |
|
| - |
|
Total |
|
|
|
| $ | 9,414 |
|
| $ | (850 | ) |
| $ | 8,564 |
|
|
| $ | 22,814 |
|
| $ | (17,818 | ) |
| $ | 4,996 |
|
70
At December 31, 2021, we recognized an increase in trademarks of approximately $3.1 million related to fresh start accounting adjustments associated with the revision of our decommissioning liabilities. See Note 1 - Summary of Significant Accounting Policies for further discussion of the changes in our decommissioning liabilities.
Amortization expense for the Successor Period, the Predecessor Period and the years ended December 31, 2020 and 2019 was $0.9 million, $0.1 million, $1.3 million and $1.3 million, respectively. Based on the carrying values of intangible assets of December 31, 2021, amortization expense for the next five years (2022 through 2026) is estimated to be $0.9 million.
(4)(7) Property, Plant and Equipment, Net
A summary of property, plant and equipment, net is as follows (in thousands):
|
| Successor |
|
|
| Predecessor |
| ||
|
| December 31, 2021 |
|
|
| December 31, 2020 |
| ||
Machinery and equipment |
| $ | 360,353 |
|
|
| $ | 1,727,454 |
|
Buildings, improvements and leasehold improvements |
|
| 75,374 |
|
|
|
| 171,635 |
|
Automobiles, trucks, tractors and trailers |
|
| 6,450 |
|
|
|
| 11,742 |
|
Furniture and fixtures |
|
| 19,668 |
|
|
|
| 31,407 |
|
Construction-in-progress |
|
| 6,700 |
|
|
|
| 4,793 |
|
Land |
|
| 28,671 |
|
|
|
| 33,394 |
|
Oil and gas producing assets |
|
| 44,700 |
|
|
|
| 15,117 |
|
Total |
|
| 541,916 |
|
|
|
| 1,995,542 |
|
Accumulated depreciation and depletion |
|
| (185,642 | ) |
|
|
| (1,587,435 | ) |
Property, plant and equipment, net |
| $ | 356,274 |
|
|
| $ | 408,107 |
|
December 31, | ||||||
2019 | 2018 | |||||
Machinery and equipment | $ | 2,425,526 | $ | 3,229,793 | ||
Buildings, improvements and leasehold improvements | 255,719 | 278,339 | ||||
Automobiles, trucks, tractors and trailers | 22,727 | 26,522 | ||||
Furniture and fixtures | 40,694 | 52,045 | ||||
Construction-in-progress | 16,661 | 38,119 | ||||
Land | 48,534 | 58,047 | ||||
Oil and gas producing assets | 69,204 | 66,605 | ||||
Total | 2,879,065 | 3,749,470 | ||||
Accumulated depreciation and depletion | (2,214,116) | (2,640,344) | ||||
Property, plant and equipment, net | $ | 664,949 | $ | 1,109,126 |
The CompanyWe had $68.4$7.2 million and $74.9$28.9 million of leasehold improvements at December 31, 20192021 and 2018,2020, respectively. These leasehold improvements are depreciated over the shorter of the life of the asset or the term of the lease using the straight line method. AsOil and gas producing assets includes $24.2 million and $4.6 million as of December 31, 2019, $179.1 million of property, plant2021 and equipment relating to Pumpco was classified as assets held2020, respectively, for sale on the consolidated balance sheet. asset retirement costs associated with our oil and gas property.
Depreciation expense (excluding depletion, amortization and accretion) for the Successor Period, the Predecessor Period and the years ended December 31, 2020 and 2019 was $180.2$238.8 million, $258.6$9.5 million, $103.5 million and $312.4$131.5 million, during 2019, 2018 and 2017, respectively. See Note 14 - Discontinued Operations for a discussion of depreciation expense related to our discontinued operations.
(5)As discussed above, depreciation expense in the Successor Period was impacted by the valuation process under fresh start accounting. Certain fully depreciated assets were assigned an estimated fair value of approximately $197.5 million and a remaining useful life of less than 36 months which significantly increased the amount of depreciation expense recorded in the Successor Period. Depreciation expense for these previously fully depreciated assets was $167.5 million for the Successor Period. See Note 3 – Fresh Start Accounting for additional information.
(8) Debt
The Company’s outstanding debt was as follows (in thousands):
December 31, | |||||||
2019 | 2018 | ||||||
Stated Interest Rate (%) | Long-term | ||||||
Senior unsecured notes due September 2024 | 7.750 | $ | 500,000 | $ | 500,000 | ||
Senior unsecured notes due December 2021 | 7.125 | 800,000 | 800,000 | ||||
Total debt, gross | 1,300,000 | 1,300,000 | |||||
Unamortized debt issuance costs | (13,371) | (17,079) | |||||
Total debt, net | $ | 1,286,629 | $ | 1,282,921 |
Debt maturities presented as of December 31, 2019 were as follows (in thousands):
2020 | $ | - |
2021 | 800,000 | |
2022 | - | |
2023 | - | |
2024 | 500,000 | |
Thereafter | - | |
Total | $ | 1,300,000 |
Credit Facility
On the Emergence Date, pursuant to the Plan, we entered into a Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders and letter of credit issuers named therein providing for a $120.0 million asset-based secured revolving Credit Facility, all of which is available for the issuance of letters of credit (the “Credit Facility”). The issuance of letters of credit will reduce availability under the Credit Facility dollar-for-dollar.
As of December 31, 2021, the borrowing base under the Credit Facility was approximately $114.9 million and we had $37.1 million of letters of credit outstanding that reduced the borrowing availability under the revolving credit facility. We had no outstanding borrowings under the Credit Facility as of December 31, 2021.
On the Emergence Date, the Credit Facility replaced the DIP Credit Facility and the undrawn letters of credit outstanding under the former DIP Credit Facility were deemed outstanding under the Credit Facility. All accrued and unpaid fees and other amounts outstanding thereunder were paid in cash in full as well. The Credit Facility will mature on December 9, 2024.
71
The borrowing base under the Credit Facility is determined by reference to SESI’s and its subsidiary guarantors’ (i) eligible accounts receivable, (ii) eligible inventory, (iii) solely during the period from the Emergence Date until the earlier of December 9, 2022 and the date that unrestricted cash of SESI and its wholly-owned subsidiaries is less than $75.0 million, eligible premium rental drill pipe and (iv) so long as there are no loans outstanding at such time, certain cash of SESI and its subsidiary guarantors, less reserves established by the administrative agent in its permitted discretion.
Availability under the Credit Facility will be the lesser of (i) the commitments and (ii) the borrowing base. Subject to certain conditions, upon request and with the consent of the participating lenders, the total commitments under the Credit Facility may be increased to $170.0 million. SESI’s obligations under the Credit Facility are guaranteed by us and all of SESI’s material domestic subsidiaries and secured by substantially all of our, SESI’s and the subsidiary guarantors’ assets, other than real property.
Any borrowings under the Credit Facility will bear interest, at SESI’s option, at either an adjusted LIBOR rate plus an applicable margin ranging from 3.00% to 3.50% per annum, or an alternate base rate plus an applicable margin ranging from 2.00% to 2.50% per annum, in each case on the basis of the consolidated fixed charge coverage ratio. In addition, SESI is required to pay (i) a letter of credit fee, (ii) to the issuing lender of each letter of credit, a fronting fee and (iii) commitment fees. Upon the cessation of LIBOR, the Credit Facility provides for the use of alternative benchmark rates for the determination of the borrowing rate, and the cessation of LIBOR will not have a material impact on us.
Unless all loans are paid off and letters of credit outstanding are cash collateralized and the Credit Facility terminated, the Credit Facility requires, subject to permitted exceptions, compliance with various covenants, including, but not limited to, limitations on the incurrence of indebtedness, permitted investments, liens on assets, making distributions, transactions with affiliates, mergers, consolidations, dispositions of assets and other provisions customary in similar types of agreements. The Credit Facility also requires compliance with a fixed charge coverage ratio of 1.0 to 1.0 if (a) an event of default has occurred and is continuing or (b) availability under the Credit Facility is less than the greater of $20.0 million or 15% of the lesser of the aggregate commitments and the borrowing base.
On May 13, 2021, SESI, SESI Holdings, Inc. and the subsidiary guarantors party thereto entered into a first amendment and waiver to the Credit Facility (the “First Amendment and Waiver to the Credit Facility”) to, among other things, (i) extend the deadline thereunder for the delivery of our consolidated unaudited financial statements for the quarter ended March 31, 2021 to June 1, 2021 and (ii) obtain a limited waiver of potential defaults under the Credit Facility related to a delayed public filing of such financial statements after the original deadline for delivery of such financial statements.
On May 28, 2021, SESI, L.L.C., SESI Holdings, Inc. and the subsidiary guarantors party thereto entered into a waiver to the Credit Facility to (i) extend the deadline under the Credit Agreement for the delivery of Superior Energy Services, Inc.’s consolidated unaudited financial statements for the quarter ended March 31, 2021 and the calendar months ending April 30, 2021 and May 31, 2021 to July 15, 2021 and (ii) agree that until the unaudited financial statements and a revised borrowing base certificate in connection therewith are delivered, the lenders will not be required to make any advances requested. As discussed below, we have filed the required financial statements and delivered the revised borrowing base certificate in satisfaction of this requirement.
On July 15, 2021, SESI, the Former Parent, and the subsidiary guarantors party thereto entered into a waiver to the Credit Facility with JPMorgan Chase Bank, N.A., as administrative agent and lender, and certain other financial institutions and other parties thereto as lenders to (i) extend the deadline under the Credit Facility for the delivery of our consolidated unaudited financial statements (x) as of and for the quarter ended March 31, 2021 to September 30, 2021 and (y) as of and for the quarter ended June 30, 2021 and the calendar months ending April 30, 2021, May 31, 2021, July 31, 2021 and August 31, 2021 to October 30, 2021, (ii) obtain a limited waiver of potential defaults under the Credit Facility related to a delayed public filing of this quarterly report on Form 10-Q with respect to the fiscal quarter ended June 30, 2021 (including related financial statements) after the original deadline (and confirmation of such waiver as it pertains to the quarterly report on Form 10-Q with respect to the fiscal quarter ended March 31, 2021), and (iii) agree that until the quarterly unaudited financial statements and a revised borrowing base certificate in connection with each such quarter is delivered, the lenders will not be required to make any advances requested. We filed our consolidated unaudited financial statements as of, and for, the quarters ended March 31, 2021 and June 30, 2021 and delivered a revised borrowing base certificate within the required timeframe.
On November 15, 2021, we entered into a Second Amendment and Waiver to our Credit Agreement to (i) extend the deadline under the Credit Agreement for the delivery of our consolidated unaudited financial statements as of, and for, the quarter ended September 30, 2021 and the calendar month ending October 31, 2021 to December 10, 2021, (ii) obtain a limited waiver of potential defaults under the Credit Agreement related to a delayed public filing of the quarterly report on Form 10-Q for the quarter ended September 30, 2021 after the original deadline, and (iii) agree that until the quarterly unaudited financial statements and a revised borrowing base certificate in connection with such quarter are delivered, the lenders will not be required to make any advances requested by Borrower. We filed our consolidated unaudited financial statements as of, and for, the quarter ended September 30, 2021 and delivered a revised borrowing base
72
certificate within the required timeframe. In addition, the Credit Agreement was amended to, among other things, permit the disposition of the HB Onshore Rentals Business (as defined in the Credit Agreement).
Prepetition Indebtedness:
The Company hascommencement of the Chapter 11 Cases constituted an event of default with respect to the Prepetition Credit Facility (defined below) and the 7.125% Notes and 7.750% Notes. The enforcement of any obligations under the prepetition debt was automatically stayed as a result of the Chapter 11 Cases.
Debtor-in-Possession Credit Agreement
In connection with the Chapter 11 Cases, the Affiliate Debtors filed a motion for approval of a debtor-in-possession financing facility, and on December 8, 2020, the Bankruptcy Court approved such motion and entered an interim order approving the financing (the “Interim DIP Order”). In accordance with the Interim DIP Order, on December 9, 2020, we, as guarantor and SESI, as borrower, entered into a $120 million Senior Secured Debtor-in-Possession Credit Agreement (the “DIP Credit Facility”). On January 19, 2021, the Bankruptcy Court approved the Affiliated Debtors’ entry into the DIP Credit Facility on a final basis.
Delayed-Draw Term Loan Commitment Letter
On September 29, 2020, we entered into a commitment letter (the “Delayed-Draw Term Loan Commitment Letter”) with certain of the Consenting Noteholders (such Consenting Noteholders, the “Backstop Commitment Parties”). The Backstop Commitment Parties committed to provide a delayed draw term loan facility (the “Delayed-Draw Term Loan Facility”) in an aggregate principal amount not to exceed $200.0 million, upon our emergence from bankruptcy on the terms and subject to the conditions of the Delayed-Draw Term Loan Commitment Letter.
We paid $12.0 million of fees in consideration for the commitment by the Backstop Commitment Parties during 2020. On the Emergence Date, the Delayed-Draw Term Loan Commitment Letter terminated in accordance with its terms. The termination resulted in the recognition of $12.0 million of reorganization items, net during the Predecessor Period.
Prepetition Credit Facility
Prior to the commencement of the Chapter 11 Cases, we had an asset-based revolving credit facility (the “Prepetition Credit Facility”) which matureswas scheduled to mature in October 2022. Upon commencement of the Chapter 11 Cases, all amounts outstanding under the Prepetition Credit Facility became outstanding under the DIP Credit Facility.
The borrowing base under the credit facility isPrepetition Credit Facility was calculated based on a formula referencing the borrower’s and the subsidiary guarantors’ eligible accounts receivable, eligible inventory and eligible premium rental drill pipe less reserves. Availability under the credit facility isPrepetition Credit Facility was the lesser of (i) the commitments, (ii) the borrowing base and (iii) the highest principal amount permitted to be secured under the indenture governing the 7.125% senior unsecured notes due 2021. On September 20, 2019, the Company amended its credit facility to increase the letter of credit capacity from $100.0 million to $150.0 million. At December 31, 2019, the borrowing base was $220.0 million and the Company had $102.5 million of letters of credit outstanding that reduced its borrowing availability under the revolving credit facility. The credit agreement contains various covenants, including, but not limited to, limitations on the incurrence of indebtedness, permitted investments, liens on assets, making distributions, transactions with affiliates, merger, consolidations, dispositions of assets and other provisions customary in similar types of agreements.7.125% Notes.
Senior Unsecured Notes
The Company has
We had outstanding $500$800.0 million of 7.125% senior unsecured notes due December 2021. The indenture governing the 7.125% senior unsecured notes due 2021 required semi-annual interest payments on June 15 and December 15of each year through the maturity date of December 15, 2021. Additionally, we had outstanding $500.0 million of 7.750% senior unsecured notes due September 2024. The indenture governing the 7.75%7.750% senior unsecured notes due 2024 requiresrequired semi-annual interest payments on March 15 and September 15 of each year through the maturity date of September 15, 2024.
We, along with certain of our direct and indirect 100% owned domestic subsidiaries, entered into guarantees of the outstanding 7.750% Notes. All guarantees were full and unconditional, joint and several, except that the guarantee of any subsidiary guarantor could be released under certain customary circumstances, including, but not limited to, upon legal defeasance or satisfaction and discharge of the indenture that governed the 7.750% Notes. We were to be released from our guarantee only in connection with any legal defeasance or
73
satisfaction and discharge of the indenture. At the Emergence Date, all obligations under the 7.750% Notes were cancelled and the applicable agreements governing such obligations were terminated.
The balances outstanding under the 7.125% Notes and 7.750% Notes were classified as liabilities subject to compromise in the accompanying consolidated balance sheet at December 31, 2019,2020. On the Company hadEmergence Date, obligations under the 7.125% Notes and 7.750% Notes, including principal and accrued interest of $35.8 million, were fully extinguished in exchange for equity.
(9) Stock-Based Compensation Plans
As noted in Note 2 – Emergence from Voluntary Reorganization under Chapter 11, our outstanding $800 million of 7.125% senior unsecured notes due December 2021 (referred to hereinequity interests were cancelled as the Original Notes). In connection with the Exchange Offer, $617.9 million aggregate principal amount of outstanding Original Notes were validly tendered for exchange and not withdrawn, representing 77.24% of the aggregate principal amountEmergence Date and new Class A common stock was issued to settle claims arising as a result of Originalholding either the 7.125% Notes outstanding upon commencement ofor the Exchange Offer. SESI accepted all validly tendered Original Notes and issued $617.9 million aggregate principal amount of New Notes pursuant to the New Notes Indenture.7.750% Notes. As a result of the Exchange Offer, asconsummation of February 24, 2020, the Company has outstanding $182.1 million of Original Notes. The Original Notes Indenture requires semi-annual interest payments on June 15 and December 15of each year through the maturity date of December 15, 2021. The New Notes Indenture and the Original Notes Indenture each contain customary events of default and require that we satisfy various covenants.
(6) Stock-Based and Long-Term Incentive Compensation
The Company is authorized to grantPlan, restricted stock units (RSUs),issued prior to the fresh start accounting date under our stock options, cash restricted stock units (CRSUs), performance share units (PSUs) and other cash and stock awards as partincentive plans were cancelled for zero consideration. The balance sheet effect of the Long-Termcancellation is noted in Note 3 – Fresh Start Accounting.
2021 Management Incentive Program (LTIP). ThePlan
On June 1, 2021, our Board of Directors (the “Board”) and the Compensation Committee determines the recipients of the equityBoard (the “Compensation Committee”) approved and adopted our Management Incentive Plan (“MIP”), which provides for the grant of share-based and cash-based awards and, in connection therewith, the typeissuance from time to time of awards made, the required performance measures, and the timing and duration of each grant. At December 31, 2019, 328,000up to 1,999,869 shares of the Company’sour Class B common stock, were available for future grants under the plan.par value $0.01 per share.
Restricted Stock Grants
Total stock-based compensation expense and the associated tax benefits during the Successor Period are as follows (in thousands):
|
| Successor |
| |
|
| For the Period |
| |
Restricted stock awards |
| $ | 2,071 |
|
Restricted stock units |
|
| 639 |
|
Cash-based PSUs (1) |
|
| (1,268 | ) |
Total compensation expense |
|
| 1,442 |
|
Related income taxes |
|
| (335 | ) |
Total compensation expense, net of income taxes |
| $ | 1,107 |
|
Years ended December 31, | |||||||||
2019 | 2018 | 2017 | |||||||
Stock options | $ | 2,743 | $ | 4,247 | $ | 4,289 | |||
Restricted stock units | 15,716 | 19,828 | 21,899 | ||||||
Cash restricted stock units | 298 | - | - | ||||||
Performance share units | 935 | 6,912 | 9,740 | ||||||
Total compensation expense | 19,692 | 30,987 | 35,928 | ||||||
Related income taxes | 4,569 | 7,189 | 8,335 | ||||||
Total compensation expense, net of income taxes | $ | 15,123 | $ | 23,798 | $ | 27,593 | |||
On June1, 2021, the Board and the Compensation Committee approved the forms of restricted stock award agreements for (i) employee participants (the “Employee Restricted Stock Award Agreement”) and (ii) non-employee directors (the “Director Restricted Stock Award Agreement”).
Total stock-based compensation expense is reflected in general
On June 2, 2021, the Board and administrative expensesthe Compensation Committee approved the issuance of 113,840 shares of restricted stock (76,269 shares of restricted stock after giving effect to tax withholding) of Class B common stock under the MIP to certain of our non-employee directors and officers (the “Restricted Stock Awards”). Upon issuance of the Restricted Stock Awards, we immediately vested and retired 35,571 shares which were withheld for taxes. The Restricted Stock Awards will vest over a period of three years, subject to earlier vesting and forfeiture on terms and conditions set forth in the consolidated statements of operations.
Equity-Classified Awards
Stock Options
Stock options were granted with an exercise price equal to the market priceapplicable award agreement. The fair value of the Company’s common stock atRestricted Stock Awards was estimated to be $39.53 per share as of the date of grant. The stock options generally vest in equal installments over three years and expire in ten years from theunamortized estimated grant date. Non-vested stock options are generally forfeited upon terminationdate fair value as of employment.December 31, 2021 was approximately $2.4 million.
The Company recognizes compensation expense forDuring the third quarter of 2021, the Board and the Compensation Committee approved the issuance of $2.0 million in restricted stock option grants basedunits which will be convertible into Class B common stock upon vesting (the “Restricted Stock Units”). These Restricted Stock Units will vest over a period of 18 months, subject to earlier vesting and forfeiture on terms and conditions set forth in the applicable award agreement. The fair value atof the Restricted Stock Units was estimated to be $39.53 per share as of the date of grant. The unamortized estimated grant using the Black-Scholes-Merton option pricing model. The Company uses historical data, among other factors, to estimate the expected volatility and the expected lifedate fair value as of the stock options. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected life of the stock option.December 31, 2021 was approximately $1.4 million.
The share and per-share information has been retroactively adjusted to reflect the effect of the 1-for-10 Reverse Stock Split.Liability-Classified Compensation
The weighted average fair values of stock options granted and the assumptions used in estimating those fair values are as follows:401(k)
Years ended December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
Weighted average fair value of stock options granted | $ | 24.60 | $ | 56.12 | $ | 83.60 | ||||||
Black-Scholes-Merton Assumptions: | ||||||||||||
Risk free interest rate | 2.57 | % | 2.43 | % | 1.96 | % | ||||||
Expected life (years) | 6 | 6 | 6 | |||||||||
Volatility | 56.62 | % | 51.21 | % | 48.22 | % |
The following table summarizes stock option activity for 2019:
Number of Options | Weighted Average Option Price | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value | |||||||
Outstanding at beginning of period | 643,545 | $ | 182.69 | 5.0 | $ | - | ||||
Granted | 59,286 | $ | 43.6 | |||||||
Exercised | - | $ | - | |||||||
Expired | (33,471) | $ | 207.88 | |||||||
Outstanding at end of period | 669,360 | $ | 169.11 | 4.7 | $ | - | ||||
Exercisable at end of period | 566,946 | $ | 185.48 | 4.0 | $ | - | ||||
Options expected to vest at end of period | 102,414 | $ | 78.47 | 8.6 | $ | - | ||||
The Company received $0, $0 and $0.1 million during 2019, 2018 and 2017, respectively, from employee stock option exercises. The Company has reported tax benefits of $0, $0 and $0.1 million from the exercise of stock options for 2019, 2018 and 2017, respectively.
The following table summarizes non-vested stock option activity for 2019:
Number of Options | Weighted Average Grant Date Fair Value | |||||
Non-vested at beginning of period | 141,286 | $ | 80.00 | |||
Granted | 59,286 | $ | 43.60 | |||
Vested | (98,158) | $ | 112.09 | |||
Non-vested at end of period | 102,414 | $ | 78.47 | |||
At December 31, 2019, the unrecognized compensation expense related to non-vested stock options was $2.0 million. The Company expects to recognize $1.4 million and $0.6 million of compensation expense associated with these options during 2020 and 2021, respectively.
Restricted Stock Units
RSUs vest in equal annual installments over three years. On the vesting date, each RSU is converted to one share of the Company’s common stock having an aggregate value determined by the Company’s closing stock price on the vesting date. Holders of RSUs are not entitled to any rights of a stockholder, such as the right to vote shares.
The share and per-share information has been retroactively adjusted to reflect the effect of the 1-for-10 Reverse Stock Split.
The following table summarizes RSU activity for 2019:
Number of RSUs | Weighted Average Grant Date Fair Value | ||||
Non-vested at beginning of period | 342,243 | $ | 132.15 | ||
Granted | 269,032 | $ | 40.57 | ||
Vested | (162,404) | $ | 127.64 | ||
Forfeited | (34,905) | $ | 85.47 | ||
Non-vested at end of period | 413,966 | $ | 78.32 |
At December 31, 2019, there was $13.1 million of unrecognized compensation expense related to unvested RSUs. The Company expects to recognize $9.4 million, $3.4 million, and $0.3 million associated with unvested RSUs for 2020, 2021, and 2022, respectively.
Liability-Classified Awards
Cash Restricted Stock Units (CRSUs)
During 2019, the Company granted CRSUs to its employees as part of the Company’s LTIP. CRSUs vest in equal annual installments over three years. The ultimate amount earned is based on the closing price of the Company’s common stock on each of the vesting dates. The grant date fair value of the CRSUs was determined based on the closing price of the Company’s common stock on the grant date. The CRSUs liability is adjusted, based on the price changes in the Company’s common stock, through the end of each vesting period. At December 31, 2019, there were 174,424 CRSUs outstanding.
Performance Share Units (PSUs)
The Company has issued PSUs to its employees as part of the Company’s LTIP. There is a three year performance period associated with each PSU grant. The two performance metrics are the Company’s return on assets and total stockholder return relative to those of the Company’s pre-defined “peer group.” The PSUs will settle in cash or a combination of cash and up to 50% of equivalent value in the Company’s common stock, at the discretion of the Compensation Committee.
At December 31, 2019, there were 315,213 PSUs outstanding (94,091, 100,052 and 121,070 related to performance periods ending December 31, 2019, 2020 and 2021, respectively). The Company has recorded both current and long-term liabilities for this compensation award.
Employee Stock Purchase Plan (ESPP)
Eligible employees were allowed to purchase shares of the Company’s common stock at a discount during six-month offering periods beginning on January 1st and July 1st of each year the ESPP was in effect and ending on June 30 and December 31 of each year the ESPP was in effect, respectively. During the fourth quarter of 2019, the ESPP was terminated in accordance with its terms.
The following table summarizes ESPP activity (in thousands except shares):
Years ended December 31, | |||||||||
2019 | 2018 | 2017 | |||||||
Cash received for shares issued | $ | 689 | $ | 2,625 | $ | 3,074 | |||
Compensation expense | $ | 122 | $ | 463 | $ | 542 | |||
Shares issued | 532,292 | 550,950 | 360,465 |
401(k)/Profit Sharing Plan
The Company maintainsWe maintain a defined contribution profit sharing plan for employees who have satisfied minimum service requirements. Employees may contribute up to 75%75% of their eligible earnings to the plan subject to the contribution limitations imposed by the Internal Revenue Service. The Company providesWe provide a nondiscretionary match of 100%100% of an employee’s contributions to the plan, up to 4%4% of the employee’s salary. The CompanyWe made contributions of $10.5$2.6 million, $10.0$0.4 million, $6.2 million and $8.4$10.5 million 2019, 2018during the Successor Period, Predecessor Period and 2017,in 2020 and 2019, respectively.
Non-Qualified Deferred Compensation Plans
The Company maintains a non-qualified deferred compensation plan which allows senior management to defer up to 75% of their base salary, up to 100% of their bonus, up to 100% of the cash portion of their PSU compensation and up to 100% of the vested RSUs to the plan. The Company also maintains a non-qualified deferred compensation plan for its non-employee directors which allows each director to defer up to 100% of their cash compensation paid by the Company and up to 100% of their vested RSUs to the plan. Payments are made to participants based on their annual enrollment elections and plan balances.
The following table summarizes deferred compensation balances (in thousands):
December 31, | ||||||||
Balance sheet location | 2019 | 2018 | ||||||
Deferred compensation assets | Intangible and other long-term assets, net | $ | 15,499 | $ | 13,306 | |||
Deferred compensation liabilities, short-term | Accounts payable | $ | 1,372 | $ | 1,138 | |||
Deferred compensation liabilities, long-term | Other long-term liabilities | $ | 23,466 | $ | 19,766 |
Supplemental Executive Retirement Plan
The Company hasWe have a supplemental executive retirement plan (SERP)(“SERP”). The SERP provides retirement benefits to the Company’sour executive officers and certain other designated key employees. The SERP is an unfunded, non-qualified defined contribution retirement plan, and all contributions under the plan are unfunded credits to a notional account maintained for each participant. UnderPrior to January 1, 2020, under the SERP, the Companywe made annual contributions to a retirement account based on age and years of service. The participants in the plan received contributions ranging from 5%5% to 35%35% of salary and annual cash bonus, which totaled $1.1$0 million, $1.2$1.1 million and $0.9$1.2 million during 2019, 20182020, 2019 and 2017,2018, respectively. During 2019, 2018 and 2017, the Company paid $2.3 million, $0 and $0, respectively,We made payments to eligible participants in the SERP. The participationSERP of $3.4 million during the Successor Period, and fundingmade payments to eligible participants of $2.3 million in 2019. NaN payments were made during the SERP was suspended in the first quarter ofPredecessor Period or during 2020.
(7) Income TaxesPredecessor Stock-Based and Long-Term Incentive Compensation
On September 28, 2020, the Board of Directors of the Predecessor approved the implementation of a Key Employee Retention Program (“KERP”), which was designed to retain key employees in their current roles over the near term while providing them with financial stability. KERP payments were in lieu of any outstanding unvested awards under our long-term equity-based incentive plans (other than any cash-based performance units (which we refer to as PSUs) any annual bonuses that would otherwise be payable to the KERP participants. The componentsKERP provided for one-time retention payments equal to approximately $7.3 million in the aggregate to our 6 executive officers, including our named executive officers. The KERP further provided for approximately $2.4 million of loss from continuing operations before income taxesretention payments to other non-executive employees.
We were authorized to grant restricted stock units, stock options, performance share units and other cash and stock awards as part of its Long-Term Incentive Program (LTIP). Total stock-based compensation expense is reflected in general and administrative expenses in the consolidated statements of operations. Total stock-based compensation expense and the associated tax benefits are as follows (in thousands):
|
| Predecessor |
| |||||||||
|
|
|
|
| Year ended December 31, |
| ||||||
|
| For the Period |
|
| 2020 |
|
| 2019 |
| |||
Stock options |
| $ | 0 |
|
| $ | 94 |
|
| $ | 2,743 |
|
Restricted stock units |
|
| 1,170 |
|
|
| 4,144 |
|
|
| 15,716 |
|
Cash restricted stock units |
|
| 0 |
|
|
| (56 | ) |
|
| 298 |
|
Cash-based PSUs |
|
| 78 |
|
|
| (1,554 | ) |
|
| 935 |
|
Total compensation expense |
|
| 1,248 |
|
|
| 2,628 |
|
|
| 19,692 |
|
Related income taxes |
|
| (60 | ) |
|
| (610 | ) |
|
| (4,569 | ) |
Total compensation expense, net of income taxes |
| $ | 1,188 |
|
| $ | 2,018 |
|
| $ | 15,123 |
|
Stock Options
Years ended December 31, | |||||||||
2019 | 2018 | 2017 | |||||||
Domestic | $ | (81,443) | $ | (448,575) | $ | (270,221) | |||
Foreign | (936) | (21,831) | (41,656) | ||||||
$ | (82,379) | $ | (470,406) | $ | (311,877) |
Stock option grants generally vested in equal installments over three years and expired in ten years from the grant date. Non-vested stock options were generally forfeited upon termination of employment. Compensation expense for stock option grants was recognized based on the fair value at the date of grant using the Black-Scholes-Merton option pricing model. Historical data, among other factors, was used to estimate the expected volatility and the expected life of the stock options. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant for the expected life of the stock option. The dividend yield was based on our historical and projected dividend payouts.
We did 0t grant any stock options during the Predecessor Period or the year ended December 31, 2020. The weighted average fair values of stock options granted in 2019 was $24.60 and was based on a risk free interest rate of 2.57%, an expected life of 6 years and
The components of income tax benefit are as follows (in thousands):75
Years ended December 31, | |||||||||
2019 | 2018 | 2017 | |||||||
Current: | |||||||||
Federal | $ | - | $ | - | $ | - | |||
State | 1,573 | 2,118 | (750) | ||||||
Foreign | (3,359) | 14,856 | 9,137 | ||||||
(1,786) | 16,974 | 8,387 | |||||||
Deferred: | |||||||||
Federal | 1,792 | (66,039) | (142,590) | ||||||
State | 1,622 | (4,161) | 6,109 | ||||||
Foreign | (6,254) | 10,223 | (3,468) | ||||||
(2,840) | (59,977) | (139,949) | |||||||
$ | (4,626) | $ | (43,003) | $ | (131,562) |
an expected volatility of 56.62%. As of December 31, 2020, 468,247 stock options were outstanding and exercisable at a weighted average option price of $156.97. As discussed above, all stock options were canceled for no consideration at the Emergence Date.
Restricted Stock Units
RSUs granted as part of the LTIP generally vested in equal annual installments over three years. At December 31, 2020, 134,236 non-vested RSUs were outstanding at a weighted average grant date fair value of $80.27. During the Predecessor Period, 48,903 RSU's vested, and we recognized approximately $1.0 million in Reorganization items, net associated with the remaining RSUs, which were either forfeited or canceled for no consideration at the Emergence Date.
Performance Share Units
As part of our LTIP, PSUs were issued providing for a three year performance period. At December 31, 2020, there were 210,398 PSUs outstanding (96,522 and 113,876 related to performance periods ending December 31, 2020 and 2021, respectively). The 2020 PSU grants (related to performance periods ending December 31, 2022) were surrendered as a condition to participation in the KERP. During the Successor Period, payments of approximately $4.0 million were made related to the performance period ended December 31, 2020 and the PSU's related to the performance period ended December 31, 2021 were canceled due to not achieving the required performance.
Non-Qualified Deferred Compensation Plan
The Nonqualified Deferred Compensation Plan (“NQDC Plan”) provides an income deferral opportunity for executive officers and certain senior managers who qualified for participation. Participants in the NQDC Plan could make an advance election each year to defer portions of their base salary, bonus and other compensation. Payments made to participants are based on their enrollment elections and plan balances. No deferrals were elected for 2021. We have not had enrollment periods for the NQDC since 2019.
Employee Stock Purchase Plan
Our Employee Stock Purchase Plan (“ESPP”) terminated in accordance with its terms in 2019. Prior to termination, eligible employees were allowed to purchase shares of common stock at a discount during six month offering periods beginning on January 1st and July 1st of each year and ending on June 30 and December 31 of each year, respectively. During 2019, 532,292 shares were issued in connection with the ESPP. Cash received from participants totaled $0.7 million and we recognized compensation expense of $0.1 million.
(10) Income Taxes
The income tax provision is as follows:
|
| Successor |
|
|
| Predecessor |
| ||||||||||
In thousands: |
| Period |
|
|
| Period |
|
| For the Year Ended December 31, 2020 |
|
| For the Year Ended December 31, 2019 |
| ||||
Current income tax expense/(benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Federal |
| $ | (1,106 | ) |
|
| $ | 0 |
|
| $ | (36,506 | ) |
| $ | 0 |
|
State |
|
| (307 | ) |
|
|
| 0 |
|
|
| 635 |
|
|
| 546 |
|
Foreign |
|
| 6,220 |
|
|
|
| 3,314 |
|
|
| 8,497 |
|
|
| (3,359 | ) |
Total current income tax expense/(benefit) |
|
| 4,807 |
|
|
|
| 3,314 |
|
|
| (27,374 | ) |
|
| (2,813 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Deferred income tax expense/(benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Federal |
|
| (42,904 | ) |
|
|
| 55,015 |
|
|
| 4,593 |
|
|
| 10,175 |
|
State |
|
| 2,633 |
|
|
|
| (182 | ) |
|
| (638 | ) |
|
| 1,623 |
|
Foreign |
|
| 2,166 |
|
|
|
| 1,856 |
|
|
| (3,469 | ) |
|
| (6,252 | ) |
Total deferred income tax expense/(benefit) |
|
| (38,105 | ) |
|
|
| 56,689 |
|
|
| 486 |
|
|
| 5,546 |
|
Total income tax expense/(benefit) |
| $ | (33,298 | ) |
|
| $ | 60,003 |
|
| $ | (26,888 | ) |
| $ | 2,733 |
|
On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), a tax relief and spending package intended to provide economic stimulus to address the impact of the COVID-19 pandemic. The CARES Act allows corporations with net operating losses generated in 2018, 2019 and 2020 to elect to carryback those losses for a period of five years and relaxes the limitation for business interest deductions for 2019 and 2020. Under the provisions of the CARES Act, we received a refund
76
of $30.5 million in July 2020 related to the carryback of the 2018 net operating loss and received a refund of $8.2 million in February 2021 related to the carryback of the 2019 net operating loss.
A reconciliation of the U.S. statutory federal tax rate to the consolidated effective tax rate is as follows (in thousands):follows:
Years ended December 31, | |||||||||
2019 | 2018 | 2017 | |||||||
Computed expected tax benefit | $ | (17,513) | $ | (98,785) | $ | (109,157) | |||
Increase (decrease) resulting from | |||||||||
State and foreign income taxes | 4,019 | 10,437 | 16,437 | ||||||
Reduction in value of assets | (233) | 27,680 | - | ||||||
U.S. Tax Reform | - | - | (39,603) | ||||||
Other | 9,101 | 17,665 | 761 | ||||||
Income tax benefit | $ | (4,626) | $ | (43,003) | $ | (131,562) |
|
| Successor |
|
|
| Predecessor |
|
|
|
|
|
|
| ||||
In thousands: |
| Period |
|
|
| Period |
|
| For the Year Ended December 31, 2020 |
|
| For the Year Ended December 31, 2019 |
| ||||
Computed expected tax expense/(benefit) |
| $ | (32,635 | ) |
|
| $ | 69,125 |
|
| $ | (53,431 | ) |
| $ | (18,380 | ) |
State and foreign income taxes |
|
| (17,893 | ) |
|
|
| 6,217 |
|
|
| 5,026 |
|
|
| (7,444 | ) |
Valuation allowance |
|
| 0 |
|
|
|
| (46,208 | ) |
|
| 19,024 |
|
|
| 24,638 |
|
Gain on Settlement of Liabilities Subject to Compromise |
|
| 0 |
|
|
|
| (89,905 | ) |
|
| 0 |
|
|
| 0 |
|
Reduction in Deferred Tax Assets |
|
| 19,154 |
|
|
|
| 87,316 |
|
|
| 0 |
|
|
| (233 | ) |
Fresh Start Adjustments |
|
| 0 |
|
|
|
| 29,099 |
|
|
| 0 |
|
|
| 0 |
|
Other |
|
| (1,924 | ) |
|
|
| 4,359 |
|
|
| 2,493 |
|
|
| 4,152 |
|
Total income tax expense/(benefit) |
| $ | (33,298 | ) |
|
| $ | 60,003 |
|
| $ | (26,888 | ) |
| $ | 2,733 |
|
During 2018,We have evaluated the Company recordedtax impact resulting from our emergence from Chapter 11 Bankruptcy on February 2, 2021 and the Plan. As part of the debt restructuring, a $668.9 millionsubstantial portion of our pre-petition debt was extinguished. Absent an exception, a taxpayer recognizes cancellation of indebtedness income (“CODI”) upon discharge of its outstanding indebtedness for an amount of consideration that is less than its adjusted issue price. A taxpayer in bankruptcy may exclude CODI from taxable income but must first reduce its tax attributes by the amount of CODI realized. When the debt was extinguished, we realized CODI for U.S. federal income tax purposes of approximately $428 million. The CODI exclusion resulted in a partial elimination of our federal net operating loss carryforwards, as well as a partial reduction in valuetax basis in assets, primarily property, plant and equipment. The CODI also eliminated $19.2 million of goodwill relating to its Onshore Completion and Workover Services and Production Services segments. Forstate NOL deferred tax purposes, the goodwill impairment generatedasset which resulted in a reduction to the permanent book-tax basis difference of $548.8 million and a reduction to the book-tax temporary basis difference of $102.0 million net of current year amortization expense of $18.0 million. The 2018 effective tax rate was significantly impacted by the permanent adjustment related to thecorresponding reduction in value of assets caused by the goodwill impairment.state valuation allowance.
On December 22, 2017, U.S. Tax Reform was signed into law making significant changes toSection 382 of the Internal Revenue Code. Changes include, but are not limitedCode of 1986 provides an annual limitation with respect to the ability of a corporatecorporation to utilize its tax rate decrease from 35%attributes, as well as certain built-in-losses, against future U.S. taxable income in the event of a change in ownership. We experienced an ownership change on February 2, 2021, as defined in Section 382, due to 21% effective for tax years beginning after December 31, 2017 and the transition of U.S. international taxation from a worldwide tax system to a modified territorial system. As a result,Plan. The limitation under Section 382 is based on the Company recorded a provisional income tax benefit of $39.6 million during the fourth quarter of 2017. During 2018, the Company finalized its assessmentvalue of the corporation as of the Emergence Date. We do not expect the Section 382 limitation to impact ofour ability to use U.S. Tax Reform and no material adjustments were recorded.tax attributes other than foreign tax credits.
The tax effects of temporary differences that give rise to significantSignificant components of our deferred income tax assets and liabilities are as follows (in thousands):follows:
| Successor |
|
|
| Predecessor |
| |||||||||
December 31, | |||||||||||||||
2019 | 2018 | ||||||||||||||
In thousands: |
| December 31, 2021 |
|
|
| December 31, 2020 |
| ||||||||
Deferred tax assets: |
|
|
|
|
|
|
| ||||||||
Allowance for doubtful accounts | $ | 1,291 | $ | 856 |
| $ | 1,046 |
|
|
| $ | 1,713 |
| ||
Operating loss and tax credit carryforwards | 136,647 | 146,926 |
|
| 84,684 |
|
|
|
| 150,426 |
| ||||
Compensation and employee benefits | 35,532 | 38,006 |
|
| 8,832 |
|
|
|
| 27,625 |
| ||||
Decommissioning liabilities | 29,405 | 27,979 |
|
| 39,328 |
|
|
|
| 30,960 |
| ||||
Operating leases | 1,002 | - |
|
| 197 |
|
|
|
| 2,792 |
| ||||
Other | 24,903 | 25,331 | |||||||||||||
228,780 | 239,098 | ||||||||||||||
Valuation allowance | (84,741) | (25,571) | |||||||||||||
Net deferred tax assets | 144,039 | 213,527 | |||||||||||||
Other assets |
|
| 30,749 |
|
|
|
| 34,578 |
| ||||||
Total gross deferred tax assets |
|
| 164,836 |
|
|
|
| 248,094 |
| ||||||
Less: Valuation allowance |
|
| (90,781 | ) |
|
|
| (139,106 | ) | ||||||
Total deferred tax assets |
|
| 74,055 |
|
|
|
| 108,988 |
| ||||||
|
|
|
|
|
|
| |||||||||
Deferred tax liabilities: |
|
|
|
|
|
|
| ||||||||
Property, plant and equipment | 114,024 | 146,971 |
|
| 64,721 |
|
|
|
| 69,510 |
| ||||
Notes receivable | 12,977 | 12,977 |
|
| 17,812 |
|
|
|
| 12,977 |
| ||||
Goodwill and other intangible assets | 20,285 | 38,955 |
|
| (772 | ) |
|
|
| 23,920 |
| ||||
Other | - | 14,624 | |||||||||||||
Deferred tax liabilities | 147,286 | 213,527 | |||||||||||||
Net deferred tax liability | $ | 3,247 | $ | - | |||||||||||
Other liabilities |
|
| 1,287 |
|
|
|
| 7,869 |
| ||||||
Total deferred tax liabilities |
|
| 83,048 |
|
|
|
| 114,276 |
| ||||||
Net deferred tax liabilities |
| $ | 8,993 |
|
|
| $ | 5,288 |
|
Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the tax basis of an asset or liability and its reported amount in the consolidated financial statements. The measurement of deferred tax assets and liabilities is based on enacted tax laws and rates currently in effect in each of the jurisdictions in which we have operations. In recording deferred income tax assets, we consider whether it is more likely than not that some portion or all of the deferred income tax assets will be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income of the appropriate character during the periods in which those deferred income tax assets would be deductible. We consider all available positive and negative evidence, including scheduled reversal of deferred income tax liabilities, projected future taxable income,
At77
tax-planning strategies, and results of recent operations for this determination. Due to the history of losses in recent years, we are not relying on any projected future taxable income for this analysis. We are in a net deferred tax liability position as of December 31, 2019,2021 in the Company had $210.0 millionU.S., and the reversal of the deferred tax liability is expected to offset the reversal of U.S. deferred tax assets in the future periods. Thus, management believes that it is more likely than not that U.S. federal deferred tax assets, with the exception of certain credits, will be realized. Management determined that sufficient positive evidence does not exist to realize deferred tax assets for certain U.S. federal credits, certain U.S. state tax attributes, and for deferred tax assets in the majority of our foreign operations.
The amount of U.S. consolidated net operating loss carryforwards,losses available as of December 31, 2021, after attribute reduction, is estimated to be approximately $43.3 million, which are available to reduce future taxable income. The expiration date for utilization of the U.S. loss carryforwards is 2037 forThese losses generated before 2018. Losses generated in 2018 and later cannot be carried back and have an indefinite carryforward that isbut are limited to 80%offsetting 80% of taxable income each year. At December 31, 2019, the Company2021, we also had various state net operating loss carryforwards with expiration dates from 2020 to 2038.starting in 2022. A net deferred tax asset of $19.6$18.8 million reflects the expected future tax benefit for the state loss carryforwards. At December 31, 2019, the Company2021, we also had a U.S. foreign tax credit carryforward of $54.5$55.9 million with expiration dates from 2025 to 2027.
Management evaluates whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. The Company has incurred a cumulative loss over the three-year period ended December 31, 2019. Such evidence limits the ability to consider other projections of future growth. After considering all available evidence at December 31, 2019, the Company determined that a portion of the deferred tax assets would not be realized. Accordingly, the Company increased deferred income tax expense by an additional $61.9 million in the valuation allowance.
The Company hasWe have not provided income tax expense on earnings of itsour foreign subsidiaries, since the Company haswe have reinvested or expectsexpect to reinvest undistributed earnings outside the U.S. indefinitely. At December 31, 2019, the Company’s2021, our foreign subsidiaries had an overall accumulated deficit in earnings. The Company doesWe do not intend to repatriate the earnings of itsour profitable foreign subsidiaries. The Company hasWe have not provided U.S. income taxes for such earnings. These earnings could become subject to U.S. income tax, state and foreign taxes if repatriated. It is not practicable to estimate the amount of taxes that might be payable on such undistributed earnings.
The Company filesWe file income tax returnsreturn in the U.S., including federal and various state filings, and certain foreign jurisdictions. The number of years that are open under the statute of limitations and subject to audit varies depending on the tax jurisdiction. The Company remainsWe remain subject to U.S. federal tax examinations for years after 2017.
The Company had unrecognized tax benefits of $13.2 million, $30.6 million and $30.7 million as of December 31, 2019, 2018 and 2017, respectively, all of which would impact the Company’s effective tax rate if recognized.
The activity in unrecognized tax benefits is as follows (in thousands):follows:
|
| Successor |
|
|
| Predecessor |
| ||||||||||
In thousands: |
| Period |
|
|
| Period |
|
| For the Year Ended December 31, 2020 |
|
| For the Year Ended December 31, 2019 |
| ||||
Unrecognized tax benefits at beginning of period |
| $ | 14,706 |
|
|
| $ | 13,206 |
|
| $ | 13,206 |
|
| $ | 30,558 |
|
Additions based on tax positions related to prior years |
|
| 2,848 |
|
|
|
| 1,500 |
|
|
| 1,757 |
|
|
| 2,500 |
|
Reductions based on tax positions related to prior years |
|
| (552 | ) |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Additions based on tax positions related to current year |
|
| 0 |
|
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Reductions as a result of a lapse of the applicable statute of limitations |
|
| 0 |
|
|
|
| 0 |
|
|
| (757 | ) |
|
| 0 |
|
Reductions relating to settlements with taxing authorities |
|
| (2,029 | ) |
|
|
| 0 |
|
|
| (1,000 | ) |
|
| (19,852 | ) |
Unrecognized tax benefits at end of period |
| $ | 14,973 |
|
|
| $ | 14,706 |
|
| $ | 13,206 |
|
| $ | 13,206 |
|
We had unrecognized tax benefits of $15.0 million, $13.2 million and $13.2 million as of December 31, 2021, 2020 and 2019, respectively, all of which would impact our effective tax rate if recognized. It is reasonably possible that $2.9 million of unrecognized tax benefits could be settled in the next twelve-month period due to the conclusion of tax audits or due to the expiration of statute of limitations.
Years ended December 31, | |||||||||
2019 | 2018 | 2017 | |||||||
Unrecognized tax benefits at beginning of period | $ | 30,558 | $ | 30,656 | $ | 29,956 | |||
Additions based on tax positions related to prior years | 2,500 | 1,899 | 5,576 | ||||||
Reductions based on tax positions related to prior years | - | (1,864) | (4,671) | ||||||
Reductions as a result of a lapse of the applicable statute of limitations | - | (133) | (205) | ||||||
Reductions relating to settlements with taxing authorities | (19,852) | - | - | ||||||
Unrecognized tax benefits at end of period | $ | 13,206 | $ | 30,558 | $ | 30,656 |
The amounts above include accrued interest and penalties of $5.0$6.9 million, $9.7$5.8 million and $9.7$5.0 million for the years ended December 31, 2019, 20182021, 2020 and 2017,2019, respectively. During the year ended December 31, 2019, the Companywe recorded a reduction in unrecognized tax benefits of $19.9$19.9 million relating to settlements of income tax audits in foreign countries. Interest and penalties associated with the unrecognized tax benefits are classified as a component of income tax expense in the consolidated statements of operations.
(8)(11) Segment Information
In connection with our Transformation Project, our reportable segments were changed to Rentals and Well Services. We have recast historical amounts below and in Note 4 - Revenue in connection with this change.
Business Segments
The Drilling Productsproducts and Services segment rentsservice offerings of Rentals are comprised of value-added engineering and sellsdesign services, rental of premium drill strings, tubing, landing strings, completion tubulars and handling accessories, manufacturing and rental of bottom hole assemblies, and rentals of accommodation units.
78
The products and service offerings of Well Services are comprised of risk management, well control and training solutions, hydraulic workover and snubbing services, engineering and manufacturing of premium drill pipe, tubularssand control tools, and specialized equipment for use with onshore andinternational production services. The Well Services segment also includes the operations of our offshore oil and gas well drilling, completion, production and workover activities. It also provides on-site accommodations and machining services. The Onshore Completion and Workover Services segment provides fluid handling services and workover and maintenance services. The Production Services segment provides intervention services such as coiled tubing, cased hole and mechanical wireline, hydraulic workover and snubbing, production testing and optimization, and remedial pumping services. The Technical Solutions segment provides services typically requiring specialized engineering, manufacturing or project planning, including well containment systems, stimulation and sand control services, and the production and sale of oil and gas.property.
For the years ended December 31, 2019, 2018 and 2017, operating results of Pumpco are reported in discontinued operations (see note 12). Previously those operating results were reported within the Onshore Completion and Workover Services segment.
The Company evaluatesWe evaluate the performance of itsour reportable segments based on income or loss from operations excluding allocated corporate expenses.operations. The segment measure is calculated as follows: segment revenues less segment operating expenses, including general and administrative expenses, depreciation, depletion, amortization and accretion expense and reduction in value of assets. The Company usesWe use this segment measure to evaluate itsour reportable segments becauseas it is the measure that is most consistent with how the Company organizeswe organize and manages itsmanage our business operations. Corporate and other costs primarily include expenses related to support functions, including salaries and benefits for corporate employees and stock-based compensation expense.employees.
Summarized financial information for our segments is as follows (in thousands):
56
For the Period February 3, 2021 through December 31, 2021 (Successor) |
|
|
|
| Well |
|
| Corporate and |
|
| Consolidated |
| ||||
|
| Rentals |
|
| Services |
|
| Other |
|
| Total |
| ||||
Revenues |
| $ | 268,695 |
|
| $ | 380,059 |
|
| $ | - |
|
| $ | 648,754 |
|
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 105,373 |
|
|
| 316,879 |
|
|
| - |
|
|
| 422,252 |
|
Depreciation, depletion, amortization and accretion |
|
| 152,250 |
|
|
| 61,074 |
|
|
| 6,535 |
|
|
| 219,859 |
|
General and administrative expenses |
|
| 24,812 |
|
|
| 46,780 |
|
|
| 45,983 |
|
|
| 117,575 |
|
Restructuring expenses |
|
| 0 |
|
|
| 0 |
|
|
| 22,952 |
|
|
| 22,952 |
|
Other expenses |
|
| 3,609 |
|
|
| 13,117 |
|
|
| 0 |
|
|
| 16,726 |
|
Income (loss) from operations |
|
| (17,349 | ) |
|
| (57,791 | ) |
|
| (75,470 | ) |
|
| (150,610 | ) |
Interest income (expense), net |
|
| (7 | ) |
|
| 3,930 |
|
|
| (1,592 | ) |
|
| 2,331 |
|
Other income (expense) |
|
| 1,280 |
|
|
| (14,407 | ) |
|
| 5,999 |
|
|
| (7,128 | ) |
Income (loss) from continuing operations before income taxes |
| $ | (16,076 | ) |
| $ | (68,268 | ) |
| $ | (71,063 | ) |
| $ | (155,407 | ) |
For the Period January 1, 2021 through February 2, 2021 (Predecessor) |
|
|
|
| Well |
|
| Corporate and |
|
| Consolidated |
| ||||
|
| Rentals |
|
| Services |
|
| Other |
|
| Total |
| ||||
Revenues |
| $ | 18,339 |
|
| $ | 27,589 |
|
| $ | - |
|
| $ | 45,928 |
|
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 7,839 |
|
|
| 21,934 |
|
|
| - |
|
|
| 29,773 |
|
Depreciation, depletion, amortization and accretion |
|
| 4,271 |
|
|
| 3,666 |
|
|
| 421 |
|
|
| 8,358 |
|
General and administrative expenses |
|
| 2,027 |
|
|
| 4,111 |
|
|
| 4,914 |
|
|
| 11,052 |
|
Restructuring expenses |
|
| - |
|
|
| - |
|
|
| 1,270 |
|
|
| 1,270 |
|
Income (loss) from operations |
|
| 4,202 |
|
|
| (2,122 | ) |
|
| (6,605 | ) |
|
| (4,525 | ) |
Interest income (expense), net |
|
| 10 |
|
|
| 356 |
|
|
| (164 | ) |
|
| 202 |
|
Reorganization items, net |
|
| (2,037 | ) |
|
| 31,816 |
|
|
| 305,781 |
|
|
| 335,560 |
|
Other income (expense) |
|
| (399 | ) |
|
| (165 | ) |
|
| (1,541 | ) |
|
| (2,105 | ) |
Income (loss) from continuing operations before income taxes |
| $ | 1,776 |
|
| $ | 29,885 |
|
| $ | 297,471 |
|
| $ | 329,132 |
|
For the year ended December 31, 2020 (Predecessor) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
| Well |
|
| Corporate and |
|
| Consolidated |
| ||||
|
| Rentals |
|
| Services |
|
| Other |
|
| Total |
| ||||
Revenues |
| $ | 297,835 |
|
| $ | 369,414 |
|
| $ | 0 |
|
| $ | 667,249 |
|
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 109,902 |
|
|
| 298,229 |
|
|
| 0 |
|
|
| 408,131 |
|
Depreciation, depletion, amortization and accretion |
|
| 63,072 |
|
|
| 48,929 |
|
|
| 3,770 |
|
|
| 115,771 |
|
General and administrative expenses |
|
| 52,718 |
|
|
| 73,200 |
|
|
| 79,855 |
|
|
| 205,773 |
|
Restructuring expenses |
|
| - |
|
|
| - |
|
|
| 47,055 |
|
|
| 47,055 |
|
Reduction in value of assets |
|
| 754 |
|
|
| 21,038 |
|
|
| 1,983 |
|
|
| 23,775 |
|
Income (loss) from operations |
|
| 71,389 |
|
|
| (71,982 | ) |
|
| (132,663 | ) |
|
| (133,256 | ) |
Interest income (expense), net |
|
| - |
|
|
| 4,539 |
|
|
| (96,965 | ) |
|
| (92,426 | ) |
Reorganization expenses |
|
| 0 |
|
|
| 0 |
|
|
| (19,520 | ) |
|
| (19,520 | ) |
Other income |
|
| - |
|
|
| - |
|
|
| (9,229 | ) |
|
| (9,229 | ) |
Income (loss) from continuing operations before income taxes |
| $ | 71,389 |
|
| $ | (67,443 | ) |
| $ | (258,377 | ) |
| $ | (254,431 | ) |
79
Summarized financial information for the Company’s segments is as follows (in thousands):
2019 | ||||||||||||||||||
Onshore | ||||||||||||||||||
Drilling | Completion | |||||||||||||||||
Products and | and Workover | Production | Technical | Corporate and | Consolidated | |||||||||||||
Services | Services | Services | Solutions | Other | Total | |||||||||||||
Revenues | $ | 411,573 | $ | 341,297 | $ | 405,830 | $ | 266,669 | $ | - | $ | 1,425,369 | ||||||
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion | 154,503 | 274,162 | 328,527 | 167,890 | - | 925,082 | ||||||||||||
Depreciation, depletion, amortization | ||||||||||||||||||
and accretion | 83,999 | 33,699 | 51,370 | 22,665 | 4,726 | 196,459 | ||||||||||||
General and administrative expenses | 60,094 | 25,621 | 29,622 | 59,587 | 93,302 | 268,226 | ||||||||||||
Reduction in value of assets | - | 8,122 | 2,055 | 7,008 | - | 17,185 | ||||||||||||
Income (loss) from operations | 112,977 | (307) | (5,744) | 9,519 | (98,028) | 18,417 | ||||||||||||
Interest income (expense), net | - | - | - | 4,172 | (102,484) | (98,312) | ||||||||||||
Other income | - | - | - | - | (2,484) | (2,484) | ||||||||||||
Income (loss) from continuing operations | ||||||||||||||||||
before income taxes | $ | 112,977 | $ | (307) | $ | (5,744) | $ | 13,691 | $ | (202,996) | $ | (82,379) |
2018 | ||||||||||||||||||
Onshore | ||||||||||||||||||
Drilling | Completion | |||||||||||||||||
Products and | and Workover | Production | Technical | Corporate and | Consolidated | |||||||||||||
Services | Services | Services | Solutions | Other | Total | |||||||||||||
Revenues | $ | 383,719 | $ | 406,248 | $ | 418,525 | $ | 270,365 | $ | - | $ | 1,478,857 | ||||||
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion | 148,019 | 315,291 | 342,420 | 164,758 | - | 970,488 | ||||||||||||
Depreciation, depletion, amortization | ||||||||||||||||||
and accretion | 112,111 | 68,183 | 66,993 | 25,653 | 5,499 | 278,439 | ||||||||||||
General and administrative expenses | 53,688 | 24,386 | 41,499 | 57,600 | 99,295 | 276,468 | ||||||||||||
Reduction in value of assets | - | 227,801 | 92,252 | 2,660 | 322,713 | |||||||||||||
Income (loss) from operations | 69,901 | (229,413) | (124,639) | 22,354 | (107,454) | (369,251) | ||||||||||||
Interest income (expense), net | - | - | - | 3,915 | (103,392) | (99,477) | ||||||||||||
Other expense | - | - | - | - | (1,678) | (1,678) | ||||||||||||
Income (loss) from continuing operations | ||||||||||||||||||
before income taxes | $ | 69,901 | $ | (229,413) | $ | (124,639) | $ | 26,269 | $ | (212,524) | $ | (470,406) |
2017 | ||||||||||||||||||
Onshore | ||||||||||||||||||
Drilling | Completion | |||||||||||||||||
Products and | and Workover | Production | Technical | Corporate and | Consolidated | |||||||||||||
Services | Services | Services | Solutions | Other | Total | |||||||||||||
Revenues | $ | 293,690 | $ | 366,636 | $ | 372,781 | $ | 272,422 | $ | - | $ | 1,305,529 | ||||||
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion | 128,381 | 282,695 | 303,256 | 175,477 | - | 889,809 | ||||||||||||
Depreciation, depletion, amortization | ||||||||||||||||||
and accretion | 131,394 | 81,238 | 78,999 | 29,506 | 5,719 | 326,856 | ||||||||||||
General and administrative expenses | 51,265 | 34,856 | 48,655 | 51,679 | 99,142 | 285,597 | ||||||||||||
Reduction in value of assets | 1,356 | 919 | - | 8,115 | - | 10,390 | ||||||||||||
Income (loss) from operations | (18,706) | (33,072) | (58,129) | 7,645 | (104,861) | (207,123) | ||||||||||||
Interest income (expense), net | - | - | - | 3,567 | (105,022) | (101,455) | ||||||||||||
Other expense | - | - | - | - | (3,299) | (3,299) | ||||||||||||
Income (loss) from continuing operations | ||||||||||||||||||
before income taxes | $ | (18,706) | $ | (33,072) | $ | (58,129) | $ | 11,212 | $ | (213,182) | $ | (311,877) | ||||||
For the year ended December 31, 2019 (Predecessor) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
| Well |
|
| Corporate and |
|
| Consolidated |
| ||||
|
| Rentals |
|
| Services |
|
| Other |
|
| Total |
| ||||
Revenues |
| $ | 430,442 |
|
| $ | 541,610 |
|
| $ | 0 |
|
| $ | 972,052 |
|
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 168,608 |
|
|
| 389,657 |
|
|
| 0 |
|
|
| 558,265 |
|
Depreciation, depletion, amortization and accretion |
|
| 86,395 |
|
|
| 55,670 |
|
|
| 4,726 |
|
|
| 146,791 |
|
General and administrative expenses |
|
| 61,829 |
|
|
| 89,272 |
|
|
| 93,302 |
|
|
| 244,403 |
|
Reduction in value of assets |
|
| 0 |
|
|
| 9,293 |
|
|
| 0 |
|
|
| 9,293 |
|
Income (loss) from operations |
|
| 113,610 |
|
|
| (2,282 | ) |
|
| (98,028 | ) |
|
| 13,300 |
|
Interest income (expense), net |
|
| 0 |
|
|
| 4,172 |
|
|
| (102,511 | ) |
|
| (98,339 | ) |
Reorganization expenses |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Other income |
|
| 0 |
|
|
| 0 |
|
|
| (2,484 | ) |
|
| (2,484 | ) |
Income (loss) from continuing operations before income taxes |
| $ | 113,610 |
|
| $ | 1,890 |
|
| $ | (203,023 | ) |
| $ | (87,523 | ) |
Identifiable Assets
Identifiable Assets | ||||||||||||||||||
Onshore | ||||||||||||||||||
Drilling | Completion | |||||||||||||||||
Products and | and Workover | Production | Technical | Corporate and | Consolidated | |||||||||||||
Services | Services | Services | Solutions | Other | Total | |||||||||||||
December 31, 2019 | $ | 659,621 | $ | 467,697 | $ | 421,848 | $ | 377,627 | $ | 66,437 | $ | 1,993,230 | ||||||
December 31, 2018 | $ | 587,264 | $ | 808,037 | $ | 434,430 | $ | 340,161 | $ | 46,070 | $ | 2,215,962 | ||||||
December 31, 2017 | $ | 662,968 | $ | 1,501,214 | $ | 512,256 | $ | 377,549 | $ | 56,238 | $ | 3,110,225 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
| Well |
|
| Corporate |
|
| Consolidated |
| ||||
|
| Rentals |
|
| Services |
|
| and Other |
|
| Total |
| ||||
December 31, 2021 (Successor) |
| $ | 365,358 |
|
| $ | 715,738 |
|
| $ | 118,412 |
|
| $ | 1,199,508 |
|
December 31, 2020 (Predecessor) |
|
| 572,776 |
|
|
| 554,178 |
|
|
| 374,125 |
|
|
| 1,501,079 |
|
At December 31, 2019,2021 and 2020, the Onshore CompletionCorporate and Workover ServicesOther segment included $216.2$37.5 million and $242.1 million of identifiable assets relating to Pumpco that were classified as assets held for sale on the consolidated balance sheet,sale. For further discussion see note 12.Note 14 - Discontinued Operations.
During 2019, the Company sold its drilling rig service line, which was previously included in the Onshore Completion and Workover Services segment. This service line included 12 active U.S. land based drilling rigs and associated equipment with a carrying value of $66.2 million. The Company received $78.0 million in cash proceeds and recognized a $0.2 million loss on sale of assets. In addition, the Company recorded a $7.5 million impairment of the intangibles associated with the disposed assets.
Capital Expenditures
Capital Expenditures | ||||||||||||||||||
Onshore | ||||||||||||||||||
Drilling | Completion | |||||||||||||||||
Products and | and Workover | Production | Technical | Corporate and | Consolidated | |||||||||||||
Services | Services | (1) | Services | Solutions | Other | Total | ||||||||||||
December 31, 2019 | $ | 63,252 | $ | 5,830 | $ | 17,009 | $ | 11,377 | $ | 6,254 | $ | 103,722 | ||||||
December 31, 2018 | $ | 46,649 | $ | 39,699 | $ | 8,651 | $ | 16,221 | $ | 2,056 | $ | 113,276 | ||||||
December 31, 2017 | $ | 27,219 | $ | 15,871 | $ | 7,860 | $ | 13,296 | $ | 1,143 | $ | 65,389 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
| Well |
|
| Corporate |
|
| Consolidated |
| ||||
|
| Rentals |
|
| Services |
|
| and Other |
|
| Total |
| ||||
For the period from February 3, 2021 through December 31, 2021 (Successor) |
| $ | 27,335 |
|
| $ | 6,817 |
|
| $ | - |
|
| $ | 34,152 |
|
For the period from January 1, 2021 through February 2, 2021 (Predecessor) |
|
| 2,429 |
|
|
| 606 |
|
|
| - |
|
|
| 3,035 |
|
December 31, 2020 (Predecessor) |
|
| 24,053 |
|
|
| 19,609 |
|
|
| 3,991 |
|
|
| 47,653 |
|
December 31, 2019 (Predecessor) |
|
| 63,252 |
|
|
| 28,386 |
|
|
| 12,084 |
|
|
| 103,722 |
|
(1)Excludes capital expenditures related to Pumpco of $36.7 million, $108.1 million and $99.5 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Geographic SegmentsInformation
The Company attributesWe operate in the U.S. and in various other countries throughout the world. Our international operations are primarily focused in Latin America, Asia-Pacific and the Middle East and North Africa regions. We attribute revenue to various countries based on the location where services are performed or the destination of the drilling products or equipment sold or rented. Long-lived assets consist primarily of property, plant and equipment and are attributed to various countries based on the physical location of the asset at the end of a period. The Company’s revenue attributed to the U.S. and to other countries and the value of its long-lived assets by those locations is as follows (in thousands):
Revenues | |||||||||
Years Ended December 31, | |||||||||
2019 | 2018 | 2017 | |||||||
United States | $ | 1,038,870 | $ | 1,137,070 | $ | 997,713 | |||
Other countries | 386,499 | 341,787 | 307,816 | ||||||
Total | $ | 1,425,369 | $ | 1,478,857 | $ | 1,305,529 | |||
Long-Lived Assets | |||||||||
December 31, | |||||||||
2019 | 2018 | ||||||||
United States | $ | 489,189 | $ | 903,520 | |||||
Other countries | 175,760 | 205,606 | |||||||
Total | $ | 664,949 | $ | 1,109,126 |
Revenues
|
| Successor |
|
|
| Predecessor |
| ||||||||||
|
|
|
|
|
|
|
|
| Year ended December 31, |
| |||||||
|
| For the Period |
|
|
| For the Period |
|
| 2020 |
|
| 2019 |
| ||||
United States |
| $ | 304,623 |
|
|
| $ | 23,863 |
|
| $ | 339,041 |
|
| $ | 585,553 |
|
Other countries |
|
| 344,131 |
|
|
|
| 22,065 |
|
|
| 328,208 |
|
|
| 386,499 |
|
Total |
| $ | 648,754 |
|
|
| $ | 45,928 |
|
| $ | 667,249 |
|
| $ | 972,052 |
|
Long-Lived Assets
|
| Successor |
|
|
| Predecessor |
| ||
|
| December 31, 2021 |
|
|
| December 31, 2020 |
| ||
United States |
| $ | 231,388 |
|
|
| $ | 253,114 |
|
Other countries |
|
| 124,886 |
|
|
|
| 154,993 |
|
Total |
| $ | 356,274 |
|
|
| $ | 408,107 |
|
(9)80
(12) Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or the price paid to transfer a liability in an orderly transaction between market participants at the measurement date. Inputs used in determining fair value are characterized according to a hierarchy that prioritizes those inputs based on the degree to which they are observable. The three input levels of the fair value hierarchy are as follows:
Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities;
Level 2: Observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical assets or liabilities in inactive markets or model-derived valuations or other inputs that can be corroborated by observable market data; and
Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.
The following tables provide a summary of the financial assets and liabilities measured at fair value on a recurring basis (in thousands):
|
| Successor Fair Value at |
| |||||||||||||
|
| December 31, 2021 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Non-qualified deferred compensation assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Intangible and other long-term assets, net |
| $ | 0 |
|
| $ | 15,896 |
|
| $ | - |
|
| $ | 15,896 |
|
Accounts payable |
|
| - |
|
|
| 2,250 |
|
|
| - |
|
|
| 2,250 |
|
Other long-term liabilities |
|
| - |
|
|
| 19,218 |
|
|
| - |
|
|
| 19,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Investment in equity securities |
| $ | 25,735 |
|
| $ | - |
|
| $ | - |
|
| $ | 25,735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Predecessor Fair Value at |
| |||||||||||||
|
| December 31, 2020 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Non-qualified deferred compensation assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Intangible and other long-term assets, net |
| $ | - |
|
| $ | 15,013 |
|
| $ | - |
|
| $ | 15,013 |
|
Accounts payable |
|
| - |
|
|
| 2,869 |
|
|
| - |
|
|
| 2,869 |
|
Other long-term liabilities |
|
| - |
|
|
| 20,697 |
|
|
| - |
|
|
| 20,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total debt |
| $ | 409,050 |
|
| $ | - |
|
| $ | - |
|
| $ | 409,050 |
|
Fair Value at December 31, 2019 | ||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||
Intangible and other long-term assets, net: | ||||||||||||
Non-qualified deferred compensation assets | $ | - | $ | 15,499 | $ | - | $ | 15,499 | ||||
Accounts payable: | ||||||||||||
Non-qualified deferred compensation liabilities | $ | - | $ | 1,372 | $ | - | $ | 1,372 | ||||
Other long-term liabilities: | ||||||||||||
Non-qualified deferred compensation liabilities | $ | - | $ | 23,466 | $ | - | $ | 23,466 | ||||
Total debt | $ | 1,021,300 | $ | - | $ | - | $ | 1,021,300 | ||||
Fair Value at December 31, 2018 | ||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||
Intangible and other long-term assets, net: | ||||||||||||
Non-qualified deferred compensation assets | $ | 376 | $ | 12,930 | $ | - | $ | 13,306 | ||||
Accounts payable: | ||||||||||||
Non-qualified deferred compensation liabilities | $ | - | $ | 1,138 | $ | - | $ | 1,138 | ||||
Other long-term liabilities: | ||||||||||||
Non-qualified deferred compensation liabilities | $ | - | $ | 19,766 | $ | - | $ | 19,766 | ||||
Total debt | $ | 1,084,711 | $ | - | $ | - | $ | 1,084,711 |
The Company’sOur non-qualified deferred compensation plans allow officers, certain highly compensated employees and non-employee directors to defer receipt of a portion of their compensation and contribute such amounts to one or more hypothetical investment funds (see note 6). The Company entered into separate trust agreements, subject to general creditors, to segregate assets of each plan and reports the accounts of the trusts in its consolidated financial statements.funds. These investments are reported at fair value based on unadjusted quoted prices in active markets for identifiable assets and observable inputs for similar assets and liabilities, which represent Levels 1 anda Level 2 respectively, in the fair value hierarchy depending on the type of investment. Commencement of the Chapter 11 Cases automatically stayed payments under the non-qualified deferred compensation plans. As a result of the consummation of the Plan, restricted stock units issued prior to the Fresh Start Accounting Date under our stock incentive plans were cancelled for 0 consideration.
Investment in equity securities relates to our ownership in 4.1 million shares of common stock of Select Energy Services, Inc. This investment is reported at fair value based on unadjusted quoted prices which are readily determinable, which represents a Level 1 in the fair value hierarchy. During the Successor Period, we recognized an unrealized gain on equity securities of $2.1 million, which is included in other expense in our consolidated statement of operations. See Note 14 - Discontinued Operations for further discussion.
The carrying amount of cash equivalents, accounts receivable, accounts payable and accrued expenses, as reflected in the consolidated balance sheets, approximates fair value due to the short maturities. TheWe historically utilized unadjusted quoted prices in the market for measuring the fair value of the debt instruments debt.is determined by reference to the market value of the instrument as quoted in an over-the-counter market.
81
The following table reflects the fair value measurements used in testing the impairment of long-lived assets and goodwill (in thousands):
Years Ended December 31, | |||||||||||
2019 | 2018 | ||||||||||
Impairment | Fair Value | Impairment | Fair Value | ||||||||
Goodwill | $ | - | $ | - | $ | 251,826 | $ | - | |||
Intangible assets | $ | 7,556 | $ | - | $ | 21,689 | $ | - | |||
Property, plant and equipment, net | $ | 9,629 | $ | 25,000 | $ | 49,198 | $ | 65,441 |
Fair value is measured as of the impairment date using Level 3 inputs. See note 11 for discussion of reduction in value of assets recorded during 2019 and 2018.
(10)(13) Contingencies
Due to the nature of the Company’sour business, the Company iswe are involved, from time to time, in various routine litigation or subject to disputes or claims or actions, including those commercial in nature, regarding itsour business activities.activities in the ordinary course of business. Legal costs related to these matters are expensed as incurred. However, based on current circumstances,Management is of the Company does not believeopinion that none of the ultimate resolution of these proceedings, after considering available defensesclaims and any insurance coverage or indemnification rights,actions will have a material adverse effectimpact on itsour financial position, results of operations or cash flows.
the Chapter 11 Cases automatically stayed certain proceedings and actions, these cases have continued after the Emergence Date.
A subsidiary of the Companyours is involved in legal proceedings with 2 former employees regarding the payment of royalties for a patentable product paid for by the subsidiary and developed by them.while they worked for the subsidiary. On April 2, 2018, the former employees and their corporation filed a lawsuit (the “First Case”) in the Harris County District Court (the “District Court”) alleging that the royalty payments they had invoiced at 25% and for which they received payments since 2010, should have been higher.paid at a rate of 50%. In May 2019, the jury issued a verdict in favor of the plaintiffs. On October 25, 2019, the court issued a final judgment against us, which we have fully secured with a bond. Oral arguments in front of the Company. The CompanyCourt of Appeals are scheduled for April 2022. We strongly disagreesdisagree with the verdict and believesbelieve the district courtDistrict Court committed several legal errors that should result in a reversal or remand of the case by the Court of Appeals.
A second case (the “Second Case”) was filed in District Court against the same subsidiary of ours bringing the same claims and seeking damages post judgment from the First Case until discontinuation of the sale of the product at issue by the subsidiary. In December 2020, the Court entered a final judgement for the Plaintiffs’ and the Second Case was stayed for the duration of our bankruptcy. We have filed an appeal and a Motion to Abate the Second Case pending the appeal of the First Case. The ultimate resolutionMotion to Abate the Second Case was granted on October 26, 2021 by the Court of this matter could resultAppeals. As of December 31, 2021, we have reserved $7.0 million for the judgements in a loss of up to $7.4 million in excess of amounts accrued.the First Case and Second Case.
(11) Reduction in Value of Assets
During 2019, 2018Our Indian subsidiary, SES Energy Services India Pvt. Ltd, entered into a contract with an Indian oil and 2017,gas company to provide an off shore vessel for well stimulation. A dispute arose over the Company recorded $17.2 million, $322.7 million and $10.4 million in expense related to reduction in value of assets, respectively. The componentsperformability of the reductions in valueterms of assets are as follows (in thousands):
Years ended December 31, | ||||||||
2019 | 2018 | 2017 | ||||||
Reduction in value of goodwill | $ | - | $ | 251,826 | $ | - | ||
Reduction in value of long-lived assets | 17,185 | 70,887 | 10,390 | |||||
Total reduction in value of assets | $ | 17,185 | $ | 322,713 | $ | 10,390 | ||
Reduction in Value of Long-Lived Assets
During 2019, the Company recorded $17.2 million in connection with the reduction in value of its long-lived assets.contract. The reduction in value of assetscontract was primarily related to reduction in value of certain intangibles in the Onshore Completion and Workover Services segment and long-lived assets in the Technical Solutions segment.
During 2018, the Company recorded $70.9 million in connection with the reduction in value of its long-lived assets. The reduction in value of assets was comprised of $41.4 million and $19.8 million related to property, plant and equipment and intangibles, respectively, in the well servicing rigs business in the Onshore Completion and Workover Services segment and $5.1 million related to property, plant and equipment and $1.9 million related to intangibles in the Production Services segment. The reduction in value of assets recorded during 2018 was primarily driventerminated by the decline in demand for these services andcustomer. The maximum liability under the forecast did not indicate a timely recovery sufficient to support the carrying valuescontract is capped at approximately $7.3 million, of these assets. In addition, the Company recorded a $2.6which approximately $3.5 million reduction in carrying valuehas been claimed via revocation of its former corporate facility and its related assets.performance bank guarantees.
During 2017, the Company recorded $10.4 million in connection with the reduction in value of its long-lived assets. The reduction in value of assets was comprised of $8.1 million related to property, plant and equipment in the Technical Solutions segment and $2.3 million related to property, plant and equipment primarily in the Drilling Products and Services segment.
Reduction in Value of Goodwill
During 2018, the Company recorded a $251.8 million reduction in value of goodwill relating to its Onshore Completion and Workover Services and Production Services segments. The Company determined that the fair value of its goodwill for the Onshore Completion and Workover Services segment was less than its carrying value and fully wrote-off the related goodwill balances.
(12)(14) Discontinued Operations
OnIn December 10, 2019, the Company’s indirect, wholly owned subsidiary, Pumpco Energy Services, Inc (“Pumpco”) completed its existing hydraulic fracturing field operations and determinedmade the determination to discontinue, wind down and exit its hydraulic fracturing operations. The Company intends to maintain an adequate number of employees to efficiently wind down Pumpco’s business. The financial results of Pumpco’s operationsWe have, historically been included in the Company’s Onshore Completions and Workover Services segment. The Company intendswill continue, to sell Pumpco’s fixed assets over timetime. During the Successor Period, we have recognized gains of approximately $10.5 million related to the sales of these assets.
During the third quarter of 2021, we sold all of the issued and outstanding equity of Complete Energy Services, Inc. (“Complete”) to Select Energy Services, Inc. (“Select”), which also included SPN Well Services, Inc.’s (“SPW”) flowback and well testing businesses, including the associated assets, liabilities and working capital, pursuant to a Securities Purchase and Sale Agreement (the “Purchase Agreement”) with SES Holdings, LLC, Select and Complete. Pursuant to the Purchase Agreement, Select acquired 100% of the equity interests of Complete, for a purchase price of approximately $14.0 million in cash and the issuance of 3.6 million shares of Class A common stock, $0.01 par value, of Select, subject to customary post-closing adjustments. The Purchase Agreement contains customary representations, warranties and covenants. In connection with this disposition, during the next twelve months.Successor Period, we recognized a reduction in value of assets related to Complete of approximately $
12.4 million.
During the third quarter of 2021, we entered into an agreement with an unrelated third party to sell tranches of coil tubing assets held by SPW for $14.0 million. As of December 31, 2021, we have completed sales totaling $11.4 million under this contract. The gain/loss on these assets sales was not material.
In November 2021, we completed an agreement with an unrelated third party to sell the remaining assets of SPW for $8.5 million. In connection with the sale of the remaining assets of SPW, we recognized a reduction in value of assets totaling $14.5 million during the third quarter of 2021.
The disposal of Complete and SPW is aligned with our overall strategic objective to divest assets and service lines that do not compete for investment in the current market environment.
82
The following table summarizes the components of loss from discontinued operations, net of tax for the years ended December 31, 2019, 2018 and 2017 (in thousands):
|
| Successor |
|
|
| Predecessor |
| ||||||||||
|
|
|
|
|
|
|
|
| Year ended December 31, |
| |||||||
|
| For the Period |
|
|
| For the Period |
|
| 2020 |
|
| 2019 |
| ||||
Revenues |
| $ | 90,682 |
|
|
| $ | 10,719 |
|
| $ | 184,580 |
|
| $ | 734,768 |
|
Cost of services |
|
| 85,191 |
|
|
|
| 10,398 |
|
|
| 180,408 |
|
|
| 639,065 |
|
Depreciation, depletion, amortization and accretion |
|
| 31,502 |
|
|
|
| 2,141 |
|
|
| 31,022 |
|
|
| 124,746 |
|
General and administrative expenses |
|
| 8,847 |
|
|
|
| 1,119 |
|
|
| 22,035 |
|
|
| 50,953 |
|
Other expenses |
|
| 15,807 |
|
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Reduction in value of assets |
|
| 0 |
|
|
|
| 0 |
|
|
| 117,335 |
|
|
| 84,470 |
|
Loss from operations |
|
| (50,665 | ) |
|
|
| (2,939 | ) |
|
| (166,220 | ) |
|
| (164,466 | ) |
Other income (expense) |
|
| 188 |
|
|
|
| 2,485 |
|
|
| (2,069 | ) |
|
| 27 |
|
Loss from discontinued operations before tax |
|
| (50,477 | ) |
|
|
| (454 | ) |
|
| (168,289 | ) |
|
| (164,439 | ) |
Income tax benefit (expense) |
|
| 10,408 |
|
|
|
| 102 |
|
|
| (398 | ) |
|
| (1,026 | ) |
Loss from discontinued operations, net of income tax |
| $ | (40,069 | ) |
|
| $ | (352 | ) |
| $ | (168,687 | ) |
| $ | (165,465 | ) |
Years Ended December 31, | |||||||||
2019 | 2018 | 2017 | |||||||
Revenues | $ | 281,452 | $ | 651,408 | $ | 568,547 | |||
Cost of services | 272,248 | 531,616 | 508,886 | ||||||
Loss from discontinued operations before tax | (169,582) | (433,142) | (84,813) | ||||||
Loss from discontinued operations, net of income tax | (177,968) | (430,712) | (25,606) | ||||||
For the years ended December 31, 2018 and 2017, loss from discontinued operations included $0.7 million and $18.9 million, respectively, related to the Company’s former subsea construction business, which was wound down in 2018.
The following summarizes the assets and liabilities related to the business reported as discontinued operations (in thousands):
December 31, |
| Successor |
|
|
| Predecessor |
| |||||||
2019 | 2018 |
| December 31, 2021 |
|
|
| December 31, 2020 |
| ||||||
Current assets: |
|
|
|
|
|
|
| |||||||
Accounts receivable, net | $ | 25,106 | $ | 98,003 |
| $ | 7,469 |
|
|
| $ | 25,448 |
| |
Prepaid expenses |
| 26 |
|
|
| 4,881 |
| |||||||
Other current assets | 6,215 | 21,474 |
|
| 447 |
|
|
|
| 12,076 |
| |||
Total current assets | $ | 31,321 | $ | 119,477 |
| 7,942 |
|
|
| 42,405 |
| |||
|
|
|
|
|
|
| ||||||||
Property, plant and equipment, net | 179,144 | 248,874 |
| 29,328 |
|
|
| 179,380 |
| |||||
Operating lease ROU assets | 5,732 | - |
| 127 |
|
|
| 16,958 |
| |||||
Intangible and other assets | - | 67,421 | ||||||||||||
Total assets | $ | 216,197 | $ | 435,772 | ||||||||||
Other assets |
|
| 131 |
|
|
|
| 3,361 |
| |||||
Total assets held for sale |
| $ | 37,528 |
|
|
| $ | 242,104 |
| |||||
|
|
|
|
|
|
| ||||||||
Current liabilities: | ||||||||||||||
Liabilities: |
|
|
|
|
|
|
| |||||||
Accounts payable | $ | 14,370 | $ | 60,576 |
| $ | 652 |
|
|
| $ | 2,830 |
| |
Accrued expenses | 24,751 | 12,073 |
| 4,268 |
|
|
| 11,153 |
| |||||
Total current liabilities | 39,121 | 72,649 | ||||||||||||
Operating lease liabilities | 5,415 | - |
| 72 |
|
|
| 21,987 |
| |||||
Other long-term liabilities | 402 | 848 | ||||||||||||
Decommissioning liabilities |
| 0 |
|
|
| 8,311 |
| |||||||
Other liabilities |
|
| 615 |
|
|
|
| 2,095 |
| |||||
Total liabilities | $ | 44,938 | $ | 73,497 |
| $ | 5,607 |
|
|
| $ | 46,376 |
| |
Significant operating non-cash items of Pumpco and cash flows from investing activities for our discontinued operations were as follows (in thousands):
83
Years Ended December 31, | |||||||||
2019 | 2018 | 2017 | |||||||
Cash flows from discontinued operating activities: | |||||||||
Depreciation and amortization | $ | 75,077 | $ | 122,409 | $ | 111,860 | |||
Reduction in value of assets | 76,577 | 417,011 | 3,765 | ||||||
Cash flows from discontinued investing activities: | |||||||||
Payments for capital expenditures | $ | (36,743) | $ | (108,094) | $ | (99,544) | |||
Proceeds from sales of assets | 1,669 | - | 5,262 | ||||||
|
| Successor |
|
|
| Predecessor |
| ||||||||||
|
|
|
|
|
|
|
|
| Year ended December 31, |
| |||||||
|
| For the Period |
|
|
| For the Period |
|
| 2020 |
|
| 2019 |
| ||||
Cash flows from discontinued operating activities: |
|
|
|
|
|
|
|
|
|
|
| ||||||
Reduction in value of assets |
| $ | 0 |
|
|
| $ | 0 |
|
| $ | 117,335 |
|
| $ | 84,470 |
|
(Gain)/loss on sale of assets |
|
| 0 |
|
|
|
| (43 | ) |
|
| 286 |
|
|
| 12,727 |
|
Other expenses |
|
| 15,807 |
|
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Depreciation, depletion, amortization and accretion |
|
| 31,502 |
|
|
|
| 2,141 |
|
|
| 31,022 |
|
|
| 124,746 |
|
Cash flows from discontinued investing activities: |
|
|
|
|
|
|
|
|
|
|
| ||||||
Proceeds from sales of assets |
|
| 88,332 |
|
|
|
| 486 |
|
|
| 22,224 |
|
|
| 23,140 |
|
Additionally, we have recast certain historical amounts in our consolidated balance sheet, statements of operations and in the following notes to these financial statements: Note 1 - Summary of Significant Account Policies, Note 3 - Fresh Start Accounting, Note 5 - Leases, Note 6 - Intangibles, Note 7 - Property, Plant and Equipment, Net, Note 10 - Income Taxes and Note 11 - Segment Information as it pertains to these discontinued operations.
(13)(15) Supplemental GuarantorCash Flow Information
SESI, L.L.C. (the Issuer),The table below is a 100% owned subsidiaryreconciliation of Superior Energy Services, Inc. (Parent), has $500 millioncash, cash equivalents and restricted cash for the beginning and the end of 7.75% senior unsecured notes due 2024. The Parent, along with certain of its 100% owned domestic subsidiaries, fully and unconditionally guaranteed the senior unsecured notes, and such guarantees are joint and several.period for all periods presented:
|
| Successor |
|
|
| Predecessor |
| ||||||||||
|
|
|
|
|
|
|
|
| Year ended December 31, |
| |||||||
|
| For the Period |
|
|
| For the Period |
|
| 2020 |
|
| 2019 |
| ||||
Cash, cash equivalents, and restricted cash, beginning of period |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 172,768 |
|
|
| $ | 188,006 |
|
| $ | 272,624 |
|
| $ | 158,050 |
|
Restricted cash-current |
|
| 16,751 |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
Restricted cash-non-current |
|
| 80,179 |
|
|
|
| 80,178 |
|
|
| 2,764 |
|
|
| 5,698 |
|
Cash, cash equivalents, and restricted cash, beginning of period |
| $ | 269,698 |
|
|
| $ | 268,184 |
|
| $ | 275,388 |
|
| $ | 163,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash, cash equivalents, and restricted cash, end of period |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 314,974 |
|
|
| $ | 172,768 |
|
| $ | 188,006 |
|
| $ | 272,624 |
|
Restricted cash-current |
|
| - |
|
|
|
| 16,751 |
|
|
| - |
|
|
| - |
|
Restricted cash-non-current |
|
| 79,561 |
|
|
|
| 80,179 |
|
|
| 80,178 |
|
|
| 2,764 |
|
Cash, cash equivalents, and restricted cash, end of period |
| $ | 394,535 |
|
|
| $ | 269,698 |
|
| $ | 268,184 |
|
| $ | 275,388 |
|
Non-cash investing activities during the Successor Period include the acquisition of investments in equity securities of $27.3 million in connection with asset disposals.
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||
Condensed Consolidating Balance Sheets | ||||||||||||||||||
December 31, 2019 | ||||||||||||||||||
(in thousands) | ||||||||||||||||||
Parent | Issuer | Guarantor | Non- | Eliminations | Consolidated | |||||||||||||
Assets | ||||||||||||||||||
Current assets: | ||||||||||||||||||
Cash and cash equivalents | $ | - | $ | 210,691 | $ | 612 | $ | 61,321 | $ | - | $ | 272,624 | ||||||
Accounts receivable, net | - | 750 | 245,941 | 85,356 | - | 332,047 | ||||||||||||
Income taxes receivable | - | (1,080) | - | 1,820 | - | 740 | ||||||||||||
Other current assets | - | 9,594 | 106,857 | 50,310 | - | 166,761 | ||||||||||||
Assets held for sale | - | - | 216,197 | - | - | 216,197 | ||||||||||||
Total current assets | - | 219,955 | 569,607 | 198,807 | - | 988,369 | ||||||||||||
Property, plant and equipment, net | - | 11,129 | 497,395 | 156,425 | - | 664,949 | ||||||||||||
Operating lease right-of-use assets | - | 22,052 | 44,048 | 14,806 | - | 80,906 | ||||||||||||
Goodwill | - | - | 80,544 | 57,151 | - | 137,695 | ||||||||||||
Notes receivable | - | - | 68,092 | - | - | 68,092 | ||||||||||||
Long-term intercompany accounts receivable | 2,260,980 | 1,281,183 | 3,020,808 | 202,331 | (6,765,302) | - | ||||||||||||
Intercompany notes receivable | - | - | - | 9,400 | (9,400) | - | ||||||||||||
Equity investments of consolidated subsidiaries | (2,207,117) | 3,498,602 | 10,449 | - | (1,301,934) | - | ||||||||||||
Restricted cash | - | - | 2,719 | 45 | - | 2,764 | ||||||||||||
Intangible and other long-term assets, net | - | 19,466 | 24,313 | 6,676 | - | 50,455 | ||||||||||||
Total assets | $ | 53,863 | $ | 5,052,387 | $ | 4,317,975 | $ | 645,641 | $ | (8,076,636) | $ | 1,993,230 | ||||||
Liabilities and Stockholders' Equity | ||||||||||||||||||
Current liabilities: | ||||||||||||||||||
Accounts payable | $ | - | $ | 10,701 | $ | 49,159 | $ | 33,106 | $ | - | $ | 92,966 | ||||||
Accrued expenses | - | 76,249 | 80,696 | 25,989 | - | 182,934 | ||||||||||||
Income taxes payable | - | - | - | - | - | - | ||||||||||||
Current portion of decommissioning liabilities | - | - | - | 3,649 | - | 3,649 | ||||||||||||
Liabilities held for sale | - | - | 44,938 | - | - | 44,938 | ||||||||||||
Total current liabilities | - | 86,950 | 174,793 | 62,744 | - | 324,487 | ||||||||||||
Long-term debt, net | - | 1,286,629 | - | - | - | 1,286,629 | ||||||||||||
Deferred income taxes | - | 3,247 | - | - | - | 3,247 | ||||||||||||
Decommissioning liabilities | - | - | 132,632 | - | - | 132,632 | ||||||||||||
Operating lease liabilities | - | 22,738 | 29,206 | 10,410 | - | 62,354 | ||||||||||||
Long-term intercompany accounts payable | 4,290 | 5,805,516 | 832,407 | 123,089 | (6,765,302) | - | ||||||||||||
Intercompany notes payable | - | 9,400 | - | - | (9,400) | - | ||||||||||||
Other long-term liabilities | - | 45,024 | 75,976 | 13,308 | - | 134,308 | ||||||||||||
Total stockholders' equity (deficit) | 49,573 | (2,207,117) | 3,072,961 | 436,090 | (1,301,934) | 49,573 | ||||||||||||
Total liabilities and stockholders' equity | $ | 53,863 | $ | 5,052,387 | $ | 4,317,975 | $ | 645,641 | $ | (8,076,636) | $ | 1,993,230 | ||||||
84
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||
Condensed Consolidating Balance Sheets | ||||||||||||||||||
December 31, 2018 | ||||||||||||||||||
(in thousands) | ||||||||||||||||||
Parent | Issuer | Guarantor | Non- | Eliminations | Consolidated | |||||||||||||
Assets | ||||||||||||||||||
Current assets: | ||||||||||||||||||
Cash and cash equivalents | $ | - | $ | 102,224 | $ | 707 | $ | 55,119 | $ | - | $ | 158,050 | ||||||
Accounts receivable, net | - | 160 | 367,497 | 79,696 | - | 447,353 | ||||||||||||
Intercompany accounts receivable | - | 12,279 | 74,906 | 3,489 | (90,674) | - | ||||||||||||
Other current assets | - | 12,805 | 111,560 | 43,137 | - | 167,502 | ||||||||||||
Total current assets | - | 127,468 | 554,670 | 181,441 | (90,674) | 772,905 | ||||||||||||
Property, plant and equipment, net | - | 10,129 | 920,978 | 178,019 | - | 1,109,126 | ||||||||||||
Goodwill | - | - | 80,544 | 56,244 | - | 136,788 | ||||||||||||
Notes receivable | - | - | 63,993 | - | - | 63,993 | ||||||||||||
Long-term intercompany accounts receivable | 2,243,431 | - | 1,991,912 | 182,284 | (4,417,627) | - | ||||||||||||
Equity investments of consolidated subsidiaries | (1,952,647) | 3,754,887 | 5,992 | - | (1,808,232) | - | ||||||||||||
Restricted cash | - | - | 5,653 | 45 | - | 5,698 | ||||||||||||
Intangible and other long-term assets, net | - | 19,255 | 100,847 | 7,350 | - | 127,452 | ||||||||||||
Total assets | $ | 290,784 | $ | 3,911,739 | $ | 3,724,589 | $ | 605,383 | $ | (6,316,533) | $ | 2,215,962 | ||||||
Liabilities and Stockholders' Equity | ||||||||||||||||||
Current liabilities: | ||||||||||||||||||
Accounts payable | $ | - | $ | 8,807 | $ | 109,903 | $ | 20,615 | $ | - | $ | 139,325 | ||||||
Accrued expenses | 45 | 102,845 | 86,926 | 29,364 | - | 219,180 | ||||||||||||
Income taxes payable | - | 1,237 | - | (503) | - | 734 | ||||||||||||
Intercompany accounts payable | - | 724 | 6,869 | 83,081 | (90,674) | - | ||||||||||||
Current portion of decommissioning liabilities | - | - | - | 3,538 | - | 3,538 | ||||||||||||
Total current liabilities | 45 | 113,613 | 203,698 | 136,095 | (90,674) | 362,777 | ||||||||||||
Long-term debt, net | - | 1,282,921 | - | - | - | 1,282,921 | ||||||||||||
Decommissioning liabilities | - | - | 126,558 | - | - | 126,558 | ||||||||||||
Long-term intercompany accounts payable | - | 4,417,627 | - | - | (4,417,627) | - | ||||||||||||
Other long-term liabilities | - | 50,225 | 76,543 | 26,199 | - | 152,967 | ||||||||||||
Total stockholders' equity (deficit) | 290,739 | (1,952,647) | 3,317,790 | 443,089 | (1,808,232) | 290,739 | ||||||||||||
Total liabilities and stockholders' equity | $ | 290,784 | $ | 3,911,739 | $ | 3,724,589 | $ | 605,383 | $ | (6,316,533) | $ | 2,215,962 | ||||||
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||
Condensed Consolidating Statements of Operations | ||||||||||||||||||
Year Ended December 31, 2019 | ||||||||||||||||||
(in thousands) | ||||||||||||||||||
Parent | Issuer | Guarantor | Non- | Eliminations | Consolidated | |||||||||||||
Revenues | $ | - | $ | - | $ | 1,126,456 | 324,200 | (25,287) | $ | 1,425,369 | ||||||||
Cost of revenues (exclusive of depreciation, | ||||||||||||||||||
depletion, amortization and accretion) | - | (7,023) | 730,473 | 226,919 | (25,287) | 925,082 | ||||||||||||
Depreciation, depletion, amortization and | ||||||||||||||||||
accretion | - | 3,682 | 154,424 | 38,353 | - | 196,459 | ||||||||||||
General and administrative expenses | - | 87,727 | 134,123 | 46,376 | - | 268,226 | ||||||||||||
Reduction in value of assets | - | - | 14,900 | 2,285 | - | 17,185 | ||||||||||||
Income (loss) from operations | - | (84,386) | 92,536 | 10,267 | - | 18,417 | ||||||||||||
Other income (expense): | ||||||||||||||||||
Interest income (expense), net | - | (103,397) | 5,115 | (30) | - | (98,312) | ||||||||||||
Intercompany interest income (expense) | - | (107) | - | 107 | - | - | ||||||||||||
Other income (expense) | - | (1,732) | (759) | 7 | - | (2,484) | ||||||||||||
Equity in losses of consolidated subsidiaries | (255,721) | (107,768) | 3,333 | - | 360,156 | - | ||||||||||||
Income (loss) from operations before income taxes | (255,721) | (297,390) | 100,225 | 10,351 | 360,156 | (82,379) | ||||||||||||
Income taxes | - | (41,669) | 47,771 | (10,728) | - | (4,626) | ||||||||||||
Net loss from continuing operations | (255,721) | (255,721) | 52,454 | 21,079 | 360,156 | (77,753) | ||||||||||||
Loss from discontinued operations, net of tax | - | - | (177,968) | - | - | (177,968) | ||||||||||||
Net income (loss) | $ | (255,721) | $ | (255,721) | $ | (125,514) | $ | 21,079 | $ | 360,156 | $ | (255,721) | ||||||
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||
Consolidating Statements of Comprehensive Income (Loss) | ||||||||||||||||||
Year Ended December 31, 2019 | ||||||||||||||||||
(in thousands) | ||||||||||||||||||
Parent | Issuer | Guarantor | Non- | Eliminations | Consolidated | |||||||||||||
Net income (loss) | $ | (255,721) | $ | (255,721) | $ | (125,514) | $ | 21,079 | $ | 360,156 | $ | (255,721) | ||||||
Change in cumulative translation adjustment, net of tax | 1,250 | 1,250 | - | 1,250 | (2,500) | 1,250 | ||||||||||||
Comprehensive loss | $ | (254,471) | $ | (254,471) | $ | (125,514) | $ | 22,329 | $ | 357,656 | $ | (254,471) | ||||||
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||
Condensed Consolidating Statements of Operations | ||||||||||||||||||
Year Ended December 31, 2018 | ||||||||||||||||||
(in thousands) | ||||||||||||||||||
Parent | Issuer | Guarantor | Non- | Eliminations | Consolidated | |||||||||||||
Revenues | $ | - | $ | - | $ | 1,238,343 | $ | 271,769 | $ | (31,255) | $ | 1,478,857 | ||||||
Cost of revenues (exclusive of depreciation, | ||||||||||||||||||
depletion, amortization and accretion) | - | (13,265) | 823,908 | 191,100 | (31,255) | 970,488 | ||||||||||||
Depreciation, depletion, amortization and | ||||||||||||||||||
accretion | - | 3,945 | 229,565 | 44,929 | - | 278,439 | ||||||||||||
General and administrative expenses | - | 95,725 | 129,667 | 51,076 | - | 276,468 | ||||||||||||
Reduction in value of assets | - | - | 230,429 | 92,284 | - | 322,713 | ||||||||||||
Loss from operations | - | (86,405) | (175,226) | (107,620) | - | (369,251) | ||||||||||||
Other income (expense): | ||||||||||||||||||
Interest expense, net | - | (103,594) | 3,950 | 167 | - | (99,477) | ||||||||||||
Other income (expense) | - | 71 | 1,014 | (2,763) | - | (1,678) | ||||||||||||
Equity in losses of consolidated subsidiaries | (858,115) | (707,348) | (597) | - | 1,566,060 | - | ||||||||||||
Loss from continuing operations before income taxes | (858,115) | (897,276) | (170,859) | (110,216) | 1,566,060 | (470,406) | ||||||||||||
Income taxes | - | (39,161) | (4,124) | 282 | - | (43,003) | ||||||||||||
Net loss from continuing operations | (858,115) | (858,115) | (166,735) | (110,498) | 1,566,060 | (427,403) | ||||||||||||
Loss from discontinued operations, net of income taxes | - | - | (429,983) | (729) | - | (430,712) | ||||||||||||
Net loss | $ | (858,115) | $ | (858,115) | $ | (596,718) | $ | (111,227) | $ | 1,566,060 | $ | (858,115) | ||||||
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||
Consolidating Statements of Comprehensive Income (Loss) | ||||||||||||||||||
Year Ended December 31, 2018 | ||||||||||||||||||
(in thousands) | ||||||||||||||||||
Parent | Issuer | Guarantor | Non- | Eliminations | Consolidated | |||||||||||||
Net income (loss) | $ | (858,115) | $ | (858,115) | $ | (596,718) | $ | (111,227) | $ | 1,566,060 | $ | (858,115) | ||||||
Change in cumulative translation adjustment, net of tax | (5,750) | (5,750) | - | (5,750) | 11,500 | (5,750) | ||||||||||||
Comprehensive income (loss) | $ | (863,865) | $ | (863,865) | $ | (596,718) | $ | (116,977) | $ | 1,577,560 | $ | (863,865) | ||||||
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||
Condensed Consolidating Statements of Operations | ||||||||||||||||||
Year Ended December 31, 2017 | ||||||||||||||||||
(in thousands) | ||||||||||||||||||
Parent | Issuer | Guarantor | Non- | Eliminations | Consolidated | |||||||||||||
Revenues | $ | - | $ | - | $ | 1,086,567 | $ | 234,663 | $ | (15,701) | $ | 1,305,529 | ||||||
Cost of revenues (exclusive of depreciation, | ||||||||||||||||||
depletion, amortization and accretion) | - | (4,123) | 733,600 | 176,033 | (15,701) | 889,809 | ||||||||||||
Depreciation, depletion, amortization and | ||||||||||||||||||
accretion | - | 4,149 | 271,853 | 50,854 | - | 326,856 | ||||||||||||
General and administrative expenses | - | 86,840 | 142,166 | 56,591 | - | 285,597 | ||||||||||||
Reduction in value of assets | - | - | 2,273 | 8,117 | - | 10,390 | ||||||||||||
Income (loss) from operations | - | (86,866) | (63,325) | (56,932) | - | (207,123) | ||||||||||||
Other income (expense): | ||||||||||||||||||
Interest income (expense), net | - | (105,585) | 4,451 | (321) | - | (101,455) | ||||||||||||
Other income (expense) | - | (1,350) | 202 | (2,151) | - | (3,299) | ||||||||||||
Equity in earnings (losses) of consolidated subsidiaries | (205,921) | (76,394) | (964) | - | 283,279 | - | ||||||||||||
Income (loss) from continuing operations before income taxes | (205,921) | (270,195) | (59,636) | (59,404) | 283,279 | (311,877) | ||||||||||||
Income taxes | - | (64,274) | (59,169) | (8,119) | - | (131,562) | ||||||||||||
Net loss from continuing operations | (205,921) | (205,921) | (467) | (51,285) | 283,279 | (180,315) | ||||||||||||
Loss from discontinued operations, net of income tax | - | - | (6,696) | (18,910) | - | (25,606) | ||||||||||||
Net income (loss) | $ | (205,921) | $ | (205,921) | $ | (7,163) | $ | (70,195) | $ | 283,279 | $ | (205,921) | ||||||
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||
Consolidating Statements of Comprehensive Income (Loss) | ||||||||||||||||||
Year Ended December 31, 2017 | ||||||||||||||||||
(in thousands) | ||||||||||||||||||
Parent | Issuer | Guarantor | Non- | Eliminations | Consolidated | |||||||||||||
Net income (loss) | $ | (205,921) | $ | (205,921) | $ | (7,163) | $ | (70,195) | $ | 283,279 | $ | (205,921) | ||||||
Change in cumulative translation adjustment, net of tax | 12,821 | 12,821 | - | 12,821 | (25,642) | 12,821 | ||||||||||||
Comprehensive income (loss) | $ | (193,100) | $ | (193,100) | $ | (7,163) | $ | (57,374) | $ | 257,637 | $ | (193,100) | ||||||
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | |||||||||||||||
Condensed Consolidating Statements of Cash Flows | |||||||||||||||
Year Ended December 31, 2019 | |||||||||||||||
(in thousands) | |||||||||||||||
Parent | Issuer | Guarantor | Non- | Consolidated | |||||||||||
Cash flows from operating activities: | |||||||||||||||
Net cash provided by (used in) operating activities | $ | 18,408 | $ | (12,879) | $ | 128,409 | $ | 12,490 | $ | 146,428 | |||||
Cash flows from investing activities: | |||||||||||||||
Payments for capital expenditures | - | (6,173) | (112,994) | (21,298) | (140,465) | ||||||||||
Proceeds from sales of assets | - | - | 110,008 | - | 110,008 | ||||||||||
Net cash provided by (used in) investing activities | - | (6,173) | (2,986) | (21,298) | (30,457) | ||||||||||
Cash flows from financing activities: | |||||||||||||||
Purchases of treasury stock | (4,290) | - | - | - | (4,290) | ||||||||||
Changes in notes with affiliated companies, net | (13,259) | 127,661 | (128,452) | 14,050 | - | ||||||||||
Other | (859) | (143) | - | - | (1,002) | ||||||||||
Net cash provided by (used in) financing activities | (18,408) | 127,518 | (128,452) | 14,050 | (5,292) | ||||||||||
Effect of exchange rate changes on cash | - | - | - | 961 | 961 | ||||||||||
Net change in cash, cash equivalents, and restricted cash | - | 108,466 | (3,029) | 6,203 | 111,640 | ||||||||||
Cash, cash equivalents, and restricted cash at beginning of period | - | 102,224 | 6,360 | 55,164 | 163,748 | ||||||||||
Cash, cash equivalents, and restricted cash at end of period | $ | - | $ | 210,690 | $ | 3,331 | $ | 61,367 | $ | 275,388 | |||||
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | |||||||||||||||||
Condensed Consolidating Statements of Cash Flows | |||||||||||||||||
Year Ended December 31, 2018 | |||||||||||||||||
(in thousands) | |||||||||||||||||
Parent | Issuer | Guarantor | Non- | Eliminations | Consolidated | ||||||||||||
Cash flows from operating activities: | |||||||||||||||||
Net cash provided by (used in) operating activities | $ | 23,866 | $ | (2,013) | $ | 150,510 | $ | (4,023) | $ | (3,283) | $ | 165,057 | |||||
Cash flows from investing activities: | |||||||||||||||||
Payments for capital expenditures | - | (2,055) | (207,640) | (11,675) | - | (221,370) | |||||||||||
Proceeds from sales of assets | - | - | 20,003 | 13,296 | - | 33,299 | |||||||||||
Net cash provided by (used in) investing activities | - | (2,055) | (187,637) | 1,621 | - | (188,071) | |||||||||||
Cash flows from financing activities: | |||||||||||||||||
Intercompany dividends | - | - | - | (3,283) | 3,283 | - | |||||||||||
Changes in notes with affiliated companies, net | (21,734) | (19,787) | 22,564 | 18,957 | - | - | |||||||||||
Other | (2,132) | (454) | - | - | - | (2,586) | |||||||||||
Net cash provided by (used in) financing activities | (23,866) | (20,241) | 22,564 | 15,674 | 3,283 | (2,586) | |||||||||||
Effect of exchange rate changes on cash | - | - | - | (3,135) | - | (3,135) | |||||||||||
Net change in cash, cash equivalents, and restricted cash | - | (24,309) | (14,563) | 10,137 | - | (28,735) | |||||||||||
Cash, cash equivalents, and restricted cash at beginning of period | - | 126,533 | 20,923 | 45,027 | - | 192,483 | |||||||||||
Cash, cash equivalents, and restricted cash at end of period | $ | - | $ | 102,224 | $ | 6,360 | $ | 55,164 | $ | - | $ | 163,748 |
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | |||||||||||||||
Condensed Consolidating Statements of Cash Flows | |||||||||||||||
Year Ended December 31, 2017 | |||||||||||||||
(in thousands) | |||||||||||||||
Parent | Issuer | Guarantor | Non- | Consolidated | |||||||||||
Cash flows from operating activities: | |||||||||||||||
Net cash provided by (used in) operating activities | $ | 26,221 | $ | 3,369 | $ | 89,739 | $ | (22,903) | $ | 96,426 | |||||
Cash flows from investing activities: | |||||||||||||||
Payments for capital expenditures | - | (1,041) | (148,738) | (15,154) | (164,933) | ||||||||||
Other | - | - | 23,485 | 4,784 | 28,269 | ||||||||||
Net cash used in investing activities | - | (1,041) | (125,253) | (10,370) | (136,664) | ||||||||||
Cash flows from financing activities: | |||||||||||||||
Proceeds from issuance of long-term debt | - | 500,000 | - | - | 500,000 | ||||||||||
Principal payments on long-term debt | - | (500,000) | - | - | (500,000) | ||||||||||
Payment of debt issuance costs | - | (11,967) | - | - | (11,967) | ||||||||||
Changes in notes with affiliated companies, net | (21,163) | 8,727 | 4,648 | 7,788 | - | ||||||||||
Other | (5,058) | - | - | - | (5,058) | ||||||||||
Net cash provided by (used in) financing activities | (26,221) | (3,240) | 4,648 | 7,788 | (17,025) | ||||||||||
Effect of exchange rate changes on cash | - | - | - | 3,654 | 3,654 | ||||||||||
Net decrease in cash, cash equivalents, and restricted cash | - | (912) | (30,866) | (21,831) | (53,609) | ||||||||||
Cash, cash equivalents, and restricted cash at beginning of period | - | 127,445 | 51,789 | 66,858 | 246,092 | ||||||||||
Cash, cash equivalents, and restricted cash at end of period | $ | - | $ | 126,533 | $ | 20,923 | $ | 45,027 | $ | 192,483 |
(14) Interim Financial Information (Unaudited)
The following is a summary of consolidated interim financial information (in thousands):
2019 | ||||||||||||
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||
Revenues | $ | 365,274 | $ | 367,438 | $ | 356,585 | $ | 336,072 | ||||
Less: | ||||||||||||
Cost of revenues (exclusive of depreciation, | ||||||||||||
depletion, amortization and accretion) | 240,053 | 229,532 | 231,927 | 223,570 | ||||||||
Depreciation, depletion, amortization and accretion | 56,343 | 51,271 | 45,104 | 43,741 | ||||||||
Gross profit | 68,878 | 86,635 | 79,554 | 68,761 | ||||||||
Reduction in value of assets | - | 7,557 | 9,628 | - | ||||||||
Loss from continuing operations | (32,644) | (18,441) | (20,506) | (6,162) | ||||||||
Loss from discontinued operations, net of tax | (15,061) | (52,609) | (17,936) | (92,362) | ||||||||
Net loss | $ | (47,705) | $ | (71,050) | $ | (38,442) | $ | (98,524) | ||||
Loss per share from continuing operations: | ||||||||||||
Basic and diluted | $ | (2.10) | $ | (1.18) | $ | (1.31) | $ | (0.42) | ||||
Loss per share from discontinued operations: | ||||||||||||
Basic and diluted | $ | (0.97) | $ | (3.37) | $ | (1.15) | $ | (6.26) | ||||
2018 | ||||||||||||
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||
Revenues | $ | 354,109 | $ | 356,901 | $ | 378,400 | $ | 389,447 | ||||
Less: | ||||||||||||
Cost of revenues (exclusive of depreciation, | ||||||||||||
depletion, amortization and accretion) | 240,583 | 235,679 | 245,832 | 248,394 | ||||||||
Depreciation, depletion, amortization and accretion | 75,761 | 67,862 | 69,338 | 65,478 | ||||||||
Gross profit | 37,765 | 53,360 | 63,230 | 75,575 | ||||||||
Reduction in value of assets | - | - | - | 322,713 | ||||||||
Loss from continuing operations | (53,136) | (33,817) | (23,436) | (317,014) | ||||||||
Loss from discontinued operations, net of tax | (6,588) | 7,427 | 1,620 | (433,171) | ||||||||
Net loss | $ | (59,724) | $ | (26,390) | $ | (21,816) | $ | (750,185) | ||||
Loss per share from continuing operations: | ||||||||||||
Basic and diluted | $ | (3.45) | $ | (2.19) | $ | (1.52) | $ | (20.51) | ||||
Income (loss) per share from discontinued operations: | ||||||||||||
Basic and diluted | $ | (0.43) | $ | 0.48 | $ | 0.10 | $ | (28.03) |
Item 9.9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management has established and maintains a system of disclosure controls and procedures are designed to provide reasonable assurancesassurance that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 (as amended) (the “Exchange Act”) is appropriately recorded, processed, summarized and reported within the time periods specified byin the SecuritiesSEC's rules and Exchange Commission (SEC).forms. In addition, the disclosure controls and procedures ensureprovide reasonable assurance that such information required to be disclosed,is accumulated and communicated to management, including our Chief Executive Officer (CEO)CEO and Chief Financial Officer (CFO),CFO, as appropriate, to allow timely decisions regarding required disclosure. An evaluation was carried out, under the supervision and with the participation of our management, including our CEO and CFO, regarding the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures as of December 31, 20192021 were effective to provide reasonable assurance that information required to be disclosed by us in reports we file withor submit under the SECExchange Act is recorded, processed, summarized and reported within the time periods required byspecified in the SEC’s rules and forms, and is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding disclosures. Management’s report and the independent registered public accounting firm’s attestation report are included herein under the captions “Management’s Annual Report on Internal Control over Financial Reporting” and “Report of Independent Registered Public Accounting Firm,” and are incorporated herein by reference.required disclosure.
There has been no change in our internal control over financial reporting during the three months ended December 31, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, and for performing an assessment of the effectiveness of our internal control over our financial reporting as of December 31, 2019.2021. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Our system of internal control over financial reportingGAAP and includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. Management recognizes that there are inherent limitations in the effectiveness of any internal control over financial reporting, including the possibility of human error and the circumvention or overriding of internal control. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may be inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, including our CEO and CFO, performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2019 based upon criteria in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, our management determined that as of December 31, 2019, our internal control over financial reporting was effective based on those criteria.
Our internal control over financial reporting as of December 31, 2019 has been audited by KPMG, LLP, an independent registered public accounting firm, as stated in their report which appears herein.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Superior Energy Services, Inc.:
Opinion on Internal Control over Financial Reporting
We have audited Superior Energy Services, Inc.’s and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes and financial statement schedule II (collectively, the consolidated financial statements), and our report dated February 28, 2020 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLPOur management, with the participation of our CEO and CFO, performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2021 based upon criteria in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management determined that as of December 31, 2021, our internal control over financial reporting was effective based on those criteria.
Houston, Texas
February 28, 2020Remediation of Previously Reported Material Weakness
To address the material weakness, management implemented a remediation plan to address the control deficiency that led to this material weakness, including reinforcing the controls for identifying and reviewing potential uncertain tax positions, and the formalization of additional supporting documentation for existing uncertain tax positions. Additionally, management reinforced the controls to evaluate, resolve, and document the related conclusions and accounting treatment for uncertain tax positions. This included enhancing documentation of regularly held meetings between tax management and key stakeholders to discuss ongoing business activities and triggering events, as well as to determine any associated tax implications. The remediation plan was implemented during 2021, and management determined that the controls have been satisfactorily implemented and have operated effectively for a sufficient period of time. Therefore, management concluded the previously reported material weakness is remediated as of December 31, 2021.
85
There has been no change in our internal control over financial reporting during the three months ended December 31, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.None
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Board of Directors
Pursuant to the Plan, as of the Emergence Date, the following directors ceased to serve on our Board of Directors: Terence E. Hall, Peter D. Kinnear, Janiece M. Longoria, Michael M. McShane, James M. Funk and W. Matt Ralls.
Pursuant to the Plan and the Stockholders Agreement, our current Board of Directors consists of the following seven members:
We currently have an Audit and Compensation Committee. All directors serve on each committee. The Board believes under NYSE listing standards (which we are not currently subject to), we believe that all of the directors, except for Mr. Moore and Mr. McGovern, may be independent directors, provided that Mr. Citarrella and Mr. Flores may not be independent for Audit Committee purposes. The Board expects all of its directors would be considered Audit Committee financial experts.
Joseph Citarrella, 35, is currently a Managing Principal for Monarch Alternative Capital LP (“Monarch”), a private investment firm. From 2008 to 2012, Mr. Citarrella was an Associate at Goldman Sachs in the Global Investment Research equity group covering the integrated oil, exploration and production, and refining sectors. From 2017 to 2018, Mr. Citarrella served as nonexecutive Chairman of the Board of Vanguard Natural Resources, Inc., a Houston based independent oil and gas company. From 2018 to 2019, Mr. Citarrella served as an independent director for Resolute Energy. Mr. Citarrella is a designated director of Monarch. Mr. Citarella is a valuable member of our board of directors because of his extensive experience in the oil and gas industry.
Daniel E. Flores, 51, is currently a Partner at GoldenTree Asset Management LP (“GoldenTree”), an employee-owned global asset management firm. Mr. Flores served as Senior Vice President of Avenue Capital Group from 2008 to 2013. Previously, Mr. Flores worked in the Restructuring and Finance Group at Lehman Brothers and as an analyst at Merrill Lynch. Mr. Flores is a designated director of GoldenTree. Mr. Flores is a valuable member of our board of directors because of his extensive experience in the financial industry.
Michael Y. McGovern, 70, is currently our Executive Chairman. Mr. McGovern also serves as a director of Cactus, Inc. and ION Geophysical Corporation. Mr. McGovern has more than 40 years of experience in the energy industry having served as a director and an executive at multiple public and private companies. Mr. McGovern is a valuable member of our board of directors because of his extensive experience in the oil and gas industry.
Julie J. Robertson, 66, served as the Executive Chairwoman of Noble Corporation and previously served as Chairwoman of the Board, President and Chief Executive Officer from January 2018 until her retirement in May 2020. From 2001 to 2018, Ms. Robertson served in various other management roles for Noble Corporation and its subsidiaries. Ms. Robertson served continuously as Corporate
86
Secretary of Noble Corporation from 1993 until assuming the Chairwoman’s role in 2018 and served as Chairwoman at the time of the filing by Noble Corporation and certain other debtors of voluntary petitions for reorganization pursuant to chapter 11 of the United States Code on July 31, 2020. Ms. Robertson resigned as Chairwoman of Noble Corporation in 2021. Ms. Robertson is also Chairman of the Board and Remuneration Committee of Seadrill Limited, a director of EOG Resources, Inc. and a trustee of Spindletop Charities, Inc. In 2020, Ms. Robertson was elected the first female Chair of the International Association of Drilling Contractors. Ms. Robertson serves as the Chairman of our Compensation Committee. Ms. Robertson is a designated director of GoldenTree. Ms. Robertson is a valuable member of our board of directors because of her extensive experience in the oil and gas industry.
Krishna Shivram, 59, has over 31 years of experience spread across financial and management positions in the oil and gas industry in the United States, Middle East, Europe and India. Mr. Shivram serves as a director of Sentinel Energy Services Inc., where he was Chief Executive Officer from 2017 to 2020. Prior to that, Mr. Shivram served as a director of Gulfmark Offshore from 2017 to 2018 and held executive positions at Weatherford International Plc and Schlumberger Limited. Mr. Shivram is also a director at Ranger Energy Services, Inc. Mr. Shivram serves as the Chairman of our Audit Committee. Mr. Shivram is a valuable member of our board of directors because of his extensive financial experience.
Timothy J. Winfrey, 61, is currently a Senior Advisor to LeBaronBrown Industries LLC, an investment organization designed to support the long-term growth of industry-leading operating businesses. Mr. Winfrey served as Vice President - Energy Systems and Controls of Roper Technologies Inc. from 2002 to 2015. From 2001 to 2002, Mr. Winfrey served as President of Ingersoll-Rand Company's Commercial and Retail Air Solutions business, prior to which he was Vice President and general manager of Ingersoll-Rand's Reciprocating Compressor division. Prior to that, Mr. Winfrey held various corporate development and general management positions with Owens Corning, Eaton Corporation and British Petroleum Company Plc. Mr. Winfrey is a valuable member of our board of directors because of his extensive experience as a senior executive in the industrial engineering industry.
Brian K. Moore, 65, is currently our President and Chief Executive Officer and a member of the Board of Directors since January 2022. Mr. Moore has previously served as our Executive Vice President of Corporate Services from April 2016 to January 2022, and as our Senior Executive Vice President of North America Services from February 2012 to March 2016. Prior to that, Mr. Moore held executive positions at Complete Production Services and Integrated Production Services. Mr. Moore is a valuable member of our board of directors because of his extensive experience as a senior executive in the oil field service industry.
As discussed above, on the Emergence Date, in order to implement certain transactions contemplated by the Plan, the Company entered into the Stockholders Agreement to provide for certain governance matters. Other than obligations related to Confidential Information relating(as defined in the Stockholders Agreement), the rights and preferences of each stockholder under the Stockholders Agreement will terminate when such stockholder ceases to own shares of the Class A Common Stock and Class B Common Stock. While the initial Board of Directors designees post-emergence were appointed by GoldenTree, Monarch, and the ad hoc noteholders, going forward, pursuant to the Stockholders Agreement, the Board of Directors consists of seven directors, of whom:
Furthermore, the Board of Directors is given special governance rights in the Stockholders Agreement, including approval rights over certain corporate and other transactions, such as (i) any merger, consolidation, reorganization (including conversion) or any other business combination, (ii) certain acquisitions or dispositions of assets or liabilities, (iii) incurrence of indebtedness (subject to certain monetary thresholds), and (iv) issuances of equity, subject to the limitations therein, among other actions.
The Stockholders Agreement also provides the stockholders certain preemptive rights, drag-along rights, tag-along rights, and registration rights, subject, in each case, to the terms and conditions identified in the Stockholders Agreement.
Executive Officers
Set forth below is certain information regarding our current executive officers, is includedincluding all offices and positions held by each in “Executive Officersthe past five years.
87
Table of Registrant” in Part IContents
Name | Age | Offices Held and Term of Office | ||
Michael Y. McGovern (1) | 70 | Executive Chairman of the Board of Directors since March 2021 | ||
Brian K. Moore | 65 | President and Chief Executive Officer since January 2022, Executive Vice President of Corporate Services from April 2016 to January 2022 Senior Executive Vice President of North America Services, from February 2012 to March 2016 | ||
James W. Spexarth | 54 | Executive Vice President and Chief Financial Officer since August 2021, Interim Chief Financial Officer from March 2021 to August 2021, Chief Accounting Officer since March 2018, Vice President and Corporate Controller, from August 2013 to February 2018 |
Family Relationships
There are no family relationships among any of our current directors or executive officers.
Code of Conduct
Our Shared Core Values at Work (Code of Conduct) that applies to all of our directors, officers and employees, includingemployees. This Code of Conduct is publicly available on the Corporate Governance page in the About Us section of our senior financialwebsite at http://www.superiorenergy.com. Any waivers granted to directors or executive officers is includedand any material amendment to our Code of Conduct will be posted promptly on our website and/or disclosed in Part I, Item 1 of this Annual Reporta current report on Form 10-K, and is incorporated herein by reference. Other information required by this item8-K. We will provide to any person without charge, upon request, a copy of such code of ethics. The request may be contained in our definitive proxy statement to be filed pursuant to Regulation 14A and is incorporated herein by reference.made via mail to: Superior Energy Services, Inc., 1001 Louisiana Street, Suite 2900, Houston, Texas 77002.
Item 11. Executive Compensation
Information requiredCompensation Discussion and Analysis
The Compensation Discussion and Analysis (“CD&A”) describes our executive compensation philosophy and practices applicable to named executive officers’ compensation for 2021. For 2021, our named executive officers (“NEOs”) were:
Name | Offices Held | |
Current NEOs | ||
Michael Y. McGovern | Executive Chairman, Interim Chief Executive Officer for 2021 | |
James W. Spexarth | Executive Vice President, Chief Financial Officer and Treasurer | |
Blaine D. Edwards (1) | Executive Vice President, General Counsel and Secretary | |
Michael J. Delahoussaye | President, Workstrings International | |
Deidre D. Toups | President, Specialized Rental and Services Division | |
Separated NEOs | ||
David D. Dunlap | Former President and Chief Executive Officer | |
Westervelt T. Ballard, Jr. | Former Executive Vice President, Chief Financial Officer and Treasurer |
Effective as of March 16, 2021, David Dunlap, our President and CEO and a member of the Board, and Westervelt Ballard, our Executive Vice President, Chief Financial Officer and Treasurer, each resigned from all positions held with us. Mr. McGovern was named as Executive Chairman as of March 16, 2021 and served in the position of Interim CEO for the remainder of 2021. Mr. Spexarth assumed the position of Interim Chief Financial Officer from March 16, 2021 to August 2021 and has assumed the role Executive Vice President and Chief Financial Officer since August 2021.
On January 20, 2022, Brian K. Moore, our Executive Vice President, was appointed President and Chief Executive Officer and a member of the Board in accordance with the Stockholders’ Agreement. As a result of Mr. Moore’s appointment, Mr. McGovern, our Executive Chairman of the Board, no longer performs the functions of our principal executive officer but remains with us as executive chairman of the Board. Mr. Moore was not one of our NEOs for 2021.
Executive Compensation Philosophy
The Compensation Committee of the Board (the “Compensation Committee”) is responsible for designing, implementing and administering our executive compensation program. The primary objective of that program is to attract and retain key personnel.
88
Our Compensation Committee is guided by this item will be containedseveral key principles to leverage the Company’s ability to motivate key talent. Our Compensation Committee believes compensation should:
Compensation Practices in 2021
The Executive Chairman, who also served as interim CEO during 2021, developed recommendations for compensation practices in 2021 that were subject to joint Compensation Committee and Board approval. The CEO’s recommendations are based on his evaluations of the performance of the executives and are based on several factors, including individual performance, business results, and general market information. The Compensation Committee on its own reviews the performance and compensation of the CEO and approves his level of compensation.
In 2021, compensation practices were aligned with our definitive proxy statementpost-emergence company to be filed pursuant to Regulation 14A and is incorporated herein by reference.address a number of realities, including:
The Compensation Committee regularly reviews and considers the effectiveness of the Company’s existing compensation programs and modifies such programs or develops new programs to better effectuate the Compensation Committee’s compensation objectives.
In 2021, the Compensation Committee engaged Lyons, Benenson & Company, Inc. (“LB&Co”) as its independent executive compensation consultant. LB&Co is a leading independent compensation consulting firm that advises and counsels boards of directors and their compensation and governance committees on matters related to executive compensation, board compensation and corporate governance. They work collaboratively with directors and top management to develop compensation solutions that are supportive of each client's goals, objectives and long-term plans.
LB&Co advises the Compensation Committee on executive compensation matters and assists in developing and implementing our executive compensation program. LB&Co also informs the Compensation Committee on current trends to ensure the Compensation Committee is aware of evolving market conditions.
Brian K. Moore, who served as a member of the Compensation Committee in 2021 was an officer or employee of ours, and Michael Y. McGovern, who served as a member of our Compensation Committee in 2021 served as interim Chief Executive Officer for part of 2021.
None of our executive officers serves or served during the last completed fiscal year as a director or member of the compensation committee of another organization one of whose executive officers serves or served at the same time as a member of either the Board or the Compensation Committee.
In September 2021, LB&Co was directed to compile an analysis of compensation for our key executives. Included in this analysis was the following companies for comparison:
89
Components of Executive Compensation
The main components of the executive compensation program for the portion of 2021 after the Emergence Date were base salary, annual incentive plan (“AIP”) awards, long-term incentive awards under the Management Incentive Plan (as defined below) and compensation bonus awards. For the portion of 2021 prior to the Emergence Date, the main component of executive compensation consisted of base salary.
Base Salary
The primary role of the base salary element of the executive compensation program during 2021 was to compensate executives for the experience, education, personal qualities and other qualifications that were key for their specific role. For additional salary information, see the 2021 summary compensation table below.
In connection with naming Mr. McGovern as our Executive Chairman on April 23, 2021, the Board approved total cash compensation payable to Mr. McGovern in an annual amount of $1,500,000, equivalent to a $750,000 base salary and a deemed achievement of bonus at target of 100% of base salary, to be paid on a monthly basis during the period Mr. McGovern performed the functions of principal executive officer, retroactive to March 16, 2021, the effective date that he was deemed to have begun performing such functions. Any annual cash retainer Mr. McGovern would receive for serving as a director was suspended for the period spent as principal executive officer.
In July 2021, certain salary adjustments were made to base salaries. Ms. Toups received an increase from $286,200 to $350,000 in conjunction with her significantly increased responsibilities as President of the newly consolidated Rental & Specialty group comprised of three separate business units. The increase also considered the 10% salary reduction taken in April 2020. Mr. Edwards received an increase from $262,000 to $300,000 in conjunction with his significantly increased responsibilities as General Counsel and Corporate Secretary and also considered the 10% salary reduction taken in April 2020.
Mr. Delahoussaye received a salary increase from $270,000 to $285,000 as a market adjustment in July 2021. In August 2021, Mr. Delahoussaye received a salary increase from $270,000 to $325,000 in connection with his promotion to Vice President of Workstrings International and business unit organizational changes and took into consideration his 15% salary reduction in April 2020. Mr. Delahoussaye received a salary increase from $325,000 to $375,000 when named as the President of Workstrings International in September 2021.
In connection with being named Executive Vice President, Chief Financial Officer and Treasurer, effective August 19, 2021, Mr. Spexarth's annual cash base salary was increased from $278,500 to $425,000 in consideration of market analysis and the 15% salary reduction in April 2020.
2021 Post Emergence Executive Annual Incentive Plan
The purpose of the AIP is to reward executives for achievement of annual financial objectives. Although the Compensation Committee sets annual incentive target levels that result in target-level payouts when performance objectives are met, our program provides executives with the opportunity to earn higher payments depending on the extent to which these performance objectives are achieved or exceeded if approved by the Board.
AIP Performance Goals for Executives
Under the AIP, our NEOs are eligible to earn a payout based on a target percentage of their base salary. Given the activity in the oil and gas industry, the Compensation Committee also established what it believed was an appropriate EBITDA target of $95.8 million for
90
2021 given the evolving market landscape. This challenging performance goal was designed to help achieve a balance between stockholder returns and executive compensation.
The AIP is designed to focus management’s attention on key financial metrics that drive our performance, which are weighted as follows:
100% of the total payout of the AIP is based on the achievement of the foregoing EBITDA target. The 2021 overall incentive payout is 35% of each NEO’s target award opportunity based on this factor. For 2021, the maximum payout to each NEO under the AIP was capped at 50% of the typical target payout. Under the AIP, the CEO is granted discretion to propose adjustments to targets or propose adjustments to results for exceptional items during the program subject to Compensation Committee approval.
As noted previously, the Compensation Committee determined to use EBITDA as the primary financial metric for the AIP. As a financial metric, EBITDA is closely linked to cash flow and encourages management to focus on improving efficiency from existing operations. The financial metric provides for threshold, target and maximum payout levels, as a percentage of salary, based upon the achievement of 70%, 100% and 130% of the EBITDA target.
The possible total award payout levels for 2021, stated as a percentage of the named executive officer’s base salary, are set forth in the table below.
NEO |
| Threshold |
| Target |
| Maximum |
Current NEOs |
|
|
|
|
|
|
Mr. McGovern |
| 0% |
| 0% |
| 0% |
Mr. Spexarth |
| 17.5% |
| 35% |
| 70% |
Mr. Edwards |
| 17.5% |
| 35% |
| 70% |
Mr. Delahoussaye |
| 17.5% |
| 35% |
| 70% |
Ms. Toups |
| 17.5% |
| 35% |
| 70% |
Separated NEOs |
|
|
|
|
|
|
Mr. Dunlap |
| 0% |
| 0% |
| 0% |
Mr. Ballard |
| 0% |
| 0% |
| 0% |
2021 Post-Emergence Date Management Incentive Plan
On June 1, 2021, the Board and the Compensation Committee approved and adopted our Management Incentive Plan (“MIP”). The purpose of the MIP is to provide a means through which we and our affiliates may attract and retain key personnel and to provide a means whereby directors, officers and employees (and prospective directors, officers and employees) can acquire and maintain an equity interest in us, or be paid incentive compensation, which may (but need not) be measured by reference to the value of a share of common stock, thereby strengthening their commitment to the welfare of us and our affiliates and aligning their interests with those of our stockholders.
Pursuant to the MIP, the Compensation Committee may grant awards with respect to up to 1,999,869 shares of our Class B common stock.
2021 Post-Emergence Date Long-Term Stock Incentive Award
On June 2, 2021, the Board and the Compensation Committee approved the grant of restricted stock awards under the MIP to certain of our non-employee directors and officers, including Messrs. McGovern, Spexarth and Edwards.
One-third of the shares underlying each restricted stock award will vest on each of April 1, 2022 and the second and third anniversaries of the grant date, subject to earlier vesting and forfeiture on terms and conditions set forth in the applicable award agreement.
On November 23, 2021, the Board and Compensation Committee approved the grant of restricted stock unit (“RSU”) awards under the MIP to Messrs. Spexarth, Edwards, and Delahoussaye and Ms. Toups. Each of Mr. Spexarth’s, Mr. Edwards’ and Ms. Toups’s RSU awards will become 100% vested on January 7, 2023 and Mr. Delahoussaye’s RSU award will become 100% vested on February 19, 2023, in each case subject to earlier vesting and forfeiture on terms and conditions set forth in the applicable award agreement.
The number of restricted stock awards and RSUs granted to each of our NEOs in 2021 is set forth in the table below:
91
NEO |
| RSU |
|
| Restricted Stock |
| ||
Current NEOs |
|
|
|
|
|
| ||
Mr. McGovern |
|
| - |
|
|
| 33,519 |
|
Mr. Spexarth |
|
| 12,649 |
|
|
| 12,649 |
|
Mr. Edwards |
|
| 12,649 |
|
|
| 12,649 |
|
Mr. Delahoussaye |
|
| 12,649 |
|
|
| - |
|
Ms. Toups |
|
| 12,649 |
|
|
| - |
|
Separated NEOs |
|
|
|
|
|
| ||
Mr. Dunlap |
|
| - |
|
|
| - |
|
Mr. Ballard |
|
| - |
|
|
| - |
|
The following table shows the 2021 MIP award value of the 2021 MIP grants. The amounts below reflect the 2021 MIP grant values used at the time to determine award amounts.
NEO |
| Total Value |
| |
Current NEOs |
|
|
| |
Mr. McGovern |
| $ | 1,325,006 |
|
Mr. Spexarth |
|
| 1,000,030 |
|
Mr. Edwards |
|
| 1,000,030 |
|
Mr. Delahoussaye |
|
| 500,015 |
|
Ms. Toups |
|
| 500,015 |
|
Separated NEOs |
|
|
| |
Mr. Dunlap |
|
| - |
|
Mr. Ballard |
|
| - |
|
2021 Compensation Bonus Award
In addition to base salary and AIP and MIP awards described above, on April 1, 2021, the Board authorized and awarded a compensation bonus award to Mr. Spexarth in the amount of $125,000, which was paid on August 15, 2021. The compensation bonus award was made in connection with naming Mr. Spexarth as our Interim Chief Financial Officer in order to compensate Mr. Spexarth for his increased responsibilities. Mr. Spexarth did not receive an increase in base salary in connection with his appointment as Interim Chief Financial Officer.
2021 Executive Compensation
2021 Summary Compensation Table
The following table summarizes the compensation awarded to, earned by, or paid to each NEO for the years ended December 31, 2021, 2020 and 2019. All of the stock and option awards reflected in the table for fiscal years 2019 and 2020 were surrendered in connection with participation in the Key Employee Retention Program (the “KERP”), which was implemented in connection with the bankruptcy and paid to the named executive officers in 2020 in the amounts reflected in the KERP column.
92
Name and Principal Position |
| Year |
| Salary |
|
| Bonus |
|
| Stock |
|
| Option |
|
| KERP(5) |
|
| Non-Equity |
|
| All Other |
|
| Total ($) |
| ||||||||
Current NEOs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Michael Y. McGovern |
| 2021 |
| $ | 1,203,904 |
|
| $ | - |
|
| $ | 1,325,006 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 2,528,910 |
|
Interim Chief Executive Officer, |
| 2020 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Executive Chairman |
| 2019 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
James W. Spexarth |
| 2021 |
|
| 327,495 |
|
|
| 125,000 |
|
|
| 1,000,030 |
|
|
| - |
|
|
| - |
|
|
| 297,500 |
|
|
| 38,526 |
|
|
| 1,788,551 |
|
Executive Vice President, |
| 2020 |
|
| 293,580 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 614,250 |
|
|
| 151,200 |
|
|
| 38,320 |
|
|
| 1,097,350 |
|
Chief Financial Officer and Treasurer |
| 2019 |
|
| 327,600 |
|
|
| - |
|
|
| 214,250 |
|
|
| 122,828 |
|
|
|
|
|
| 292,053 |
|
|
| 78,280 |
|
|
| 1,035,011 |
| |
Blaine D. Edwards |
| 2021 |
|
| 270,570 |
|
|
| - |
|
|
| 1,000,030 |
|
|
| - |
|
|
| - |
|
|
| 105,000 |
|
|
| 10,938 |
|
|
| 1,386,538 |
|
Executive Vice President, |
| 2020 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
General Counsel and Secretary |
| 2019 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Michael J. Delahoussaye |
| 2021 |
|
| 301,077 |
|
|
| - |
|
|
| 500,015 |
|
|
| - |
|
|
| - |
|
|
| 262,500 |
|
|
| 77,892 |
|
|
| 1,141,484 |
|
President, |
| 2020 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Workstrings International |
| 2019 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Deidre D. Toups |
| 2021 |
|
| 315,646 |
|
|
| - |
|
|
| 500,015 |
|
|
| - |
|
|
| - |
|
|
| 245,000 |
|
|
| 30,781 |
|
|
| 1,091,442 |
|
President, |
| 2020 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Specialized Rental and Services Division |
| 2019 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Separated NEOs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
David D. Dunlap (8) |
| 2021 |
|
| 174,250 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,682,793 |
|
|
| 3,857,043 |
|
Former President and |
| 2020 |
|
| 725,769 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,187,500 |
|
|
| 816,000 |
|
|
| 46,470 |
|
|
| 4,775,739 |
|
Chief Executive Officer |
| 2019 |
|
| 850,000 |
|
|
| - |
|
|
| 1,111,800 |
|
|
| 637,484 |
|
|
| - |
|
|
| 2,204,756 |
|
|
| 226,460 |
|
|
| 5,030,500 |
|
Westervelt T. Ballard, Jr. (8) |
| 2021 |
|
| 101,699 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,739,457 |
|
|
| 1,841,156 |
|
Former Executive Vice President, |
| 2020 |
|
| 423,118 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,069,200 |
|
|
| 253,440 |
|
|
| 38,070 |
|
|
| 1,783,828 |
|
Chief Financial Officer and Treasurer |
| 2019 |
|
| 475,200 |
|
|
| - |
|
|
| 372,911 |
|
|
| 213,823 |
|
|
| - |
|
|
| 646,525 |
|
|
| 97,322 |
|
|
| 1,805,781 |
|
Name |
| 401(k) |
|
| Life Insurance |
|
| ArmadaCare |
|
| Automobile and |
|
| Relocation |
|
| Severance |
|
| Total |
| |||||||
Current NEOs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Mr. McGovern |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
Mr. Spexarth |
|
| 11,600 |
|
|
| 1,138 |
|
|
| 16,188 |
|
|
| 9,600 |
|
|
| - |
|
|
| - |
|
|
| 38,526 |
|
Mr. Edwards |
|
| 9,900 |
|
|
| 1,038 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 10,938 |
|
Mr. Delahoussaye (9) |
|
| 11,600 |
|
|
| 1,112 |
|
|
| - |
|
|
| 7,872 |
|
|
| 57,308 |
|
|
| - |
|
|
| 77,892 |
|
Ms. Toups |
|
| 11,600 |
|
|
| 1,181 |
|
|
| - |
|
|
| 18,000 |
|
|
| - |
|
|
| - |
|
|
| 30,781 |
|
Separated NEOs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Mr. Dunlap |
|
| 7,142 |
|
|
| 320 |
|
|
| 16,029 |
|
|
| 4,292 |
|
|
| - |
|
|
| 3,655,010 |
|
|
| 3,682,793 |
|
Mr. Ballard |
|
| 4,159 |
|
|
| 320 |
|
|
| 16,029 |
|
|
| 2,289 |
|
|
| - |
|
|
| 1,716,660 |
|
|
| 1,739,457 |
|
Grants of Plan-Based Awards During 2021
The following table presents additional information regarding the AIP, RSU and restricted stock awards granted to NEOs during the year ended December 31, 2021.
93
|
|
|
|
| Estimated Future Payouts Under Non-Equity Incentive Plan Awards |
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Name |
| Grant Date(1) |
|
| Threshold |
|
| Target |
|
| Maximum |
|
| Stock Awards: Number of Shares of Stock or Units (#) |
|
| Grant Date Fair Value of Awards |
| ||||||
Current NEOs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Michael Y. McGovern |
| 06/02/2021 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 33,519 |
|
| $ | 1,325,006 |
| |
James W. Spexarth |
| 06/02/2021 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 12,649 |
|
|
| 500,015 |
| |
James W. Spexarth |
| 07/07/2021 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 12,649 |
|
|
| 500,015 |
| |
Blaine D. Edwards |
| 06/02/2021 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 12,649 |
|
|
| 500,015 |
| |
Blaine D. Edwards |
| 07/07/2021 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 12,649 |
|
|
| 500,015 |
| |
Michael J. Delahoussaye |
| 08/19/2021 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 12,649 |
|
|
| 500,015 |
| |
Deidre D. Toups |
| 07/07/2021 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 12,649 |
|
|
| 500,015 |
| |
Separated NEOs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
David D. Dunlap |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Westervelt T. Ballard, Jr. |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Relocation compensation for Mr. Delahoussaye resulted from his move from Houston, Texas to Broussard, Louisiana, upon assuming the role of president of Workstrings International. Other compensation for Mr. Dunlap and Mr. Ballard was paid upon execution of a waiver and release of claims against the Company. Severance included benefits continuation for two years, including ArmadaCare Supplemental Executive Medical coverage. ArmadaCare was terminated for all executives effective December 31, 2021.
The restricted stock awards vest equally on each of April 1, 2022 and the second and third anniversaries of the grant date of June 2, 2021, subject to earlier vesting and forfeiture on terms and conditions set forth in the applicable award agreement. The RSUs vest 18 months from the date of grant, July 7, 2021 (August 19, 2021 for Mr. Delahoussaye), subject to earlier vesting and forfeiture on terms and conditions set forth in the applicable award agreement.
Outstanding Equity Awards at 2021 Year-End
The following table sets forth the outstanding equity awards held by our NEOs as of December 31, 2021.
|
| Option Awards |
|
| Stock Awards |
| ||||||||||||||||||||||||||
|
| Number of Securities Underlying Unexercised Options (#) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Equity Incentive Plan Awards |
| ||||||||||||||
Name |
| Exercisable |
|
| Unexercisable |
|
| Option Exercise Price |
|
| Option Expiration Date |
|
| Number of Shares or Units of Stock That Have Not Vested (1) |
|
| Market Value of Shares or Units of Stock That Have Not Vested |
|
| Number of Unearned Shares, Units or Other Rights That Have Not Vested |
|
| Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested |
| ||||||||
Current NEOs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Michael Y. McGovern (2) |
|
| - |
|
|
| - |
|
| $ | - |
|
|
| - |
|
|
| 23,463 |
|
| $ | 927,492 |
|
|
| - |
|
| $ | - |
|
James W. Spexarth (2) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 7,842 |
|
|
| 309,994 |
|
|
| - |
|
|
| - |
|
James W. Spexarth (3) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 12,649 |
|
|
| 500,015 |
|
|
| - |
|
|
| - |
|
Blaine D. Edwards (2) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 7,842 |
|
|
| 309,994 |
|
|
| - |
|
|
| - |
|
Blaine D. Edwards (3) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 12,649 |
|
|
| 500,015 |
|
|
| - |
|
|
| - |
|
Michael J. Delahoussaye (3) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 12,649 |
|
|
| 500,015 |
|
|
| - |
|
|
| - |
|
Deidre D. Toups (3) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 12,649 |
|
|
| 500,015 |
|
|
| - |
|
|
| - |
|
Separated NEOs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
David D. Dunlap |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Westervelt T. Ballard, Jr. |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
94
Option Exercises and Stock Vested in 2021
None of the NEOs exercised any stock options or had any stock vest in 2021. All LTIP grants made prior to the Emergence Date to our NEOs were surrendered in connection with the implementation of, and as a condition to, their participation in the KERP.
Pension Benefits
None of the NEOs participated in any defined benefit pension plans in 2021.
Retirement Benefit Programs
Supplemental Executive Retirement Plan
The Supplemental Executive Retirement Plan (SERP) provided retirement benefits to executive officers and certain other designated key employees. The SERP is an unfunded, non-qualified defined contribution retirement plan and all contributions under the SERP are in the form of credits to a notional account maintained for each participant.
The SERP was assumed under the Plan and remains in effect.
Nonqualified Deferred Compensation Plan
The Nonqualified Deferred Compensation Plan (NQDC Plan) provides an income deferral opportunity for executive officers and certain senior managers who qualify for participation.
We have not had enrollment periods for the NQDC since 2019.
Nonqualified Deferred Compensation for 2021
95
Name |
| Aggregate Earnings in 2021 |
|
| Aggregate |
|
| Aggregate |
| |||
Current NEOs |
|
|
|
|
|
|
|
|
| |||
Michael Y. McGovern |
|
| - |
|
|
| - |
|
|
| - |
|
James W. Spexarth |
|
|
|
|
|
|
|
|
| |||
NQDC Plan |
|
| 4,411 |
|
|
| - |
|
|
| 471,639 |
|
SERP (1) |
|
| 4,747 |
|
|
| - |
|
|
| 86,154 |
|
Blaine D. Edwards |
|
|
|
|
|
|
|
|
| |||
NQDC Plan |
|
| 2,416 |
|
|
| - |
|
|
| 60,028 |
|
Deidre D. Toups |
|
|
|
|
|
|
|
|
| |||
NQDC Plan |
|
| 240,654 |
|
|
| - |
|
|
| 1,458,469 |
|
SERP (1) |
|
| 20,408 |
|
|
| - |
|
|
| 370,354 |
|
Separated NEOs |
|
|
|
|
|
|
|
|
| |||
David D. Dunlap |
|
|
|
|
|
|
|
|
| |||
NQDC Plan |
|
| 101,083 |
|
|
| (660,193 | ) |
|
| - |
|
SERP (1) |
|
| 63,933 |
|
|
| (1,543,233 | ) |
|
| - |
|
Westervelt T. Ballard, Jr. |
|
|
|
|
|
|
|
|
| |||
SERP (1) |
|
| 13,446 |
|
|
| (324,572 | ) |
|
| - |
|
With regard to the NQDC Plan, participant contributions are treated as if invested in one or more investment vehicles selected by the participant. The annual rate of return for these funds for fiscal year 2021 was as follows:
Fund | One Year | |||
Nationwide VIT Money Market V | 0.00 | % | ||
JPMorgan IT Core Bond 1 | (1.35 | )% | ||
Vanguard VIF Total Bond Mkt Idx | (1.72 | )% | ||
Franklin Templeton VIP Global Bond 1 | (4.62 | )% | ||
MFS VIT Value Svc | 25.16 | % | ||
Fidelity VIP Index 500 Initial | 28.58 | % | ||
American Funds IS Growth 2 | 21.99 | % | ||
JPMorgan IT Mid Cap Value 1 | 29.88 | % | ||
Vanguard VIF Mid Cap Index | 24.36 | % | ||
Janus Henderson VIT Enterprise Svc | 16.54 | % | ||
DFA VA U.S. Targeted Value | 39.68 | % | ||
DWS Small Cap Index VIP A | 14.50 | % | ||
Vanguard VIF Small Co Gr | 14.22 | % | ||
Nationwide VIT International Index I | 10.84 | % | ||
Invesco VIF International Growth I | 5.89 | % | ||
MFS VIT II International Intrinsic Value Svc | 10.28 | % | ||
Vanguard VIF Real Estate Index | 40.21 | % |
Potential Payments upon Termination or Change of Control
Because our NEOs became NEOs at different times and under different circumstances, the compensation and benefits awarded to our individual NEOs in the event of termination or a change of control varies. Below is a description of the employment agreements, change in control severance plan and other arrangements in place with each of our NEOs.
Waiver and Release Agreements of Messrs. Dunlap and Ballard. In connection with their resignations, Mr. Dunlap and Mr. Ballard each entered into a waiver and release in favor of the Company. In exchange for executing their release, each of Mr. Dunlap and Mr. Ballard became entitled to receive the following: (1) a lump sum payment equal to two times the sum of his annual salary plus target annual bonus, (2) his pro-rated target annual bonus for the year of termination and (3) Company-paid healthcare continuation benefits for up to 24 months for himself and his spouse and family. Messrs. Dunlap and Ballard also received payment of their account balances under the SERP, and Mr. Dunlap of his account balance under the NQDC Plan, as reported in the “Nonqualified Deferred Compensation for 2021” table. Neither Mr. Dunlap nor Mr. Ballard held any incentive or equity awards at the time of their resignations.
Employment Agreements of Messrs. Spexarth and Edwards and Ms. Toups. Each of Mr. Spexarth, Mr. Edwards and Ms. Toups is party to an employment agreement. Mr. Spexarth’s employment agreement provides for participation in our Change of Control Severance Plan, but the agreements for Mr. Edwards and Ms. Toups do not.
96
Termination without a Change of Control
Termination without Cause or for Good Reason in Connection with a Change of Control
The payments and benefits described above are subject to the NEO’s timely execution of a release of claims in favor of us. Each employment agreement includes an indefinite confidentiality and protection of information covenant and a mutual one-year non-disparagement covenant. Upon termination of employment by us for cause or resignation without good reason, Mr. Spexarth and Ms. Toups will each be bound by a non-competition and non-solicitation covenant for one year after the date of their termination, and Mr. Edwards will be bound by a non-competition and non-solicitation covenant for 9 months after the date of his termination.
Change of Control Severance Plan.
Mr. Spexarth is the only NEO who participates in our Change of Control Severance Plan.
As of December 31, 2021, he was eligible to receive certain cash severance payments upon a termination of employment without cause or for good reason that occurs within 6 months before or 24 months after a change of control. The potential severance payments due under the plan are determined as of the date of the change of control, based on a “sharing pool” that is calculated as a percentage of the transaction value (with the sharing pool increasing or decreasing as the transaction value increases or decreases, respectively). We do not provide excise tax gross-ups under our severance plan.
Subsequent to December 31, 2021, all Change of Control Severance Plan participants, including Mr. Spexarth, consented to the Compensation Committee’s termination of the Severance Plan in accordance with Section 7.2 of the Severance Plan and waived their right to receive the severance payments and benefits thereunder.
97
Calculation of change of control severance benefits. The severance benefit under the Change of Control Severance Plan is equal to each participant’s portion of the total cash available in the sharing pool. Each participant’s severance benefit will be determined based on the date of the change of control. The plan is designed to ensure that each participant receives the same percentage of the total net after-tax benefit that would be received by all participants under the plan as the participant’s percentage interest, and the total net after-tax benefit received by all participants is maximized.
Determination of sharing pool. The total severance benefits payable under the plan may not exceed the “sharing pool.” The sharing pool is determined based on the transaction value, as defined in the plan, at the time of the change of control as follows:
Transaction Value |
|
| Sharing Pool |
|
| Sharing Pool as a | ||
$ | 1.0 |
|
| $ | 12,400,000 |
|
| 1.24% |
Equity Awards
Upon the termination of an NEO’s employment without cause by the Company, by the NEO for “good reason” (as defined in the NEO's applicable employment agreement, if any) or due to the NEO’s disability, the NEO will vest in a pro rata portion of the NEO’s unvested restricted stock and RSU awards. Such pro rata portion will be determined by dividing the number of days elapsed since the award grant date through the NEO’s termination date by the number of days from the grant date through the original vesting date. In addition, an NEO’s outstanding restricted stock and RSU awards will become 100% vested upon his or her death or the occurrence of a change of control, provided the NEO is employed by us at the time.
We do not provide excise tax gross ups under any employment agreement, equity award or the Change of Control Severance Plan discussed above. Each of the employment agreements discussed above and the Change of Control Severance Plan provides for a “best net” approach in the event that severance and other payments and benefits result in “excess parachute payments” under Internal Revenue Code Section 280G. Under a “best net” approach, the NEO’s payments and benefits will be reduced to avoid triggering excise tax if the reduction would result in a greater after-tax amount for the NEO compared to the amount he or she would receive net of the excise tax if no reduction were made.
Except as otherwise noted, the following table quantifies the potential payments to our NEOs under their employment arrangements and equity awards, our Change of Control Severance Plan discussed above and the SERP and the NQDC Plan, as described above, for various scenarios involving a change of control or termination of employment of each of our NEOs in such position at the end of the year, assuming a December 31, 2021 termination date and where applicable, using the estimated fair market values as of December 31, 2021 of $39.53 per share of our Class A common stock and $39.53 per share of our Class B common stock. Excluded are benefits provided to all employees, such as accrued vacation and benefits provided by third parties under our life and other insurance policies. Also excluded are benefits our NEOs would receive upon termination of employment under our 401(k) plan.
98
Name |
| Termination without Cause |
| Resignation for Good Reason |
| Termination without Cause / for Good Reason in Connection with a Change of |
| Change of Control Alone |
| Voluntary Termination |
| Death |
| Disability |
| |||||||
Current NEOs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Michael Y. McGovern |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Restricted Stock Acceleration |
| $ | - |
| $ | - |
| $ | 927,492 |
| $ | 927,492 |
| $ | - |
| $ | - |
| $ | - |
|
RSU Acceleration |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
Total |
| $ | - |
| $ | - |
| $ | 927,492 |
| $ | 927,492 |
| $ | - |
| $ | - |
| $ | - |
|
James W. Spexarth |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Severance Pay |
| $ | 1,147,500 |
| n/a |
| $ | 5,973,000 |
| n/a |
| n/a |
| n/a |
| n/a |
| |||||
Prorated Bonus (at target) |
|
| 148,750 |
| n/a |
|
| 148,750 |
| n/a |
| n/a |
| n/a |
| n/a |
| |||||
SERP |
|
| 86,154 |
|
| 86,154 |
|
| 86,154 |
| n/a |
|
| 86,154 |
|
| 86,154 |
|
| 86,154 |
| |
NQDC Plan |
|
| 471,639 |
|
| 471,639 |
|
| 471,639 |
| n/a |
|
| 471,639 |
|
| 471,639 |
|
| 471,639 |
| |
Restricted Stock Acceleration |
|
| 72,298 |
| n/a |
|
| 309,994 |
|
| 309,994 |
| n/a |
|
| 309,994 |
|
| 72,298 |
| ||
RSU Acceleration |
|
| 161,207 |
| n/a |
|
| 500,015 |
|
| 500,015 |
| n/a |
|
| 500,015 |
|
| 161,207 |
| ||
COBRA Payments |
|
| 36,359 |
| n/a |
|
| 36,359 |
| n/a |
| n/a |
| n/a |
| n/a |
| |||||
Outplacement |
| n/a |
| n/a |
|
| 10,000 |
| n/a |
| n/a |
| n/a |
| n/a |
| ||||||
Total |
| $ | 2,123,907 |
| $ | 557,793 |
| $ | 7,535,911 |
| $ | 810,009 |
| $ | 557,793 |
| $ | 1,367,802 |
| $ | 791,298 |
|
Blaine D. Edwards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Severance Pay |
| $ | 303,750 |
| n/a |
| $ | 607,500 |
| n/a |
| n/a |
| n/a |
| n/a |
| |||||
Prorated Bonus (at target) |
|
| 105,000 |
| n/a |
|
| 105,000 |
| n/a |
| n/a |
| n/a |
| n/a |
| |||||
NQDC Plan |
|
| 60,028 |
|
| 60,028 |
|
| 60,028 |
| n/a |
|
| 60,028 |
|
| 60,028 |
|
| 60,028 |
| |
Restricted Stock Acceleration |
|
| 72,298 |
| n/a |
|
| 309,994 |
|
| 309,994 |
| n/a |
|
| 309,994 |
|
| 72,298 |
| ||
RSU Acceleration |
|
| 161,207 |
| n/a |
|
| 500,015 |
|
| 500,015 |
| n/a |
|
| 500,015 |
|
| 161,207 |
| ||
COBRA Payments |
|
| 11,731 |
| n/a |
|
| 23,462 |
| n/a |
| n/a |
| n/a |
| n/a |
| |||||
Total |
| $ | 714,014 |
| $ | 60,028 |
| $ | 1,605,999 |
| $ | 810,009 |
| $ | 60,028 |
| $ | 870,037 |
| $ | 293,533 |
|
Michael J. Delahoussaye |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Severance Pay (1) |
|
| 93,750 |
| n/a |
|
| 93,750 |
|
|
|
| - |
|
| - |
|
| - |
| ||
Restricted Stock Acceleration |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
RSU Acceleration |
|
| 124,078 |
| n/a |
|
| 500,015 |
|
| 500,015 |
| n/a |
|
| 500,015 |
|
| 124,078 |
| ||
Total |
| $ | 217,828 |
| $ | - |
| $ | 593,765 |
| $ | 500,015 |
| $ | - |
| $ | 500,015 |
| $ | 124,078 |
|
Deidre D. Toups |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Severance Pay |
| $ | 472,500 |
| n/a |
| $ | 945,000 |
| n/a |
| n/a |
| n/a |
| n/a |
| |||||
Prorated Bonus (at target) |
|
| 122,500 |
| n/a |
|
| 122,500 |
| n/a |
| n/a |
| n/a |
| n/a |
| |||||
SERP |
|
| 370,354 |
|
| 370,354 |
|
| 370,354 |
| n/a |
|
| 370,354 |
|
| 370,354 |
|
| 370,354 |
| |
NQDC Plan |
|
| 1,458,469 |
|
| 1,458,469 |
|
| 1,458,469 |
| n/a |
|
| 1,458,469 |
|
| 1,458,469 |
|
| 1,458,469 |
| |
Restricted Stock Acceleration |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
RSU Acceleration |
|
| 161,207 |
| n/a |
|
| 500,015 |
|
| 500,015 |
| n/a |
|
| 500,015 |
|
| 161,207 |
| ||
COBRA Payments |
|
| 18,180 |
| n/a |
|
| 36,359 |
| n/a |
| n/a |
| n/a |
| n/a |
| |||||
Total |
| $ | 2,603,210 |
| $ | 1,828,823 |
| $ | 3,432,697 |
| $ | 500,015 |
| $ | 1,828,823 |
| $ | 2,328,838 |
| $ | 1,990,030 |
|
Separated NEOs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
David D. Dunlap |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Severance Pay |
|
|
|
|
|
|
|
|
| $ | 3,655,010 |
|
|
|
|
| ||||||
SERP |
|
|
|
|
|
|
|
|
|
| 1,543,233 |
|
|
|
|
| ||||||
NQDC Plan |
|
|
|
|
|
|
|
|
|
| 660,193 |
|
|
|
|
| ||||||
COBRA Payments |
|
|
|
|
|
|
|
|
|
| 44,065 |
|
|
|
|
| ||||||
Total |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 5,902,501 |
| $ | - |
| $ | - |
|
Westervelt T. Ballard, Jr. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Severance Pay |
|
|
|
|
|
|
|
|
| $ | 1,716,660 |
|
|
|
|
| ||||||
SERP |
|
|
|
|
|
|
|
|
|
| 324,572 |
|
|
|
|
| ||||||
COBRA Payments |
|
|
|
|
|
|
|
|
|
| 44,065 |
|
|
|
|
| ||||||
Total |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 2,085,297 |
| $ | - |
| $ | - |
|
CEO Pay Ratio
The table below sets forth comparative information regarding (A) the 2021 annual total compensation of Mr. McGovern, our Executive Chairman, who filled the position of interim Chief Executive Officer during 2021 beginning on March 16, 2021, (B) the 2021 annual total compensation of our median employee, and (C) the ratio of our former CEO’s 2021 annual total compensation compared to the 2021 annual total compensation of our median employee.
CEO Pay Ratio |
| |||
CEO 2021 Annual Total Compensation (A) |
| $ | 2,528,910 |
|
Median Employee 2021 Annual Total Compensation (B) |
|
| 48,569 |
|
Pay Ratio |
| 52:1 |
|
99
Developments during 2021 required a review of the analysis to determine the median employee for comparison to determine the CEO pay ratio. The methodology used in identifying the 2021 median employee was substantially similar to prior period reviews. However, for 2021, no international employees were excluded under the 5% de minimis exception. We consistently applied the compensation measure of total taxable compensation which included base salary, overtime, bonuses paid in 2021, long-term incentives granted in 2021 and all other types of taxable compensation. In the analysis, all part-time and full-time U.S. and non-U.S. employees who were employed by us as of December 31, 2021 were included.
Approximately 2,300 part-time and full-time U.S. and non-U.S. employees (other than Mr. McGovern), who were employed as of December 31, 2021, were included. December 31, 2021 was selected as the date to identify our median compensated employee. Given that we have global operations and employees located in many locations, pay and reporting systems and pay practices vary depending on the region. As a result, assumptions, adjustments and estimates were consistently applied to identify the annual total taxable compensation of the median compensated employee. International compensation was converted to USD for comparison purposes using conversion rates as of December 31, 2021. Based on the methodology described above, the median employee is an hourly operations employee (shop foreman) who has worked for us for four years.
In 2021, the median compensated employee earned an annual total compensation of $48,569. The 2021 total annual compensation for Mr. McGovern (our Executive Chairman, who was acting as interim CEO as of the median employee identification date) as reported in the Summary Compensation Table was $2,528,910. As a result, the pay ratio between our interim CEO’s total annual compensation and the median compensated employee’s total annual compensation was 52:1 in 2021.
2021 Director Compensation
In 2021, prior to the Emergence Date, the non-management directors received:
In 2021, subsequent to the Emergence Date, our non-management directors received:
In addition, on June 2, 2021, the Board and the Compensation Committee approved the issuance of restricted stock awards to our directors, including 33,519 shares of restricted stock to our executive chairman of the Board, whose award is shown in the Summary Compensation table and Grants of Plan-Based Awards table above because of his position as one of our NEOs for 2021.
The table below summarizes the compensation for the year ended 2021 for non-management directors (regardless of when earned). All non-management directors were reimbursed for reasonable expenses incurred in attending Board and Board committee meetings.
Name |
| Fees Earned or |
|
| Stock |
|
| All Other |
|
| Total |
| ||||
Joseph Citarrella (3) |
| $ | 67,962 |
|
| $ | - |
|
| $ | - |
|
| $ | 67,962 |
|
Daniel E. Flores (4) |
|
| 67,962 |
|
|
| - |
|
|
| - |
|
|
| 67,962 |
|
James M. Funk (5) |
|
| 50,000 |
|
|
| - |
|
|
| 40,330 |
|
|
| 90,330 |
|
Terence E. Hall (5) |
|
| 75,000 |
|
|
| - |
|
|
| 13,518 |
|
|
| 88,518 |
|
Peter D. Kinnear (5) |
|
| 43,750 |
|
|
| - |
|
|
| 10,613 |
|
|
| 54,363 |
|
Janiece M. Longoria (5) |
|
| 46,250 |
|
|
| - |
|
|
| - |
|
|
| 46,250 |
|
Michael M. McShane (5) |
|
| 48,750 |
|
|
| - |
|
|
| 9,557 |
|
|
| 58,307 |
|
W. Matt Ralls (5) |
|
| 47,500 |
|
|
| - |
|
|
| 12,011 |
|
|
| 59,511 |
|
Julie J. Robertson (4) |
|
| 81,555 |
|
|
| 725,020 |
|
|
| - |
|
|
| 806,575 |
|
Krishna Shivram |
|
| 86,086 |
|
|
| 725,020 |
|
|
| - |
|
|
| 811,106 |
|
Timothy J. Winfrey |
|
| 67,962 |
|
|
| 725,020 |
|
|
| - |
|
|
| 792,982 |
|
100
Item 12. Security Ownership of Certain Beneficial Owners and ManagementManagement and Related Stockholder Matters
Information requiredSecurities Authorized for Issuance Under Equity Compensation Plans
Shares were issued under our MIP, discussed above. The Compensation Committee designates participants in the plan, determines the types of cash and share based awards authorized by this item will be contained in our definitive proxy statementthe plan to be filed pursuantissued to Regulation 14Aparticipants, and determines the terms of the individual forms of awards granted under the MIP, among other things. Pursuant to the MIP, the Compensation Committee is incorporated herein by reference.authorized to grant awards with respect to an aggregate of 1,999,869 shares of Class B Common Stock.
Principal Stockholders
The following table shows the number of shares of our Class A Common Stock beneficially owned by holders as of March 4, 2022 known by us to beneficially own more than 5% of the outstanding shares of our common stock as well as our directors and executive officers.
The information in the table is based on information provided to us by the entities listed below as well as our transfer agent. These stockholders acquired their shares of Class A Common Stock in connection with our emergence from bankruptcy discussed elsewhere in this Annual Report on Form 10-K.
We believe, based on information supplied by the stockholders, that except as may otherwise be indicated in the footnotes to the table below, the stockholders have sole voting and dispositive power with respect to the shares of Class A Common Stock reported as beneficially owned by them.
|
| Class A Common Stock |
|
| Class B Common Stock |
|
| Combined |
| |||||||||||||||
Name and Address of Beneficial Owner |
| Number |
|
| Percentage |
|
| Number |
|
| Percentage |
|
| Number |
|
| Percentage (4) |
| ||||||
GoldenTree Asset Management LP (1) |
|
| 7,147,567 |
|
|
| 35.7 | % |
|
| - |
|
|
| - |
|
|
| 7,147,567 |
|
|
| 35.6 | % |
Monarch GP LLC (2) |
|
| 2,951,553 |
|
|
| 14.8 | % |
|
| - |
|
|
| - |
|
|
| 2,951,553 |
|
|
| 14.7 | % |
Glendon Capital Management, L.P. (3) |
|
| 1,756,213 |
|
|
| 8.8 | % |
|
| - |
|
|
| - |
|
|
| 1,756,213 |
|
|
| 8.7 | % |
Royal Bank of Canada (5) |
|
| 1,519,838 |
|
|
| 7.6 | % |
|
| - |
|
|
| - |
|
|
| 1,519,838 |
|
|
| 7.6 | % |
Madison Avenue International LP |
|
| 1,304,252 |
|
|
| 6.5 | % |
|
| - |
|
|
| - |
|
|
| 1,304,252 |
|
|
| 6.5 | % |
Joseph Citarrella |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Daniel E. Flores |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Julie J. Robertson |
|
| - |
|
|
| - |
|
|
| 11,371 |
|
|
| 14.9 | % |
|
| 11,371 |
|
|
| 0.1 | % |
Krishna Shivram |
|
| - |
|
|
| - |
|
|
| 11,078 |
|
|
| 14.5 | % |
|
| 11,078 |
|
|
| 0.1 | % |
Timothy J. Winfrey |
|
| - |
|
|
| - |
|
|
| 14,673 |
|
|
| 19.2 | % |
|
| 14,673 |
|
|
| 0.1 | % |
Michael Y. McGovern |
|
| - |
|
|
| - |
|
|
| 23,463 |
|
|
| 30.8 | % |
|
| 23,463 |
|
|
| 0.1 | % |
James W. Spexarth |
|
| - |
|
|
| - |
|
|
| 7,842 |
|
|
| 10.3 | % |
|
| 7,842 |
|
|
| 0.0 | % |
Blaine D. Edwards |
|
| - |
|
|
| - |
|
|
| 7,842 |
|
|
| 10.3 | % |
|
| 7,842 |
|
|
| 0.0 | % |
Michael J. Delahoussaye |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Deidre D. Toups |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
James M. Funk |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Terence E. Hall |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Peter D. Kinnear |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Janiece M. Longoria |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Michael M. McShane |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
W. Matt Ralls |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
David D. Dunlap |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Westervelt T. Ballard, Jr. |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
All directors and named executive officers as a group |
|
| - |
|
|
| - |
|
|
| 76,269 |
|
|
| 100.0 | % |
|
| 76,269 |
|
|
| 0.4 | % |
101
Upon our emergence from Chapter 11 bankruptcy, all existing equity was cancelled and we issued the Class A Common Stock. As a result, our directors and executive officers are not currently beneficial owners of any shares of our outstanding Class A Common Stock. The address of directors and officers is in care of Superior Energy Services, Inc., 1001 Louisiana Street, Suite 2900, Houston, Texas 77002.
Item 13. Certain RelationshipsRelationships and Related Transactions, and Director Independence
Information required by this item will be contained in our definitive proxy statement to be filed pursuant to Regulation 14A and is incorporated herein by reference.Certain Transactions
Our practice has been that any transaction which would require disclosure under Item 404(a) of Regulation S-K of the rules and regulations of the SEC, with respect to a director or executive officer, must be reviewed and approved by the Audit Committee.
On the Emergence Date, in order to implement the governance related provisions reflected in the Plan, we entered into a Stockholders Agreement to provide for certain governance matters, which is further discussed in Item 10 in this Annual Report on Form 10-K.
Item 14. Principal AccountingAccounting Fees and Services
InformationThe following table presents fees for professional audit services rendered by our Independent Registered Public Accounting Firm for the audits of our annual financial statements for 2021, 2020 and 2019, and fees billed for other services rendered. Our Independent Registered Public Accounting Firm for the financial statements ended December 31, 2021 was PricewaterhouseCoopers LLP (“PWC”) and for the years ended December 31, 2020 and 2019 was KPMG LLP (“KPMG”). During the year ended December 31, 2021, KPMG provided audit services relates to the years ended December 31, 2020 and 2019 due to the recasting of our prior period financial statements for the presentation of assets held for sale and discontinued operations.
|
| Fiscal Year Ended December 31 |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Audit Fees (1) |
| $ | 3,104,135 |
|
| $ | 1,894,500 |
|
| $ | 3,973,630 |
|
Audit-Related Fees (2) |
|
| - |
|
|
| - |
|
|
| 200,000 |
|
Tax Fees (3) |
|
| 4,548 |
|
|
| 7,979 |
|
|
| 25,827 |
|
All Other Fees |
|
| - |
|
|
| - |
|
|
| - |
|
Pre-Approval Process
Prior to emergence from the Chapter 11 Cases, the Audit Committee was required to pre-approve all audit and permissible non-audit services provided by this item willthe independent auditor and followed established approval procedures to ensure that the independent auditor’s independence would not be containedimpaired. If services required specific pre-approval, the Chief Accounting Officer (“CAO”) submitted requests along with a joint statement from the independent auditor as to whether, in our definitive proxy statementthe CAO’s view, the request for services was consistent with the SEC’s rules on auditor independence.
The Audit Committee delegated pre-approval authority for audit, audit-related, tax services and other services that may be performed by the independent auditor in the pre-approval policy to its chair and any pre-approval decisions were presented to the Audit Committee at its next scheduled meeting. The Audit Committee did not delegate to management its responsibility to pre-approve
102
services to be filed pursuant to Regulation 14Aperformed by our independent auditor for the year ended December 31, 2020. All audit and is incorporated hereintax fees described above were approved by reference.the Audit Committee in 2020 before services were rendered.
Following emergence from the Chapter 11 cases, the Audit Committee is required to pre-approve all audit and permissible non-audit services provided by the independent auditor. The Audit Committee has not yet determined whether, and to what extent, to delegate pre-approval authority for audit, audit related, tax and other services that may be performed by the independent auditor.
103
PART IV
Item 15. Exhibits, FinancialFinancial Statement Schedules
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial Statements and Financial Statement Schedules The following documents have been included in Part II, Item 8 of this Annual Report on Form 10-K: Consolidated Financial Statements and Notes Page Reports of Independent Registered Public Accounting Firm (PCAOB ID 238) 43 45 Consolidated Balance Sheets 48 Consolidated Statements of Operations 49 50 51 Consolidated Statements of Cash Flows 52 All other schedules have been omitted because they are inapplicable or not required or the information is included elsewhere in the consolidated financial statements or notes thereto. Exhibits Exhibit No. Description 3.1 Amended and Restated Certificate of Incorporation 3.3 4.1 104 4.2 Indenture, dated December 6, 2011, among SESI, L.L.C., the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated herein by reference to Exhibit 4.1 to Superior Energy Services, Inc.’s Current Report on Form 8-K filed on December 12, 2011 (File No. 001-34037)), as amended by Supplemental Indenture, dated February 29, 2012, by and among SESI, L.L.C., the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.3 to Superior Energy Services, Inc.’s Current Report on Form 8-K filed on March 1, 2012 (File No. 001-34037)), as further amended by Supplemental Indenture dated May 7, 2012, by and among SESI, L.L.C. the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.3 to Superior Energy Services, Inc.’s Current Report on Form 8-K filed on May 8, 2012 (File No. 001-34037)), as further amended by Supplemental Indenture dated August 29, 2014, by and among SESI, L.L.C., the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to Superior Energy Services, Inc.’s Current Report on Form 8-K filed on September 2, 2014 (File No. 001-34037)), as further amended by Supplemental Indenture dated August 3, 2015, by and among SESI, L.L.C., the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to Superior Energy Services, Inc.’s Quarterly Report on Form 10-Q 4.3 Indenture, dated August 17, 2017, among SESI L.L.C., the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to Superior Energy Services, Inc.’s Current Report on Form 8-K filed on August 17, 2017 (File No. 001-34037)), as further amended by Supplemental Indenture, dated as of October 20, 2017, by and among SESI L.L.C., the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.2 to Superior Energy Services, Inc.’s Current Report on Form 8-K filed on October 23, 2017 (File No. 001-34037)). 10.1^ Superior Energy Services, Inc. Supplemental Executive Retirement Plan (incorporated herein by reference to Exhibit 10.21 to Superior Energy Services, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2009 (File No. 001-34037)), as amended by Amendment No. 1 to the Superior Energy Supplemental Executive Retirement Plan, effective as of January 1, 2009 (incorporated herein by reference to Exhibit 10.21 to Superior Energy Services, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2010 (File No. 001-34037)), as further amended by Amendment No. 2 to the Superior Energy Services, Inc. Supplemental Executive Retirement Plan, effective as of March 3, 2010 (incorporated herein by reference to Exhibit 10.8 to Superior Energy Services, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2013 (File No. 001-34037)). 105 10.28 10.29 10.30 10.31 10.32 10.33 10.34 10.36 10.37 10.38^ 10.39^ 10.40^ 10.41^ 10.42^ 10.43^ 10.44^ 10.45^ 10.46^ 107 16.1 Subsidiaries of Superior Energy Services, Inc. Officer’s certification pursuant to Section 1350 of Title 18 of the U.S. Code. Officer’s certification pursuant to Section 1350 of Title 18 of the U.S. 101.INS* Inline XBRL Instance Document 101.SCH* Inline XBRL Taxonomy Extension Schema Document 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document 104* * Filed herein ^ Management contract or compensatory plan or arrangement Item 16. Form 10-K Summary None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SUPERIOR ENERGY SERVICES, INC. Date: March 21, 2022 By: /s/ Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date President and Chief Executive Officer (Principal Executive Officer) /s/ Executive Vice President, Chief Financial Officer & Treasurer (Principal Accounting and /s/ Executive Chairman of the Board /s/ Director /s/ Director /s/ Director /s/ Director /s/ Director 109 Balance at the Charged to beginning of costs and Balance at the Description the year expenses Deductions end of the year 2019 Allowance for doubtful accounts $ 12,080 $ 3,006 $ 2,930 $ 12,156 2018 Allowance for doubtful accounts $ 29,037 $ 3,569 $ 20,526 $ 12,080 2017 Allowance for doubtful accounts $ 29,740 $ 4,254 $ 4,957 $ 29,037 |