Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed. Our efforts to maintain internal controls may not be successful, and we may be unable to maintain adequate controls over our financial processes and reporting in the future, including compliance with the obligations under Section 404 of the Sarbanes-Oxley Act of 2002. Any failure to maintain effective controls or to make effective improvements to our internal controls could harm our operating results.
Fuel conservation measures, alternative fuel requirements, increasing consumer demand for alternatives to oil and gas, technological advances in fuel economy and energy generation devices could reduce demand for oil and gas. Management cannot predict the impact of the changing demand for oil and gas services and products, and any major changes may have a material adverse effect on our business, financial condition, results of operations and cash flows.
market value of the assets surrendered. We believe thee-line assets will generate incremental future cash flows compared to the production testing assets exchanged.
In May 2008, our Board of Directors authorized and committed to a plan to sell certain operations in the Barnett Shale region of north Texas, consisting primarily of our supply store business, as well as certain non-strategic drilling logistics assets and other completion and production services assets. On May 19, 2008, we sold these operations to Select Energy Services, L.L.C., a company owned by a former officer of one of our subsidiaries, for which we received proceeds of $50.2 million in cash and assets with a fair market value of $8.0 million. The carrying value of the net assets sold was approximately $51.4 million, excluding $11.1 million of allocated goodwill associated with the combination that formed Complete Production Services, Inc. in September 2005. We recorded a loss on the sale of this disposal group totaling approximately $6.9 million, which included $2.6 million related to income taxes. In accordance with the sales agreement, we agreed to sublet office space to Select Energy Services, L.L.C. and to provideprovided certain administrative services for an initial term of one year, at anagreed-upon rate.
On October 31, 2006, we completed the sale of anothera disposal group which included certain manufacturing and production enhancement product operations of a subsidiary located in Alberta, Canada, as well as operations in south Texas, for approximately $19.3 million in cash, with an additional amount subject to a working capital adjustment, and a $2.0 million Canadian dollar denominated note which matures on October 31, 2009 and accrues interest at a specified Canadian bank prime rate plus 1.50% per annum.Texas. We sold this disposal group to Paintearth Energy Services, Inc., an oilfield service company located in Calgary, Alberta, Canada,Canada. In conjunction with this asset disposal, the buyer issued a note to us for $2.0 million denominated in Canadian dollars. During the second quarter of 2010, we were notified that employs two ofthe seller was in default on a term loan and security agreement which was senior to our former employees as key managers. The carrying value of the related net assets was $21.7 million on October 31, 2006. Wenote. Therefore, management recorded a loss on the saleprovision of this disposal group totaling approximately $0.6$1.9 million which included a transaction gain associated with the release of cumulative translation adjustmentfor bad debt associated with this business, andnote as of June 30, 2010, but we will continue to pursue our interest in this note to the extent a $1.0 million charge to expense related to capital taxesportion may be recoverable in Canada. The sales agreement allowed Paintearth Energy Services, Inc. to use our subsidiary’s trade name for a period of 120 days from November 1, 2006 through February 28, 2007. On January 30, 2008, we amended the terms of the Paintearth note receivable to extend the maturity date through October 2011 and amended the interest rate for each of the calendar years within the remaining term.future period.
MarketingMarket Environment
We operate in a highly competitive industry. Our competition includes many large and small oilfield service companies. As such, we price our services and products to remain competitive in the markets in which we operate, adjusting our rates to reflect current market conditions as necessary. We examine the rate of utilization of our equipment as one measure of our ability to compete in the current market environment.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with GAAPGenerally Accepted Accounting Principles (“GAAP”) requires the use of estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, and provide a basis for making judgments about the carrying value of assets and liabilities that are not readily available through open market quotes. Estimates and assumptions are reviewed periodically, and actual results may differ from those estimates under different assumptions or conditions. We must use our judgment related to uncertainties in order to make these estimates and assumptions.
In the selection of our critical accounting policies, the objective is to properly reflect our financial position and results of operations for each reporting period in a consistent manner that can be understood by the reader of our financial statements. Our accounting policies and procedures are explained in note 1 of theNote 2, “Significant accounting policies,” in our notes to the consolidated financial statements containedincluded elsewhere in this Annual Report onForm 10-K.Report. We consider an estimate to be critical if it is subjective and if changes in the estimate using different assumptions would result in a material impact on our financial position or results of operations.
We have identified the following as the most critical accounting policies and estimates, and have provided: (1) a description, (2) information about variability and (3) our historical experience, including a sensitivity analysis, if applicable.
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Revenue Recognition
We recognize service revenue as services are performed and when realized or earned. Revenue is deemed to be realized or earned when we determine that the following criteria are met: (1) persuasive evidence of an arrangement
42
exists; (2) delivery has occurred or services have been rendered; (3) the fee is fixed or determinable; and (4) collectibility is reasonably assured. These services are generally provided over a relatively short period of time pursuant to short-term contracts at pre-determined dayrate fees, or on aday-to-day basis. Revenue and costs related to drilling contracts are recognized as work progresses. Progress is measured as revenue is recognized based upon dayrate charges. For certain contracts, we may receive lump-sum payments from our customers related to the mobilization of rigs and other drilling equipment. Under these arrangements, we defer revenues and the related cost of services and recognize them over the term of the drilling contract. Costs incurred to relocate rigs and other drilling equipment to areas in which a contract has not been secured are expensed as incurred. Revenues associated with product sales are recorded when product title is transferred to the customer.
Under current GAAP, revenue is to be recognized when it is realized or realizable and earned. The SEC’s rules and regulations provide additional guidance for revenue recognition under specific circumstances, including bill and hold transactions. There is a risk that our results of operations could be misstated if we do not record revenue in the proper accounting period.
The nature of our business has been such that we generally bill for services over a relatively short period of time or bill for services on a stage-completed basis under a longer-term contract withtake-or-pay provisions and record revenues as products are sold. We did not record material adjustments resulting from revenue recognition issues for the years ended December 31, 2008, 20072010, 2009 and 2006.2008.
Impairment of Long-Lived Assets
WeBased on guidance from the Financial Accounting Standards Board (“FASB”) regarding accounting for the impairment or disposal of long-lived assets, we evaluate potential impairment of long-lived assets and intangibles, excluding goodwill and other intangible assets without defined servicesservice lives, when indicators of impairment are present, as defined in SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”present. If such indicators are present, we project the fair value of the assets by estimating the undiscounted future cash in-flows to be derived from the long-lived assets over their remaining estimated useful lives, as well as any salvage value. Then, we compare this fair value estimate to the carrying value of the assets and determine whether the assets are deemed to be impaired. For goodwill and other intangible assets without defined service lives, we apply the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” which requiresperform an annual impairment test, whereby we estimate the fair value of the asset by discounting future cash flows at a projected cost of capital rate. If the fair value estimate is less than the carrying value of the asset, an additional test is required whereby we apply a purchase price analysis consistent with that described in SFAS No. 141.similar to a purchase price allocation for a business combination. If impairment is still indicated, we would record an impairment loss in the current reporting period for the amount by which the carrying value of the intangible asset exceeds its projected fair value.
Our industry is highly cyclical and the estimate of future cash flows requires the use of assumptions and our judgment. Periods of prolonged down cycles in the industry could have a significant impact on the carrying value of these assets and may result in impairment charges. If our estimates do not approximate actual performance or if the rates we used to discount cash flows vary significantly from actual discount rates, we could overstate our assets and an impairment loss may not be timely identified.
We tested goodwill for impairment for each of the years ended December 31, 2008, 20072010, 2009 and 2006.2008. Management prepared a discounted cash flow analysis to determine the fair market value of eachthe reportable unitunits as of the annual testing date, October 1 of each year.date. Projected cash flows were based on certain management assumptions related to expected growth, capital investment and terminal value, discounted at a market-participant weighted average cost of capital, refined to reflect our current and anticipated capital structure. Based on this analysis, management determined that goodwill was not impaired as of our annual testing date in 2010, but was impaired in 20082009 and 2007.2008. In accordance with SFAS No. 142,the FASB’s guidance for goodwill, management performed a step-two analysis to calculate the amount by which the carrying value of the reporting units exceeded the projected fair market value of such units as of the respective annual testing date. As a result of this testing in 2007, management recorded an impairment charge which reduced goodwill in Canada by $13.4 million. This annual testing was performed in 2008 and yielded another impairment for this Canadian subsidiary as of the test date. However, due to a decline in the overall U.S. debt and equity markets and concerns over the availability of credit, we determined that a “triggering event,” as that term is defined in SFAS No. 142, had occurred during the
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fourth quarter of 2008. Therefore, wedates. We performed our impairment calculations again as of December 31, 2008, incorporating our most recent assumptions of future earnings and cash flows. Based on this testing, we determined that the goodwill associated with most of our reporting units had been impaired. We recorded an impairment charge of $272.0 million at December 31, 2008. In calculating this impairment charge, management made assumptions about future earnings by reportable unit, which may differ from actual future earnings for these operations. In 2009, management performed additional analysis and determined that further write-downs were necessary. We recorded a
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goodwill impairment charge of $97.6 million associated with several of our reportable units at December 31, 2009. In addition, pursuant to an undiscounted cash flow analysis, we recorded a fixed asset impairment in our drilling services segment of $36.2 million and an intangible asset impairment in our completion and production services segment totaling $2.5 million during 2009. A significant decline in expected future cash flow, a further erosion of market conditions or alower-than-expected recovery of the oil and gas industry activity levels in future years, could result in an additional impairment charge. A 10% impairment of total goodwill at December 31, 2008 would have decreased our operating income by $34.2 million for the year then ended.
Stock Options and Other Stock-Based Compensation
We have issued stock-based compensation to certain employees, officers and directors in the form of stock options and non-vested restricted stock. We adopted SFAS No. 123R, “Share-Based Payment,” on January 1, 2006, which impacted our accounting treatment of employee stock options. As required by SFAS No. 123R,In accordance with U.S. GAAP, we continue to account for stock-based compensation for grants made prior to September 30, 2005, the date of our initial filing with the SEC, using the minimum value method, prescribed by APB No. 25, whereby no compensation expense is recognized for stock-based compensation grants that have an exercise price equal to the fair value of the stock on the date of grant. However, forFor grants of stock-based compensation between October 1, 2005 and December 31, 2005, (prior to adoption of SFAS No. 123R), we have utilized the modified prospective transition method to record expense associated with these options. Under this transition method,options, whereby we did not record compensation expense associated with these stock option grants during the period October 1, 2005 through December 31, 2005 but will provideprovided pro forma disclosure of this expense, as appropriate. However, we will recognizeand, then began recognizing compensation expense related to these grants over the remaining vesting period after December 31, 2005 based upon a calculated fair value. These grants were fully vested as of December 31, 2009. For grants of stock-based compensation on or after January 1, 2006, we apply the prospective transition method under SFAS No. 123R, whereby we recognize expense associated with new awards of stock-based compensation, as determined using a Black-Scholes pricing model over the expected term of the award. In addition, we record compensation expense associated with non-vested restricted stock which has been granted to certain of our directors, officers and employees. In accordance with SFAS No. 123R,current U.S. GAAP, we calculate compensation expense on the date of grant (number of options granted multiplied by the fair value of our common stock on the date of grant) and recognize this expense, adjusted for forfeitures, ratably over the applicable vesting period.
U.S. GAAP permits the use of various models to determine the fair value of stock options and the variables used for the model are highly subjective. For purposes of determining compensation expense associated with stock options granted after January 1, 2006, we are required to determine the fair value of the stock options by applying a pricing model which includes assumptions for expected term, discount rate, stock volatility, expected forfeitures and a dividend rate. The use of different assumptions or a different model may have a material impact on our financial disclosures.
For the years ended on or before December 31, 2005,2010, 2009 and 2008, we determined the value of our stock options by applying the minimum value method permitted by APB No. 25 and, in connection with estimating compensation expense that would be required to be recognized under SFAS No. 123, “Accounting for Stock-Based Compensation,” we usedapplied a Black-Scholes model includingwith similar assumptions for expected term (ranging(based on a probability analysis and ranging from 32.2 to 4.5 years as of December 31, 2005)5.1 years), risk-risk free rate (based upon published rates for U.S. Treasury notes with a similar term)notes), zero dividend rate and a volatility rate of zero. For the years ended December 31, 2007 and 2006, we applied a Black-Scholes model with similar assumptions, except we estimated our stock volatility, by examiningwhich we determined based on our historical common stock volatility for grants after June 2008 and estimated based on the historical volatility rates of several peer companies prior to that time. In addition, we estimated a forfeiture rate based upon our historical experience and we estimated the expected term of the options using a probability analysis. Beginning in July 2008, we used our historical volatility rate as an assumption to determine the grant date fair value of ourexperience. We have recorded compensation expense associated with stock option and restricted stock grants during the thirdtotaling $11.6 million, $12.2 million and fourth quarters of 2008. For$12.4 million for the years ended December 31, 2010, 2009 and 2008, and 2007, we have recorded compensation expense totaling $5.4 million and $4.4 million, respectively, related to our stock option grants and $6.9 million and $3.1 million, respectively, related to our non-vested restricted stock.respectively.
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Allowance for Bad Debts and Inventory Obsolescence
We record trade accounts receivable at billed amounts, less an allowance for bad debts. Inventory is recorded at cost, less an allowance for obsolescence. To estimate these allowances, management reviews the underlying details of these assets as well as known trends in the marketplace, and applies historical factors as a basis for recording these allowances. If market conditions are less favorable than those projected by management, or if our historical experience is materially different from future experience, additional allowances may be required.
There is a risk that management may not detect uncollectible accounts or unsalvageable inventory in the correct accounting period.
Bad debt expense (recovery) has been less than 1% of sales for the years ended December 31, 2008, 20072010, 2009 and 2006.2008. If bad debt expense had increased by 1% of sales, for the years ended December 31, 2008, 2007 and 2006, net income would have declineddecreased by $9.7 million for the year ended December 31, 2010 and net loss would have increased by $7.8 million and $11.9 million $9.7 millionfor the years
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ended December 2009 and $6.9 million,2008, respectively. Our obsolescence and other inventory reserves were approximately 2%7%, 7%2% and 4%2% of our inventory balances at December 31, 2008, 20072010, 2009 and 2006,2008, respectively. A 1% increase in inventory reserves, from 2%7% to 3%8%, at December 31, 20082010 would have decreased net income by $0.3$0.2 million for the year then ended.
Property, Plant and Equipment
We record property, plant and equipment at cost less accumulated depreciation. Major betterments to existing assets are capitalized, while repairs and maintenance costs that do not extend the service lives of our equipment are expensed. We determine the useful lives of our depreciable assets based upon historical experience and the judgment of our operating personnel. We generally depreciate the historical cost of assets, less an estimate of the applicable salvage value, on the straight-line basis over the applicable useful lives. Upon disposition or retirement of an asset, we record a gain or loss if the proceeds from the transaction differ from the net book value of the asset at the time of the disposition or retirement.
U.S. GAAP permits various depreciation methods to recognize the use of assets. Use of a different depreciation method or different depreciable lives could result in materially different results. If our depreciation estimates are not correct, we could over- or understate our results of operations, such as recording a disproportionate amount of gains or losses upon disposition of assets. There is also a risk that the useful lives we apply for our depreciation calculation will not approximate the actual useful life of the asset. We believe our estimates of useful lives are materially correct and that these estimates are consistent with industry averages.
We evaluate property, plant and equipment for impairment when there are indicators of impairment. We did not record any significant impairment charges related to our long-term assets for the year ended December 31, 2010. During September 2009, we evaluated the fair market value of assets in our contract drilling business with the assistance of a third-party appraiser and determined that the carrying value of certain of these drilling rigs exceeded the fair market value estimates. We projected the undiscounted cash flows associated with these rigs, including an estimate of salvage value, and compared these expected future cash flows to the carrying amount of the rigs. If the undiscounted cash flows exceeded the carrying amount, no further testing was performed and the rig was deemed to not be impaired. If the undiscounted cash flows did not exceed the carrying value, we estimated the fair market value of the equipment based on management estimates and general market data obtained by the third-party appraiser using the sales comparison market approach, which included the analysis of recent sales and offering prices of similar equipment to arrive at an indication of the most probable net sales proceeds for the equipment. The result of this analysis was a calculated fixed asset impairment of $36.2 million, which was recorded as an impairment loss in September 30, 2009. This impairment charge was allocated entirely to the drilling services business segment. This impairment was deemed necessary due to an overall decline in oil and gas exploration and production activity in late 2008 which extended throughout 2009, as well as management’s expectation of future operating results for this business segment. There have beenwere no significant impairment charges related to our long-term assets during the yearsyear ended December 31, 2008, 2007 and 2006.2008. Depreciation and amortization expense for the years ended December 31, 20082010 and 20072009 represented 16% and 15%19% of the average depreciable asset base for the respective years.each year. An increase in depreciation expense relative to the depreciable base of 1%, from 16%19% to 17%20%, would have reduced net income by approximately $7.1$5.9 million for the year ended December 31, 2008.2010.
Self Insurance
On January 1, 2007, we began a self-insurance program to pay claims associated with health care benefits provided to certain of our employees in the United States. Pursuant to this program, we have purchased a stop-loss insurance policy from an insurance company. Our accounting policy for this self-insurance program is to accrue expense based upon the number of employees enrolled in the plan at pre-determined rates. As claims are processed and paid, we compare our claims history to our expected claims in order to estimate incurred but not reported claims. If our estimate of claims incurred but not reported exceeds our current accrual, we record additional expense during the current period. There is a risk that we may not estimate our incurred but not reported claims correctly or that our stop-loss provision may not be adequate to insure us against material losses in the future. At December 31, 2008,2010, we accrued $4.4$4.7 million pursuant to this self-insurance program. A 10% increase in this self-insurance accrual would reduce our net income for the year ended December 31, 20082010 by $0.3$0.4 million.
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Deferred Income Taxes
Our income tax expense includes income taxes related to the United States, Canada and other foreign countries, including local, state and provincial income taxes. We account for tax ramifications using SFAS No. 109, “Accountingpursuant to U.S. GAAP for Income Taxes.” Under SFAS No. 109, weincome taxes and record deferred income tax assets and liabilities based upon temporary differences between the carrying amount and tax basis of our assets and liabilities and measure tax expense using enacted tax rates and laws that will be in effect when the differences are expected to reverse. The effect of a change in tax rates is recognized in income in the period of the change. Furthermore, SFAS No. 109 requires us towe record a valuation allowance for any net deferred income tax assets which we believe are likely to not be used through future operations. As of December 31, 2008, 20072010, 2009 and 2006,2008, we recorded a valuation allowance of less than $1.0 million related to certain deferred tax assets in Canada. If our estimates and assumptions related to our deferred tax position change in the future, we may be required to record additional valuation allowances against our deferred tax assets and our effective tax rate may increase, which could adversely affect our financial results. As of December 31, 2008,2010, we did not provide deferred U.S. income taxes on approximately $12.0$28.6 million of undistributed earnings of our foreign subsidiaries in which we intend to indefinitely reinvest. Upon distribution of these earnings in the form of dividends or otherwise, we may be subject to U.S. income taxes and foreign withholding taxes. On January 1, 2007, we adopted Financial Interpretation No. 48 (“FIN 48”), whichthe FASB interpretation that provides guidance to account for uncertain tax positions. During 2008,Annually, we performedperform an evaluation of our tax positions. We have evaluated our tax positions pursuant to Financial Interpretation No. 48 (“FIN 48”)at December 31, 2010 and determined that this pronouncement did not have a material impact on our financial position, results of operations and cash flows.believe these positions are deemed appropriate for all significant matters.
There is a risk that estimates related to the use of loss carry forwards and the realizability of deferred tax accounts may be incorrect, and that the result could materially impact our financial position and results of operations. In addition, future changes in tax laws or GAAP requirements could result in additional valuation allowances or the recognition of additional tax liabilities.
Historically, we have utilized net operating loss carry forwards to partially offset current tax expense, and we have recorded a valuation allowance to the extent we expect that our deferred tax assets will not be utilized through future operations. Deferred income tax assets totaled $20.0$30.5 million at December 31, 2008,2010, against which we recorded a valuation allowance of $0.3 million, leaving a net deferred tax asset of $19.7$30.2 million deemed realizable. Changes in our valuation allowance would affect our net income on a dollar for dollar basis.
Discontinued Operations
We account for discontinued operations in accordance with SFAS No. 144, “Accountingthe FASB guidance on accounting for the Impairmentimpairment or Disposaldisposal of Long-Lived Assets.” SFAS No. 144long-lived assets. U.S. GAAP requires that we classify the assets and liabilities of a disposal group as held for sale if the following criteria are met: (1) management, with appropriate authority, commits to a plan to sell a disposal group; (2) the asset is available for immediate sale in its current condition; (3) an active program to locate a buyer and other actions to complete the sale have been initiated; (4) the sale is probable; (5) the disposal group is being actively marketed for sale at a reasonable price; and (6) actions required to complete the plan of sale indicate it is unlikely that significant changes to the plan of sale will occur or that the plan will be withdrawn. Once deemed held for sale, we no longer depreciate the assets of the disposal group. Upon sale, we calculate the gain or loss associated with the disposition by comparing the carrying value of the assets less direct costs of the sale with the proceeds received. In conjunction with the sale, we settle inter-company balances between us and the disposal group and allocate interest expense to the disposal group for the period the assets were held for sale. In the statement of operations, we present discontinued operations, net of tax effect, as a separate caption below net income from continuing operations.
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Results of Operations for the Years Ended December 31, 20082010 and 20072009
The following tables set forth our results of continuing operations, including amounts expressed as a percentage of total revenue, for the periods indicated (in thousands, except percentages).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Percent
| | | | | | | | Percent
| |
| | Year
| | Year
| | Change
| | Change
| | Year
| | Year
| | Change
| | Change
| |
| | Ended
| | Ended
| | 2008/
| | 2008/
| | Ended
| | Ended
| | 2010/
| | 2010/
| |
| | 12/31/08 | | 12/31/07 | | 2007 | | 2007 | | 12/31/10 | | 12/31/09 | | 2009 | | 2009 | |
| | (In thousands) | | (In thousands) | |
|
Revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Completion and production services | | $ | 1,545,348 | | | $ | 1,242,314 | | | $ | 303,034 | | | | 24 | % | | $ | 1,354,797 | | | $ | 897,584 | | | $ | 457,213 | | | | 51 | % |
Drilling services | | | 234,104 | | | | 212,272 | | | | 21,832 | | | | 10 | % | | | 172,821 | | | | 114,729 | | | | 58,092 | | | | 51 | % |
Product sales | | | 59,102 | | | | 40,857 | | | | 18,245 | | | | 45 | % | | | 33,775 | | | | 44,081 | | | | (10,306 | ) | | | (23 | )% |
| | | | | | | | | | | | | | |
Total | | $ | 1,838,554 | | | $ | 1,495,443 | | | $ | 343,111 | | | | 23 | % | | $ | 1,561,393 | | | $ | 1,056,394 | | | $ | 504,999 | | | | 48 | % |
| | | | | | | | | | | | | | |
EBITDA: | | | | | | | | | | | | | |
Adjusted EBITDA: | | | | | | | | | | | | | | | | | |
Completion and production services | | $ | 473,376 | | | $ | 398,628 | | | $ | 74,748 | | | | 19 | % | | $ | 369,826 | | | $ | 165,787 | | | $ | 204,039 | | | | 123 | % |
Drilling services | | | 58,743 | | | | 61,418 | | | | (2,675 | ) | | | (4 | )% | | | 38,973 | | | | 9,641 | | | | 29,332 | | | | 304 | % |
Product sales | | | 12,677 | | | | 9,943 | | | | 2,734 | | | | 27 | % | | | 5,197 | | | | 7,966 | | | | (2,769 | ) | | | (35 | )% |
Corporate | | | (38,293 | ) | | | (28,136 | ) | | | (10,157 | ) | | | 36 | % | | | (39,088 | ) | | | (34,313 | ) | | | (4,775 | ) | | | (14 | )% |
| | | | | | | | | | | | | | |
Total | | $ | 506,503 | | | $ | 441,853 | | | $ | 64,650 | | | | 15 | % | | $ | 374,908 | | | $ | 149,081 | | | $ | 225,827 | | | | 151 | % |
| | | | | | | | | | | | | | |
“Corporate” includes amounts related to corporate personnel costs, other general expenses and stock-based compensation charges.
“Adjusted EBITDA” consists of net income (loss) from continuing operations before net interest expense, taxes, depreciation and amortization, minoritynon-controlling interest and impairment loss. Adjusted EBITDA is a non-cashnon-GAAP measure of performance. We use Adjusted EBITDA as the primary internal management measure for evaluating performance and allocating additional resources. See the discussion of EBITDA at Note 3 under Item 6 (“Selected Financial Data”) of this Annual Report. The following table reconciles Adjusted EBITDA for the years ended December 31, 20082010 and 20072009 to the most comparable U.S. GAAP measure, operating income (loss). The calculation of Adjusted EBITDA is different from the calculation of “EBITDA,” as defined and used in our credit facilities. For a discussion of the calculation of “EBITDA” as defined under our existing credit facilities, as recently amended, see Note 11, “Long-term debt” in our notes to consolidated financial statements included elsewhere in this Annual Report.
Reconciliation of Adjusted EBITDA to Most Comparable GAAP Measure — Operating Income (Loss)
| | | | | | | | | | | | | | | | | | | | |
| | Completion and
| | Drilling
| | Product
| | | | |
Year Ended December 31, 2008 | | Production Services | | Services | | Sales | | Corporate | | Total |
|
EBITDA, as defined | | $ | 473,376 | | | $ | 58,743 | | | $ | 12,677 | | | $ | (38,293 | ) | | $ | 506,503 | |
Depreciation and amortization | | $ | 156,198 | | | $ | 19,961 | | | $ | 2,537 | | | $ | 2,401 | | | $ | 181,097 | |
Impairment loss | | $ | 243,203 | | | $ | 27,410 | | | $ | 1,393 | | | $ | — | | | $ | 272,006 | |
| | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | | $ | 73,975 | | | $ | 11,372 | | | $ | 8,747 | | | $ | (40,694 | ) | | $ | 53,400 | |
| | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2007 | | | | | | | | | | | | | | | | | | | | |
EBITDA, as defined | | $ | 398,628 | | | $ | 61,418 | | | $ | 9,943 | | | $ | (28,136 | ) | | $ | 441,853 | |
Depreciation and amortization | | $ | 112,836 | | | $ | 14,572 | | | $ | 2,064 | | | $ | 1,881 | | | $ | 131,353 | |
Impairment loss | | $ | 13,094 | | | $ | — | | | $ | — | | | $ | — | | | $ | 13,094 | |
| | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | | $ | 272,698 | | | $ | 46,846 | | | $ | 7,879 | | | $ | (30,017 | ) | | $ | 297,406 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | (In thousands)
| | | | | | | | | | | | | |
| | Completion and
| | | Drilling
| | | Product
| | | | | | | |
Year Ended December 31, 2010 | | Production Services | | | Services | | | Sales | | | Corporate | | | Total | |
|
Adjusted EBITDA, as defined | | $ | 369,826 | | | $ | 38,973 | | | $ | 5,197 | | | $ | (39,088 | ) | | $ | 374,908 | |
Depreciation and amortization | | $ | 159,110 | | | $ | 18,480 | | | $ | 2,211 | | | $ | 2,022 | | | $ | 181,823 | |
| | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | | $ | 210,716 | | | $ | 20,493 | | | $ | 2,986 | | | $ | (41,110 | ) | | $ | 193,085 | |
| | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2009 | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA, as defined | | $ | 165,787 | | | $ | 9,641 | | | $ | 7,966 | | | $ | (34,313 | ) | | $ | 149,081 | |
Depreciation and amortization | | $ | 174,929 | | | $ | 21,067 | | | $ | 2,460 | | | $ | 2,276 | | | $ | 200,732 | |
Write-off of deferred financing fees | | $ | — | | | $ | — | | | $ | — | | | $ | (528 | ) | | $ | (528 | ) |
Fixed asset and other intangible impairment loss | | $ | 2,488 | | | $ | 36,158 | | | $ | — | | | $ | — | | | $ | 38,646 | |
Goodwill impairment loss | | $ | 97,643 | | | $ | — | | | $ | — | | | $ | — | | | $ | 97,643 | |
| | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | | $ | (109,273 | ) | | $ | (47,584 | ) | | $ | 5,506 | | | $ | (36,061 | ) | | $ | (187,412 | ) |
| | | | | | | | | | | | | | | | | | | | |
47
Reconciliation of Net Income (Loss) to Adjusted EBITDA
| | | | | | | | | | | | |
| | For the Year Ended December 31, | |
| | 2010 | | | 2009 | | | 2008 | |
| | (In thousands) | |
|
Net income (loss) | | $ | 84,158 | | | $ | (181,668 | ) | | $ | (89,568 | ) |
Plus: interest expense, net | | | 57,347 | | | | 56,816 | | | | 59,428 | |
Plus: tax expense (benefit) | | | 51,580 | | | | (63,088 | ) | | | 72,305 | |
Plus: depreciation and amortization | | | 181,823 | | | | 200,732 | | | | 181,197 | |
Plus: impairment loss | | | — | | | | 136,289 | | | | 272,006 | |
Minus: income (loss) from discontinued operations (net of tax expense of $0, $0 and $3,865, respectively) | | | — | | | | — | | | | (4,859 | ) |
| | | | | | | | | | | | |
Adjusted EBITDA | | $ | 374,908 | | | $ | 149,081 | | | $ | 500,227 | |
| | | | | | | | | | | | |
Below is a detailed discussion of our operating results by segment for these periods.
Year Ended December 31, 20082010 Compared to the Year ended December 31, 20072009
Revenue
Revenue from continuing operations for the year ended December 31, 20082010 increased by $343.1$505.0 million, or 23%48%, to $1,838.6$1,561.4 million from $1,495.4$1,056.4 million for the year ended December 31, 2007.2009. This increase by segment was as follows:
| | |
| • | Completion and Production Services. Segment revenue increased $303.0$457.2 million, or 24%51%, primarily due to revenues earned as a resultan increase in demand for our services and an overall increase in activity levels for the oil and gas industry during 2010 compared to 2009, resulting in higher utilization of additional capital investmentour equipment. Activity levels and pricing in our pressure pumping, coiled tubing, well servicing, rentalsome service lines and fluid handling businesses in 2007select geographic areas began to improve during the latter part of the fourth quarter of 2009 and 2008. We experienced favorable resultscontinued improving throughout 2010. The segment continued to benefit from increased horizontal drilling and completion related activity within resource plays, particularly for our pressure pumping, fluid handling well service and U.S. and Mexican coiled tubing businesses, when comparing 2008 to 2007. Revenues for ourOur pressure pumping business increased due to: (1)also benefitted from the successful integrationdeployment of a business acquired in April 2008, and (2) the expansionapproximately 43,000 hydraulic horse power of servicesnew pressure pumping equipment into the Eagle Ford and Bakken Shale area of North Dakota. During 2007 and 2008, we completed a series of small acquisitions which provided incremental revenues for 2008 compared to 2007 due to the timing of those acquisitions. Revenue increases were partially offset by a general decline in oilfield activity which began during the fourth quarter of 2008 and pricing pressures in certain service offeringsshales during the latter halfpart of 2007 and throughout 2008.2010. |
|
| • | Drilling Services. Segment revenue increased $21.8$58.1 million, or 10%51%, for the year, primarily due to higherimproved utilization rates and additional capital invested in our contract drilling business in 2007 and 2008. In early 2008, we experienced lower pricing for our drilling services and lower utilization rates in our rig logistics operations primarily due to an increase in equipment placedrelocation and contract drilling businesses. The rig relocation business also benefitted from long rig moves as customers reactivated and repositioned assets from dry gas basins into service by our competitors. However, utilization improved duringemerging oil and liquid-rich markets such as the secondBakken, Niobrara and third quarters of 2008, before declining in the fourth quarter due to a general decline in oilfield activity by our customers.Eagle Ford shales. |
|
| • | Product Sales. Segment revenue increased $18.2decreased $10.3 million, or 45%23%, for the year, primarily due to the sales mix and the timing of product sales and equipment refurbishment for our Southeast Asian business, which tends to be project-specific. We also had a larger volume oflower third-party sales at our repair and fabrication shop in north Texas as several large projects were completed during 2008 as compared to 2007.the first quarter of 2009, while results for our Southeast Asian business remained relatively constant for the years ended December 31, 2010 and 2009. |
Service and Product Expenses
Service and product expenses include labor costs associated with the execution and support of our services, materials used in the performance of those services and other costs directly related to the support and maintenance of equipment. These expenses increased $259.2$285.7 million, or 30%39%, to $1,133.8$1,011.0 million for the year ended December 31, 20082010 from $874.6$725.4 million for the year ended December 31, 2007.2009. The increase in service and product expenses was consistent with an overall increase in revenues resulting from improvements in oilfield activity in the
48
U.S. and Canada in 2010. The following table summarizes service and product expenses as a percentage of revenues for the years ended December 31, 20082010 and 2007:2009:
Service and Product Expenses as a Percentage of Revenue
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended | | | Years Ended |
Segment: | | 12/31/08 | | 12/31/07 | | Change | | | 12/31/10 | | 12/31/09 | | Change |
|
Completion and Production services | | | 61 | % | | | 58 | % | | | 3 | % | | | 64 | % | | | 68 | % | | | (4 | )% |
Drilling services | | | 67 | % | | | 61 | % | | | 6 | % | | | 70 | % | | | 75 | % | | | (5 | )% |
Product sales | | | 71 | % | | | 68 | % | | | 3 | % | | | 77 | % | | | 75 | % | | | 2 | % |
Total | | | 62 | % | | | 58 | % | | | 4 | % | | | 65 | % | | | 69 | % | | | (4 | )% |
Service and product expenses as a percentage of revenue increasedimproved to 62%65% for the year ended December 31, 20082010 compared to 58%69% for the year ended December 31, 2007.2009. Margins by business segment were impacted primarily by acquisitions, pricingutilization and utilization.pricing.
| | |
| • | Completion and Production Services. Service and product expenses as a percentage of revenue for this business segment decreased when comparing the year ended December 31, 2010 to the same period in 2009. Theyear-over-year favorable margin improvement was attributable to an increase in overall oilfield activity, improved pricing and service mix, with an increase in sales for historically higher-margin offerings, partially offset by some increases in labor costs and other inflationary factors. We enacted certain cost-saving measures in 2009, including headcount reductions and payroll concessions which were substantially reinstated during 2010. |
|
| • | Drilling Services.The increasedecrease in service and product expenses as a percentage of revenue for this business segment reflects pricing pressure for many of our service lines throughout 2008, |
48
| | |
| | resulting in less favorable operating margins on ayear-over-year basis. We incurred higher labor and fuel costs during 2008, although fuel costs began to decline in the fourth quarter of 2008, and we incurred higher sand and cement costs in our pressure pumping business.Start-up costs associated with mobilizing a frac fleet in the Bakken Shale area of North Dakota also impacted our operating margins. Cost increases were partially offset by the mix of services provided in 2008 compared to 2007, a full-year’s benefit of capital invested throughout 2007, additional equipment placed into service during 2008 and several acquisitions. In late 2008, we experienced lower utilization rates and an increase in pricing pressure in several service lineswas primarily due to a general decline in oilfield activity which may stem from lower commodity pricesincreased asset utilization and concerns over the broader U.S. economy and the availability of credit for investment by our customers. |
| | |
| • | Drilling Services. The increase in service and product expenses as a percentage of revenue for this business segment represented a decline in margin during 2008 compared to 2007 due to: (1) lower pricing for our contract drilling and drilling logistics businesses on ayear-over-year basis; (2) higher operating costs associated primarily with labor and fuel; and (3) lower utilization of our equipment due primarily to more market competition.improved pricing. |
|
| • | Product Sales. The increase in service and product expenses as a percentage of revenue for the products segments was primarily due to the mix of products sold specificallyfor the timingrelative periods. Additionally, on ayear-over-year basis, a larger proportion of equipmentthe revenues and related costs for the product sales and refurbishment associated withsegment for the year ended December 31, 2010 were provided by our Southeast Asian operationsbusiness, for which sales tend to be project specific and can fluctuate between periods depending uponare subject to fluctuations in activity levels in the nature of the projects in process, and third-party repair and fabrication work performed at our shop in north Texas.region. |
Selling, General and Administrative Expenses
Selling, general and administrative expenses include salaries and other related expenses for our selling, administrative, finance, information technology and human resource functions. Selling, general and administrative expenses increased $19.3decreased $6.0 million, or 11%3%, to $175.4 million for the year ended December 31, 2008 to $198.32010 from $181.4 million from $179.0 million duringfor the year ended December 31, 2007. These expense increases included: (1) costs2009. The results for 2009 included incremental bad debt charges associated with businesses acquiredspecifically-identified uncollectible accounts of $10.9 million, incremental losses on the retirement of fixed assets of $12.8 million and certain insignificant inventory adjustments. In addition, we recorded a loss on the non-monetary exchange of certain assets in 2008, including additional employee headcount, property rental expense and insurance expense; (2) costs associated with 2007 acquisitions,Canada during the first quarter of 2009 which provided a full-year oftotaled $4.9 million. The overall decrease in selling, general and administrative expense for 2008; (3)in 2010 was partially offset by higher incentive compensation based on earnings, increased payroll costs, higher insurance costs and the write-off of a $1.9 million note receivable in Canada. Excluding the impact of the non-monetary asset exchange in Canada, the incremental costs of approximately $5.0 million relatedcharges to stock-based compensation in 2008 compared to the prior year;bad debt expense and (4) costs associated withlosses on the retirement of an executive officer during the fourth quarter of 2008 and other severance costs. Asfixed assets, as a percentage of revenues, selling, general and administrative expense declined towas 11% and 14% for the yearyears ended December 31, 2008 as compared to 12% for the year ended December 31, 2007.2010 and 2009, respectively.
Depreciation and Amortization
Depreciation and amortization expense increased $49.7decreased $18.9 million, or 38%9%, to $181.1$181.8 million for the year ended December 31, 20082010 from $131.4$200.7 million for the year ended December 31, 2007.2009. The increasedecrease in depreciation and amortization expense was attributable to the resultnormal run-off of equipment placed into servicedepreciation associated with existing assets, asset retirements in 2008,2009, a portion$36.2 million impairment of which was purchasedour drilling rigs as of September 30, 2009, sale-leaseback transactions associated with our small vehicle fleet as well as a facility in 2007. CapitalWyoming and an impairment charge in
49
late 2009 related to certain intangible assets acquired in 2008. Although we increased our capital expenditures for equipment in 2008 totaled $253.8 million. In addition, we recorded2010 compared to 2009, approximately half of those additions were incurred during the second half of the year, resulting in overall lower depreciation and amortization expense related to businesses acquired in 2007 and 2008, as well as assets purchased and placed into service throughout 2007, which contributed a full year of depreciation expense in 2008 compared to a partial year of depreciation expense in 2007. In addition, we incurred incremental amortization expense associated with intangible assets related to businesses acquired in 2008, particularly customer relationship intangibles which totaled $14.0 million.year-over-year. As a percentage of revenue, depreciation and amortization expense increaseddecreased to 10%12% from 19% for the yearyears ended December 31, 2008 compared to 9% for the year ended December 31, 2007.2010 and 2009, respectively.
Fixed Asset and Other Intangible Impairment Loss
We did not record any impairment charges in 2010. For the year ended December 31, 2009, we recorded a fixed asset and other intangible impairment loss of $38.6 million. We recorded a charge of $36.2 million related to our contract drilling business in the third quarter of 2009 after determining that the carrying value of certain of these drilling rigs exceeded the undiscounted cash flows associated with these assets and the fair market value estimates for these assets. In the fourth quarter of 2009, we recorded an impairment loss of $272.0intangible assets of $2.5 million related to our completion and production business.
Goodwill Impairment Loss
We did not record any goodwill impairment in 2010. For the write-downyear ended December 31, 2009, we recorded a goodwill impairment loss of $97.6 million. The write-downs of goodwill was associated with several of our reporting units as defined in SFAS No. 142,and was based upon several valuation techniques including a discounted cash flow analysis of expected future earnings associated with these businesses. ThisOur analysis of future cash flows was impacted significantly by the overall decline in oilfield activity in late 2008 and the expected slowdown in activities in the short-term, due in part to concerns of excess supply of commodities, a general decline in the U.S. economy and concerns over the availability of credit for
49
our customers to continue investment in drilling and exploration activities in the short-term. We recorded an impairment charge of $13.1 million for the year ended December 31, 2007 related to our Canadian operations.
Interest Expense
Interest expense was $59.7 million and $61.3 million for the years ended December 31, 2008 and 2007, respectively. The decrease in interest expense was attributable primarily to a decline in the average borrowing rate in 2008 for variable rate borrowings, primarily our revolving credit facilities in the U.S. and Canada. This decline in interest rates was partially offset by an increase in the average debt balance outstandingwhich continued throughout 2008 compared to 2007. These borrowings were used primarily for business acquisitions and equipment purchases during 2008. The weighted-average interest rate of borrowings outstanding at December 31, 2008 and 2007 was approximately 7.0% and 7.7%, respectively.2009.
Taxes
Tax expense (benefit) is comprised of current income taxes and deferred income taxes. The current and deferred taxes added together provide an indication of an effective rate of income tax.
OurWe recorded a tax provision of $51.6 million, at an effective rate of 38%, for the year ended December 31, 20082010 compared to a tax benefit of $63.1 million for the year ended December 31, 2009 at an effective rate of approximately 25.8%. The lower effective tax rate in 2009 was impacted significantly by a $272.0 millionprimarily due to the impairment of goodwill which had awith limited tax basis, as the majority of the goodwill arose through stock purchase transactions with little or no tax basis. We received no tax benefit from the $13.1 million impairment of goodwill recorded at December 31, 2007. Excluding the impact of the goodwill impairment charges, our effective tax ratesrate for the yearsyear ended December 31, 2008 and 20072009 would have been 35.5% and 34.8%, respectively. The difference in the tax rates was attributable to the impact of the domestic production activities deduction and the effect of changes in earnings in the various tax jurisdictions in which we operate.33.9%.
50
Minority Interest
Prior to December 31, 2007, an unrelated third party owned a 50% interest in the assets of Premier Integrated Technologies, Inc. (“Premier”), a company that we acquired on January 1, 2005, and have consolidated in our accounts since the date of acquisition. This amount represents the minority owner’s share of Premier’s earnings for the applicable periods. On December 31, 2007, we acquired the remaining 50% interest in this company.
Results of Operations for the Years Ended December 31, 20072009 and 20062008
The following tables set forth our results of continuing operations, including amounts expressed as a percentage of total revenue, for the periods indicated (in thousands, except percentages).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Percent
| | | | | | | | | Percent
| |
| | Year
| | Year
| | Change
| | Change
| | | Year
| | Year
| | Change
| | Change
| |
| | Ended
| | Ended
| | 2007/
| | 2007/
| | | Ended
| | Ended
| | 2009/
| | 2009/
| |
| | 12/31/07 | | 12/31/06 | | 2006 | | 2006 | | | 12/31/09 | | 12/31/08 | | 2008 | | 2008 | |
| | (In thousands) | | | (In thousands) | |
|
Revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Completion and production services | | $ | 1,242,314 | | | $ | 860,508 | | | $ | 381,806 | | | | 44 | % | | $ | 897,584 | | | $ | 1,541,709 | | | $ | (644,125 | ) | | | (42 | )% |
Drilling services | | | 212,272 | | | | 194,517 | | | | 17,755 | | | | 9 | % | | | 114,729 | | | | 234,104 | | | | (119,375 | ) | | | (51 | )% |
Product sales | | | 40,857 | | | | 29,586 | | | | 11,271 | | | | 38 | % | | | 44,081 | | | | 59,102 | | | | (15,021 | ) | | | (25 | )% |
| | | | | | | | | | | | | | |
Total | | $ | 1,495,443 | | | $ | 1,084,611 | | | $ | 410,832 | | | | 38 | % | | $ | 1,056,394 | | | $ | 1,834,915 | | | $ | (778,521 | ) | | | (42 | )% |
| | | | | | | | | | | | | | |
EBITDA: | | | | | | | | | | | | | | | | | |
Adjusted EBITDA: | | | | | | | | | | | | | | | | | |
Completion and production services | | $ | 398,628 | | | $ | 252,621 | | | $ | 146,007 | | | | 58 | % | | $ | 165,787 | | | $ | 467,100 | | | $ | (301,313 | ) | | | (65 | )% |
Drilling services | | | 61,418 | | | | 70,428 | | | | (9,010 | ) | | | (13 | )% | | | 9,641 | | | | 58,743 | | | | (49,102 | ) | | | (84 | )% |
Product sales | | | 9,943 | | | | 8,536 | | | | 1,407 | | | | 16 | % | | | 7,966 | | | | 12,677 | | | | (4,711 | ) | | | (37 | )% |
Corporate | | | (28,136 | ) | | | (20,922 | ) | | | (7,214 | ) | | | 34 | % | | | (34,313 | ) | | | (38,293 | ) | | | 3,980 | | | | 10 | % |
| | | | | | | | | | | | | | |
Total | | $ | 441,853 | | | $ | 310,663 | | | $ | 131,190 | | | | 42 | % | | $ | 149,081 | | | $ | 500,227 | | | $ | (351,146 | ) | | | (70 | )% |
| | | | | | | | | | | | | | |
50
“Corporate” includes amounts related to corporate personnel costs, other general expenses and stock-based compensation charges.
“Adjusted EBITDA” consists of net income (loss) from continuing operations before net interest expense, taxes, depreciation and amortization, minoritynon-controlling interest and impairment loss. Adjusted EBITDA is a non-cashnon-GAAP measure of performance. We use Adjusted EBITDA as the primary internal management measure for evaluating performance and allocating additional resources. See the discussion of EBITDA at Note 3 under Item 6 (“Selected Financial Data”) of this Annual Report. The following table reconciles Adjusted EBITDA for the years ended December 31, 20072009 and 20062008 to the most comparable U.S. GAAP measure, operating income (loss). The calculation of Adjusted EBITDA is different from the calculation of “EBITDA,” as defined and used in our credit facilities. For a discussion of the calculation of “EBITDA” as defined under our existing credit facilities, as
51
recently amended, see Note 11, “Long-term debt,” in our notes to consolidated financial statements included elsewhere in this Annual Report.
Reconciliation of Adjusted EBITDA to Most Comparable GAAP Measure — Operating Income (Loss)
| | | | | | | | | | | | | | | | | | | | |
| | Completion and
| | Drilling
| | Product
| | | | |
| | Production Services | | Services | | Sales | | Corporate | | Total |
|
Year Ended December 31, 2007 | | | | | | | | | | | | | | | | | | | | |
EBITDA, as defined | | $ | 398,628 | | | $ | 61,418 | | | $ | 9,943 | | | $ | (28,136 | ) | | $ | 441,853 | |
Depreciation and amortization | | $ | 112,836 | | | $ | 14,572 | | | $ | 2,064 | | | $ | 1,881 | | | $ | 131,353 | |
Impairment loss | | $ | 13,094 | | | $ | — | | | $ | — | | | $ | — | | | $ | 13,094 | |
| | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | | $ | 272,698 | | | $ | 46,846 | | | $ | 7,879 | | | $ | (30,017 | ) | | $ | 297,406 | |
| | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2006 | | | | | | | | | | | | | | | | | | | | |
EBITDA, as defined | | $ | 252,621 | | | $ | 70,428 | | | $ | 8,536 | | | $ | (20,922 | ) | | $ | 310,663 | |
Depreciation and amortization | | $ | 64,393 | | | $ | 9,069 | | | $ | 834 | | | $ | 1,606 | | | $ | 75,902 | |
Write-off of deferred costs | | $ | — | | | $ | — | | | $ | — | | | $ | (170 | ) | | $ | (170 | ) |
| | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | | $ | 188,228 | | | $ | 61,359 | | | $ | 7,702 | | | $ | (22,358 | ) | | $ | 234,931 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | (In thousands)
| | | | | | | | | | |
| | Completion and
| | | Drilling
| | | Product
| | | | | | | |
| | Production Services | | | Services | | | Sales | | | Corporate | | | Total | |
|
Year Ended December 31, 2009 | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA, as defined | | $ | 165,787 | | | $ | 9,641 | | | $ | 7,966 | | | $ | (34,313 | ) | | $ | 149,081 | |
Depreciation and amortization | | $ | 174,929 | | | $ | 21,067 | | | $ | 2,460 | | | $ | 2,276 | | | $ | 200,732 | |
Write-off of deferred financing fees | | $ | — | | | $ | — | | | $ | — | | | $ | (528 | ) | | $ | (528 | ) |
Fixed asset and other intangible impairment losses | | $ | 2,488 | | | $ | 36,158 | | | $ | — | | | $ | — | | | $ | 38,646 | |
Goodwill impairment loss | | $ | 97,643 | | | $ | — | | | $ | — | | | $ | — | | | $ | 97,643 | |
| | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | | $ | (109,273 | ) | | $ | (47,584 | ) | | $ | 5,506 | | | $ | (36,061 | ) | | $ | (187,412 | ) |
| | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2008 | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA, as defined | | $ | 467,100 | | | $ | 58,743 | | | $ | 12,677 | | | $ | (38,293 | ) | | $ | 500,227 | |
Depreciation and amortization | | $ | 156,298 | | | $ | 19,961 | | | $ | 2,537 | | | $ | 2,401 | | | $ | 181,197 | |
Goodwill impairment losses | | $ | 243,203 | | | $ | 27,410 | | | $ | 1,393 | | | $ | — | | | $ | 272,006 | |
| | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | | $ | 67,599 | | | $ | 11,372 | | | $ | 8,747 | | | $ | (40,694 | ) | | $ | 47,024 | |
| | | | | | | | | | | | | | | | | | | | |
Below is a detailed discussion of our operating results by segment for these periods.
Year Ended December 31, 20072009 Compared to the Year ended December 31, 20062008
Revenue
Revenue from continuing operations for the year ended December 31, 2007 increased2009 decreased by $410.8$778.5 million, or 38%42%, to $1,495.4$1,056.4 million from $1,084.6$1,834.9 million for the year ended December 31, 2006.2008. This increasedecrease by segment was as follows:
| | |
| • | Completion and Production Services. Segment revenue increased $381.8decreased $644.1 million, or 44%42%, primarily due to: (1) higher activity levelsto an overall decline in investment by our customers in oil and gas exploration and development activities resulting from lower oil and gas commodity prices and concerns over the U.S.availability of capital for such investment. We experienced lower utilization and Mexico; (2)pricing for each of our service offerings on ayear-over-year basis, except for our coiled tubing business in Mexico which provided a positive contribution to 2009 results. In the fourth quarter of 2009, we experienced an increase in revenues earned as a result of additional capital investments in the coiled tubing, well servicing, pressure pumping, rental and fluid-handling businesses in 2007, as well as the benefit of a full-year of operations for equipment placed into service throughout 2006; (3) investment in acquisitions during 2006, each of which provided incremental revenues for 2007margins compared to 2006; and (4) a seriesthe third quarter of acquisitions during the year ended December 31, 2007 which contributed to the overall 2007 results. These favorable results were partially offset by a decline in the general activity level2009 as market conditions showed signs of the oil and gas industry in Canada throughout 2007. We began to experience some pricing pressures in certain service offerings during the latter half of 2007.improvement. |
|
| • | Drilling Services. Segment revenue increased $17.8decreased $119.4 million, or 9%51%, for the year, primarily due to additional capital investedthe overall decline in contract drilling and our drilling logistics businesses during 2006 and into 2007, somewhat offset by lower pricing and lower utilization of our equipment in 2007oilfield service activities throughout the year compared to 2006, due primarily2008. Lower utilization rates and pricing pressure impacted our rig logistics and drilling businesses, however revenues were up slightly in the fourth quarter of 2009 compared to anthe third quarter of 2009 as we experienced a slight increase in new equipment placed into service by our competitors in the markets that we serve.customer activity. |
|
| • | Product Sales. Segment revenue increased $11.3decreased $15.0 million, or 38%25%, for the year, fueled primarily by increaseddue to a decline in our Southeast Asian business resulting from a change in the sales mix and the timing of product sales and equipment refurbishment, attributablewhich tends to be project-specific. Partially offsetting this decrease were the consistent revenues earned at our fabrication business in Southeast Asia.north Texasyear-over-year, which included a work-over rig project completed in the first quarter of 2009 and sales of low margin equipment to third-parties. |
5152
Service and Product Expenses
Service and product expenses include labor costs associated with the execution and support of our services, materials used in the performance of those services and other costs directly related to the support and maintenance of equipment. These expenses increased $245.2decreased $411.1 million, or 39%36%, to $874.6$725.4 million for the year ended December 31, 20072009 from $629.3$1,136.5 million for the year ended December 31, 2006.2008. The decline in service and product expenses was primarily due to significantly lower activity levels and cost-saving measures we began implementing in late 2008, including headcount reductions, payroll concessions and reduced product and service costs from outside vendors. The following table summarizes service and product expenses as a percentage of revenues for the years ended December 31, 20072009 and 2006:2008:
Service and Product Expenses as a Percentage of Revenue
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended | | | | Years Ended | | |
Segment: | | 12/31/07 | | 12/31/06 | | Change | | 12/31/09 | | 12/31/08 | | Change |
|
Completion and Production services | | | 58 | % | | | 59 | % | | | (1 | )% | | | 68 | % | | | 61 | % | | | 7 | % |
Drilling services | | | 61 | % | | | 54 | % | | | 7 | % | | | 75 | % | | | 67 | % | | | 8 | % |
Product sales | | | 68 | % | | | 56 | % | | | 12 | % | | | 75 | % | | | 71 | % | | | 4 | % |
Total | | | 58 | % | | | 58 | % | | | — | | | | 69 | % | | | 62 | % | | | 7 | % |
Service and product expenses as a percentage of revenue were consistentincreased to 69% for the yearsyear ended December 31, 2007 and 2006. However, margins2009 compared to 62% for the year ended December 31, 2008. Margins by business segment were impacted primarily by acquisitions, pricing and utilization.
| | |
| • | Completion and Production Services. The decline in serviceService and product expenses as a percentage of revenue for this business segment reflects: (1) a full-year’s benefitincreased when comparing the year ended December 31, 2009 to the same period in 2007 of capital invested throughout 2006, with additional equipment placed into service during 2007 and (2) the benefit of a full-year of margin contribution from our pressure pumping business in 2007 compared to only two-months contribution in 2006 due to timing of the acquisition. We experienced favorable margins in 2007 compared to 2006 for our well service, coiled tubing, fluid handling and rental businesses. However, in late 2007, we began to experience lower pricing for certain of these services in some of our operating regions, as well as a general2008. The overall decline in activity levels in Canadathe oil and gas industry, which impacted our operating margins, reducing our overall margin improvements to only 1%year-over-year. In addition, we experienced higher laborbegan in late 2008 and fuel costs which partially offsetcontinued throughout most of the incremental margin contributionyear in 2009, resulted in lower utilization of our completionequipment and production services, businesses during 2007 compared to 2006.and pricing pressure from competitors. Partially defraying the impact of this overall decline in activity levels were cost-saving measures we began implementing in late 2008. |
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| • | Drilling Services. The increase in service and product expenses as a percentage of revenue for this business segment represented a decline in margin during 2007 comparedwas primarily due to 2006 due to: (1) lower pricing for our contract drilling and drilling logistics businesses, and (2) lower utilization of our equipment specifically impacting our drilling rigs business, due to downtime associated with maintenance,significantly reduced activity levels by our customers, and more market competition, as our competitors deployed additional rigs into the markets we serve. In addition, we incurred costs associated with relocatinglower pricing on a portion of our rig logistics business to areas with more favorable market conditions.year-over-year basis, partially offset by cost-saving measures. |
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| • | Product Sales. The increase in service and product expenses as a percentage of revenue for the products segments was primarily due to the mix of products sold andfor the timing of equipment sales and refurbishmentrelative periods, as the 2008 results included several higher margin projects associated with our Southeast Asian operations aswhen compared to the resultsyear ended December 31, 2009. Additionally, on ayear-over-year basis, a larger proportion of the revenues and related costs for the product sales segment for the year ended December 31, 20062009 were impactedprovided by several higher-margin projects which were completed priorour repair and fabrication facility in north Texas at lower margins relative to 2007.our Southeast Asian business, including the sale of a large inventory item. |
Selling, General and Administrative Expenses
Selling, general and administrative expenses include salaries and other related expenses for our selling, administrative, finance, information technology and human resource functions. Selling, general and administrative expenses increased $34.6decreased $16.8 million, or 24%8%, for the year ended December 31, 20072009 to $179.0$181.4 million from $144.4$198.2 million during the year ended December 31, 2006.2008. Several cost saving measures were implemented during 2009 including headcount reductions, other payroll concessions and lower outside service costs. These expense increases included:reductions were offset by: (1) costs associated with businesses acquiredthe loss on the exchange of certain non-monetary assets in 2007, including additional employee headcount, property rentalCanada during the first quarter of 2009 which totaled $4.9 million; (2) higher bad debt expense, particularly in our drilling services segment and insurance expense; (2) costs associated with 2006 acquisitions which provided a full-year(3) higher losses from the disposal of selling, general and administrative expense for 2007; (3) consulting costs associated with our Sarbanes-Oxley compliance documentation and testing, outside accounting, tax and legal services and information technology initiatives; (4) incremental costsfixed assets. Excluding the impact of
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approximately $3.2 million related to stock-based compensation the non-monetary asset exchange in 2007 compared to 2006; and (5) a charge of approximately $1.4 million associated with the cost-sharing provision of a general liability insurance policy. AsCanada, as a percentage of revenues, selling, general and administrative expense declined to 12%was 17% and 11% for the yearyears ended December 31, 2007 compared to 13% for the year ended December 31, 2006.2009 and 2008, respectively.
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Depreciation and Amortization
Depreciation and amortization expense increased $55.5$19.5 million, or 73%11%, to $131.4$200.7 million for the year ended December 31, 20072009 from $75.9$181.2 million for the year ended December 31, 2006.2008. The increase in depreciation and amortization expense was the result of the following: (1) depreciation of equipment placed into service in 2007, a portion of which wasthroughout 2008, as well as additional equipment purchased in 2006 and throughout 2007. Capital expenditures for equipment in 2007 totaled $372.6 million. In addition, we recorded2009; (2) depreciation and amortization expense related to assets associated with businesses acquired in 2006 and 2007, as well as assets purchased and placed into service throughout 2006,2008, some of which contributed adid not contribute depreciation expense for the full year ended December 31, 2008 due to the timing of depreciationthe acquisitions; and (3) an increase in amortization expense associated with intangible assets acquired in 2007 compared to a partial year of depreciation expensebusiness combinations in 2006.2008. As a percentage of revenue, depreciation and amortization expense increased to 9%19% from 10% for the years ended December 31, 2009 and 2008, respectively. We expected depreciation and amortization expense as a percentage of revenue to remain higher than in recent periods due to the significant investment in capital expenditures made throughout the last three years and the overall decline in activity levels that began in late 2008.
Fixed Asset and Other Intangible Impairment Loss
For the year ended December 31, 2007 compared2009, we recorded a fixed asset and other intangible impairment loss of $38.6 million. We recorded a charge of $36.2 million related to 7%our contract drilling business in the third quarter of 2009 after determining that the carrying value of certain of these drilling rigs exceeded the undiscounted cash flows associated with these assets and the fair market value estimates for these assets. In the year ended December 31, 2006.fourth quarter of 2009, we recorded an impairment of intangible assets of $2.5 million related to our completion and production business. We recorded no such impairment charges in 2008.
Goodwill Impairment Loss
We recorded ana goodwill impairment loss of $13.1$97.6 million relatedfor the year ended December 31, 2009 compared to the write-down$272.0 million recorded in 2008. These write-downs of goodwill in both 2008 and 2009 were associated with several of our Canadian operations during 2007reporting units and were based upon several valuation techniques including a discounted cash flow analysis of expected future earnings associated with this business.these businesses. Our analysis of future cash flows was impacted significantly by the overall decline in oilfield activity in late 2008 which continued throughout 2009.
Interest Expense
Interest expense was $61.3$56.9 million and $40.6$59.7 million for the years ended December 31, 20072009 and 2006,2008, respectively. The increaseThis 5% decrease in interest expense was attributable primarily to an increasea decrease in the average amount of debt outstanding including amounts borrowedduring the year ended December 31, 2009 and lower interest rates in 2009 compared to fund acquisitions, capital expenditures,2008 on our semi-annual interest payments associated with the 8% senior notes and our quarterly tax payments. In addition, during December 2006, we issued our 8% senior notes and used the proceeds to retire all outstanding borrowings under the term loan portionrevolving credit facilities, which were fully repaid as of our credit facility. These senior notes required interest at higher fixed interest rates compared to the lower variable rates on the previously outstanding term loan facility.June 30, 2009. The weighted-average interest rate of borrowings outstanding at December 31, 20072009 and 20062008 was approximately 7.7%8.0% and 7.8%7.0%, respectively.
Interest Income
Interest income was $0.3 million and $1.4 million for the years ended December 31, 2007 and 2006. In 2007, interest income was earned primarily on excess cash invested in overnight securities throughout the year. For 2006, interest income was earned on the investment of proceeds from our initial public offering in a bond fund prior to use of the proceeds for acquisitions, capital investments in equipment and other general corporate purposes.
Taxes
Tax expense (benefit) is comprised of current income taxes and deferred income taxes. The current and deferred taxes added together provide an indication of an effective rate of income tax.
TaxWe recorded a tax benefit of $63.1 million for the year ended December 31, 2009 at an effective rate of approximately 25.8% compared to a tax expense of $72.3 million for the year ended December 31, 2008. The lower effective tax rate in 2009 was 36.7% and 36.1%due to the impairment of pretax incomegoodwill with limited tax basis. Our tax rate for the year ended December 31, 2008 was impacted significantly by a $272.0 million impairment of goodwill which had a limited tax basis, as the majority of the goodwill arose through stock purchase transactions with little or no tax basis. Excluding the impact of the goodwill impairment charges, our effective tax rates for the years ended December 31, 20072009 and 2006, respectively. The effective tax rate for 2007 was impacted by the impairment loss of $13.1 million in Canada, which was not deductible for tax purposes. Excluding the impact of the impairment loss, the effective tax rate for 20072008 would have been 34.8%. The decline in the effective tax rate in 2007, as adjusted, compared to 2006, was due to lower state tax rates, lower income tax rates in Canada, return to actual adjustments in 200733.9% and the incremental benefit of the domestic production activities deduction.35.5%.
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Minority Interest
Minority interest was comprised entirely of an ownership interest by an unrelated third party in the assets of Premier Integrated Technologies, Inc. (“Premier”), a company that we acquired on January 1, 2005. We have consolidated Premier in our accounts since the date of acquisition and record minority interest to reflect the ownership held by this third party. On December 31, 2007, we acquired the remaining 50% interest in this company.
Liquidity and Capital Resources
The recentAs of December 31, 2010, we had working capital, net of cash, of $276.8 million and unprecedented disruptioncash and cash equivalents of $126.7 million, compared to working capital, net of cash, of $200.8 million and cash and cash equivalents of $77.4 million at December 31, 2009. This increase in the current credit markets has had a significant adverse impact on a numberworking capital was primarily due to an increase in accounts receivable, partially offset by an increase in accounts payable, associated with favorable operating results, and an increase in accrued expenses due to higher earnings-based incentive compensation accruals. We also received net tax refunds of financial institutions. At this point in time, our liquidity has not been materially impacted by the current credit environment. We are not currently a party to any interest rate swaps, currency hedges or derivative contracts of any type and have no exposure to commercial paper or auction rate securities markets. We will continue to closely monitor our liquidity and the overall health of the credit markets. However, we cannot predict with any certainty the impact that any further disruption in the credit environment would have on us.approximately $31.1 million during 2010.
Our primary liquidity needs are to fund capital expenditures and general working capital needs.capital. In addition, we have historically obtained capital to fund strategic business acquisitions. Our primary sources of funds have historically been cash flow from operations, proceeds from borrowings under bank credit facilities and a private placement of debt whichthat was subsequently exchanged for publicly registered debt and the issuance of equity securities in our initial public offering.
On April 26, 2006, we sold 13,000,000 shares of our $.01 par value common stock in an initial public offering at an initial offering price to the public of $24.00 per share, which provided proceeds of approximately $292.5 million net of underwriters’ fees. We used these funds to retire principal and interest outstanding under our U.S. revolving credit facility on April 28, 2006 totaling approximately $127.5 million, to pay transaction costs of approximately $3.9 million and invested the remaining funds in tax-free and tax-advantaged municipal bonds and similar financial instruments. Of this amount, we utilized $141.6 million associated with acquisitions, including Arkoma, Turner and Pinnacle, and the remainder was used for other general corporate purposes. As of September 2006, all proceeds from our initial public offering had been utilized.debt.
We anticipate that we will rely onour cash generated from operations and our current cash balance will be sufficient to fund the majority of our cash requirements for the next twelve months, however borrowings under our amended revolving credit facility, future debt offeringsand/or future public equity offerings may also be used to fund future acquisitions or to satisfy our other liquidity needs. We believe that funds from these sources shouldwill be sufficient to meet both our short-term working capital requirements and our long-term capital requirements. We believe that our operating cash flows and availability under our amended revolving credit facility will be sufficient to fund our operations for the next twelve months. If our plans or assumptions change, or are inaccurate, or if we make further acquisitions, we may have to raise additional capital. Our ability to fund planned capital expenditures and to make acquisitions will depend upon our future operating performance, and more broadly, on the availability of equity and debt financing, which will be affected by prevailing economic conditions in our industry, and general financial, business and other factors, some of which are beyond our control. In addition, new debt obtained could include service requirements based on higher interest paid and shorter maturities and could impose a significant burden on our results of operations and financial condition. The issuance of additional equity securities could result in significant dilution to stockholders.
On October 13, 2009, we completed an amendment to our existing revolving credit facilities (the “Third Amendment”) which modified the structure of the credit facility to an asset-based facility subject to borrowing base restrictions. This amendment provided us with less restrictive financial debt covenants and reduced borrowing capacity under the facility.
The following table summarizes cash flows by type for the periods indicated (in thousands):
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| | Year Ended December 31, | | | Year Ended December 31, |
| | 2008 | | 2007 | | 2006 | | | 2010 | | 2009 | | 2008 |
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Cash flows provided by (used in): | | | | | | | | | | | | | | | | | | | | | |
Operating activities | | $ | 350,448 | | | $ | 338,503 | | | $ | 187,743 | | | $ | 216,158 | | | $ | 285,204 | | | $ | 350,409 | |
Investing activities | | | (374,137 | ) | | | (408,795 | ) | | | (650,863 | ) | | | (174,088 | ) | | | (18,128 | ) | | | (374,098 | ) |
Financing activities | | | 27,990 | | | | 66,643 | | | | 471,376 | | | | 6,817 | | | | (207,991 | ) | | | 27,990 | |
Net cash provided by operating activities increased $11.9decreased $69.0 million for the year ended December 31, 20082010 compared to the year ended December 31, 2007,2009, and increased $150.8decreased $65.2 million for the year ended December 31, 20072009 compared to the year ended December 31, 2006. These increases2008. The decrease in netoperating cash provided by operating activities
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wereflows for the year ended December 31, 2010 compared to the year ended December 31, 2009 was primarily due to increasesan increase in grosstrade receivables resulting from a favorable increase in oilfield activity partially offset by an increase in payables and the collection of a large income tax receivable. During 2010, cash receipts as a result of increased revenues. Our gross receipts increased throughout the three years ended December 31, 2008 as demand for our services grew, we investedactivity remained favorable, but with an increase in more equipment and logged incremental billable hours, while we continued to expand our current business and enter new markets through acquisitions. We expect to continue to evaluate acquisition opportunities for the foreseeable future. This analysis will entail a review of available funds which will include our currentsales there was an increase in outstanding receivables. The decrease in operating cash flows as well as other factors.for 2009 compared to 2008 reflects the overall decline in oilfield activity in late 2008 and throughout 2009.
Net cash used in investing activities decreased $34.7increased $156.0 million for the year ended December 31, 20082010 compared to the prior year ended December 31, 2009 and decreased $242.1$356.0 million for the year ended December 31, 20072009 compared to the year ended December 31, 2006, primarily2008. Of this increase in 2010, $145.0 million was due to declinesan increase in capital expenditures, which was only $37.4 million for the use of funds for acquisitions.year ended December 31, 2009. We decreased our overall capital expenditures in 2009 in response to the decline in commodity prices and lower activity levels. In addition, we invested $180.2 million, $50.4 million and $369.6$33.7 million in business acquisitions for the years ended December 31,in 2010, with no corresponding business acquisitions in 2009. The
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decrease in 2009 compared to 2008 2007 and 2006, respectively. During 2008, these acquisitions were relatively large operations in recently active basins such as the Marcellus Shale and Haynesville Shale, as well as a targeted acquisition of a pressure pumping business in north Texas. For 2007, our acquired businesses were generally smaller, niche companies which complemented our existing operations. For 2006, we used a portion of the proceeds from our initial public offering to purchase businesses that expanded our geographic reach in areas where we have operations and into new basins within North America. In addition, we invested heavily in new equipment throughout this three-year period, but to a lesser extent during 2008was due to concernsinvestment in capital expenditures of over-capacity in the industry and a general slowdown in oilfield activity in late 2008. We sold non-strategic businesses in 2008 and 2006 and received proceeds of $50.2$253.8 million and $19.3 million, respectively. In addition, in 2006 we invested $165.0acquisitions of $180.2 million in short-term investments, which were sold and used for the following purposes: (1) to acquire a series of businesses; (2) to make scheduled principal and interest payments on our credit facility; (3) to pay estimated federal income taxes; and (4) for other general corporate purposes. Significant capital equipment expenditures in 2008 included pressure pumping equipment, well service rigs, coiled tubing equipment and two drilling rigs. Significant capital equipment expenditures in 2007 included five coiled tubing units and over forty well service rigs, as well as additional pressure pumping units. Significant capital equipment expenditures in 2006 included coiled tubing units, pressure pumping equipment, well services rigs, fluid-handling equipment, rental equipment and drilling rigs. See “— Significant Acquisitions” above.2008.
Net cash provided by financing activities decreased by $38.7was $6.8 million for the year ended December 31, 20082010 compared to $208.0 million of cash used for financing activities for the prior year ended December 31, 2009, and declined $404.7compared to cash provided by financing activities of $28.0 million for the year ended December 31, 2007 compared to 2006.2008. In 2009, we focused on eliminating obligations under our credit facility and building cash. We repaid long-term borrowings under our debt facilities totaling $200.6 million and only borrowed $3.2 million during 2009. The primary source of these funds in 2009 was cash flow from financing activities for 2008 was net borrowings under our revolving credit facilities of $20.8 million, as well as funds obtained from the issuance of our common stock in connection with employee stock option exercises. The primary source of funds from financing activities in 2007 was net borrowings under our revolving credit facilities to fund capital expenditures, acquisitions, semi-annual interest payments on our senior notes and quarterly federal income tax payments. However, in 2006, the primary source of funds from financing activities was the receipt of the net proceeds from our initial public offering in April 2006, which provided approximately $288.6 million. In addition, we received net proceeds of $636.6 million from the issuance of 8.0% senior notes in December 2006, and we borrowed under our revolving credit facilities to fund various business acquisitions. The primary use of funds from financing activities was to repay $127.5 million outstanding under our U.S. revolving credit facility as of April 2006, with subsequent borrowings and repayments under this revolving credit facility throughout the year ended December 31, 2006, and the repayment of $419.0 million under our term loan facility in 2006, the majority of which was repaid in December 2006 from the proceeds of our senior note issuance.operations. Our long-term debt balances, including current maturities, were $847.6 million$650.0 and $826.4$650.2 million as of December 31, 20082010 and 2007,2009, respectively.
We expect to spendIn 2010, we invested significantly lessmore on capital expenditures and acquisitions than we have in recent years for investment in capital expenditures, excludingdid during 2009. We will continue to evaluate acquisitions during the year ended December 31, 2009.of complementary companies. We believe that our operating cash flows and borrowing capacity will be sufficient to fund our operations and capital expenditures for the next 12 months.
In addition, we do not anticipate completing acquisitions for cash consideration until market conditions stabilize, but will continue to evaluate acquisitions of complementary companies. We will evaluate each acquisition opportunity based upon the circumstances and our financing capabilities at that time.
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Dividends
We did not pay dividends on our $0.01 par value common stock during the years ended December 31, 2008, 20072010, 2009 and 2006.2008. We do not intend to pay dividends in the foreseeable future, but rather plan to reinvest such funds in our business. Furthermore, our credit facility contains restrictive debt covenants which preclude us from paying future dividends on our common stock.
Description of Our Indebtedness
Senior NotesNotes.
On December 6, 2006, we issued 8.0% senior notes with a face value of $650.0 million through a private placement of debt. These notes have a maturity ofmature in 10 years, with a maturity date ofon December 15, 2016, and require semi-annual interest payments, paid in arrears and calculated based on an annual rate of 8.0%, on June 15 and December 15, of each year, commencingwhich commenced on June 15, 2007. There was no discount or premium associated with the issuance of these notes. The senior notes are guaranteed on a senior unsecured basis, by all of our current domestic subsidiaries. The senior notes have covenants which, among other things: (1) limit the amount of additional indebtedness we can incur; (2) limit restricted payments such as a dividend; (3) limit our ability to incur liens or encumbrances; (4) limit our ability to purchase, transfer or dispose of significant assets; (5) limit our ability to purchase or redeem stock or subordinated debt; (6) limit our ability to enter into transactions with affiliates; (7) limit our ability to merge with or into other companies or transfer all or substantially all of our assets; and (8) limit our ability to enter into sale and leaseback transactions. We have the option to redeem all or part of these notes on or after December 15, 2011. We can redeem 35% of these notes on or before December 15, 2009 using the proceeds of certain equity offerings. Additionally, we may redeem some or all of the notes prior to December 15, 2011 at a price equal to 100% of the principal amount of the notes plus a make-whole premium. We paid semi-annual interest payments of $26.0 million on June 15 and December 15, 2008 related to these notes, and $27.3 million and $26.0 million on June 15, 2007 and December 15, 2007, respectively.
Pursuant to a registration rights agreement with the holders of our 8.0% senior notes, on June 1, 2007, we filed a registration statement onForm S-4 with the Securities and Exchange CommissionSEC which enabled these holders to exchange their notes for publicly registered notes with substantially identical terms. These holders exchanged 100% of the notes for publicly traded notes on July 25, 2007.
On August 28, 2007, we entered into a supplement to the indenture governing the 8.0% senior notes, whereby additional domestic subsidiaries became guarantors under the indenture. Effective April 1, 2009, we entered into a second supplement to this indenture whereby additional domestic subsidiaries became guarantors under the indenture.
Credit FacilityFacility.
On December 6, 2006, we amended and restated our existingWe maintain a senior secured credit facility (the “Credit Agreement”) with Wells Fargo Bank, National Association, as U.S. Administrative Agent, HSBC Bank Canada, as Canadian Administrative Agent, and certain other financial institutions. TheOn October 13, 2009, we entered into the Third Amendment (the Credit Agreement initially providedafter giving effect to the Third Amendment, the “Amended Credit Agreement”) and modified the structure of our existing credit facility to an asset-based facility subject to borrowing base restrictions. In connection with the Third Amendment, Wells Fargo Capital Finance, LLC (formerly known as Wells Fargo Foothill, LLC) replaced Wells Fargo Bank,
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National Association, as U.S. Administrative Agent and also serves as U.S. Issuing Lender and U.S. Swingline Lender under the Amended Credit Agreement. The Amended Credit Agreement provides for a $310.0 million U.S. revolving credit facility of up to $225 million that will maturematures in December 2011 and a $40.0 million Canadian revolving credit facility of up to $15 million (with Integrated Production Services Ltd., one of our wholly-owned subsidiaries, as the borrower thereof)thereof (“Canadian Borrower”)) that will maturematures in December 2011. In addition, certainThe Amended Credit Agreement includes a provision for a “commitment increase”, as defined therein, which permits us to effect up to two separate increases in the aggregate commitments under the Amended Credit Agreement by designating one or more existing lenders or other banks or financial institutions, subject to the bank’s sole discretion as to participation, to provide additional aggregate financing up to $75 million, with each committed increase equal to at least $25 million in the U.S., or $5 million in Canada, and in accordance with other provisions as stipulated in the Amended Credit Agreement. Certain portions of the credit facilities are available to be borrowed in U.S. Dollars,dollars, Canadian Dollars, Pounds Sterling, Eurosdollars and other currencies approved by the lenders.
Our U.S. borrowing base is limited to: (1) 85% of U.S. eligible billed accounts receivable, less dilution, if any, plus (2) the lesser of 55% of the amount of U.S. eligible unbilled accounts receivable or $10.0 million, plus (3) the lesser of the “equipment reserve amount” and 80% times the most recently determined “net liquidation percentage”, as defined in the Amended Credit Agreement, times the value of our and the U.S. subsidiary guarantors’ equipment, provided that at no time shall the amount determined under this clause exceed 50% of the U.S. borrowing base, minus (4) the aggregate sum of reserves established by the U.S. Administrative Agent, if any. The “equipment reserve amount” means $50.0 million upon the effective date of the Third Amendment, less $0.6 million for each subsequent month, not to be reduced below zero in the aggregate.
The Canadian borrowing based is limited to: (1) 80% of Canadian eligible billed accounts receivable, plus (2) if the Canadian Borrower has requested credit for equipment under the Canadian borrowing base, the lesser of (a) $15.0 million, and (b) 80%timesthe most recently determined “net liquidation percentage”, as defined in the Amended Credit Agreement, times the value (calculated on a basis consistent with our historical accounting practices) of our and the US subsidiary guarantors’ equipment, minus (3) the aggregate amount of reserves established by our Canadian Administrative Agent, if any.
Subject to certain limitations set forth in the Amended Credit Agreement, we have the ability to elect how interest under the Amended Credit Agreement will be computed. Interest under the Amended Credit Agreement may be determined by reference to (1) the London Inter-bank Offered Rate, or LIBOR, plus an applicable margin between 0.75%3.75% and 1.75%4.25% per annum (with the applicable margin depending upon our ratio of total debt to EBITDA (as“excess availability amount”, as defined in the agreement)),Amended Credit Agreement) or (2) the Base Rate (i.e.,“Base Rate” (which means the higher of the Canadian bank’s prime rate orPrime Rate, Federal Funds Rate plus 0.50%,3-month LIBOR plus 1.00% and 3.50%), plus the CDOR rate plus 1.0%, inapplicable margin, as described above. For the case of Canadian loans orperiod from the greatereffective date of the prime rate andThird Amendment until the federal funds rate plus 0.5%, insix month anniversary of the caseeffective date of U.S. loans), plusthe Third Amendment, interest was computed with an applicable margin between 0.00% and 0.75% per annum.rate of 4.00%. If an event of default exists or continues under the Amended Credit Agreement, advances will bear interest as described above with an applicable margin rate of 4.25% plus 2.00%. Additionally, if an event of default exists under the Amended Credit Agreement, advances will bear interest atas defined therein, the then-applicable rate plus 2%.lenders could accelerate the maturity of the obligations outstanding thereunder and exercise other rights and remedies. Interest is payable quarterly for base rate loans and at the end of applicable interest periods for LIBOR loans, except that if the interest period for a LIBOR loan is six months, interest will be paid at the end of each three-month period.
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The Credit Agreement also contains various covenants that limit our and our subsidiaries’ ability to: (1) grant certain liens; (2) make certain loans and investments; (3) make capital expenditures; (4) make distributions; (5) make acquisitions; (6) enter into hedging transactions; (7) merge or consolidate; or (8) engage in certain asset dispositions. Additionally, the Credit Agreement limits our and our subsidiaries’ ability to incur additional indebtedness if: (1) we are not in pro forma compliance with all terms under the Credit Agreement, (2) certain covenants of the additional indebtedness are more onerous than the covenants set forth in the Credit Agreement, or (3) the additional indebtedness provides for amortization, mandatory prepayment or repurchases of senior unsecured or subordinated debt during the duration of the Credit Agreement with certain exceptions. The Credit Agreement also limits additional secured debt to 10% of our consolidated net worth (i.e., the excess of our assets over the sum of our liabilities plus the minority interests). The Credit Agreement contains covenants which, among other things, require us and our subsidiaries, on a consolidated basis, to maintain specified ratios or conditions as follows (with such ratios tested at the end of each fiscal quarter): (1) total debt to EBITDA, as defined in the Credit Agreement, of not more than 3.0 to 1.0 and (2) EBITDA, as defined, to total interest expense of not less than 3.0 to 1.0. We were in compliance with all debt covenants under the amended and restated Credit Agreement as of December 31, 2008. However, there can be no assurance as to our future compliance in light of the very uncertain industry conditions. See “Risk Factors — Risks Related to Our Business and Our Industry” and “Risk Factors — Risk Related to Our Indebtedness, including Our Senior Notes.”monthly.
Under the Amended Credit Agreement, we are permitted to prepay our borrowings.borrowings and we have the right to terminate, in whole or in part, the unused portion of the U.S. commitments in $1.0 million increments upon written notice to the U.S. Administrative Agent. If all of the U.S. facility is terminated, the Canadian facility must also be terminated.
All of the obligations under the U.S. portion of the Amended Credit Agreement are secured by first priority liens on substantially all of our assets and the assets of our U.S. subsidiaries as well as a pledge of approximately 66% of the stock of our first-tier foreign subsidiaries. Additionally, all of the obligations under the U.S. portion of the Amended Credit Agreement are guaranteed by substantially all of our U.S. subsidiaries. All of theThe obligations under the Canadian portionsportion of the Amended Credit Agreement are secured by first priority liens on substantially all of our assets and the assets of our subsidiaries.subsidiaries (other than our Mexican subsidiary). Additionally, all of the obligations under the Canadian portionsportion of the Amended Credit Agreement are guaranteed by us as well as certain of our subsidiaries.
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The Amended Credit Agreement also contains various covenants that limit our and our subsidiaries’ ability to: (1) grant certain liens; (2) incur additional indebtedness; (3) make certain loans and investments; (4) make capital expenditures; (5) make distributions; (6) make acquisitions; (7) enter into hedging transactions; (8) merge or consolidate; or (9) engage in certain asset dispositions. The Amended Credit Agreement contains one financial maintenance covenant which requires us and our subsidiaries, on a consolidated basis, to maintain a “fixed charge coverage ratio”, as defined in the Amended Credit Agreement, of not less than 1.10 to 1.00. This covenant is only tested if our “excess availability amount”, as defined under the Amended Credit Agreement, plus certain qualified cash and cash equivalents (collectively “Liquidity”) is less than $50.0 million for a period of 5 consecutive days and continues only until such time as our Liquidity has been greater than or equal to $50.0 million for a period of 90 consecutive days or greater than or equal to $75.0 million for a period of 45 consecutive days.
If an eventOur fixed charge coverage ratio covenant is calculated, for fiscal quarters ending after September 30, 2009, as the ratio of default exists under“EBITDA” calculated for the four fiscal quarter period ended after September 30, 2009 minus capital expenditures made with cash (to the extent not already incurred in a prior period) or incurred during such four quarter period, compared to “fixed charges”, calculated for the four quarters then ended. “EBITDA” is defined in the Amended Credit Agreement as defined,consolidated net income for the lenders may accelerateperiod plus, to the maturityextent deducted in determining our consolidated net income, interest expense, taxes, depreciation, amortization and other non-cash charges for such period, provided that EBITDA shall be subject to pro forma adjustments for acquisitions and non-ordinary course asset sales assuming that such transactions occurred on the first day of the obligations outstanding underdetermination period, which adjustments shall be made in accordance with the Credit Agreement and exercise other rights and remedies. While an event of default is continuing, advances will bear interest at the then-applicable rate plus 2%. For a description of an event of default, see our Credit Agreement which was filed withguidelines for pro forma presentations set forth by the Securities and Exchange Commission on December 8, 2006 as an exhibit to a Current Report onForm 8-K.
On June 29, 2007, we amended our Credit Agreement in conjunction with the restructuring of certain legal entities for tax purposes with no material changes to the financial provisions or covenants.
Effective October 19, 2007, we amended certain terms of our Credit Agreement including: (1) a provision to increase the borrowing capacity of the U.S. revolving portion of the facility from $310.0 million to $360.0 million; and (2) a provision to include a “commitment increase” clause,Commission. “Fixed charges”, as defined in ourthe Amended Credit Agreement, which permits usinclude interest expense, among other things, reduced by the amortization of transaction fees associated with the Third Amendment.
We were not subject to effect up to two separate increasesthe fixed charge coverage ratio covenant in the aggregate commitments underAmended Credit Agreement as of December 31, 2010 since the facility by designating a participating lender to increase its commitment, by mutual agreement, in increments of at least $50.0 million with the aggregate of such commitment increases not to exceed $100.0 million and in accordance with other provisionsExcess Availability Amount plus Qualified Cash Amount (each as stipulateddefined in the amendment. In addition, the amendment specifies the terms for prepayment of outstanding advances and new borrowings and replaces Schedule IIAmended Credit Agreement) exceeded $50 million. If we were subject to the amended Credit Agreement which allocates the commitments amongst the member financial institutions.fixed charge coverage ratio covenant, we would have been in compliance as of December 31, 2010.
Borrowings of $186.0 million and $7.5 millionThere were no revolving borrowings outstanding under theour U.S. andor Canadian revolving credit facilities atas of December 31, 2008, respectively.2010. The U.S. revolving credit facility bore interest at 3.50% at December 31, 2008, and the Canadian revolving credit facility bore interest at rates ranging from 3.75% to 4.00%, or a weighted average of 3.8% at December 31, 2008. For the year ended December 31, 2008, the weighted average interest rate on borrowings underfor our revolving credit facilities during the amended Credit Agreementtwelve months ended December 31, 2010 was approximately 3.92%8.0%. In addition, thereThere were letters of credit outstanding which totaled $37.7 million under the U.S. revolving portion of the facility thattotaling $26.4 million, which reduced the available borrowing capacity as of December 31, 2010. We incurred fees related to our letters of credit as of December 31, 2010 at 3.75% per annum. For the twelve months ended December 31, 2010, fees related to our letters of credit were calculated using a360-day provision, at 4.0% per annum. The net excess availability under our borrowing base calculations for the U.S. and Canadian revolving facilities at December 31, 2008 to $136.3 million. The available borrowing capacity under the Canadian revolving portion of the facility2010 was $32.5$187.4 million at December 31, 2008. In addition, we incurred fees of 1.25% of the total amount outstanding under our letter of credit arrangements. During October
57
2008, we borrowed approximately $106.0and $8.4 million, under our U.S. revolving credit facility to purchase two businesses. As of February 13, 2009, we had $126.8 million outstanding under our Credit Agreement.
In accordance with the subordinated notes issued in conjunction with the acquisition of Parchman in February 2005, all principal and interest under these note arrangements totaling $5.0 million was repaid as of May 2, 2006.respectively.
Other Arrangements
We received $7.4 million from customers in 2005 as advance payments on the construction and operation of two drilling rigs for our contract drilling operations in north Texas. The drilling rigs were completed and placed into service in October 2005 and January 2006. Revenue was recognized over the agreed service contract. All revenue under these contracts was recognized prior to December 31, 2006.
Outstanding Debt and Operating Lease Commitments
The following table summarizes our known contractual obligations as of December 31, 20082010 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period | | | Payments Due by Period | |
Contractual Obligations | | Total | | 2009 | | 2010-2011 | | 2012-2013 | | Thereafter | | | Total | | 2011 | | 2012-2013 | | 2014-2015 | | Thereafter | |
|
Long-term debt, including capital (finance) lease obligations | | $ | 843,931 | | | $ | 164 | | | $ | 193,767 | | | $ | — | | | $ | 650,000 | | | $ | 650,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | 650,000 | |
Interest on 8% senior notes issued December 6, 2006 | | | 411,667 | | | | 52,000 | | | | 104,000 | | | | 104,000 | | | | 151,667 | | | | 307,667 | | | | 52,000 | | | | 104,000 | | | | 104,000 | | | | 47,667 | |
Purchase obligations(1) | | | 41,196 | | | | 41,196 | | | | — | | | | — | | | | — | | | | 45,376 | | | | 45,376 | | | | — | | | | — | | | | — | |
Operating lease obligations | | | 70,513 | | | | 20,849 | | | | 26,766 | | | | 14,732 | | | | 8,166 | | | | 92,945 | | | | 27,287 | | | | 39,162 | | | | 15,441 | | | | 11,055 | |
Other long-term obligations(2) | | | 3,714 | | | | 3,639 | | | | 75 | | | | — | | | | — | | |
| | | | | | | | | | | | | | | | | | | | | | |
Total contractual obligations | | $ | 1,371,021 | | | $ | 117,848 | | | $ | 324,608 | | | $ | 118,732 | | | $ | 809,833 | | | $ | 1,095,988 | | | $ | 124,663 | | | $ | 143,162 | | | $ | 119,441 | | | $ | 708,722 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | |
(1) | | Purchase obligations were pursuant to non-cancelable equipment purchase orders outstanding as of December 31, 2008.2010. We have no significant purchase orders which extend beyond one year. |
|
(2) | | Other long-term obligations include amounts due under subordinated note arrangements with maturity dates beginning in 2009 and loans relating to equipment purchases which mature at various dates through September 2010. |
58
We have entered into agreements to purchase certain equipment for use in our business, which are included as purchase obligations in the table above to the extent that these obligations represent firm non-cancelable commitments. The manufacture of this equipment requires lead-time and we generally are committed to accept this equipment at the time of delivery, unless arrangements have been made to cancel delivery in accordance with the purchase agreement terms. We spent $253.8$169.9 million for equipment purchases and other capital expenditures during the year ended December 31, 2008, which does not include amounts paid in connection with acquisitions.2010.
We expect to continue to acquire complementary companies and evaluate potential acquisition targets. We may use cash from operations, proceeds from future debt or equity offerings and borrowings under our amended revolving credit facility for this purpose.
Off-Balance Sheet Arrangements
We have entered into operating lease arrangements for our light vehicle fleet, certain of our specialized equipment and for our office and field operating locations in the normal course of business. The terms of the facility leases range from monthly to five years. The terms of the light vehicle leases range from three to four years. The terms of the specialized equipment leases range from two to six years. Annual payments pursuant to these leases are included above in the table under “— Outstanding Debt and Operating Lease Commitments.”
58
Recent Accounting Pronouncements and Authoritative Literature
In February 2007,The FASB has addressed the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendmentissue of FASB Statement No. 115.” This pronouncement permits entities to use the fair value method to measure certain financial assets and liabilities by electing an irrevocable option to use the fair value method at specified election dates. After election of the option, subsequent changes in fair value would result in the recognition of unrealized gains or losses as period costsbusiness combinations during the period the change occurred. SFAS No. 159 became effective on January 1, 2008. We have not elected to adopt the fair value option prescribed by SFAS No. 159 for assets and liabilities held as of December 31, 2008, but we will consider the provisions of SFAS No. 159 and may elect to apply the fair value option for assets or liabilities associated with future transactions.
recent years. In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidating Financial Statements — an Amendment of ARB No. 51.” This pronouncement establishes accountingguidance regarding business combinations that substantially replaced previously existing guidance, while maintaining the precepts prescribed therein, and reporting standards for non-controlling interests, commonly referred to as minority interests. Specifically, this statement requires that the non-controlling interest be presented as a component of equity on the balance sheet, and that net income be presented prior to adjustment for the non-controlling interests’ portion of earnings with the portion of net income attributable to the parent company and the non-controlling interest both presented on the face of the statement of operations. In addition, this pronouncement provides a single method of accounting for changes in the parent’s ownership interest in the non-controlling entity, and requires the parent to recognize a gain or loss in net income when a subsidiary with a non-controlling interest is deconsolidated. Additional disclosure items are required related to the non-controlling interest. This pronouncement becomes effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The statement should be applied prospectively as of the beginning of the fiscal year that the statement is adopted. However, the disclosure requirements must be applied retrospectively for all periods presented. We are currently evaluating the impact that SFAS No. 160 may have on our financial position, results of operations and cash flows.
In December 2007, the FASB revised SFAS No. 141, “Business Combinations” which will replace that pronouncement in its entirety. While the revised statement will retain the fundamental requirements of SFAS No. 141, it will also requirefurther requiring that all assets and liabilities and non-controlling interests of an acquired business be measured at their fair value, with limited exceptions, including the recognition of acquisition-related costs and anticipated restructuring costs separate from the acquired net assets. In addition, the statement provides guidance for recognizingentities must recognize pre-acquisition contingencies, and states that an acquirer must recognizeas well as assets and liabilities assumed arising from contractual contingencies as of the acquisition date, measured at acquisition-date fair values, butand must recognize all other contractual contingencies as of the acquisition date, measured at their acquisition-date fair values only if it is more likely than not that these contingencies meet the definition of an asset or liability in FASB Concepts Statement No. 6, “Elements of Financial Statements.” Furthermore,liability. In addition, this statementstandard provides guidance for measuring goodwill and recording a bargain purchase, defined as a business combination in which total acquisition-date fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred plus any non-controlling interest in the acquiree, and it requiresstates that the acquireracquiring entity must recognize that excess in earnings as a gain attributable to the acquirer. The FASB amended this guidance in April 2009 as it relates to accounting for assets and liabilities assumed in a business combination which arise from contingencies. This statement becomesamendment requires that contingent assets acquired and liabilities assumed in a business combination to be recognized at fair value on the acquisition date if fair value can be reasonably estimated during the measurement period. If fair value cannot be reasonably estimated during the measurement period, the contingent asset or liability would be recognized as a contingency, in accordance with existing U.S. GAAP, with reasonable estimation of the amount of loss, if any. This amendment also eliminated the specific subsequent accounting guidance for contingent assets and liabilities, without significantly revising the original guidance. However, contingent consideration arrangements of an acquiree assumed by the acquirer in a business combination would still be initially and subsequently measured at fair value. We originally adopted the revised guidance for business combinations when it became effective aton January 1, 2009, and the amendment thereto, subsequently in 2009. In December 2010, the FASB updated this guidance to require each public entity that presents comparative financial statements to disclose the revenue and earnings of the combined entity as if the business combination that occurred during the current year had occurred as of the beginning of the firstcomparable prior annual reporting period beginningonly. In addition, this amendment expands the supplemental pro forma disclosures related to such a business combination to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. This most recent amendment should be accounted for prospectively for business combinations for which the acquisition date is on or after January 1, 2011, for calendar-year reporting entities. Early adoption is permitted. Although we did not early adopt this standard, we do not expect this guidance to have a material impact on our financial position, results of
59
operations or cash flows. We will comply with this update for business combinations that have a material impact on our financial results.
In May 2009, the FASB issued a standard regarding subsequent events that provides guidance as to when an entity should recognize events or transactions occurring after a balance sheet date in its financial statements and the necessary disclosures related to these events. Specifically, the entity should recognize subsequent events that provide evidence about conditions that existed at the balance sheet date, including significant estimates used to prepare financial statements. Originally, this standard required entities to disclose the date through which subsequent events had been evaluated and whether that date was the date the financial statements were issued or the date the financial statements were available to be issued. We adopted this accounting standard effective June 30, 2009 and applied its provisions prospectively. In February 2010, the FASB modified this standard to eliminate the requirement for publicly-traded entities to disclose the date through which subsequent events have been evaluated.
In January 2010, the FASB issued “Fair Value Measurements and Disclosure (Topic 820)” which clarified the disclosure requirements of existing U.S. GAAP related to fair value measurements. This standard requires additional disclosures about recurring and non-recurring fair value measurements as follows: (1) for transfers in and out of Level 1 and Level 2 fair value measurements, as those terms are currently defined in existing authoritative literature, a reporting entity is required to disclose the amount of the movement between levels and an explanation for the movement; (2) for activity at Level 3, primarily fair value measurements based on unobservable inputs, a reporting entity is required to present separately information about purchases, sales, issuances and settlements, as opposed to presenting such transactions on a net basis; (3) in the event of a disaggregation, a reporting entity is required to provide fair value measurement disclosure for each class of assets and liabilities; and (4) a reporting entity is required to provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and non-recurring fair value measurements for items that fall in either Level 2 or Level 3. These disclosure requirements are effective for interim and annual reporting periods beginning after December 15, 2008,2009, except for disclosures about purchases, sales, issuances and must be applied prospectively.settlements in the roll forward of activity in Level 3 fair value measurements for which disclosure becomes effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.
On March 30, 2010, the President of the United States signed the Health Care and Education Reconciliation Act of 2010, which is a reconciliation bill that amends the Patient Protection and Affordable Care Act that was signed by the President on March 23, 2010. Certain provisions of this law became effective during 2010. We have reviewed our health insurance plan provisions with third-party consultants and continue to evaluate our position relative to the changes in the law. We do not believe that the provisions which have taken effect will have a significant impact on the operation of our existing health insurance plan. However, future provisions under the law which become effective in subsequent periods may impact our health insurance plan and our overall financial position. We are currently evaluating these provisions as they become effective and continue to seek guidance from the impactFASB and SEC related to the implications of this new legislation on accounting and disclosure requirements. We expect that this statement maylegislation will have an impact on our financial position, results of operations and cash flows.flows, but we cannot determine the extent of the impact at this time.
In June 2008,December 2010, the FASB issued additional guidance related to accounting for intangible assets and goodwill. The amendments in this update modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a FASB Staff Position (“FSP”)No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities,” which statesgoodwill impairment exists. In determining whether it is more likely than not that unvested share-based awards which have non-forfeitable rights to participate in dividend distributionsa goodwill impairment exists, an entity should be considered participating securities in order to calculate earnings per share in accordanceconsider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with the “Two - Class Method” described in SFAS No. 128, “Earnings per Share.”existing guidance and examples, which require that goodwill of a reporting unit be tested for impairment between annual test dates if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. This guidance becomesupdate is effective for public entities with fiscal years beginning after December 15, 2008, with retrospective application to prior periods.2010 and interim periods within those years. Early adoption is not permitted. We are currently evaluating the impact that this guidance may have on our financial position, results of operations and cash flows.
In September 2008, the FASB issued an FSPNo. FAS 144-d, “Amending the Criteria for Reporting a Discontinued Operation,” which clarifies the definition of a discontinued operation as either: (1) a component of an entity which has been disposed of or classified as held for sale which meets the criteria of an operating segment as
59
defined under SFAS No. 131, or (2) as a business, as such term is defined in SFAS No. 141R which becomes effective on January 1, 2009, which meets the criteria to be classified as held for sale on acquisition. This proposed guidance further modifies certain disclosure requirements. We are currently evaluating the effect this proposed guidance may have on our financial position, results of operations and cash flows.
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In January 2009, the FASB issued FSP No.FAS 107-b and APB28-a, which would amend SFAS No. 107, “Disclosures About Fair Value of Financial Instruments” and APB Opinion No. 28, “Interim Financial Reporting,” to require disclosure of the fair value of financial instruments in interim financial statements as well as annual financial statements. In addition, entities would be required to disclose the method and significant assumptions used to estimate the fair value of financial instruments. If ratified, this proposed guidance would become effective for interim and annual periods ending after March 15, 2009. We are currently evaluating the effect this proposed guidance may have on our financial position, results of operations and cash flows.
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Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. |
The demand, pricing and terms for oil and gas services provided by us are largely dependent upon the level of activity for the U.S. and Canadian gas industry. Industry conditions are influenced by numerous factors over which we have no control, including, but not limited to: the supply of and demand for oil and gas; the level of prices, and expectations about future prices, of oil and gas; the cost of exploring for, developing, producing and delivering oil and gas; the expected rates of declining current production; the discovery rates of new oil and gas reserves; available pipeline and other transportation capacity; weather conditions; domestic and worldwide economic conditions; political instability in oil-producing countries; technical advances affecting energy consumption; the price and availability of alternative fuels; the ability of oil and gas producers to raise equity capital and debt financing; and merger and divestiture activity among oil and gas producers.
The level of activity in the U.S. and Canadian oil and gas exploration and production industry is volatile. No assurance can be given that our expectations of trends in oil and gas production activities will reflect actual future activity levels or that demand for our services will be consistent with the general activity level of the industry. Any prolonged substantial reduction in oil and gas prices would likely affect oil and gas exploration and development efforts and therefore affect demand for our services. A material decline in oil and gas prices or U.S. and Canadian activity levels could have a material adverse effect on our business, financial condition, results of operations and cash flows.
For the years ended December 31, 20082010 and 2007,2009, approximately 5% and 5% of our revenues from continuing operations respectively, and 3% and 6%4% of our total assets respectively, were denominated in Canadian dollars, our functional currency in Canada. As a result, a material decrease in the value of the Canadian dollar relative to the U.S. dollar may negatively impact our revenues, cash flows and net income. Each one percentage point change in the value of the Canadian dollar would have impacted our revenues for the year ended December 31, 20082010 by approximately $0.9$0.8 million, or $0.6$0.5 million net of tax. We do not currently use hedges or forward contracts to offset this risk.
Our Mexican operation uses the U.S. dollar as its functional currency, and as a result, all transactions and translation gains and losses are recorded currently in the financial statements. The balance sheet amounts are translated into U.S. dollars at the exchange rate at the end of the month and the income statement amounts are translated at the average exchange rate for the month. We estimate that a hypothetical one percentage point change in the value of the Mexican peso relative to the U.S. dollar would have impacted our revenues for the year ended December 31, 20082010 by approximately $0.6$0.5 million, or $0.4$0.3 million, net of tax. Currently, we conduct a portion of our business in Mexico in the local currency, the Mexican peso.
Approximately 23% of our debt at December 31, 2008 is structured under floating rate terms and, as such, our interest expense is sensitive to fluctuations in the prime rates in the U.S. and Canada. Based on the debt structure in place as of December 31, 2008, a 100 basis point increase in interest rates relative to our floating rate obligations would increase interest expense by approximately $1.9 million per year and reduce operating cash flows by approximately $1.2 million, net of tax.
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Item 8. | Financial Statements and Supplementary Data. |
6061
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Stockholders of Complete Production Services, Inc.:
We have audited the accompanying consolidated balance sheets of Complete Production Services, Inc. and subsidiaries as of December 31, 20082010 and 2007,2009, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2008.2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Complete Production Services, Inc. as of December 31, 20082010 and 2007,2009, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2008,2010, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Complete Production Services, Inc. and its subsidiaries’’s internal control over financial reporting as of December 31, 2008,2010, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated February 27, 2009,18, 2011, expressed an unqualified opinion that Complete Production Services, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting.
Houston, Texas
February 27, 200918, 2011
6162
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Stockholders of Complete Production Services, Inc.:
We have audited Complete Production Services, Inc’s.Inc.’s internal control over financial reporting as of December 31, 2008,2010, based on criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Complete Production Services, Inc.’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 ManagementManagement’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on Complete Production Services, Inc.’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
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.
In our opinion, Complete Production Services, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008,2010, based on criteria established inInternal Control — Integrated Frameworkissued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Complete Production Services, Inc. and subsidiaries as of December 31, 20082010 and 2007,2009, and the related consolidated statements of operations, and comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2008,2010, and our report dated February 27, 200918, 2011 expressed an unqualified opinion on those consolidated financial statements.
Houston, Texas
February 27, 2009
62
COMPLETE PRODUCTION SERVICES, INC.
December 31, 2008 and 2007
| | | | | | | | |
| | 2008 | | | 2007 | |
| | (In thousands, except share data) | |
|
ASSETS |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 19,090 | | | $ | 13,624 | |
Trade accounts receivable, net of allowance for doubtful accounts of $5,976 and $5,487, respectively | | | 343,353 | | | | 305,682 | |
Inventory, net of obsolescence reserve of $710 and $1,670, respectively | | | 41,891 | | | | 29,877 | |
Prepaid expenses | | | 21,472 | | | | 23,743 | |
Tax receivable | | | 21,328 | | | | 5,092 | |
Current assets of discontinued operations | | | — | | | | 50,307 | |
| | | | | | | | |
Total current assets | | | 447,134 | | | | 428,325 | |
Property, plant and equipment, net | | | 1,166,453 | | | | 1,013,190 | |
Intangible assets, net of accumulated amortization of $9,985 and $5,762, respectively | | | 23,262 | | | | 10,606 | |
Deferred financing costs, net of accumulated amortization of $4,186 and $2,455, respectively | | | 12,463 | | | | 14,194 | |
Goodwill | | | 341,592 | | | | 549,130 | |
Other long-term assets | | | 3,973 | | | | 6,264 | |
Long-term assets of discontinued operations | | | — | | | | 33,050 | |
| | | | | | | | |
Total assets | | $ | 1,994,877 | | | $ | 2,054,759 | |
| | | | | | | | |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
Current liabilities: | | | | | | | | |
Current maturities of long-term debt | | $ | 3,803 | | | $ | 398 | |
Accounts payable | | | 57,483 | | | | 56,407 | |
Accrued liabilities | | | 37,585 | | | | 52,572 | |
Accrued payroll and payroll burdens | | | 31,293 | | | | 24,050 | |
Accrued interest | | | 2,754 | | | | 4,553 | |
Notes payable | | | 1,353 | | | | 15,354 | |
Taxes payable | | | — | | | | 6,506 | |
Current deferred tax liabilities | | | 1,289 | | | | — | |
Current liabilities of discontinued operations | | | — | | | | 9,705 | |
| | | | | | | | |
Total current liabilities | | | 135,560 | | | | 169,545 | |
Long-term debt | | | 843,842 | | | | 825,985 | |
Deferred income taxes | | | 146,359 | | | | 126,821 | |
Long-term liabilities of discontinued operations | | | — | | | | 2,085 | |
| | | | | | | | |
Total liabilities | | | 1,125,761 | | | | 1,124,436 | |
Commitments and contingencies | | | | | | | | |
Stockholders’ equity: | | | | | | | | |
Common stock, $0.01 par value per share, 200,000,000 shares authorized, 74,766,317 (2007 — 72,509,511) issued | | | 748 | | | | 725 | |
Preferred stock, $0.01 par value per share, 5,000,000 shares authorized, no shares issued and outstanding | | | — | | | | — | |
Additional paid-in capital | | | 623,988 | | | | 581,404 | |
Retained earnings | | | 232,080 | | | | 317,535 | |
Treasury stock, 35,570 shares at cost | | | (202 | ) | | | (202 | ) |
Accumulated other comprehensive income | | | 12,502 | | | | 30,861 | |
| | | | | | | | |
Total stockholders’ equity | | | 869,116 | | | | 930,323 | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 1,994,877 | | | $ | 2,054,759 | |
| | | | | | | | |
See accompanying notes to consolidated financial statements.18, 2011
63
COMPLETE PRODUCTION SERVICES, INC.
Consolidated Balance Sheets
December 31, 2010 and 2009
Years Ended December 31, 2008, 2007 and 2006
| | | | | | | | | | | | |
| | Year Ended December 31, | |
| | 2008 | | | 2007 | | | 2006 | |
| | (In thousands, except per share data) | |
|
Revenue: | | | | | | | | | | | | |
Service | | $ | 1,779,452 | | | $ | 1,454,586 | | | $ | 1,055,025 | |
Product | | | 59,102 | | | | 40,857 | | | | 29,586 | |
| | | | | | | | | | | | |
| | | 1,838,554 | | | | 1,495,443 | | | | 1,084,611 | |
Service expenses | | | 1,091,885 | | | | 846,942 | | | | 612,800 | |
Product expenses | | | 41,914 | | | | 27,621 | | | | 16,546 | |
Selling, general and administrative expenses | | | 198,252 | | | | 179,027 | | | | 144,432 | |
Depreciation and amortization | | | 181,097 | | | | 131,353 | | | | 75,902 | |
Impairment loss | | | 272,006 | | | | 13,094 | | | | — | |
| | | | | | | | | | | | |
Income from continuing operations before interest, taxes and minority interest | | | 53,400 | | | | 297,406 | | | | 234,931 | |
Interest expense | | | 59,729 | | | | 61,328 | | | | 40,645 | |
Interest income | | | (301 | ) | | | (325 | ) | | | (1,387 | ) |
Write-off of deferred financing costs | | | — | | | | — | | | | 170 | |
| | | | | | | | | | | | |
Income (loss) from continuing operations before taxes and minority interest | | | (6,028 | ) | | | 236,403 | | | | 195,503 | |
Taxes | | | 74,568 | | | | 86,851 | | | | 70,516 | |
| | | | | | | | | | | | |
Income (loss) from continuing operations before minority interest | | | (80,596 | ) | | | 149,552 | | | | 124,987 | |
Minority interest | | | — | | | | (569 | ) | | | (49 | ) |
| | | | | | | | | | | | |
Income (loss) from continuing operations | | | (80,596 | ) | | | 150,121 | | | | 125,036 | |
Income (loss) from discontinued operations (net of tax expense of $3,865, $6,890 and $9,359, respectively) | | | (4,859 | ) | | | 11,443 | | | | 14,050 | |
| | | | | | | | | | | | |
Net income (loss) | | $ | (85,455 | ) | | $ | 161,564 | | | $ | 139,086 | |
| | | | | | | | | | | | |
Earnings (loss) per share information: | | | | | | | | | | | | |
Continuing operations | | $ | (1.10 | ) | | $ | 2.09 | | | $ | 1.90 | |
Discontinued operations | | $ | (0.06 | ) | | $ | 0.15 | | | $ | 0.21 | |
| | | | | | | | | | | | |
Basic earnings (loss) per share | | $ | (1.16 | ) | | $ | 2.24 | | | $ | 2.11 | |
| | | | | | | | | | | | |
Continuing operations | | $ | (1.10 | ) | | $ | 2.05 | | | $ | 1.84 | |
Discontinued operations | | $ | (0.06 | ) | | $ | 0.15 | | | $ | 0.20 | |
| | | | | | | | | | | | |
Diluted (loss) earnings per share | | $ | (1.16 | ) | | $ | 2.20 | | | $ | 2.04 | |
| | | | | | | | | | | | |
Weighted average shares: | | | | | | | | | | | | |
Basic | | | 73,600 | | | | 71,991 | | | | 65,843 | |
Diluted | | | 73,600 | | | | 73,352 | | | | 68,075 | |
| | | | | | | | |
| | 2010 | | | 2009 | |
| | (In thousands, except share data) | |
|
ASSETS |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 126,681 | | | $ | 77,360 | |
Accounts receivable, net of allowance for doubtful accounts of $4,160 and $12,564, respectively | | | 345,648 | | | | 171,284 | |
Inventory, net of obsolescence reserve of $2,453 and $888, respectively | | | 33,536 | | | | 37,464 | |
Prepaid expenses | | | 18,700 | | | | 17,943 | |
Income tax receivable | | | 23,462 | | | | 57,606 | |
Current deferred tax assets | | | 2,499 | | | | 8,158 | |
Other current assets | | | 1,384 | | | | 111 | |
| | | | | | | | |
Total current assets | | | 551,910 | | | | 369,926 | |
Property, plant and equipment, net | | | 956,028 | | | | 941,133 | |
Intangible assets, net of accumulated amortization of $21,293 and $15,476, respectively | | | 9,209 | | | | 13,243 | |
Deferred financing costs, net of accumulated amortization of $9,316 and $6,266, respectively | | | 9,694 | | | | 12,744 | |
Goodwill | | | 250,533 | | | | 243,823 | |
Restricted cash | | | 17,000 | | | | — | |
Other long-term assets | | | 6,202 | | | | 7,985 | |
| | | | | | | | |
Total assets | | $ | 1,800,576 | | | $ | 1,588,854 | |
| | | | | | | | |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
Current liabilities: | | | | | | | | |
Current maturities of long-term debt | | $ | — | | | $ | 228 | |
Accounts payable | | | 75,099 | | | | 31,745 | |
Accrued liabilities | | | 44,291 | | | | 41,102 | |
Accrued payroll and payroll burdens | | | 26,568 | | | | 13,559 | |
Accrued interest | | | 2,446 | | | | 3,206 | |
Notes payable | | | — | | | | 1,069 | |
Income taxes payable | | | — | | | | 813 | |
| | | | | | | | |
Total current liabilities | | | 148,404 | | | | 91,722 | |
Long-term debt | | | 650,000 | | | | 650,002 | |
Deferred income taxes | | | 190,422 | | | | 148,240 | |
Other long-term liabilities | | | 5,916 | | | | — | |
| | | | | | | | |
Total liabilities | | | 994,742 | | | | 889,964 | |
Commitments and contingencies | | | | | | | | |
Stockholders’ equity: | | | | | | | | |
Common stock, $0.01 par value per share, 200,000,000 shares authorized, 76,443,926 (2009 — 75,278,406) issued | | | 764 | | | | 752 | |
Preferred stock, $0.01 par value per share, 5,000,000 shares authorized, no shares issued and outstanding | | | — | | | | — | |
Additional paid-in capital | | | 657,993 | | | | 636,904 | |
Retained earnings | | | 126,165 | | | | 42,007 | |
Treasury stock, 167,643 (2009 — 54,313) shares at cost | | | (1,765 | ) | | | (334 | ) |
Accumulated other comprehensive income | | | 22,677 | | | | 19,561 | |
| | | | | | | | |
Total stockholders’ equity | | | 805,834 | | | | 698,890 | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 1,800,576 | | | $ | 1,588,854 | |
| | | | | | | | |
See accompanying notes to consolidated financial statements.
64
COMPLETE PRODUCTION SERVICES, INC.
Years Ended December 31, 2008, 20072010, 2009 and 20062008
| | | | | | | | | | | | |
| | Year Ended December 31, | |
| | 2008 | | | 2007 | | | 2006 | |
| | (In thousands) | |
|
Net income (loss) | | $ | (85,455 | ) | | $ | 161,564 | | | $ | 139,086 | |
Change in cumulative translation adjustment | | | (18,359 | ) | | | 15,129 | | | | (808 | ) |
| | | | | | | | | | | | |
Comprehensive income (loss) | | $ | (103,814 | ) | | $ | 176,693 | | | $ | 138,278 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Year Ended December 31, | |
| | 2010 | | | 2009 | | | 2008 | |
| | (In thousands, except per share data) | |
|
Revenue: | | | | | | | | | | | | |
Service | | $ | 1,527,618 | | | $ | 1,012,313 | | | $ | 1,775,813 | |
Product | | | 33,775 | | | | 44,081 | | | | 59,102 | |
| | | | | | | | | | | | |
| | | 1,561,393 | | | | 1,056,394 | | | | 1,834,915 | |
Service expenses | | | 985,093 | | | | 692,164 | | | | 1,094,574 | |
Product expenses | | | 25,947 | | | | 33,201 | | | | 41,914 | |
Selling, general and administrative expenses | | | 175,445 | | | | 181,420 | | | | 198,200 | |
Depreciation and amortization | | | 181,823 | | | | 200,732 | | | | 181,197 | |
Fixed asset and other intangibles impairment loss | | | — | | | | 38,646 | | | | — | |
Goodwill impairment loss | | | — | | | | 97,643 | | | | 272,006 | |
| | | | | | | | | | | | |
Income (loss) from continuing operations before interest and taxes | | | 193,085 | | | | (187,412 | ) | | | 47,024 | |
Interest expense | | | 57,669 | | | | 56,895 | | | | 59,729 | |
Interest income | | | (322 | ) | | | (79 | ) | | | (301 | ) |
Write-off of deferred financing costs | | | — | | | | 528 | | | | — | |
| | | | | | | | | | | | |
Income (loss) from continuing operations before taxes | | | 135,738 | | | | (244,756 | ) | | | (12,404 | ) |
Taxes | | | 51,580 | | | | (63,088 | ) | | | 72,305 | |
| | | | | | | | | | | | |
Income (loss) from continuing operations | | | 84,158 | | | | (181,668 | ) | | | (84,709 | ) |
Loss from discontinued operations (net of tax expense of $0, $0, and $3,865, respectively) | | | — | | | | — | | | | (4,859 | ) |
| | | | | | | | | | | | |
Net income (loss) | | $ | 84,158 | | | $ | (181,668 | ) | | $ | (89,568 | ) |
| | | | | | | | | | | | |
Earnings (loss) per share information: | | | | | | | | | | | | |
Continuing operations | | $ | 1.11 | | | $ | (2.42 | ) | | $ | (1.15 | ) |
Discontinued operations | | | — | | | | — | | | | (0.07 | ) |
| | | | | | | | | | | | |
Basic earnings (loss) per share | | $ | 1.11 | | | $ | (2.42 | ) | | $ | (1.22 | ) |
| | | | | | | | | | | | |
Continuing operations | | $ | 1.08 | | | $ | (2.42 | ) | | $ | (1.15 | ) |
Discontinued operations | | | — | | | | — | | | | (0.07 | ) |
| | | | | | | | | | | | |
Diluted earnings (loss) per share | | $ | 1.08 | | | $ | (2.42 | ) | | $ | (1.22 | ) |
| | | | | | | | | | | | |
Weighted average shares: | | | | | | | | | | | | |
Basic | | | 76,048 | | | | 75,095 | | | | 73,600 | |
Diluted | | | 77,684 | | | | 75,095 | | | | 73,600 | |
See accompanying notes to consolidated financial statements.
65
COMPLETE PRODUCTION SERVICES, INC.
Years Ended December 31, 2008, 20072010, 2009 and 20062008
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Accumulated
| | | | |
| | | | | | | | Additional
| | | | | | | | | | | | Other
| | | | |
| | Number
| | | Common
| | | Paid-in
| | | Retained
| | | Treasury
| | | Deferred
| | | Comprehensive
| | | | |
| | of Shares | | | Stock | | | Capital | | | Earnings | | | Stock | | | Compensation | | | Income | | | Total | |
| | (In thousands, except share data) | |
|
Balance at December 31, 2005 | | | 55,531,510 | | | $ | 555 | | | $ | 220,786 | | | $ | 16,885 | | | $ | (202 | ) | | $ | (3,803 | ) | | $ | 16,540 | | | $ | 250,761 | |
Adoption of SFAS No. 123R | | | — | | | | — | | | | (3,803 | ) | | | — | | | | — | | | | 3,803 | | | | — | | | | — | |
Net income | | | — | | | | — | | | | — | | | | 139,086 | | | | — | | | | — | | | | — | | | | 139,086 | |
Cumulative translation adjustment | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (808 | ) | | | (808 | ) |
Issuance of common stock: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net proceeds from initial public offering | | | 13,000,000 | | | | 130 | | | | 288,505 | | | | — | | | | — | | | | — | | | | — | | | | 288,635 | |
Acquisition of Parchman | | | 1,000,000 | | | | 10 | | | | 23,490 | | | | — | | | | — | | | | — | | | | — | | | | 23,500 | |
Acquisition of MGM | | | 164,210 | | | | 2 | | | | 3,857 | | | | — | | | | — | | | | — | | | | — | | | | 3,859 | |
Acquisition of Pumpco | | | 1,010,566 | | | | 10 | | | | 21,414 | | | | — | | | | — | | | | — | | | | — | | | | 21,424 | |
Exercise of stock options | | | 506,405 | | | | 5 | | | | 1,810 | | | | — | | | | — | | | | — | | | | — | | | | 1,815 | |
Expense related to employee stock options | | | — | | | | — | | | | 1,848 | | | | — | | | | — | | | | — | | | | — | | | | 1,848 | |
Excess tax benefit from share-based compensation | | | — | | | | — | | | | 2,333 | | | | — | | | | — | | | | — | | | | — | | | | 2,333 | |
Vested restricted stock | | | 205,782 | | | | 2 | | | | (2 | ) | | | — | | | | — | | | | — | | | | — | | | | — | |
Amortization of non-vested restricted stock | | | — | | | | — | | | | 2,768 | | | | — | | | | — | | | | — | | | | — | | | | 2,768 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2006 | | | 71,418,473 | | | $ | 714 | | | $ | 563,006 | | | $ | 155,971 | | | $ | (202 | ) | | $ | — | | | $ | 15,732 | | | $ | 735,221 | |
Net income | | | — | | | | — | | | | — | | | | 161,564 | | | | — | | | | — | | | | — | | | | 161,564 | |
Cumulative translation adjustment | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 15,129 | | | | 15,129 | |
Issuance of common stock: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exercise of stock options | | | 934,094 | | | | 9 | | | | 4,170 | | | | — | | | | — | | | | — | | | | — | | | | 4,179 | |
Expense related to employee stock options | | | — | | | | — | | | | 4,426 | | | | — | | | | — | | | | — | | | | — | | | | 4,426 | |
Excess tax benefit from share-based compensation | | | — | | | | — | | | | 6,662 | | | | — | | | | — | | | | — | | | | — | | | | 6,662 | |
Vested restricted stock | | | 156,944 | | | | 2 | | | | (2 | ) | | | — | | | | — | | | | — | | | | — | | | | — | |
Amortization of non-vested restricted stock | | | — | | | | — | | | | 3,142 | | | | — | | | | — | | | | — | | | | — | | | | 3,142 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2007 | | | 72,509,511 | | | $ | 725 | | | $ | 581,404 | | | $ | 317,535 | | | $ | (202 | ) | | $ | — | | | $ | 30,861 | | | $ | 930,323 | |
Net loss | | | — | | | | — | | | | — | | | | (85,455 | ) | | | — | | | | — | | | | — | | | | (85,455 | ) |
Cumulative translation adjustment | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (18,359 | ) | | | (18,359 | ) |
Issuance of common stock: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Acquisition of AWS | | | 588,292 | | | | 6 | | | | 8,848 | | | | — | | | | — | | | | — | | | | — | | | | 8,854 | |
Acquisition — Double Jack shares | | | 7,234 | | | | — | | | | 225 | | | | — | | | | — | | | | — | | | | — | | | | 225 | |
Exercise of stock options | | | 1,238,819 | | | | 13 | | | | 12,001 | | | | — | | | | — | | | | — | | | | — | | | | 12,014 | |
Expense related to employee stock options | | | — | | | | — | | | | 5,436 | | | | — | | | | — | | | | — | | | | — | | | | 5,436 | |
Excess tax benefit from share-based compensation | | | — | | | | — | | | | 9,144 | | | | — | | | | — | | | | — | | | | — | | | | 9,144 | |
Vested restricted stock | | | 422,461 | | | | 4 | | | | (4 | ) | | | — | | | | — | | | | — | | | | — | | | | — | |
Amortization of non-vested restricted stock | | | — | | | | — | | | | 6,934 | | | | — | | | | — | | | | — | | | | — | | | | 6,934 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2008 | | | 74,766,317 | | | $ | 748 | | | $ | 623,988 | | | $ | 232,080 | | | $ | (202 | ) | | $ | — | | | $ | 12,502 | | | $ | 869,116 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Year Ended December 31, | |
| | 2010 | | | 2009 | | | 2008 | |
| | (In thousands) | |
|
Net income (loss) | | $ | 84,158 | | | $ | (181,668 | ) | | $ | (89,568 | ) |
Change in cumulative translation adjustment | | | 3,116 | | | | 7,059 | | | | (18,359 | ) |
| | | | | | | | | | | | |
Comprehensive income (loss) | | $ | 87,274 | | | $ | (174,609 | ) | | $ | (107,927 | ) |
| | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
66
COMPLETE PRODUCTION SERVICES, INC.
Years Ended December 31, 2008, 20072010, 2009 and 20062008
| | | | | | | | | | | | |
| | Year Ended December 31, | |
| | 2008 | | | 2007 | | | 2006 | |
| | (In thousands) | |
|
Cash provided by: | | | | | | | | | | | | |
Net income (loss) | | $ | (85,455 | ) | | $ | 161,564 | | | $ | 139,086 | |
Items not affecting cash: | | | | | | | | | | | | |
Depreciation and amortization | | | 183,091 | | | | 135,961 | | | | 79,813 | |
Deferred income taxes | | | 24,738 | | | | 38,099 | | | | 30,907 | |
Impairment loss | | | 272,006 | | | | 13,094 | | | | — | |
Write-off of deferred financing fees | | | — | | | | — | | | | 170 | |
Loss on sale of discontinued operations | | | 6,935 | | | | — | | | | 603 | |
Minority interest | | | — | | | | (569 | ) | | | (49 | ) |
Excess tax benefit from share-based compensation | | | (9,144 | ) | | | (6,662 | ) | | | (2,333 | ) |
Non-cash compensation expense | | | 12,370 | | | | 7,568 | | | | 4,616 | |
Provision for bad debt expense | | | 4,344 | | | | 7,277 | | | | 2,329 | |
Other | | | 5,734 | | | | 3,391 | | | | 1,564 | |
Changes in operating assets and liabilities, net of effect of acquisitions: | | | | | | | | | | | | |
Accounts receivable | | | (22,433 | ) | | | (29,255 | ) | | | (105,203 | ) |
Inventory | | | (10,522 | ) | | | (11,132 | ) | | | (11,511 | ) |
Prepaid expenses and other current assets | | | 6,376 | | | | 1,520 | | | | (1,201 | ) |
Accounts payable | | | (10,199 | ) | | | (8,063 | ) | | | 14,819 | |
Accrued liabilities and other | | | (27,393 | ) | | | 25,710 | | | | 34,133 | |
| | | | | | | | | | | | |
Net cash provided by operating activities | | | 350,448 | | | | 338,503 | | | | 187,743 | |
Investing activities: | | | | | | | | | | | | |
Business acquisitions, net of cash acquired | | | (180,154 | ) | | | (50,406 | ) | | | (369,606 | ) |
Additions to property, plant and equipment | | | (253,815 | ) | | | (367,659 | ) | | | (303,922 | ) |
Purchase of short-term securities | | | — | | | | — | | | | (165,000 | ) |
Proceeds from sale of short-term securities | | | — | | | | — | | | | 165,000 | |
Proceeds from sale of fixed assets | | | 7,666 | | | | 9,270 | | | | 3,355 | |
Collection of notes receivable | | | 2,016 | | | | — | | | | — | |
Proceeds from sale of disposal group | | | 50,150 | | | | — | | | | 19,310 | |
| | | | | | | | | | | | |
Net cash used in investing activities | | | (374,137 | ) | | | (408,795 | ) | | | (650,863 | ) |
Financing activities: | | | | | | | | | | | | |
Issuances of long-term debt | | | 350,115 | | | | 343,790 | | | | 608,703 | |
Repayments of long-term debt | | | (329,282 | ) | | | (268,769 | ) | | | (1,053,789 | ) |
Repayments of notes payable | | | (14,001 | ) | | | (18,846 | ) | | | (13,589 | ) |
Borrowings under senior notes | | | — | | | | — | | | | 650,000 | |
Proceeds from issuances of common stock | | | 12,014 | | | | 4,179 | | | | 291,674 | |
Deferred financing fees | | | — | | | | (373 | ) | | | (13,956 | ) |
Excess tax benefit from share-based compensation | | | 9,144 | | | | 6,662 | | | | 2,333 | |
| | | | | | | | | | | | |
Net cash provided by financing activities | | | 27,990 | | | | 66,643 | | | | 471,376 | |
Effect of exchange rate changes on cash | | | 1,165 | | | | (2,601 | ) | | | 213 | |
| | | | | | | | | | | | |
Change in cash and cash equivalents | | | 5,466 | | | | (6,250 | ) | | | 8,469 | |
Cash and cash equivalents, beginning of period | | | 13,624 | | | | 19,874 | | | | 11,405 | |
| | | | | | | | | | | | |
Cash and cash equivalents, end of period | | $ | 19,090 | | | $ | 13,624 | | | $ | 19,874 | |
| | | | | | | | | | | | |
Supplemental cash flow information: | | | | | | | | | | | | |
Cash paid for interest, net of interest capitalized | | $ | 58,812 | | | $ | 59,164 | | | $ | 35,947 | |
Cash paid for taxes | | $ | 71,365 | | | $ | 56,468 | | | $ | 40,132 | |
Significant non-cash investing and financing activities: | | | | | | | | | | | | |
Common stock issued for acquisitions | | $ | 9,079 | | | $ | — | | | $ | 48,783 | |
Assets received as proceeds from sale of disposal group | | $ | 7,987 | | | $ | — | | | $ | — | |
Debt acquired in acquisition | | $ | 429 | | | $ | — | | | $ | 30,784 | |
Capital expenditures in accrued payables/expenses | | $ | — | | | $ | 4,895 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Accumulated
| | | | |
| | | | | | | | Additional
| | | | | | | | | Other
| | | | |
| | Number
| | | Common
| | | Paid-in
| | | Retained
| | | Treasury
| | | Comprehensive
| | | | |
| | of Shares | | | Stock | | | Capital | | | Earnings | | | Stock | | | Income | | | Total | |
| | (In thousands, except share data) | |
|
Balance at December 31, 2007 | | | 72,509,511 | | | $ | 725 | | | $ | 581,404 | | | $ | 313,243 | | | $ | (202 | ) | | $ | 30,861 | | | $ | 926,031 | |
Net loss | | | — | | | | — | | | | — | | | | (89,568 | ) | | | — | | | | — | | | | (89,568 | ) |
Change in cumulative translation adjustment | | | — | | | | — | | | | — | | | | — | | | | — | | | | (18,359 | ) | | | (18,359 | ) |
Issuance of common stock: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Acquisition of AWS | | | 588,292 | | | | 6 | | | | 8,848 | | | | — | | | | — | | | | — | | | | 8,854 | |
Acquisition — Double Jack shares | | | 7,234 | | | | — | | | | 225 | | | | — | | | | — | | | | — | | | | 225 | |
Exercise of stock options | | | 1,238,819 | | | | 13 | | | | 12,001 | | | | — | | | | — | | | | — | | | | 12,014 | |
Expense related to employee stock options | | | — | | | | — | | | | 5,436 | | | | — | | | | — | | | | — | | | | 5,436 | |
Excess tax benefit from share-based compensation | | | — | | | | — | | | | 9,144 | | | | — | | | | — | | | | — | | | | 9,144 | |
Vested restricted stock | | | 422,461 | | | | 4 | | | | (4 | ) | | | — | | | | — | | | | — | | | | — | |
Amortization of non-vested restricted stock | | | — | | | | — | | | | 6,934 | | | | — | | | | — | | | | — | | | | 6,934 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2008 | | | 74,766,317 | | | $ | 748 | | | $ | 623,988 | | | $ | 223,675 | | | $ | (202 | ) | | $ | 12,502 | | | $ | 860,711 | |
Net loss | | | — | | | | — | | | | — | | | | (181,668 | ) | | | — | | | | — | | | | (181,668 | ) |
Change in cumulative translation adjustment | | | — | | | | — | | | | — | | | | — | | | | — | | | | 7,059 | | | | 7,059 | |
Exercise of stock options | | | 123,858 | | | | | | | | 496 | | | | — | | | | — | | | | — | | | | 496 | |
Expense related to employee stock options | | | — | | | | — | | | | 3,987 | | | | — | | | | — | | | | — | | | | 3,987 | |
Excess tax benefit from share-based compensation | | | — | | | | — | | | | 215 | | | | — | | | | — | | | | — | | | | 215 | |
Purchase of treasury shares | | | (18,743 | ) | | | — | | | | — | | | | — | | | | (132 | ) | | | — | | | | (132 | ) |
Vested restricted stock | | | 406,974 | | | | 4 | | | | (4 | ) | | | — | | | | — | | | | — | | | | — | |
Amortization of non-vested restricted stock | | | — | | | | — | | | | 8,222 | | | | — | | | | — | | | | — | | | | 8,222 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2009 | | | 75,278,406 | | | $ | 752 | | | $ | 636,904 | | | $ | 42,007 | | | $ | (334 | ) | | $ | 19,561 | | | $ | 698,890 | |
Net income | | | — | | | | — | | | | — | | | | 84,158 | | | | — | | | | — | | | | 84,158 | |
Change in cumulative translation adjustment | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,116 | | | | 3,116 | |
Exercise of stock options | | | 599,035 | | | | 6 | | | | 8,076 | | | | — | | | | — | | | | — | | | | 8,082 | |
Expense related to employee stock options | | | — | | | | — | | | | 2,321 | | | | — | | | | — | | | | — | | | | 2,321 | |
Excess tax benefit from share-based compensation | | | — | | | | — | | | | 1,465 | | | | — | | | | — | | | | — | | | | 1,465 | |
Purchase of treasury shares | | | (113,330 | ) | | | (1 | ) | | | 1 | | | | — | | | | (1,431 | ) | | | — | | | | (1,431 | ) |
Vested restricted stock | | | 679,815 | | | | 7 | | | | (7 | ) | | | — | | | | — | | | | — | | | | — | |
Amortization of non-vested restricted stock | | | — | | | | — | | | | 9,233 | | | | — | | | | — | | | | — | | | | 9,233 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2010 | | | 76,443,926 | | | $ | 764 | | | $ | 657,993 | | | $ | 126,165 | | | $ | (1,765 | ) | | $ | 22,677 | | | $ | 805,834 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
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COMPLETE PRODUCTION SERVICES, INC.
Consolidated Statements of Cash Flows
Years Ended December 31, 2010, 2009 and 2008
| | | | | | | | | | | | |
| | Year Ended December 31, | |
| | 2010 | | | 2009 | | | 2008 | |
| | (In thousands) | |
|
Cash provided by: | | | | | | | | | | | | |
Net income (loss) | | $ | 84,158 | | | $ | (181,668 | ) | | $ | (89,568 | ) |
Items not affecting cash: | | | | | | | | | | | | |
Depreciation and amortization | | | 181,823 | | | | 200,732 | | | | 183,191 | |
Deferred income taxes | | | 47,841 | | | | (7,567 | ) | | | 20,827 | |
Fixed asset and other intangibles impairment loss | | | — | | | | 38,646 | | | | — | |
Goodwill impairment loss | | | — | | | | 97,643 | | | | 272,006 | |
Write-off of deferred financing fees | | | — | | | | 528 | | | | — | |
Loss on sale of discontinued operations | | | — | | | | — | | | | 6,935 | |
Excess tax benefit from share-based compensation | | | (1,465 | ) | | | (215 | ) | | | (9,144 | ) |
Non-cash compensation expense | | | 11,554 | | | | 12,209 | | | | 12,370 | |
(Gain) loss on non-monetary asset exchange | | | (493 | ) | | | 4,868 | | | | — | |
Provision for (recoveries of) bad debt expense | | | (159 | ) | | | 10,770 | | | | 4,344 | |
Loss on retirement of fixed assets | | | 839 | | | | 10,284 | | | | 3,778 | |
Provision for write-off of note receivable | | | 1,926 | | | | — | | | | — | |
Other | | | 2,995 | | | | 2,081 | | | | 1,956 | |
Changes in operating assets and liabilities, net of effect of acquisitions: | | | | | | | | | | | | |
Accounts receivable | | | (173,328 | ) | | | 155,303 | | | | (18,873 | ) |
Inventory | | | 3,585 | | | | 4,339 | | | | (8,653 | ) |
Prepaid expenses and other current assets | | | (1,095 | ) | | | 11,292 | | | | 8,118 | |
Accounts payable | | | 25,831 | | | | (24,544 | ) | | | (10,199 | ) |
Income taxes | | | 34,093 | | | | (30,892 | ) | | | (13,873 | ) |
Restricted cash | | | (17,000 | ) | | | — | | | | — | |
Accrued liabilities and other | | | 15,053 | | | | (18,605 | ) | | | (12,806 | ) |
| | | | | | | | | | | | |
Net cash provided by operating activities | | | 216,158 | | | | 285,204 | | | | 350,409 | |
Investing activities: | | | | | | | | | | | | |
Business acquisitions, net of cash acquired | | | (33,721 | ) | | | — | | | | (180,154 | ) |
Additions to property, plant and equipment | | | (145,023 | ) | | | (37,431 | ) | | | (253,776 | ) |
Proceeds from sale of fixed assets | | | 5,482 | | | | 20,800 | | | | 7,666 | |
Proceeds from sale of disposal group | | | — | | | | — | | | | 50,150 | |
Other | | | (826 | ) | | | (1,497 | ) | | | 2,016 | |
| | | | | | | | | | | | |
Net cash used in investing activities | | | (174,088 | ) | | | (18,128 | ) | | | (374,098 | ) |
Financing activities: | | | | | | | | | | | | |
Issuances of long-term debt | | | — | | | | 3,194 | | | | 350,115 | |
Repayments of long-term debt | | | (230 | ) | | | (200,609 | ) | | | (329,282 | ) |
Repayments of notes payable | | | (1,069 | ) | | | (8,244 | ) | | | (14,001 | ) |
Proceeds from issuances of common stock | | | 8,082 | | | | 496 | | | | 12,014 | |
Deferred financing fees | | | — | | | | (2,911 | ) | | | — | |
Treasury stock purchased | | | (1,431 | ) | | | (132 | ) | | | — | |
Excess tax benefit from share-based compensation | | | 1,465 | | | | 215 | | | | 9,144 | |
| | | | | | | | | | | | |
Net cash (used in) provided by financing activities | | | 6,817 | | | | (207,991 | ) | | | 27,990 | |
Effect of exchange rate changes on cash | | | 434 | | | | (225 | ) | | | 1,165 | |
| | | | | | | | | | | | |
Change in cash and cash equivalents | | | 49,321 | | | | 58,860 | | | | 5,466 | |
Cash and cash equivalents, beginning of period | | | 77,360 | | | | 18,500 | | | | 13,034 | |
| | | | | | | | | | | | |
Cash and cash equivalents, end of period | | $ | 126,681 | | | $ | 77,360 | | | $ | 18,500 | |
| | | | | | | | | | | | |
Supplemental cash flow information: | | | | | | | | | | | | |
Cash paid for interest, net of capitalized interest | | $ | 54,301 | | | $ | 52,686 | | | $ | 58,812 | |
Cash paid (refund received) for taxes | | $ | (31,067 | ) | | $ | (25,414 | ) | | $ | 71,365 | |
Significant non-cash investing and financing activities: | | | | | | | | | | | | |
Non-cash capital expenditures | | $ | 25,952 | | | $ | 1,056 | | | $ | — | |
Note issued to finance insurance premiums | | $ | — | | | $ | 7,960 | | | $ | — | |
Common stock issued for acquisitions | | $ | — | | | $ | — | | | $ | 9,079 | |
Assets received as proceeds from sale of disposal group | | $ | — | | | $ | — | | | $ | 7,987 | |
Debt acquired in acquisition | | $ | — | | | $ | — | | | $ | 429 | |
See accompanying notes to consolidated financial statements.
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COMPLETE PRODUCTION SERVICES, INC.
(In thousands, except share and per share data)
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(a) | Nature of operations: |
(a) Nature of operations:
Complete Production Services, Inc. is a provider of specialized services and products focused on developing hydrocarbon reserves, reducing operating costs and enhancing production for oil and gas companies. Complete Production Services, Inc. focuses its operations on basins within North America and manages its operations from regional field service facilities located throughout the U.S. Rocky Mountain region, Texas, Oklahoma, Louisiana, Arkansas, Pennsylvania, western Canada, Mexico and Southeast Asia.
References to “Complete”, the “Company”, “we”, “our” and similar phrases are used throughout these financial statements and relate collectively to Complete Production Services, Inc. and its consolidated affiliates.
On April 20, 2006, we entered into an underwriting agreement in connection with our initial public offering and became subject to the reporting requirements of the Securities Exchange Act of 1934. On April 21, 2006, our common stock began trading on the New York Stock Exchange under the symbol “CPX”. On April 26, 2006, we completed our initial public offering. See Note 12, Stockholders’ Equity.“Stockholders’ equity”.
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(b) | Basis of presentation: |
(b) Basis of presentation:
Our consolidated financial statements are expressed in U.S. dollars and have been prepared by us in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). In preparing financial statements, we make informed judgments and estimates that affect the reported amounts of assets and liabilities as of the date of the financial statements and affect the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we review our estimates, including those related to impairment of long-lived assets and goodwill, contingencies and income taxes. Changes in facts and circumstances may result in revised estimates and actual results may differ from these estimates.
These audited consolidated financial statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of the financial position of Complete as of December 31, 20082010 and 20072009 and the statements of operations, the statements of comprehensive income (loss), the statements of stockholders’ equity and the statements of cash flows for each of the three years in the period ended December 31, 2008.2010. We believe that these financial statements contain all adjustments necessary so that they are not misleading. Certain reclassifications have been made to 2006 and 2007 amounts in order to present these results on a comparable basis with amounts for 2008, including a reclassification of certain payroll benefits and related burdens. For the years ended December 31, 2007 and 2006, we reclassified $13,466 and $7,723, respectively, from selling, general and administrative expense to cost of services. This reclassification was made to allocate payroll benefit costs to the cost of services in an effort to insure that these costs and their impact on gross margin were aligned consistently throughout our operating units. In addition, we changed the presentation of capitalized interest at one of our subsidiaries for the year ended December 31, 2007, which resulted in a decrease in interest income and an offsetting decrease in interest expense totaling $1,311. This change had no impact on net interest expense as previously disclosed.2009.
In May 2008, our Board of Directors authorized and committed to a plan to sell certain operations in the Barnett Shale region of north Texas, consisting primarily of our supply store business, as well as certain non-strategic drilling logistics assets and other completion and production services assets. On May 19, 2008, we sold these operations to a company owned by a former officer of one of our subsidiaries, for which we received proceeds of $50,150 and assets with a fair market value of $7,987. In August 2006, our Board of Directors authorized and committed to a plan to sell certain manufacturing and production enhancement operations of a subsidiary located in Alberta, Canada, which includes certain assets located in south Texas. Accordingly, we have revised our financial statements for all periods presentedthe year ended December 31, 2008 to classify the related results of operations of thesethis disposal groupsgroup as discontinued operations. See Note 14, Discontinued Operations.
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COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)“Discontinued operations”.
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2. | Significant accounting policies: |
| |
(a) | Basis of preparation: |
(a) Basis of preparation:
Our consolidated financial statements include the accounts of the legal entities discussed above and their wholly owned subsidiaries. All material inter-company balances and transactions have been eliminated in consolidation.
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COMPLETE PRODUCTION SERVICES, INC.
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(b) | Foreign currency translation: |
Notes to Consolidated Financial Statements — (Continued)
(b) Foreign currency translation:
Assets and liabilities of foreign subsidiaries, whose functional currencies are the local currency, are translated from their respective functional currencies to U.S. dollars at the balance sheet date exchange rates. Income and expense items are translated at the average rates of exchange prevailing during the year.period. Foreign exchange gains and losses resulting from translation of account balances are included in income or loss in the year in which they occur. The adjustment resulting from translating the financial statements of such foreign subsidiaries into U.S. dollars is reflected as a separate component of stockholders’ equity.
(c) Revenue recognition:
We recognize service revenue when it is realized and earned. We consider revenue to be realized and earned when the services have been provided to the customer, the product has been delivered, the sales price has beenis fixed or determinable and collectibility is reasonably assured. Generally, services are provided over a relatively short time.
Revenue and costs on drilling contracts are recognized as work progresses. Progress is measured and revenues recognized based upon agreed day-rate charges. For certain contracts, we may receive additional lump-sum payments for the mobilization of rigs and other drilling equipment. Consistent with the drilling contract day-rate revenues and charges, revenues and related direct costs incurred for the mobilization are deferred and recognized over the term of the related drilling contract. Costs incurred to relocate rigs and other drilling equipment to areas in which a contract has not been secured are expensed as incurred.
We recognize revenue under service contracts as services are performed. We had no significant unearned revenues associated with long-term service contracts as of December 31, 20082010 and 2007.2009.
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(d) | Cash and cash equivalents: |
(d) Cash and cash equivalents:
Short-term investments with maturities of less than three months are considered to be cash equivalents and are recorded at cost, which approximates fair market value. For purposes of the consolidated statements of cash flows, we consider all investments in highly liquid debt instruments with original maturities of three months or less to be cash equivalents. We invest excess cash in overnight investments which are accounted for as cash. At December 31, 2010, our cash equivalents.and cash equivalents exceeded what is federally insured.
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(e) | Trade accounts receivable: |
(e) Trade accounts receivable:
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses incurred in our existing accounts receivable. We determine the allowance based on historical write-off experience, account aging and our assumptions about the oil and gas industry economic cycle. We review our allowance for doubtful accounts monthly. Past due balances over 90 days and over a specified amount are reviewed individually for collectibility. All other balances are reviewed on a pooled basis. Account balances are charged off against the allowance after all appropriate means of collection have been exhausted and the potential for recovery is considered remote. Considering our customer base, we do not believe that we have any significant concentrations of credit risk other than our concentration in the oil and gas industry. We have no significant off balance-sheet credit exposure related to our customers.
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COMPLETE PRODUCTION SERVICES, INC.
(f) Inventory:
Notes to Consolidated Financial Statements — (Continued)
Inventory, which consists of finished goods, and materials and supplies held for resale, work in process and bulk fuel, is carried at the lower of cost andor market. Market is defined as net realizable value for finished goods and as replacement cost for manufacturing parts and materials. Cost is determined on afirst-in, first-out basis for refurbished parts and an average cost basis for all other inventories and includes the cost of raw materials and labor
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COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
for finished goods. We record a reserve for excess and obsolete inventory based upon specific identification of items based on periodic reviews of inventory on hand.
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(g) | Property, plant and equipment: |
(g) Property, plant and equipment:
Property, plant and equipment are carried at cost less accumulated depreciation. Major betterments are capitalized. Repairs and maintenance that do not extend the useful life of equipment are expensed.
Depreciation is provided over the estimated useful life of each asset as follows:
| | | | | | |
Asset | | Basis | | | Rate |
|
Buildings | | | straight-line | | | 39 years |
Field Equipment | | Equipment: | | | | |
Wireline, optimization and coiled tubing equipment | | | straight-line | | | 10 years |
GasProduction testing equipment | | | straight-line | | | 15 years |
Drilling rigs | | | straight-line | | | 20 years |
Well-servicing rigs | | | straight-line | | | 10 to 25 years |
Pressure pumping equipment | | | straight-line | | | 10 years |
Office furniture and computers | | | straight-line | | | 3 to 7 years |
Leasehold improvements | | | straight-line | | | Shorter of 5 years or the life of the lease |
Vehicles and other equipment | | | straight-line | | | 3 to 10 years |
(h) Intangible assets:
Intangible assets, consisting of acquired customer relationships, service marks, non-compete agreements, acquired patents and technology, are carried at cost less accumulated amortization, which is calculated on a straight-line basis over a period of 2 to 10 years depending on the asset’s estimated useful life. The weighted average amortization period for these intangible assets was approximately 4 years as of December 31, 2008.2010.
��
(i) Impairment of long-lived assets:
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(i) | Impairment of long-lived assets: |
In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144,We review long-lived assets such asincluding property, plant and equipment and purchased intangibles subject to amortization, are reviewedintangible assets with definite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. When assets are determined to be held for sale, they are separately presented in the appropriate asset and liability sections of the balance sheet and reported at the lower of the carrying amount or fair value less cost to sell, and are no longer depreciated. We recorded a fixed asset and other intangibles impairment loss of $38,646 for the year ended December 31, 2009. See Note 6, “Property, plant and equipment.”
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COMPLETE PRODUCTION SERVICES, INC.
(j) Asset retirement obligations:
Notes to Consolidated Financial Statements — (Continued)
| |
(j) | Asset retirement obligations: |
We account for asset retirement obligations in accordance with SFAS No. 143, “Accounting for Asset Retirement Obligations”, pursuant to which we would record theare recorded at fair value of an asset retirement obligation as a liability in the period in which a legal obligation is incurred associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development,and/or normal use of the assets.assets in accordance with U.S. GAAP. Furthermore, we would record a corresponding asset to depreciateis recorded and depreciated over the contractual term of the underlying asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation would beis adjusted at the end of each period to reflect the passage of time and
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COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
changes in the estimated future cash flows underlying the obligation. There were noWe recorded asset retirement obligations of $5,022 as of December 31, 2010 related to the expected cost to plug our saltwater disposal wells at the end of the service lives of the assets, as well as other retirement commitments. We did not have significant retirement obligations recorded at December 31, 20082009 and 2007.2008.
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(k) | Deferred financing costs: |
(k) Deferred financing costs:
Deferred financing costs associated with long-term debt under our revolving credit facilities and senior notes are carried at cost and are expensed over the term of the applicable long-term debt facility or the term of the notes.
(l) Goodwill:
Goodwill represents the excess of costs over the fair value of the assets and liabilities of businesses acquired. We apply the provisions of SFAS No. 142, whichU.S. GAAP requires an impairment test at least annually, or more frequently if indicators of impairment are present, whereby we estimate the fair value of the asset by discounting future cash flows at a projected cost of capital rate. If the fair value estimate is less than the carrying value of the asset, an additional test is required whereby we apply a purchase price analysisallocation consistent with that described in SFAS No. 141.authoritative guidance pertaining to business combinations. If impairment is still indicated, we would record an impairment loss in the current reporting period for the amount by which the carrying value of the intangible asset exceeds its implied fair value, as described in SFAS No. 142.value. We did not record a goodwill impairment for the year ended 2010. We recorded angoodwill impairment losslosses for each of the years ended December 31, 20082009 and 2007.2008. See (t) “Fair value measurements” and Note 15, Segment Information and Note 2, Significant Accounting Policies — Fair Value Measurement. Based upon this testing, goodwill was not deemed to be impaired during the year ended December 31, 2006.“Segment information.”
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(m) | Deferred income taxes: |
We follow the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are determined based upon temporary differences between the carrying amount and tax basis of our assets and liabilities and measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in the tax rates is recognized in income in the period in which the change occurs. We record a valuation reserveallowance when we believe that it is more likely than not that anya deferred tax asset created will not be realized.
In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
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(n) | Financial instruments: |
(n) Financial instruments:
The financial instruments recognized in the balance sheet consist of cash and cash equivalents, trade accounts receivable, bank operating loans,revolving credit facilities, accounts payable and accrued liabilities, long-term debt convertible debentures and senior notes. The fair value of allour financial instruments approximatesapproximate their carrying amounts due to their current maturities or market rates of interest, except the senior notes which were issued in December 2006 with a fixed 8% coupon rate. At December 31, 20082010 and 2007,2009, the fair value of these notes was $409,500$669,500 and $627,250,$641,875, respectively, based on the published closing price.prices for the applicable day.
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COMPLETE PRODUCTION SERVICES, INC.
(o) Per share amounts:
Notes to Consolidated Financial Statements — (Continued)
WeIn accordance with U.S. GAAP, we use the treasury stock method described in SFAS No. 128 to calculate the dilutive effect of stock options stock warrants, convertible debentures and non-vested restricted stock.stock on our earnings per share calculations. This method requires that we compare the presumed proceeds from the exercise of options and other dilutive instruments, including the expected tax benefit to us, to the exercise price of the instrument, and assume that we used the net proceeds to purchase shares of our common stock at the average price during the period. These assumed shares are then included in the
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COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
calculation of the diluted weighted average shares outstanding for the period, if such instruments are not deemed to be anti-dilutive.
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(p) | Stock-based compensation: |
(p) Stock-based compensation:
We have stock-based compensation plans for our employees, officers and directors to acquire common stock. For stock option grants of stock optionsmade prior to January 1, 2006, stock options were accounted for under Accounting Principles Board (“APB”) No. 25, “Accounting for Stock Issued to Employees,” whereby no compensation expense was recorded if the stock options were issued at fair value on the date of grant. Accordingly, we did not recognize compensation expense associated with these stock option grants which would have been required under SFAS No. 123. We adopted SFAS No. 123R ongrants. Subsequent to January 1, 2006. Pursuant to SFAS No. 123R,2006, we measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award, with limited exceptions, by using an option pricing model to determine fair value. We applied the modified-prospective transition method to account for grants of stock options between September 30, 2005, the date of our initial filing with the Securities and Exchange Commission, and December 31, 2005. For stock options granted on or after January 1, 2006, we use the prospective transition method of SFAS No. 123R to account for these grants and record compensation expense. See Note 12, Stockholders’ Equity.“Stockholders’ equity”.
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(q) | Research and development: |
(q) Research and development:
Research and development costs are charged to income as period costs when incurred.
(r) Contingencies:
Liabilities for loss contingencies, including environmental remediation costs not within the scope of SFAS No. 143 arisingFASB guidance provided with regard to asset retirement obligations and which arise from claims, assessments, litigation, fines, and penalties and other sources, are recorded when it is probable that a liability has been incurred and the amount of the assessmentand/or remediation can be reasonably estimated.
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(s) | Measurement uncertainty: |
(s) Measurement uncertainty:
Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of the consolidated financial statements in accordance with U.S. GAAP necessarily requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates including those related to bad debts, inventory obsolescence, useful lives of property, plant and equipment, useful lives, goodwill, intangible assets, income taxes, contingencies and litigation on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Under different assumptions or conditions, the actual results could differ, possibly materially, from those previously estimated. Many of the conditions impacting these assumptions are estimates outside of our control.
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(t) | Fair Value Measurement: |
(t) Fair value measurement:
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” a pronouncement which provides guidance for usingWe evaluate fair value measurements in accordance with U.S. GAAP, which requires us to measure assets and liabilities by providingbase our estimates on assumptions that a definition of fair value, stating that fair value should be based upon assumptions market participants wouldparticipant might use to price an asset or liability, and
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COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
establishingestablish a hierarchy that prioritizes the information used to determine fair value, whereby quoted market prices in active markets would beare given highest priority with lowest priority given to data provided by the reporting entity based on unobservable facts. SFAS No. 157U.S. GAAP requires disclosure of significant fair value measurements by level within the prescribed hierarchy. We adopted SFAS No. 157 on January 1, 2007, and have applied its guidance prospectively.
We generally apply fair value valuation techniques on a non-recurring basis associated with: (1) valuing assets and liabilities acquired in connection with business combinations accounted for pursuantand other transactions; (2) valuing potential impairment loss related to SFAS No. 141; (2)long-lived assets; and (3) valuing potential impairment loss related to goodwill and indefinite-lived intangible assets accounted for pursuant to SFAS No. 142; and (3) valuing potential impairment loss related to long-lived assets accounted for pursuant to SFAS No. 144.assets. We generally do not hold a significant investment in trading securities, and we
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COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
were not party to significant derivative contract arrangements during the years ended December 31, 20082010, 2009 or 2008.
Business combinations and 2007. other transactions:
We acquired several businesses during 2008.the years ended December 31, 2010 and 2008, but did not complete any such business combinations during the year ended December 31, 2009. To determine the fair value of the assets acquired, primarily fixed assets, we obtainedgenerally obtain assistance from an independent appraiser to comparedetermine the fair value of the assets toacquired based upon the value of comparable assets in the market to determine the fair value as of the date of the acquisition. Furthermore,For one business acquired in late 2010, the assets were recently constructed and cost was deemed to approximate fair value at the date of acquisition. In addition, we applied an income method approach to value identifiable intangible assets associated with theseour acquisitions, as applicable, including customer relationships, trade names and non-compete agreements. TheseFor working capital items, including receivables, payables and inventory, carrying value was deemed to approximate fair value. During the year ended December 31, 2010, we recorded an insignificant non-monetary exchange of assets which resulted in a gain on the transaction of $493. The fair value of the assets received in the exchange was $914 and was more readily determinable based upon the seller’s price for such equipment received in the exchange. For the year ended December 31, 2009, we acquired certain property, plant and equipment at a subsidiary in Canada through a non-monetary exchange of assets, as further described in Note 6, “Property, plant and equipment.” We determined that this transaction had economic substance and that the assets received should be recorded at the fair value of the assets surrendered in the exchange. To determine the fair value of these assets, management obtained assistance from a third-party appraiser and used the orderly-liquidation value of the assets surrendered as an estimate of fair value. This transaction resulted in a loss of $4,868 for the year ended December 31, 2009.
Long-lived assets:
We reviewed our tangible fixed assets and definite-lived intangible assets with definite lives at December 31, 2010 and noted no significant indicators of impairment. Therefore, no impairment losses related to long-lived assets were evaluated pursuant to SFAS No. 144, “Accountingrecorded for the Impairment or Disposalyear ended December 31, 2010. In September 2009, we evaluated the fair value of Long-Lived Assets,”assets in our contract drilling business with the assistance of a third-party appraiser and determined that the carrying value of certain of these drilling rigs exceeded the fair value estimates. We projected the undiscounted cash flows associated with these rigs, including an estimate of salvage value, and compared these expected future cash flows to the carrying amount of the rigs. If the undiscounted cash flows exceeded the carrying amount, no further testing was performed and the rig was deemed to not be impairedimpaired. If the undiscounted cash flows did not exceed the carrying value, we estimated the fair market value of the equipment based on management estimates and general market data obtained by the third-party appraiser using the sales comparison market approach, which included the analysis of recent sales and offering prices of similar equipment to arrive at an indication of the most probable selling price for the equipment. The result of this analysis was a calculated fixed asset impairment of $36,158, which was recorded as an impairment loss in the accompanying statement of operations for the year ended December 31, 2009. This impairment charge was allocated entirely to the Drilling Services business segment. This impairment was deemed necessary due to an overall decline in oil and gas exploration and production activity in late 2008 which extended throughout 2009, as well as management’s expectation of future operating results for this business segment for the foreseeable future. We continue to evaluate the remaining useful lives of our drilling rigs, and have considered our depreciation methodology and these estimates of useful lives in our projected future cash flows associated with these assets.
In addition, we evaluated certain long-term intangible assets with definite lives in accordance with U.S. GAAP as of December 31, 2008. 2009. Based on our review, we believe that impairment was indicated at one of our businesses due tolower-than-expected results, revised expected future cash flows for the business and changes in local management. Therefore, with the assistance of a third-party appraiser, we determined that certain non-compete agreements and customer relationship intangibles were impaired at December 31, 2009. We recorded an
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COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
impairment charge related to these intangible assets totaling $2,488 in the accompanying statement of operations for the year ended December 31, 2009.
Goodwill:
We evaluated our goodwill and indefinite-lived intangible assets in accordance with the recoverability tests prescribed by SFAS No. 142U.S. GAAP as of our annual testing date in 2010. With the assistance of a third-party valuation specialist, we prepared several valuation models including a discounted cash flow analysis, a market multiples approach and a review of precedent transactions. We weighted these valuation methodologies, with greatest weight given to our discounted cash flow projections, which included assumptions related to organic growth, capital investment, working capital needs, residual value and other assumptions. Based on this analysis, we determined that our goodwill and indefinite-lived intangible assets were not impaired as of the annual testing date for the year ended December 31, 2010. For the year ended December 31, 2009, we determined that goodwill associated with onethree of our reporting units was deemedimpaired as of the testing date. For the year ended December 31, 2008, we performed this test at the annual testing date and impairment of goodwill was indicated for most of our reporting units. Then, due to be impaired. However, due a generalsignificant decline in the overall U.S. debt and equity markets during the fourth quarter of 2008, we determined thatwhich was deemed a triggering event, had occurred as of December 31, 2008, as defined in SFAS No. 142. As such, we performed the impairment testing as oftest at December 31, 2008 and determined that severalimpairment was indicated. We update our assumptions used in the preparation of our reportable units were deemed to be impaireddiscounted cash flow analysis each year based largely upon unobservable inputs from management, which represent our best estimates of actual results over a long-term period, appropriately discounted as of thatthe test date. Although the assumptions used vary fromyear-to-year based upon our perception of market conditions, the valuation methodology used to value goodwill was consistent for the years ended December 31, 2010, 2009 and 2008.
For the years ended December 31, 2009 and 2008, we performed step two of the goodwill impairment test as prescribed by U.S. GAAP. In performing the two-step goodwill impairment test, prescribed by SFAS No. 142, we compared the fair value of each of our reportable units to its carrying value. We estimated the fair value of our reportable units by considering both the income approach and market approach. Under the market approach, the fair value of the reportable unit is based on market multiple and recent transaction values of peer companies. Under the income approach, the fair value of the reportable unit is based on the present value of estimated future cash flows using the discounted cash flow method. The discounted cash flow method is dependent on a number of unobservable inputs including projections of the amounts and timing of future revenues and cash flows, assumed discount rates and other assumptions. Based upon this initial testing, we determined that goodwill associated with several of our reporting units within each of our completion and production services business segments waswere impaired, which triggered step two. For step two, we calculated the implied fair value of goodwill and compared it to the carrying amount of that goodwill, by examining the fair value of the tangible and intangible property of these reportable units. The inputs for this model were largely unobservable estimates from management based on historical performance. DueWe retained the assistance of a third-party appraiser to modifications andcollect market data for a sample of assets from each of these reporting units to assess the highly customized naturemarket value of the property, plant and equipment of thisthese reportable unit, collecting specific market price dataunits, and the results were extrapolated to assess the fair value of these assets was not feasible, although general market data was obtained.asset population. Thus, the primary source for our assessment of value was based on management’s estimates and projections. The result of this analysis was a calculated goodwill impairment of $272,284, of$97,643 which $272,006 wasis recorded as an impairment loss in the accompanying statement of operations at December 31, 2008.2009. This impairment charge of $97,643 was allocated $243,481 to the completion and production services business segment $27,410 to the drilling services business segment and $1,393 to the products business segment. This impairment wasin 2009. These impairments were deemed necessary due to an overall decline in oil and gas exploration and production activity in late 2008 and relatively low activity expected duringthroughout 2009. For the short-term. We intend to continue to hold our investment in these reportable units for the foreseeable future.
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COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
The following tabular presentation is presented in accordance with SFAS No. 157 for quantitative presentation of our significant fair value measurements atyear ended December 31, 2008:
| | | | | | | | | | | | | | | | | | | | |
| | | | Quoted Prices in
| | | | | | |
| | Carrying Value
| | Active Markets for
| | Significant Other
| | Significant
| | |
| | Prior to Impairment
| | Identical Assets
| | Observable Inputs
| | Unobservable Inputs
| | Total Gains
|
Description | | Charge | | (Level 1) | | (Level 2) | | (Level 3) | | (Losses) |
|
Goodwill | | | 613,876 | | | | — | | | | — | | | $ | 341,592 | | | $ | (272,284 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | 613,876 | | | | — | | | | — | | | $ | 341,592 | | | $ | (272,284 | ) |
| | | | | | | | | | | | | | | | | | | | |
In accordance with SFAS No. 142,2008, goodwill with a carrying amount of $613,876 was written down to its implied fair value of $341,592, resulting in an impairment charge of $272,284, of which $272,006 was recorded as an impairment loss and $277 was recorded as a charge to cumulative translation adjustment in the accompanying balance sheet as of December 31, 2008. ForWe continue to hold an investment in each of these reportable units for which impairment losses were recorded in 2009 and 2008.
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COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
The following tabular presentation is presented for quantitative presentation of our significant fair value measurements for the yearyears ended December 31, 2007,2010, 2009 and 2008:
| | | | | | | | | | | | | | | | | | | | |
| | | | | Quoted Prices in
| | | Significant Other
| | | Significant
| | | | |
| | | | | Active Markets for
| | | Observable
| | | Unobservable
| | | | |
| | Balance at
| | | Identical Assets
| | | Inputs
| | | Inputs
| | | Total Gains
| |
Description | | Year End | | | (Level 1) | | | (Level 2) | | | (Level 3) | | | (Losses) | |
|
As of December 31, 2010: | | | | | | | | | | | | | | | | | | | | |
Non-monetary exchange | | $ | 914 | | | | — | | | $ | 914 | | | $ | — | | | $ | 493 | |
Goodwill | | | 250,533 | | | | — | | | | — | | | | 250,533 | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
| | $ | 251,447 | | | | — | | | $ | 914 | | | $ | 250,533 | | | $ | 493 | |
| | | | | | | | | | | | | | | | | | | | |
As of December 31, 2009: | | | | | | | | | | | | | | | | | | | | |
Non-monetary exchange | | $ | 4,487 | | | | — | | | $ | 4,487 | | | $ | — | | | $ | (4,868 | ) |
Property, plant and equipment | | | 100,820 | | | | — | | | | — | | | | 100,820 | | | | (36,158 | ) |
Definite-lived intangible assets | | | 187 | | | | — | | | | — | | | | 187 | | | | (2,488 | ) |
Goodwill | | | 243,823 | | | | — | | | | — | | | | 243,823 | | | | (97,643 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | $ | 349,317 | | | | — | | | $ | 4,487 | | | $ | 344,830 | | | $ | (141,157 | ) |
| | | | | | | | | | | | | | | | | | �� | | |
As of December 31, 2008: | | | | | | | | | | | | | | | | | | | | |
Goodwill | | $ | 613,876 | | | | — | | | $ | — | | | $ | 341,592 | | | $ | (272,284 | ) |
| | | | | | | | | | | | | | | | | | | | |
(u) Investment in Unconsolidated Subsidiaries
We constructed a salt water disposal well for a customer during 2009 at a cost of $1,497. In exchange for this service, we recorded an impairment charge of $13,360, of which $13,094 was recordedreceived a non-controlling interest in the company that owns and operates the well. In accordance with U.S. GAAP, we account for our interest in this company as an impairment loss and $266 wasequity investment in an unconsolidated subsidiary, whereby we have recorded our initial investment as a charge to cumulative translation adjustmentlong-term asset in the accompanying balance sheet as ofat December 31, 2007.2009, and record our portion of earnings or losses associated with this well as equity in earnings of unconsolidated subsidiaries, a component of income or expense in the current period. We have evaluated this ownership interest and determined that it does not constitute a variable interest entity, as that term is defined in current U.S. GAAP guidance. This well did not begin operating until late 2009, and we did not record any significant earnings or loss associated with these operations during the years ended December 31, 2009 or 2010.
| |
3. | Business combinations: |
We did not acquire any businesses during the year ended December 31, 2009. However, we did execute several business acquisitions for the years ended December 31, 2010 and 2008, as described below, and expect to complete more transactions in the future, depending on the circumstances and the availability of financing.
(a) Acquisitions During the Year Ended December 31, 2010:
During the year ended December 31, 2010, we acquired assets or all of the equity interests in various service companies, for $33,721 in cash, resulting in tax deductible goodwill of $6,710.
(i) On May 11, 2010, we acquired certain assets of a provider of gas lift services based in Oklahoma City, Oklahoma. The total purchase price for the assets was $1,440 in cash. We recorded goodwill totaling $1,017 in conjunction with this acquisition which has been allocated entirely to the completion and production services business segment. We believe this acquisition supplements our plunger lift service offering for the completion and production services business segment.
76
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
(ii) On September 3, 2010, we completed the purchase of a well service and fluid handling service provider based in Carrizo Springs, Texas. The total purchase price for the assets was $20,767 and included goodwill of $4,046, all of which was allocated to the completion and production services business segment. We believe this acquisition enhances our position in the Eagle Ford Shale in south Texas.
(iii) On December 1, 2010, we completed the purchase of all of the outstanding common stock of a disposal well operator located in Colorado for $11,514 in cash, subject to an additional $500 holdback. We recorded goodwill totaling $1,457 in conjunction with this acquisition which has been allocated to the completion and production services business segment. We believe this acquisition will enhance our position in the Denver-Julesburg Basin in Colorado.
We accounted for these acquisitions using the purchase method of accounting, whereby the purchase price was allocated to the fair value of net assets acquired, including definite-lived intangible assets and property, plant and equipment, with the excess recorded as goodwill. Results for each of these acquisitions were included in our accounts and results of operations since the date of acquisition. The following table summarizes the preliminary purchase price allocations for these acquisitions as of December 31, 2010:
| | | | |
| | Totals | |
|
Net assets acquired: | | | | |
Accounts receivable | | $ | 209 | |
Inventory and other current assets | | | 428 | |
Property, plant and equipment | | | 23,960 | |
Payables and accrued liabilities | | | (106 | ) |
Intangible assets | | | 2,520 | |
Goodwill | | | 6,710 | |
| | | | |
Net assets acquired | | $ | 33,721 | |
| | | | |
Consideration: | | | | |
Cash, net of cash and cash equivalents acquired | | $ | 33,721 | |
| | | | |
We determined the fair value of assets and liabilities acquired through these business acquisitions as of the acquisition date by retaining third-party consultants to perform valuation techniques related to identifiable intangible assets and to evaluate property, plant and equipment acquired based upon, at minimum, the replacement cost of the assets, except for the two saltwater disposal wells in Colorado which were newly constructed just prior to acquisition. Working capital items were deemed to have a fair market value equal to book value. Of the total intangible assets acquired, $1,670 related to customer relationship intangibles determined by applying an income approach over the expected term, allowing for customer attrition at an assumed rate.
| |
(a)(b) | Acquisitions During the Year Ended December 31, 2008: |
During the year ended December 31, 2008, we acquired substantially all the assets or all of the equity interests in four oilfield service companies, for $180,154 in cash, resulting in goodwill of $71,209. Several of these acquisitions arewere subject to final working capital adjustments.
(i) On February 29, 2008, we acquired substantially all of the assets of KR Fishing & Rental, Inc. (“KR Fishing & Rental”) for $9,464 in cash, resulting in goodwill of $6,411. KR Fishing & Rental, Inc. is a provider of fishing, rental and foam unit services in the Piceance Basin and the Raton Basin, and is located in Rangely, Colorado. We believe this acquisition complements our completion and production services business in the Rocky Mountain region.
77
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
(ii) On April 15, 2008, we acquired all the outstanding common stock of Frac Source Services, Inc. (“Frac Source”), a provider of pressure pumping services to customers in the Barnett Shale of north Texas, for $62,359 million in cash, net of cash acquired, which includes a working capital adjustment of $1,600 and recorded goodwill of $15,431. Upon closing this transaction, we entered into a contract with one of our major customers to provide pressure pumping services in the Barnett Shale utilizing three frac fleets under a contract with a term that extends up to three years from the date each fleet is placed into service. We spent an additional $20,000 in 2008 on capital equipment related to these contracted frac fleets. Thus, our total investment in this operation was approximately $82,400. We believe thisThis acquisition expandsexpanded our pressure pumping business in north Texas and that the related contract provides a stable revenue stream from which to expand our pressure pumping business outside of this region.
(iii) On October 3, 2008, we acquired all of the membership interests of TSWS Well Services, LLC (“TSWS”), a limited liability corporation which held substantially all of the well servicing and heavy haul assets of TSWS, Inc., a company based in Magnolia, Arkansas, which provides well servicing and heavy haul services to customers in northern Louisiana, east Texas and southern Arkansas. As consideration, we paid $57,163 in cash and prepaid an additional $1,000 related to an employee retention bonus pool. We also recorded goodwill totaling $21,911. The purchase price allocation associated with thisThis acquisition has not yet been completed. We believe this acquisition extendsextended our geographic reach intoin the Haynesville Shale area.
(iv) On October 4, 2008, we acquired substantially all of the assets of Appalachian Well Services, Inc. and its wholly-owned subsidiary (“AWS”), each of which is based in Shelocta, Pennsylvania. This business provides pressure pumping,e-line and coiled tubing services in the Appalachian region, and includes a service
74
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
area which extends through portions of Pennsylvania, West Virginia, Ohio and New York. As consideration for the purchase, we paid $50,168 in cash and issued 588,292 unregistered shares of our common stock, valued at $15.04 per share. We expect to investinvested an additional $6,500 to complete a frac fleet at this location and have an option to purchase real property for approximately $600. In addition, we have entered into an agreement under which we maymight be required to pay up to an additional $5,000 in cash consideration during the earn-out period. The earn-out period which extends throughexpired in 2010 based upon the results of operations of various service lines acquired. The purchase price allocation associated with this acquisition has not yet been finalized.no additional consideration required. We recorded goodwill of approximately $27,456 associated with this acquisition.acquisition, however, this goodwill was deemed impaired in 2009 and expensed as of December 31, 2009. We believe this acquisition createscreated a platform for future growth for our pressure pumping and other completion and production service lines in the Marcellus Shale.
We accounted for these acquisitions using the purchase method of accounting, whereby the purchase price was allocated to the fair value of net assets acquired, including intangiblesdefinite-lived intangible assets and property, plant and equipment at depreciated replacement costs, with the excess recorded as goodwill. Results for each of these acquisitions were included in our accounts and results of operations since the date of acquisition, and goodwill associated with these acquisitions was allocated entirely to the completion and production services business
78
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
segment. The following table summarizes our preliminary purchase price allocations for these acquisitions as of December 31, 2008, several of which are yet to be finalized:2008:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | KR Fishing
| | Frac
| | | | | | | | KR Fishing
| | Frac
| | | | | | | |
| | & Rental | | Source | | TSWS | | AWS | | Totals | | & Rental | | Source | | TSWS | | AWS | | Totals | |
|
Net assets acquired: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Property, plant and equipment | | $ | 2,673 | | | $ | 41,172 | | | $ | 28,852 | | | $ | 24,140 | | | $ | 96,837 | | | $ | 2,673 | | | $ | 41,172 | | | $ | 28,852 | | | $ | 24,140 | | | $ | 96,837 | |
Non-cash working capital | | | 50 | | | | (2,085 | ) | | | 1,000 | | | | 3,226 | | | | 2,191 | | | | 50 | | | | (2,085 | ) | | | 1,000 | | | | 3,226 | | | | 2,191 | |
Intangible assets | | | 330 | | | | 6,810 | | | | 6,400 | | | | 4,200 | | | | 17,740 | | | | 330 | | | | 6,810 | | | | 6,400 | | | | 4,200 | | | | 17,740 | |
Deferred tax asset | | | — | | | | 1,031 | | | | — | | | | — | | | | 1,031 | | | | — | | | | 1,031 | | | | — | | | | — | | | | 1,031 | |
Goodwill | | | 6,411 | | | | 15,431 | | | | 21,911 | | | | 27,456 | | | | 71,209 | | | | 6,411 | | | | 15,431 | | | | 21,911 | | | | 27,456 | | | | 71,209 | |
| | | | | | | | | | | | | | | | | | | | | | |
Net assets acquired | | $ | 9,464 | | | $ | 62,359 | | | $ | 58,163 | | | $ | 59,022 | | | $ | 189,008 | | | $ | 9,464 | | | $ | 62,359 | | | $ | 58,163 | | | $ | 59,022 | | | $ | 189,008 | |
| | | | | | | | | | | | | | | | | | | | | | |
Consideration: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash, net of cash and cash equivalents acquired | | $ | 9,464 | | | $ | 62,359 | | | $ | 58,163 | | | $ | 50,168 | | | $ | 180,154 | | | $ | 9,464 | | | $ | 62,359 | | | $ | 58,163 | | | $ | 50,168 | | | $ | 180,154 | |
Debt assumed in acquisition | | | — | | | | — | | | | — | | | | 8,854 | | | | 8,854 | | |
Stock issued for acquisition | | | | — | | | | — | | | | — | | | | 8,854 | | | | 8,854 | |
| | | | | | | | | | | | | | | | | | | | | | |
Total consideration | | $ | 9,464 | | | $ | 62,359 | | | $ | 58,163 | | | $ | 59,022 | | | $ | 189,008 | | | $ | 9,464 | | | $ | 62,359 | | | $ | 58,163 | | | $ | 59,022 | | | $ | 189,008 | |
| | | | | | | | | | | | | | | | | | | | | | |
Of the $71,209 of goodwill above, $55,718 is tax deductible.
The purchase price of each of the businesses that we acquire is negotiated as an arm’s length transaction with the seller. We generally evaluate acquisition targets based on an earnings multiple approach, whereby we consider precedent transactions which we have undertaken and those of others in our industry.
In accordance with SFAS No. 157, weWe determined the fair value of assets and liabilities acquired through these business acquisitions as of the acquisition date by retaining third-party consultants to perform valuation techniques related to identifiable intangible assets and to evaluate property, plant and equipment acquired based upon, at minimum, the replacement cost of the assets. Working capital items were deemed to be acquired athave a fair market value equal to book value. Of the total intangible assets acquired, $14,010 related to customer relationship intangibles determined by applying an income approach over the expected term, allowing for customer attributionattrition at an assumed rate. We considered these factors when determining the goodwill impairment recorded at December 31, 2008 pursuant to SFAS No. 142.2008. Of the businesses acquired in 2008, an insignificant portion of the goodwill associated with the acquisitions of TSWS and AWS was deemed impaired at December 31, 2008. As of December 31, 2009, the remaining goodwill associated with AWS, and other intangibles totaling $2,488, were deemed impaired and expensed.
75
COMPLETE PRODUCTION SERVICES, INC.
(c) Pro Forma Results
Notes to Consolidated Financial Statements — (Continued)
| |
(b) | Acquisitions During the Year Ended December 31, 2007: |
DuringOur acquisitions during the year ended December 31, 2007, we acquired substantially all the assets or all of the equity interests in six oilfield service businesses, and the remaining 50% interest in our Canadian joint venture, for $49,691 in cash, resulting in goodwill of $19,391. Several of these acquisitions2010 were subject to final working capital adjustments. These acquisitions in 2007 were as follows:
(v) On January 4, 2007, we acquired substantially all of the assets of a company located in LaSalle, Colorado, which provides frac tank rental and fresh water hauling services to customers in the Wattenburg Field of the DJ Basin, which supplements our fluid handling and rental business in the Rocky Mountain region.
(vi) On February 28, 2007, we acquired substantially all of the assets of a company located in Greeley, Colorado, which provides fluid handling and fresh frac water heating services to customers in the Wattenburg Field of the DJ Basin, which also supplements our fluid handling business in the Rocky Mountain region.
(vii) On April 1, 2007, we acquired substantially all of the assets of a company located in Borger, Texas, which provides fluid handling and disposal services to customers in the Texas panhandle. We believe this acquisition complements certain operations that we acquired in 2006 within the Texas panhandle area and broadens our ability to provide fluid handling and disposal services throughout the Mid-continent region.
(viii) On June 8, 2007, we acquired all the membership interests in a business located in Rangely, Colorado, which provides rig workover and roustabout services to customers in the Rangely Weber Sand Unit and northern Piceance Basin area. This acquisition expands our geographic reach in the northern Piceance Basin, expands our workover rig capabilities and provides a beneficial customer relationship.
(ix) On October 18, 2007, we acquired all of the outstanding common stock of a company located in Kilgore, Texas, which provides remedial cement and acid services used in pressure pumping operations to customers throughout the east Texas region. This acquisition supplements our pressure pumping business and expands our presence in east Texas.
(x) On November 30, 2007, we acquired substantially all of the assets of a company located in Greeley, Colorado, which is ane-line service provider to customers in the Wattenberg Field of the DJ Basin. This acquisition supplements our completion and production services business in the Rocky Mountain region.
(xi) On December 31, 2007, we acquired the remaining 50% interest in our joint venture in Canada for approximately $1,600. This transaction resulted in a decrease in goodwill of $595, as the amount paid was less than the minority interest liability related to this operation just prior to the acquisition. This company provides optimization services in the Canadian market.
76
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
We accounted for these acquisitions using the purchase method of accounting, whereby the purchase price was allocated to the fair value of net assets acquired, including intangibles and property, plant and equipment at depreciated replacement costs, with the excess recorded as goodwill. Results for each of these acquisitions were included in our accounts and results of operations since the date of acquisition, and goodwill associated with these acquisitions was allocated entirely to the completion and production services business segment. We do not deem these acquisitionsdeemed to be significant to our consolidated operationsoverall results for the year ended December 31, 2007. The following table summarizes our purchase price allocations for these acquisitions as of December 31, 2007:
| | | | |
Net assets acquired: | | | | |
Property, plant and equipment | | $ | 25,081 | |
Non-cash working capital | | | 1,397 | |
Minority interest liability | | | 2,188 | |
Intangible assets | | | 2,144 | |
Long-term deferred tax liabilities | | | (510 | ) |
Goodwill | | | 19,391 | |
| | | | |
Net assets acquired | | $ | 49,691 | |
| | | | |
Consideration: | | | | |
Cash, net of cash and cash equivalents acquired | | $ | 49,691 | |
| | | | |
The purchase price of eachyear. Therefore, no pro forma disclosure of the businesses that we acquire is negotiated as an arm’s length transaction with the seller. We generally evaluate acquisition targets based on an earnings multiple approach, whereby we consider precedent transactions which we have undertaken and those of others in our industry. To determine the fair value of assets acquired, we generally retain third-party consultants to perform valuation techniques related to identifiable intangible assets and to evaluate property, plant and equipment acquired based upon, at minimum, the replacement cost of the assets. Working capital items are deemed to be acquired at fair market value.
| |
(c) | Acquisitions During the Year Ended December 31, 2006: |
| |
(i) | Outpost Office Inc. (“Outpost”): |
On January 3, 2006, we acquired all of the operating assets of Outpost Office Inc., an oilfield equipment rental company based in Grand Junction, Colorado, for $6,542 in cash, and recorded goodwill of $2,348, which has been allocated entirely to the completion and production services business segment. We believe this acquisition supplemented our completion and production services business in the Rocky Mountain Region.
| |
(ii) | The Rosel Company (“Rosel”): |
On January 25, 2006, we acquired all the equity interests of The Rosel Company, a cased-hole and open-hole electric-line business based in Liberal, Kansas, for $11,953, in cash, net of cash acquired and debt assumed, and recorded goodwill of $7,997 resulting from this acquisition, which has been allocated entirely to the completion and production services business segment. We believe this acquisition expanded our presence in the Mid-continent region and enhanced our completion and production services business.
| |
(iii) | The Arkoma Group of Companies (“Arkoma”): |
On June 30, 2006, we acquired certain operating assets of J&M Rental Tool, Inc. dba Arkoma Machine & Fishing Tools, Arkoma Machine Shop, Inc. and N&M Supply, LLC, collectively referred to as The Arkoma Group of Companies, a provider of rental tools, machining and fishing services in the Fayetteville Shale and Arkoma Basin, located in Ft. Smith, Arkansas. We paid $18,002 in cash to acquire Arkoma, subject to a final working capital adjustment, and recorded goodwill totaling $8,993, which has been allocated entirely to the completion and
77
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
production services business segment. We believe this acquisition provides a platform to further expand our presence in the Fayetteville Shale and Arkoma Basin and supplement our completion and production services business in that region.
| |
(iv) | CHB Holdings Partnership, Ltd. (“CHB”): |
On July 17, 2006, we acquired all the assets of CHB Holdings Partnership, Ltd., a fluid handling and disposal services business located in Henderson, Texas, for $12,738 in cash, and recorded goodwill of $8,087, which was allocated entirely to the completion and production services business segment. We believe this acquisition is complementary to our fluid handling business in the Bossier Trend region of east Texas.
| |
(v) | Turner Group of Companies (“Turner”): |
On July 28, 2006, we acquired all of the outstanding equity interests of the Turner Group of Companies (Turner Energy Services, LLC, Turner Energy SWD, LLC, T. & J. Energy, LLC, T. & J. SWD, LLC and Lloyd Jones Well Service, LLC) for $54,328 in cash, after a final working capital adjustment, and recorded goodwill totaling $16,046. The Turner Group of Companies (“Turner”) is based in the Texas panhandle in Canadian, Texas, and owns a fleet of well service rigs, and provides other wellsite services such as fishing, equipment rental, fluid handling and salt water disposal services. We included the accounts of Turner in our completion and production services business segment and believe that Turner supplements our completion and production business in the Mid-continent region.
| |
(vi) | Quinn Well Control Ltd. (“Quinn”): |
On July 31, 2006, we acquired certain assets of Quinn Well Control Ltd., a slick line business located in Grande Prairie, Alberta, Canada, for $8,876 in cash and recorded goodwill of $4,247. We included the accounts of Quinn in our completion and production services business segment. We believe this acquisition enhances our Canadian slick-line business and expands our geographic reach in northern Alberta and northeast British Columbia.
| |
(vii) | Pinnacle Drilling Co., L.L.C. (“Pinnacle”): |
On August 1, 2006, we acquired substantially all of the assets of Pinnacle Drilling Co., L.L.C., a drilling company located in Tolar, Texas, for $31,703 in cash and recorded goodwill totaling $1,049. In addition, we paid $1,073 in cash related to this equipment during the fourth quarter of 2006. In 2007, we received $579 from the seller related to certain pre-acquisition contingencies, resulting in a decrease in goodwill. Pinnacle operates three drilling rigs, two in the Barnett Shale region in north Texas and one in east Texas. We included the accounts of Pinnacle in our drilling services business segment. We believe this acquisition increased our presence in the Barnett Shale of north Texas and the Bossier Trend of east Texas and expands our capacity to drill deep and horizontal wells, which are sought by our customers in this region.
| |
(viii) | Oilfield Airfoam and Rentals I, LP (“Airfoam”): |
On August 15, 2006, we acquired substantially all of the assets of Oilfield Airfoam and Rentals I, LP, a fishing and rental services business located in Pocola, Oklahoma, with operations in eastern Oklahoma and western Arkansas, for $6,939 in cash and recorded goodwill totaling $3,115. We paid an additional $1,180 in cash for capital equipment in process at the time of the acquisition but not received until October 2006. We included Airfoam in our completion and production services business segment. We believe this acquisition complements our completion services business in the Fayetteville Shale.
| |
(ix) | Scientific Microsystems Inc. (“SMI”): |
On August 31, 2006, we acquired all the outstanding common stock of Scientific Microsystems, Inc., for $2,900 in cash at closing and an additional $200 final working capital adjustment, and recorded goodwill totaling
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COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
$1,774. SMI is located in Waller, Texas, and is a manufacturer of a conventional line of plunger lift systems and related controllers, and a provider of related engineering services. In 2007, we paid $800 pursuant to an earn-out agreement with the former owners of SMI, based upon certain defined operating targets for the period from the date of acquisition through September 30, 2007. We included SMI in our completion and production services business segment. We believe the artificial lift systems manufactured by SMI complements our proprietary Pacemaker Plungertm product.
| |
(x) | Drilling Fluid Services, LLC (“DFS”) and KCL Company, LLC (“KCL”): |
On September 15, 2006, we acquired substantially all of the assets of Drilling Fluid Services, LLC and KCL Company, LLC, each of which is located in Greeley, Colorado, and provide chemicals used for completion services to customers in the Wattenberg Field of the Denver-Julesburg Basin in Colorado. We paid a total of $4,250 in cash, or $2,125 each, to acquire DFS and KCL, and recorded goodwill of $1,872 and $1,847, respectively. We have included the operations of DFS and KCL in our completion and production services business segment. We believe these companies complement our completion and production services business in the Rocky Mountain region.
| |
(xi) | Anderson Water Well Service, Ltd. (“Anderson”): |
On September 29, 2006, we acquired substantially all of the assets of Anderson Water Well Service, Ltd., located in Bridgeport, Texas, for $10,760 in cash and we recorded goodwill totaling $7,914. In addition, we issued 38,268 shares of our non-vested restricted stock to the former owners of Anderson, valued at the closing price of our common stock on September 29, 2006, or an aggregate of $755, which will be expensed ratably through September 29, 2008. Anderson drills wells to source water used for hydraulic fractures in the Barnett Shale. We have included the operations of Anderson in our completion and production services business segment. We believe the acquisition of Anderson strengthens our current water well-drilling business in the Barnett Shale area.
| |
(xii) | Jim Lee Trucking, Inc. (“Jim Lee”): |
On October 13, 2006, we acquired substantially all the assets of Jim Lee Trucking, Inc. (“Jim Lee”), a company located in Rock Springs, Wyoming, for $5,000 in cash and we recorded goodwill totaling $3,842. Jim Lee is engaged in the business of hauling barite and other additives for customers in the Greater Green River Basin. We included the accounts of Jim Lee in our completion and production services business segment from the date of acquisition. We believe this acquisition is complementary to our completion and production services business in the Rocky Mountain region.
| |
(xiii) | Brothers Group of Companies (“Brothers”): |
On October 13, 2006, we acquired substantially all the assets of Brothers Industries, Ltd., Brothers Well Service, Ltd., Brothers Trucking Service, Ltd., Brothers Supply Company, Ltd., and BWS Vacuum Service, Ltd., collectively the Brothers Industries Group of Companies (“Brothers”) for $6,936 in cash and we recorded goodwill totaling $2,859. Brothers is located in El Campo, Texas, and provides various completion and production services, and has supply store operations. We included the accounts of Brothers in our completion and production services business segment from the date of acquisition. We believe this acquisition supplements our completion and production services business in the Texas region and expands our availability of products throughout the geographic regions we serve.
| |
(xiv) | Femco Group of Companies (“Femco”): |
On October 19, 2006, we acquired substantially all the assets of Femco Services, Inc., R&S Propane, Inc. and Webb Dozer Service, Inc. (collectively, “Femco”), a group of companies located in Lindsay, Oklahoma for $35,991 in cash, and we recorded goodwill totaling $11,189. Femco provides fluid handling, frac tank rental, propane distribution and fluid disposal services throughout southern central Oklahoma. We included the accounts of Femco
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COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
in our completion and production services business segment from the date of acquisition. We believe this acquisition expands our presence in the Fayetteville Shale and enhances our completion and production services business in the Mid-continent region.
| |
(xv) | Pumpco Services, Inc. (“Pumpco”): |
On November 8, 2006, we acquired Pumpco Services, Inc., a provider of pressure pumping services in the Barnett Shale play of north Texas, which owns and operates a fleet of pressure pumping units. Consideration for the acquisition included $144,635 in cash, net of cash received, and the issuance of 1,010,566 shares of our common stock, which was valued at the closing price listed on the New York Stock Exchange on November 8, 2006. The number of shares issued was negotiated with the seller, a related party. A fairness opinion was obtained from a third-party as to the value assigned to the common stock of Pumpco, which was used by us to negotiate the purchase price. In addition, Pumpco had debt outstanding of approximately $30,250 at the time of the acquisition. We recorded goodwill totaling $148,551 associated with this acquisition. We included the accounts of Pumpco in our completion and production services business segment from the date of acquisition. This acquisition allowed us to enter the pressure pumping business in the active Barnett Shale region of north Texas. In 2007, we reclassified $2,017 of the goodwill associated with the Pumpco acquisition to identifiable intangible assets and began amortizing this cost over the estimated lives of the related intangible assets. In addition, we reduced the goodwill balance by an additional $3,136 related to deferred tax liabilities which were deemed no longer necessary based on our 2006 tax return filings in 2007.
Results for eachimpact of these acquisitions havehas been included in our accounts and results of operations since the date of acquisition. The following tables summarize the purchase price allocations as of December 31, 2006 by geographic area, as indicated.provided for 2010.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Texas — US: | | CHB | | | Pinnacle | | | Anderson | | | SMI | | | Brothers | | | Pumpco | | | Totals | |
|
Net assets acquired: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Property, plant and equipment | | $ | 4,319 | | | $ | 31,452 | | | $ | 2,842 | | | $ | 169 | | | $ | 4,201 | | | $ | 45,976 | | | $ | 88,959 | |
Non-cash working capital | | | — | | | | — | | | | — | | | | 564 | | | | (424 | ) | | | 5,441 | | | | 5,581 | |
Intangible assets | | | 332 | | | | 275 | | | | 4 | | | | 393 | | | | 300 | | | | 1,000 | | | | 2,304 | |
Deferred tax liabilities | | | — | | | | — | | | | — | | | | — | | | | — | | | | (4,659 | ) | | | (4,659 | ) |
Goodwill | | | 8,087 | | | | 1,049 | | | | 7,914 | | | | 1,774 | | | | 2,859 | | | | 148,551 | | | | 170,234 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net assets acquired | | $ | 12,738 | | | $ | 32,776 | | | $ | 10,760 | | | $ | 2,900 | | | $ | 6,936 | | | $ | 196,309 | | | $ | 262,419 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Consideration: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash, net of cash and cash equivalents acquired | | $ | 12,738 | | | $ | 32,776 | | | $ | 10,760 | | | $ | 2,900 | | | $ | 6,936 | | | $ | 144,635 | | | $ | 210,745 | |
Debt assumed in acquisition | | | — | | | | — | | | | — | | | | — | | | | — | | | | 30,250 | | | | 30,250 | |
Common stock issued for acquisition (1,010,566 shares) | | | — | | | | — | | | | — | | | | — | | | | — | | | | 21,424 | | | | 21,424 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total consideration | | $ | 12,738 | | | $ | 32,776 | | | $ | 10,760 | | | $ | 2,900 | | | $ | 6,936 | | | $ | 196,309 | | | $ | 262,419 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | |
Mid-continent — US: | | Arkoma | | | Turner | | | Airfoam | | | Rosel | | | Femco | | | Totals | |
|
Net assets acquired: | | | | | | | | | | | | | | | | | | | | | | | | |
Property, plant and equipment | | $ | 6,099 | | | $ | 31,313 | | | $ | 4,829 | | | $ | 5,615 | | | $ | 20,226 | | | $ | 68,082 | |
Non-cash working capital | | | 2,496 | | | | 6,914 | | | | — | | | | 379 | | | | 4,426 | | | | 14,215 | |
Intangible assets | | | 414 | | | | 55 | | | | 175 | | | | 341 | | | | 150 | | | | 1,135 | |
Deferred tax liabilities | | | — | | | | — | | | | — | | | | (1,845 | ) | | | — | | | | (1,845 | ) |
Goodwill | | | 8,993 | | | | 16,046 | | | | 3,115 | | | | 7,997 | | | | 11,189 | | | | 47,340 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net assets acquired | | $ | 18,002 | | | $ | 54,328 | | | $ | 8,119 | | | $ | 12,487 | | | $ | 35,991 | | | $ | 128,927 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Consideration: | | | | | | | | | | | | | | | | | | | | | | | | |
Cash, net of cash and cash equivalents acquired | | $ | 18,002 | | | $ | 54,328 | | | $ | 8,119 | | | $ | 11,953 | | | $ | 35,991 | | | $ | 128,393 | |
Debt assumed in acquisition | | | — | | | | — | | | | — | | | | 534 | | | | — | | | | 534 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total consideration | | $ | 18,002 | | | $ | 54,328 | | | $ | 8,119 | | | $ | 12,487 | | | $ | 35,991 | | | $ | 128,927 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Rocky Mountains — US | | | Canada | |
Other: | | Outpost | | | KCL | | | DFS | | | Jim Lee | | | Quinn | | | Totals | |
|
Net assets acquired: | | | | | | | | | | | | | | | | | | | | | | | | |
Property, plant and equipment | | $ | 4,297 | | | $ | 225 | | | $ | 200 | | | $ | 1,008 | | | $ | 4,066 | | | $ | 9,796 | |
Non-cash working capital | | | (225 | ) | | | — | | | | — | | | | — | | | | 45 | | | | (180 | ) |
Intangible assets | | | 122 | | | | 53 | | | | 53 | | | | 150 | | | | 518 | | | | 896 | |
Goodwill | | | 2,348 | | | | 1,847 | | | | 1,872 | | | | 3,842 | | | | 4,247 | | | | 14,156 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net assets acquired | | $ | 6,542 | | | $ | 2,125 | | | $ | 2,125 | | | $ | 5,000 | | | $ | 8,876 | | | $ | 24,668 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Consideration: | | | | | | | | | | | | | | | | | | | | | | | | |
Cash, net of cash and cash equivalents acquired | | $ | 6,542 | | | $ | 2,125 | | | $ | 2,125 | | | $ | 5,000 | | | $ | 8,876 | | | $ | 24,668 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | Mid-
| | | Rocky
| | | | | | | |
Overall Summary: | | Texas | | | Continent | | | Mountains | | | Canada | | | Totals | |
|
Net assets acquired: | | | | | | | | | | | | | | | | | | | | |
Property, plant and equipment | | $ | 88,959 | | | $ | 68,082 | | | $ | 5,730 | | | $ | 4,066 | | | $ | 166,837 | |
Non-cash working capital | | | 5,581 | | | | 14,215 | | | | (225 | ) | | | 45 | | | | 19,616 | |
Intangible assets | | | 2,304 | | | | 1,135 | | | | 378 | | | | 518 | | | | 4,335 | |
Deferred tax liabilities | | | (4,659 | ) | | | (1,845 | ) | | | — | | | | — | | | | (6,504 | ) |
Goodwill | | | 170,234 | | | | 47,340 | | | | 9,909 | | | | 4,247 | | | | 231,730 | |
| | | | | | | | | | | | | | | | | | | | |
Net assets acquired | | $ | 262,419 | | | $ | 128,927 | | | $ | 15,792 | | | $ | 8,876 | | | $ | 416,014 | |
| | | | | | | | | | | | | | | | | | | | |
Consideration: | | | | | | | | | | | | | | | | | | | | |
Cash, net of cash and cash equivalents acquired | | $ | 210,745 | | | $ | 128,393 | | | $ | 15,792 | | | $ | 8,876 | | | $ | 363,806 | |
Debt assumed in acquisition | | | 30,250 | | | | 534 | | | | — | | | | — | | | | 30,784 | |
Common stock issued for acquisition (1,010,566 shares) | | | 21,424 | | | | — | | | | — | | | | — | | | | 21,424 | |
| | | | | | | | | | | | | | | | | | | | |
Total consideration | | $ | 262,419 | | | $ | 128,927 | | | $ | 15,792 | | | $ | 8,876 | | | $ | 416,014 | |
| | | | | | | | | | | | | | | | | | | | |
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COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
We calculated the pro forma impact of the businesses we acquired on our operating results for the yearsyear ended December 31, 2008 and 2007.2008. The following pro forma results give effect to each of these acquisitions, assuming that each occurred on January 1, 2008 and 2007, as applicable.2008.
We derived the pro forma results of these acquisitions based upon historical financial information obtained from the sellers and certain management assumptions. In addition, we assumed debt service costs related to these acquisitions based upon the actual cash investments, calculated at a rate of 7% per annum, less an assumed tax benefit calculated at our statutory rate of 35%. Each of these acquisitions related to our continuing operations, and, thus, had no pro forma impact on discontinued operations presented on the accompanying statementsstatement of operations.operations for the year ended December 31, 2008.
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COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
The following pro forma results do not purport to be indicative of the results that would have been obtained had the transactions described above been completed on the indicated dates or that may be obtained in the future.
| | | | | | | | |
| | Pro Forma Results | |
| | For the Year Ended
| |
| | December 31, | |
| | 2008 | | | 2007 | |
|
Revenue | | $ | 1,905,518 | | | $ | 1,587,040 | |
Income before taxes and minority interest | | $ | 4,244 | | | $ | 245,693 | |
Net income (loss) from continuing operations | | $ | (74,090 | ) | | $ | 156,535 | |
Net income (loss) | | $ | (78,949 | ) | | $ | 167,978 | |
Earnings (loss) per share: | | | | | | | | |
Basic | | $ | (1.07 | ) | | $ | 2.33 | |
| | | | | | | | |
Diluted | | $ | (1.07 | ) | | $ | 2.29 | |
| | | | | | | | |
| | | | |
| | Pro Forma Results | |
| | For the Year Ended
| |
| | December 31,
| |
| | 2008 | |
| | (Unaudited) | |
|
Revenue | | $ | 1,901,879 | |
Loss before taxes | | $ | (2,132 | ) |
Net loss from continuing operations | | $ | (78,203 | ) |
Net loss | | $ | (83,062 | ) |
Loss per share: | | | | |
Basic | | $ | (1.13 | ) |
| | | | |
Diluted | | $ | (1.13 | ) |
| | | | |
| | | | | | | | | | | | | | | | |
| | 2008 | | 2007 | | | 2010 | | 2009 | |
|
Trade accounts receivable | | $ | 292,777 | | | $ | 251,361 | | | $ | 253,662 | | | $ | 155,871 | |
Related party receivables(a) | | | 11,631 | | | | 8,048 | | | | 51,046 | | | | 6,593 | |
Unbilled revenue | | | 39,749 | | | | 41,334 | | | | 42,747 | | | | 19,409 | |
Notes receivable | | | 283 | | | | 3,378 | | |
Other receivables | | | 4,889 | | | | 7,048 | | |
Notes and other receivables | | | | 2,353 | | | | 1,975 | |
| | | | | | | | | | |
| | | 349,329 | | | | 311,169 | | | | 349,808 | | | | 183,848 | |
Allowance for doubtful accounts | | | 5,976 | | | | 5,487 | | | | 4,160 | | | | 12,564 | |
| | | | | | | | | | |
| | $ | 343,353 | | | $ | 305,682 | | | $ | 345,648 | | | $ | 171,284 | |
| | | | | | | | | | |
| | |
(a) | | See Note 19, Related Party Transactions.“Related party transactions.” |
The following table summarizes the change in our allowance for doubtful accounts for the years ended December 31, 2008, 20072010, 2009 and 2006:2008:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Balance at
| | Additions
| | Write-offs
| | Balance at
| | | Balance at
| | Additions
| | Write-offs
| | Balance at
|
| | Beginning
| | Charged
| | or
| | End of
| | | Beginning
| | Charged
| | or
| | End of
|
Year Ended | | of Period | | to Expense | | Adjustments | | Period | | | of Period | | to Expense | | Adjustments | | Period |
|
2010 | | | $ | 12,564 | | | $ | (159 | ) | | $ | (8,245 | ) | | $ | 4,160 | |
2009 | | | $ | 5,976 | | | $ | 10,770 | | | $ | (4,182 | ) | | $ | 12,564 | |
2008 | | $ | 5,487 | | | $ | 4,344 | | | $ | (3,855 | ) | | $ | 5,976 | | | $ | 5,487 | | | $ | 4,344 | | | $ | (3,855 | ) | | $ | 5,976 | |
2007 | | $ | 2,181 | | | $ | 6,613 | | | $ | (3,307 | ) | | $ | 5,487 | | |
2006 | | $ | 1,872 | | | $ | 2,102 | | | $ | (1,793 | ) | | $ | 2,181 | | |
| | | | | | | | |
| | 2010 | | | 2009 | |
|
Finished goods | | $ | 18,644 | | | $ | 23,435 | |
Manufacturing parts, materials and fuel | | | 16,063 | | | | 14,486 | |
Work in process | | | 1,282 | | | | 431 | |
| | | | | | | | |
| | | 35,989 | | | | 38,352 | |
Inventory reserves | | | 2,453 | | | | 888 | |
| | | | | | | | |
| | $ | 33,536 | | | $ | 37,464 | |
| | | | | | | | |
8280
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
| | | | | | | | |
| | 2008 | | | 2007 | |
|
Finished goods | | $ | 20,915 | | | $ | 22,235 | |
Manufacturing parts, materials and fuel | | | 16,353 | | | | 9,055 | |
Work in process | | | 5,333 | | | | 257 | |
| | | | | | | | |
| | | 42,601 | | | | 31,547 | |
Inventory reserves | | | 710 | | | | 1,670 | |
| | | | | | | | |
| | $ | 41,891 | | | $ | 29,877 | |
| | | | | | | | |
| |
6. | Property, plant and equipment: |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Accumulated
| | Net Book
| | | | | Accumulated
| | Net Book
| |
December 31, 2008 | | Cost | | Depreciation | | Value | | |
December 31, 2010 | | | Cost | | Depreciation | | Value | |
|
Land | | $ | 10,078 | | | $ | — | | | $ | 10,078 | | | $ | 16,153 | | | $ | — | | | $ | 16,153 | |
Building | | | 20,155 | | | | 2,097 | | | | 18,058 | | | | 32,083 | | | | 4,456 | | | | 27,627 | |
Field equipment | | | 1,314,104 | | | | 359,385 | | | | 954,719 | | | | 1,434,986 | | | | 642,302 | | | | 792,684 | |
Vehicles | | | 152,297 | | | | 49,826 | | | | 102,471 | | | | 128,381 | | | | 58,110 | | | | 70,271 | |
Office furniture and computers | | | 16,069 | | | | 6,736 | | | | 9,333 | | | | 18,259 | | | | 11,970 | | | | 6,289 | |
Leasehold improvements | | | 23,679 | | | | 3,193 | | | | 20,486 | | | | 26,644 | | | | 7,538 | | | | 19,106 | |
Construction in progress | | | 51,308 | | | | — | | | | 51,308 | | | | 23,898 | | | | — | | | | 23,898 | |
| | | | | | | | | | | | | | |
| | $ | 1,587,690 | | | $ | 421,237 | | | $ | 1,166,453 | | | $ | 1,680,404 | | | $ | 724,376 | | | $ | 956,028 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Accumulated
| | Net Book
| | | | | Accumulated
| | Net Book
| |
December 31, 2007 | | Cost | | Depreciation | | Value | | |
December 31, 2009 | | | Cost | | Depreciation | | Value | |
|
Land | | $ | 9,259 | | | $ | — | | | $ | 9,259 | | | $ | 8,884 | | | $ | — | | | $ | 8,884 | |
Building | | | 17,667 | | | | 1,545 | | | | 16,122 | | | | 30,200 | | | | 3,168 | | | | 27,032 | |
Field equipment | | | 1,049,761 | | | | 237,481 | | | | 812,280 | | | | 1,293,292 | | | | 497,632 | | | | 795,660 | |
Vehicles | | | 91,853 | | | | 20,550 | | | | 71,303 | | | | 126,256 | | | | 55,035 | | | | 71,221 | |
Office furniture and computers | | | 12,391 | | | | 4,212 | | | | 8,179 | | | | 17,087 | | | | 9,108 | | | | 7,979 | |
Leasehold improvements | | | 16,368 | | | | 1,588 | | | | 14,780 | | | | 25,006 | | | | 4,771 | | | | 20,235 | |
Construction in progress | | | 81,267 | | | | — | | | | 81,267 | | | | 10,122 | | | | — | | | | 10,122 | |
| | | | | | | | | | | | | | |
| | $ | 1,278,566 | | | $ | 265,376 | | | $ | 1,013,190 | | | $ | 1,510,847 | | | $ | 569,714 | | | $ | 941,133 | |
| | | | | | | | | | | | | | |
Construction in progress at December 31, 20082010 and 20072009 primarily included progress payments to vendors for equipment to be delivered in future periods and component parts to be used in final assembly of operating equipment, which in all cases were not yet placed into service at the time. For the years ended December 31, 20082010, 2009 and 2007,2008, we recorded capitalized interest of $4,458$1,250, $878 and $3,922,$4,458, respectively, related to assets that we are constructing for internal use and amounts paid to vendors under progress payments for assets that are being constructed on our behalf.
Effective March 1, 2009, our Canadian subsidiary transferred certain property, plant and equipment used in our production testing business to Enseco, a competitor, in exchange for certain electric line(e-line) equipment. This exchange was determined to have commercial substance for us and therefore we recorded the new assets acquired at the fair market value of the assets surrendered which had a carrying value of $9,284. We incurred costs to sell totaling approximately $71. We determined the fair value of the assets with the assistance of a third-party appraiser, assuming an orderly liquidation methodology, to be $4,487, resulting in a loss on the exchange of $4,868. Of the total value assigned to the new assets, $4,209 was included in property, plant and equipment and $279 was included in inventory in the accompanying balance sheet as of December 31, 2009. The fair market value of the assets received was determined to be $5,497, using the same methodology applied to the assets surrendered. We believe that thesee-line assets will generate cash flows in excess of the cash flows that would have been received from the production testing assets due to relatively higher demand from our customers fore-line services.
Effective March 31, 2009, we entered into a sale-leaseback transaction with Agua Dulce, LLC, through which we sold a facility and approximately 50 acres of real property located near Rock Springs, Wyoming for $3,827. The sales price approximated the net book value of the facility, which is currently under construction, and the land, resulting in an insignificant gain on the transaction which has been included as a component of selling, general and administrative expense in the accompanying statement of operations for the year ended December 31, 2009. In
8381
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
addition, the buyer agreed to fund the completion of the construction of the facility. Effective April 1, 2009, we became party to the lease agreement which requires monthly operating lease payments for a term of 10 years, with an option to extend the lease term for an additional 10 years. The rental rate adjusts for construction draws to date divided ratably over the remaining lease term. The lease term began on April 1, 2009 and the first monthly rental was $35. We will also incur additional lease costs related to certain operating costs, taxes and insurance for the facility over the term of the lease.
Effective July 30, 2009, we entered into a sale-leaseback agreement with Enterprise Leasing Company of Houston to sell over 550 light-vehicles with a net book value of approximately $10,362 as of July 30, 2009. During the third quarter of 2009, we received proceeds from the sale which totaled $10,551. In August 2009, pursuant to this lease agreement, we began making monthly rental payments of approximately $306. The lease terms range from 24 to 36 months.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | As of December 31, 2008 | | As of December 31, 2007 | | | | | As of December 31, 2010 | | As of December 31, 2009 | |
| | | | Historical
| | Accumulated
| | Net Book
| | Historical
| | Accumulated
| | Net Book
| | | | | Historical
| | Accumulated
| | Net Book
| | Historical
| | Accumulated
| | Net Book
| |
Description | | Term | | Cost | | Amortization | | Value | | Cost | | Amortization | | Value | | | Term | | Cost | | Amortization | | Value | | Cost | | Amortization | | Value | |
| | (In months) | | | | | | | | | | | | | | | (In months) | | | | | | | | | | | | | |
|
Patents and trademarks | | | 60 to 120 | | | $ | 5,448 | | | $ | 864 | | | $ | 4,584 | | | $ | 4,026 | | | $ | 937 | | | $ | 3,089 | | | | 60 to 120 | | | $ | 5,215 | | | $ | 3,353 | | | $ | 1,862 | | | $ | 5,942 | | | $ | 2,421 | | | $ | 3,521 | |
Contractual agreements | | | 24 to 120 | | | | 10,555 | | | | 5,284 | | | | 5,271 | | | | 9,150 | | | | 3,621 | | | | 5,529 | | | | 24 to 120 | | | | 11,985 | | | | 8,660 | | | | 3,325 | | | | 9,455 | | | | 6,644 | | | | 2,811 | |
Customer lists and other | | | 36 to 60 | | | | 17,244 | | | | 3,837 | | | | 13,407 | | | | 3,192 | | | | 1,204 | | | | 1,988 | | | | 36 to 60 | | | | 13,302 | | | | 9,280 | | | | 4,022 | | | | 13,322 | | | | 6,411 | | | | 6,911 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Totals | | | | | | $ | 33,247 | | | $ | 9,985 | | | $ | 23,262 | | | $ | 16,368 | | | $ | 5,762 | | | $ | 10,606 | | | | | | | $ | 30,502 | | | $ | 21,293 | | | $ | 9,209 | | | $ | 28,719 | | | $ | 15,476 | | | $ | 13,243 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
We recorded amortization expense associated with intangible assets of continuing operations totaling $5,248, $2,918$6,591, $7,769 and $1,662$5,248 for the years ended December 31, 2008, 20072010, 2009 and 2006,2008, respectively. We expect to record amortization expense associated with these intangible assets for the next five years approximating: 2009 — $5,782; 2010 — $7,630; 2011 — $5,123;$4,645; 2012 — $3,000; and$2,926; 2013 — $1,619.$1,341; 2014 — $170 and 2015 — $127.
| |
8. | Deferred financing costs: |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Accumulated
| | Net
| | | | | Accumulated
| | Net
| |
| | Cost | | Amortization | | Book Value | | | Cost | | Amortization | | Book Value | |
|
December 31, 2008 | | | | | | | | | | | | | |
December 31, 2010 | | | | | | | | | | | | | |
Deferred financing costs | | $ | 16,649 | | | $ | 4,186 | | | $ | 12,463 | | | $ | 19,010 | | | $ | 9,316 | | | $ | 9,694 | |
| | | | | | | | | | | | | | |
December 31, 2007 | | | | | | | | | | | | | |
December 31, 2009 | | | | | | | | | | | | | |
Deferred financing costs | | $ | 16,649 | | | $ | 2,455 | | | $ | 14,194 | | | $ | 19,010 | | | $ | 6,266 | | | $ | 12,744 | |
| | | | | | | | | | | | | | |
We incurred deferred financing costs during 2006associated with our amended credit facility as well as $13,414 related to the issuance of our senior notes in December 2006 totaling $13,414 and $718 associated with the amendment of our existing term loan and revolving credit facility.
We assumed the debt of Pumpco upon acquisition on November 11, 2006. In December 2006,October 2009, we retired all outstanding borrowings under the Pumpco term loanamended our senior secured credit facility and incurred a $170 chargeadditional financing costs of $2,911 in the fourth quarter of 2009. In October 2009, due to expense the remainingdecrease in borrowing capacity after giving effect to the amendment, we expensed $528 of unamortized deferred financing costs.fees related to our prior revolving credit facilities.
82
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
Tax expense (benefit) from continuing operations consisted of:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2008 | | 2007 | | 2006 | | | 2010 | | 2009 | | 2008 | |
|
Domestic: | | | | | | | | | | | | | | | | | | | | | | | | |
Current income taxes | | $ | 44,754 | | | $ | 43,687 | | | $ | 38,107 | | | $ | (105 | ) | | $ | (59,637 | ) | | $ | 42,490 | |
Deferred income taxes | | | 24,738 | | | | 38,786 | | | | 27,138 | | | | 48,468 | | | | (4,733 | ) | | | 24,739 | |
| | | | | | | | | | | | | | |
| | | 69,492 | | | | 82,473 | | | | 65,245 | | | | 48,363 | | | | (64,370 | ) | | | 67,229 | |
Foreign: | | | | | | | | | | | | | | | | | | | | | | | | |
Current income taxes | | | 9,256 | | | | 7,148 | | | | 3,585 | | | | 3,844 | | | | 4,116 | | | | 8,988 | |
Deferred income taxes (benefit) | | | (4,180 | ) | | | (2,770 | ) | | | 1,686 | | |
Deferred income taxes | | | | (627 | ) | | | (2,834 | ) | | | (3,912 | ) |
| | | | | | | | | | | | | | |
| | | 5,076 | | | | 4,378 | | | | 5,271 | | | | 3,217 | | | | 1,282 | | | | 5,076 | |
| | | | | | | | | | | | | | |
Tax expense — continuing operations | | $ | 74,568 | | | $ | 86,851 | | | $ | 70,516 | | |
Tax expense (benefit) — continuing operations | | | $ | 51,580 | | | $ | (63,088 | ) | | $ | 72,305 | |
| | | | | | | | | | | | | | |
84
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
We operate in several tax jurisdictions. A reconciliation of the U.S. federal income tax rate of 35% for the years ended December 31, 2008, 20072010, 2009 and 20062008 to our effective income tax rate follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2008 | | 2007 | | 2006 | | | 2010 | | 2009 | | 2008 | |
|
Expected provision for taxes: | | $ | (2,110 | ) | | $ | 82,728 | | | $ | 68,412 | | | $ | 47,508 | | | $ | (85,665 | ) | | $ | (4,341 | ) |
Increase (decrease) resulting from foreign tax rate differential | | | 280 | | | | 2,626 | | | | (1,756 | ) | | | (528 | ) | | | (1,971 | ) | | | 280 | |
(Increase) decrease in foreign deferred taxes | | | 746 | | | | (760 | ) | | | — | | |
Change in foreign tax rates | | | | — | | | | 68 | | | | 746 | |
Change in domestic tax rates | | | | 1,357 | | | | 4,544 | | | | — | |
State taxes, net of federal benefit | | | 5,021 | | | | 6,501 | | | | 4,995 | | | | 978 | | | | (4,948 | ) | | | 4,989 | |
Non-deductible expenses | | | 70,619 | | | | (2,296 | ) | | | (1,282 | ) | | | 2,180 | | | | 18,125 | | | | 70,619 | |
Other, net | | | 12 | | | | (1,948 | ) | | | 147 | | | | 85 | | | | 6,759 | | | | 12 | |
| | | | | | | | | | | | | | |
Tax expense — continuing operations | | $ | 74,568 | | | $ | 86,851 | | | $ | 70,516 | | |
Tax expense (benefit) — continuing operations | | | $ | 51,580 | | | $ | (63,088 | ) | | $ | 72,305 | |
| | | | | | | | | | | | | | |
The net deferred income tax liability from continuing operations was comprised ofNon-deductible expenses for the tax effect of the following temporary differences:
| | | | | | | | |
| | 2008 | | | 2007 | |
|
Deferred income tax assets: | | | | | | | | |
Net operating loss | | $ | 1,746 | | | $ | 445 | |
Goodwill and intangible assets | | | 5,086 | | | | — | |
Accrued liabilities and other | | | 8,089 | | | | 3,500 | |
Stock-based compensation costs | | | 5,105 | | | | 3,843 | |
| | | | | | | | |
| | | 20,026 | | | | 7,788 | |
Less valuation allowance | | | (270 | ) | | | (290 | ) |
| | | | | | | | |
| | | 19,756 | | | | 7,498 | |
| | | | | | | | |
Deferred income tax liabilities: | | | | | | | | |
Property, plant and equipment | | | (153,148 | ) | | | (119,182 | ) |
Goodwill | | | — | | | | (10,417 | ) |
Other | | | (14,256 | ) | | | (4,720 | ) |
| | | | | | | | |
| | | (167,404 | ) | | | (134,319 | ) |
| | | | | | | | |
Net deferred income tax liability | | $ | (147,648 | ) | | $ | (126,821 | ) |
| | | | | | | | |
The net deferred income tax liability consisted of:
| | | | | | | | |
| | 2008 | | | 2007 | |
|
Domestic | | $ | (143,793 | ) | | $ | (119,055 | ) |
Foreign | | | (3,855 | ) | | | (7,766 | ) |
| | | | | | | | |
| | $ | (147,648 | ) | | $ | (126,821 | ) |
| | | | | | | | |
Net operating loss carryforwards are included in the determination of our deferred tax asset atyears ended December 31, 2008. We will need2009 and 2008 relate primarily to generate future taxable income of approximately $5,465 in order to fully utilize our net operating loss carryforwards.
We had U.S. loss carryforwards of $2,535 atimpaired goodwill with limited tax basis. There was no goodwill impairment for the year ended December 31, 2008 and no U.S. loss carryforwards at December 31, 2007. We have a $2,930 foreign non-capital loss carryforward at December 31, 2008, compared to $1,534 at December 31, 2007.2010.
8583
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
The net deferred income tax liability was comprised of the tax effect of the following temporary differences:
| | | | | | | | |
| | 2010 | | | 2009 | |
|
Deferred income tax assets: | | | | | | | | |
Net operating loss | | $ | 10,386 | | | $ | 6,909 | |
Goodwill and intangible assets | | | 9,240 | | | | 14,487 | |
Accrued liabilities and other | | | 6,789 | | | | 4,853 | |
Stock-based compensation costs | | | 4,125 | | | | 6,744 | |
| | | | | | | | |
| | | 30,540 | | | | 32,993 | |
Less valuation allowance | | | (253 | ) | | | (265 | ) |
| | | | | | | | |
| | | 30,287 | | | | 32,728 | |
| | | | | | | | |
Deferred income tax liabilities: | | | | | | | | |
Property, plant and equipment | | | (213,589 | ) | | | (168,450 | ) |
Other | | | (4,621 | ) | | | (4,360 | ) |
| | | | | | | | |
| | | (218,210 | ) | | | (172,810 | ) |
| | | | | | | | |
Net deferred income tax liability | | $ | (187,923 | ) | | $ | (140,082 | ) |
| | | | | | | | |
The net deferred income tax liability consisted of:
| | | | | | | | |
| | 2010 | | | 2009 | |
|
Domestic | | $ | (187,988 | ) | | $ | (139,061 | ) |
Foreign | | | 65 | | | | (1,021 | ) |
| | | | | | | | |
| | $ | (187,923 | ) | | $ | (140,082 | ) |
| | | | | | | | |
Included in our deferred tax assets are state tax net operating loss carry forwards of $9,279. We expect to generate future state taxable income to fully utilize these loss carry forwards.
We had no U.S. federal loss carry forward at December 31, 2010 and $3,592 of U.S. loss carry forward at December 31, 2009. We have $1,107 of foreign non-capital loss carry forward at December 31, 2010, compared to $2,930 at December 31, 2009.
No deferred income taxes were provided on $11,989$28,584 of undistributed earnings of foreign subsidiaries as of December 31, 2008,2010, as we intend to indefinitely reinvest these funds. Upon distribution of these earnings in the form of dividends or otherwise, we may be subject to U.S. income taxes and foreign withholding taxes. It is not practical, however, to estimate the amount of taxes that may be payable on the eventual distribution of these earnings after consideration of available foreign tax credits.
We adopted the FASB Interpretation No. 48 entitled “Accountinginterpretation on accounting for Uncertaintyuncertainty in Income Taxes — an interpretation of FASB Statement No. 109,” referred to as “FIN 48,”income taxes as of January 1, 2007. FIN 48This guidance clarifies the accounting for uncertain tax positions that may have been taken by an entity. Specifically, FIN 48it prescribes a more-likely-than-not recognition threshold to measure a tax position taken or expected to be taken in a tax return through a two-step process: (1) determining whether it is more likely than not that a tax position will be sustained upon examination by taxing authorities, after all appeals, based upon the technical merits of the position; and (2) measuring to determine the amount of benefit/expense to recognize in the financial statements, assuming taxing authorities have all relevant information concerning the issue. The tax position is measured at the largest amount of benefit/expense that is greater than 50 percent likely of being realized upon ultimate settlement. This pronouncement also specifies how to present a liability for unrecognized tax benefits in a classified balance sheet, but does not change the classification requirements for deferred taxes. Under FIN 48,this guidance, if a tax position previously failed the more-likely-than-not recognition threshold, it should be recognized in the first subsequent
84
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
financial reporting period in which the threshold is met. Similarly, a position that no longer meets this recognition threshold should no longer be recognized in the first financial reporting period in which the threshold is no longer met.
We performed an examination of our tax positions and calculated the cumulative amount of our estimated exposure by evaluating each issue to determine whether the impact exceeded the 50 percent threshold of being realized upon ultimate settlement with the taxing authorities. Based upon this examination, we determined that the aggregate exposure under FIN 48 did not have a material impact on our financial statements during the years ended December 31, 2008 and 2007. Therefore, we have not recorded an adjustment to our financial statements related to the adoption of FIN 48. We will continue to evaluate our tax positions in accordance with FIN 48, and recognize any future impact under FIN 48 as a charge to income in the applicable period in accordance with the standard. Our tax filings for tax years 2005 to 2007 remain open for examination by taxing authorities.
Our accounting policy related to income tax penalties and interest assessments is to accrue for these costs and record a charge to selling, general and administrative expense for tax penalties and a charge to interest expense for interest assessments during the period that we take an uncertain tax position through resolution with the taxing authorities or the expiration of the applicable statute of limitations. We did not record any significant amounts related to penalties and interest during the years ended December 31, 2008, 2007 and 2006.
In May 2007, theThe FASB issued FASB Staff PositionFIN 48-1, an amendment to FIN 48, which providesadditional guidance on how an entity is to determine whether a tax position has effectively settled for purposes of recognizing previously unrecognized tax benefits. Specifically, this guidance states that an entity would recognize a benefit when a tax position is effectively settled using the following criteria: (1) the taxing authority has completed its examination including all appeals and administrative reviews; (2) the entity does not plan to appeal or litigate any aspect of the tax position; and (3) it is remote that the taxing authority would examine or reexamine any aspect of the tax position, assuming the taxing authority has full knowledge of all relevant information relative to making their assessment on the position.
We performed an examination of our tax positions and calculated the cumulative amount of our estimated exposure by evaluating each issue to determine whether the impact exceeded the 50 percent threshold of being realized upon ultimate settlement with the taxing authorities. Based upon this examination, we determined that the aggregate exposure did not have a material impact on our financial statements during the years ended December 31, 2010, 2009 and 2008. Therefore, we have not recorded an adjustment to our financial statements related to this interpretation. We will apply this guidance going forward,continue to evaluate our tax positions, and recognize any future impact as applicable.a charge to income in the applicable period in accordance with the standard. Our tax filings for tax years 2006 to 2009 remain open for examination by taxing authorities. We do not anticipate any significant changes in our uncertain tax positions during the next twelve months.
Our accounting policy related to income tax penalties and interest assessments is to accrue for these costs and record a charge to selling, general and administrative expense for tax penalties and a charge to interest expense for interest assessments during the period that we take an uncertain tax position through resolution with the taxing authorities or the expiration of the applicable statute of limitations. We did not record any significant amounts related to penalties and interest during the years ended December 31, 2010, 2009 and 2008.
On January 5, 2006, weWe entered into a note agreement with our insurance brokerarrangement to finance certain of our annual insurance premiums for the policy year beginningterm from December 1, 20052007 to April 30, 2009. Effective May 1, 2009, we renewed our insurance policies and entered into a similar financing arrangement for the twelve-month policy term which extended through November 30, 2006. As of December 31, 2005,April 2010. Concurrently, we recordedrenewed our workers’ compensation, general liability and auto insurance policies through our insurance broker for the same policy term. Our accounting policy has been to record a note payable totaling $14,584 and an offsetting prepaid asset associated with certain of these policies which included a broker’s fee. Weis amortized over the prepaid assetterm and which takes into account actual premium payments and deposits made to expense overdate, to record an accrued liability for premiums which are contractually committed for the policy term and incurred finance charges totaling $268 as interest expense related to this arrangement during 2006. This policy wasmake monthly premium payments in accordance with our premium commitments and monthly note payments for amounts financed. Effective May 1, 2010, we renewed our annual insurance premiums for the policy term May 1, 2010 through April 30, 2011, but chose to prepay our premiums for certain insurance coverages which had been financed through a note arrangement in prior renewals, and to continue to make monthly premium payments through our broker for other insurance coverages, including workers’ compensation, general liability and auto insurance during this twelve-month policy term. As a result, we recorded a prepaid asset of $4,267 in May 2010 associated with these renewals.
8685
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
beginning December 1, 2006 through November 30, 2007, pursuant to which we recorded a note payable and an offsetting prepaid asset totaling $17,087 as of December 31, 2006, which included a broker’s fee. Of this liability, $10,190 was paid on January 5, 2007, and the remainder was paid during the policy term. We entered into a new note arrangement to finance our annual insurance premiums for the policy term beginning December 1, 2007 and extending through April 30, 2009. As of December 31, 2007, we recorded a note payable totaling $15,354 and an offsetting prepaid asset which included a broker’s fee. Of this prepaid asset, we recorded $3,257 as a long-term asset at December 31, 2007. At December 31, 2008, this note balance totaled $1,353 and was classified as a current liability.
The following table summarizes long-term debt as of December 31, 20082010 and 2007:2009:
| | | | | | | | | | | | | | | | |
| | 2008 | | 2007 | | | 2010 | | 2009 | |
|
U.S. revolving credit facility(a) | | $ | 186,000 | | | $ | 160,000 | | | $ | — | | | $ | — | |
Canadian revolving credit facility(a) | | | 7,495 | | | | 12,219 | | | | — | | | | — | |
8% senior notes(b) | | | 650,000 | | | | 650,000 | | | | 650,000 | | | | 650,000 | |
Subordinated seller notes(c) | | | 3,450 | | | | 3,450 | | |
Capital leases and other(d) | | | 700 | | | | 714 | | |
Capital leases and other | | | | — | | | | 230 | |
| | | | | | | | | | |
| | | 847,645 | | | | 826,383 | | | | 650,000 | | | | 650,230 | |
Less: current maturities of long-term debt and capital leases | | | 3,803 | | | | 398 | | | | — | | | | 228 | |
| | | | | | | | | | |
| | $ | 843,842 | | | $ | 825,985 | | | $ | 650,000 | | | $ | 650,002 | |
| | | | | | | | | | |
| | |
(a) | | We maintain a senior secured credit facility (the “Credit Agreement”) with Wells Fargo Bank, National Association, as U.S. Administrative Agent, HSBC Bank Canada, as Canadian Administrative Agent, and certain other financial institutions. On October 13, 2009, we entered into the Third Amendment (the Credit Agreement after giving effect to the Third Amendment, the “Amended Credit Agreement”) and modified the structure of our existing credit facility to an asset-based facility subject to borrowing base restrictions. In connection with the Third Amendment, Wells Fargo Capital Finance, LLC (formerly known as Wells Fargo Foothill, LLC) replaced Wells Fargo Bank, National Association, as U.S. Administrative Agent and also serves as U.S. Issuing Lender and U.S. Swingline Lender under the Amended Credit Agreement. The Amended Credit Agreement provides for a $360,000 U.S. revolving credit facility of up to $225,000 that matures in December 2011 and a $40,000 Canadian revolving credit facility of up to $15,000 (with Integrated Production Services Ltd., one of our wholly-owned subsidiaries, as the borrower thereof)thereof (“Canadian Borrower”)) that matures in December 2011. The U.S. revolving credit facilityAmended Credit Agreement includes a provision for a “commitment increase” clause,, as defined in the Credit Agreement,therein, which permits us to effect up to two separate increases in the aggregate commitments under the facilityAmended Credit Agreement by designating a participating lenderone or more existing lenders or other banks or financial institutions, subject to the bank’s sole discretion as to participation, to provide additional aggregate financing up to $75,000, with each committed increase its commitment, by mutual agreement, in increments ofequal to at least $50,000, with$25,000 in the aggregate of such commitment increases not to exceed $100,000,U.S., or $5,000 in Canada, and in accordance with other provisions as stipulated in the amendment.Amended Credit Agreement. Certain portions of the credit facilities are available to be borrowed in U.S. dollars, Canadian dollars Pounds Sterling, Euros and other currencies approved by the lenders. |
|
| | Our U.S. borrowing base is limited to: (1) 85% of U.S. eligible billed accounts receivable, less dilution, if any, plus (2) the lesser of 55% of the amount of U.S. eligible unbilled accounts receivable or $10.0 million, plus (3) the lesser of the “equipment reserve amount” and 80% times the most recently determined “net liquidation percentage”, as defined in the Amended Credit Agreement, times the value of our and the U.S. subsidiary guarantors’ equipment, provided that at no time shall the amount determined under this clause exceed 50% of the U.S. borrowing base, minus (4) the aggregate sum of reserves established by the U.S. Administrative Agent, if any. The “equipment reserve amount” means $50.0 million upon the effective date of the Third Amendment, less $0.6 million for each subsequent month, not to be reduced below zero in the aggregate. |
|
| | The Canadian borrowing based is limited to: (1) 80% of Canadian eligible billed accounts receivable, plus (2) if the Canadian Borrower has requested credit for equipment under the Canadian borrowing base, the lesser of (a) $15.0 million, and (b) 80% times the most recently determined “net liquidation percentage”, as defined in the Amended Credit Agreement, times the value (calculated on a basis consistent with our historical accounting practices) of our and the US subsidiary guarantors’ equipment, minus (3) the aggregate amount of reserves established by our Canadian Administrative Agent, if any. |
|
| | Subject to certain limitations set forth in the Amended Credit Agreement, we have the ability to elect how interest under the Amended Credit Agreement will be computed. Interest under the Amended Credit Agreement may be determined by reference to (1) the London Inter-bank Offered Rate, or LIBOR, plus an applicable margin between 0.75% and 1.75% per annum (with the applicable margin depending upon our ratio of total debt to EBITDA (as defined in the agreement)), or (2) the Base Rate (i.e., the higher of the Canadian bank’s prime rate or the CDOR rate plus 1.0%, in the case of Canadian loans or the greater of the prime rate and the federal funds rate plus 0.5%, in the case of U.S. loans), plus an applicable margin between 0.00% and 0.75% per annum. If an event of default exists under the Credit Agreement, advances will bear interest at the then-applicable rate plus 2%. Interest is payable quarterly for base rate loans and at the end of applicable interest periods for LIBOR loans, except that if the interest period for a LIBOR loan is six months, interest will be paid at the end of each three-month period. |
|
| | The Credit Agreement also contains various covenants that limit our and our subsidiaries’ ability to: (1) grant certain liens; (2) make certain loans and investments; (3) make capital expenditures; (4) make distributions; (5) make acquisitions; (6) enter into hedging transactions; (7) merge or consolidate; or (8) engage in certain asset dispositions. Additionally, the Credit Agreement limits our and our subsidiaries’ ability to incur additional |
8786
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
| | |
| | indebtedness if: (1) we are not in pro forma compliance with all terms underan applicable margin between 3.75% and 4.25% per annum (with the Credit Agreement, (2) certain covenants of the additional indebtedness are more onerous than the covenants set forth in the Credit Agreement, or (3) the additional indebtedness provides for amortization, mandatory prepayment or repurchases of senior unsecured or subordinated debt during the duration of the Credit Agreement with certain exceptions. The Credit Agreement also limits additional secured debt to 10% ofapplicable margin depending upon our consolidated net worth (i.e.“excess availability amount”, the excess of our assets over the sum of our liabilities plus the minority interests). The Credit Agreement contains covenants which, among other things, require us and our subsidiaries, on a consolidated basis, to maintain specified ratios or conditions as follows (with such ratios tested at the end of each fiscal quarter): (1) total debt to EBITDA, as defined in the Amended Credit Agreement) or (2) the “Base Rate” (which means the higher of the Prime Rate, Federal Funds Rate plus 0.50%,3-month LIBOR plus 1.00% and 3.50%), plus the applicable margin, as described above. For the period from the effective date of the Third Amendment until the six month anniversary of the effective date of the Third Amendment, interest was computed with an applicable margin rate of 4.00%. If an event of default exists or continues under the Amended Credit Agreement, advances will bear interest as described above with an applicable margin rate of not more than 3.0 to 1.0; and (2) EBITDA, as defined, to total interest expense4.25% plus 2.00%. Additionally, if an event of not less than 3.0 to 1.0. We were in compliance with all debt covenantsdefault exists under the amended and restatedAmended Credit Agreement, as defined therein, the lenders could accelerate the maturity of December 31, 2008.the obligations outstanding thereunder and exercise other rights and remedies. Interest is payable monthly. |
|
| | Under the Amended Credit Agreement, we are permitted to prepay our borrowings.borrowings and we have the right to terminate, in whole or in part, the unused portion of the U.S. commitments in $1.0 million increments upon written notice to the U.S. Administrative Agent. If all of the U.S. facility is terminated, the Canadian facility must also be terminated. |
|
| | All of the obligations under the U.S. portion of the Amended Credit Agreement are secured by first priority liens on substantially all of our assets and the assets of our U.S. subsidiaries as well as a pledge of approximately 66% of the stock of our first-tier foreign subsidiaries. Additionally, all of the obligations under the U.S. portion of the Amended Credit Agreement are guaranteed by substantially all of our U.S. subsidiaries. All of theThe obligations under the Canadian portionsportion of the Amended Credit Agreement are secured by first priority liens on substantially all of our assets and the assets of our subsidiaries.subsidiaries (other than our Mexican subsidiary). Additionally, all of the obligations under the Canadian portionsportion of the Amended Credit Agreement are guaranteed by us as well as certain of our subsidiaries. |
|
| | If an eventThe Amended Credit Agreement also contains various covenants that limit our and our subsidiaries’ ability to: (1) grant certain liens; (2) incur additional indebtedness; (3) make certain loans and investments; (4) make capital expenditures; (5) make distributions; (6) make acquisitions; (7) enter into hedging transactions; (8) merge or consolidate; or (9) engage in certain asset dispositions. The Amended Credit Agreement contains one financial maintenance covenant which requires us and our subsidiaries, on a consolidated basis, to maintain a “fixed charge coverage ratio”, as defined in the Amended Credit Agreement, of default existsnot less than 1.10 to 1.00. This covenant is only tested if our “excess availability amount”, as defined under the Amended Credit Agreement, plus certain qualified cash and cash equivalents (collectively “Liquidity”) is less than $50.0 million for a period of 5 consecutive days and continues only until such time as defined therein, the lenders may accelerate the maturityour Liquidity has been greater than or equal to $50.0 million for a period of the obligations outstanding under the Credit Agreement and exercise other rights and remedies. While an event90 consecutive days or greater than or equal to $75.0 million for a period of default is continuing, advances will bear interest at the then-applicable rate plus 2%.45 consecutive days. |
|
| | All borrowings outstanding underOur fixed charge coverage ratio covenant is calculated, for fiscal quarters ending after September 30, 2009, as the term loan portionratio of “EBITDA” calculated for the four fiscal quarter period ended after September 30, 2009 minus capital expenditures made with cash (to the extent not already incurred in a prior period) or incurred during such four quarter period, compared to “fixed charges”, calculated for the four quarters then ended. “EBITDA” is defined in the Amended Credit Agreement as consolidated net income for the period plus, to the extent deducted in determining our consolidated net income, interest expense, taxes, depreciation, amortization and other non-cash charges for such period, provided that EBITDA shall be subject to pro forma adjustments for acquisitions and non-ordinary course asset sales assuming that such transactions occurred on the first day of the amendeddetermination period, which adjustments shall be made in accordance with the guidelines for pro forma presentations set forth by the Securities and Exchange Commission. “Fixed charges”, as defined in the Amended Credit Agreement, boreinclude interest expense, among other things, reduced by the amortization of transaction fees associated with the Third Amendment. |
|
| | We were not subject to the fixed charge coverage ratio covenant in the Amended Credit Agreement as of December 31, 2010 since the Excess Availability Amount plus Qualified Cash Amount (each as defined in the |
87
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
| | |
| | Amended Credit Agreement) exceeded $50,000. If we had been subject to the fixed charge coverage ratio covenant at 7.66% through 2006 until the term loan was retiredDecember 31, 2010, we would have been in December 2006. compliance. |
|
| | There were no borrowings outstanding under the term loan portion of the facility at December 31, 2008 and 2007. Borrowings under theour U.S. revolving facility bore interest at 3.50% and theor Canadian revolving credit facility bore interest at rates ranging from 3.75% to 4.00%, or a weighted averagefacilities as of 3.80% at December 31, 2008. For the years ended December 31, 2008 and 2007, the weighted average interest rates on average borrowings under the amended Credit Facility were approximately 3.92% and 6.56%, respectively.2010. There were letters of credit outstanding under the U.S. revolving portion of the facility totaling $37,699$26,370, which reduced the available borrowing capacity as of December 31, 2008.2010. We incurred fees related to our letters of 1.25%credit as of December 31, 2010 at 3.75% per annum. For the twelve months ended December 31, 2010, fees related to our letters of credit were calculated using a360-day provision, at 4.0% per annum. The availability of the total amount outstanding under letterU.S. and Canadian revolving credit facilities is determined by our borrowing base less any borrowings and letters of credit arrangements through December 31, 2008. Our availableoutstanding. The net excess availability under our borrowing capacity underbase calculations for the U.S. and Canadian revolving facilities at December 31, 20082010 was $136,301$187,380 and $32,505,$8,405, respectively. |
|
| | The primary purpose of our letters of credit is to secure potential future claim liability which may be incurred by our insurance providers. During the quarter ended September 30, 2010, we negotiated a reduction in our letter of credit requirements of $5,569. In addition, we placed $17,000 in escrow as a compensating balance, effectively cash collateralizing a portion of our letters of credit, in order to better utilize excess cash and reduce interest expense. This compensating balance has been recorded as a long-term asset called “Restricted cash” on the accompanying consolidated balance sheet at December 31, 2010. |
|
| | We incur unused commitment fees under the Amended Credit Agreement ranging from 0.50% to 1.00% based on the average daily balance of amounts outstanding. The unused commitment fees were calculated at 1.00% as of December 31, 2010. |
|
(b) | | On December 6, 2006, we issued 8.0% senior notes with a face value of $650,000 through a private placement of debt. TheThese notes mature in 10 years, on December 15, 2016, and require semi-annual interest payments, paid in arrears and calculated based on an annual rate of 8.0%, on June 15 and December 15, of each year, commencingwhich commenced on June 15, 2007. There was no discount or premium associated with the issuance of these notes. The senior notes are guaranteed by all of our current domestic subsidiaries. The senior notes have covenants which, among other things: (1) limit the amount of additional indebtedness we can incur; (2) limit restricted payments such as a dividend; (3) limit our ability to incur liens or encumbrances; (4) limit our ability to purchase, transfer or dispose of significant assets; (5) limit our ability to purchase or redeem stock or subordinated debt; (6) limit our ability to enter into transactions with affiliates; (7) limit our ability to merge with or into other companies or transfer all or substantially all of our assets; and (8) limit our ability to enter into sale and leaseback transactions. We have the option to redeem all or part of these notes on or after December 15, 2011. We can redeem 35% of these notes on or before December 15, 2009 using the proceeds of certain equity offerings. Additionally, we may redeem some or all of the notes prior to December 15, 2011 at a price equal to 100% of the principal amount of the notes plus a make-whole premium. We used the net proceeds from this note issuance to repay all outstanding borrowings under the term loan portion of our credit facility which totaled |
88
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
| | |
| | approximately $415,800, to repay all of the outstanding indebtedness assumed in connection with the acquisition of Pumpco which totaled approximately $30,250 and to repay approximately $192,000 of the outstanding indebtedness under the U.S. revolving credit portion of the credit facility. We paid semi-annual interest payments of $26,000 on June 15 and December 15, 2008 related to these notes, and $27,300 and $26,000 on June 15, 2007 and December 31, 2007, respectively. |
|
| | Pursuant to a registration rights agreement with the holders of our 8.0% senior notes, on June 1, 2007, we filed a registration statement onForm S-4 with the Securities and Exchange CommissionSEC which enabled these holders to exchange their notes for publicly registered notes with substantially identical terms. These holders exchanged 100% of thesethe notes for publicly traded notes on July 25, 2007. On August 28, 2007, we entered into a supplement to the indenture governing the 8.0% senior notes, whereby additional domestic subsidiaries became guarantors under the indenture. |
|
(c) | | On February 11, 2005, Effective April 1, 2009, we issued subordinated notes totaling $5,000entered into a second supplement to certain sellers of Parchman common shares in connection withthis indenture whereby additional domestic subsidiaries became guarantors under the acquisition of Parchman. These notes were unsecured, subordinated to all present and future senior debt and bore interest at 6.0% during the first three years of the note, 8.0% during year four and 10.0% thereafter. The notes matured in early May 2006. On May 3, 2006, we repaid all principal and accrued interest outstanding pursuant to these note agreements totaling $5,029. |
|
| | We issued subordinated seller notes totaling $3,450 in 2004 related to certain business acquisitions. These notes bear interest at 6% and mature in March 2009. |
|
(d) | | Included in other outstanding debt at December 31, 2008 was: (1) capital leases totaling $436 which are collateralized by specific assets and bear interest at various rates averaging approximately 8.0% for the years ended December 31, 2008 and 2007; (2) a $145 mortgage loan related to property in Wyoming, which requires annual principal payments of approximately $60, accrues interest at 6.0% and matures in 2012; and (3) loans totaling $119 related to equipment purchases with terms a term of 5 years extending through 2009.indenture. |
At December 31, 2008, principal maturities under our long-term debt facilities (including capital leases) for the next five years were: 2009 — $3,803; 2010 — $266; 2011 — $193,576; 2012 — $0; and 2013 — $0. Our senior notes mature in 2016, at a face value of $650,000.
| |
12. | Stockholders’ equity: |
| |
(a) | Authorized Share Capital: |
(a) Authorized Share Capital:
On September 12, 2005, our authorized share capital was increased to 200,000,000 shares of common stock from 24,000,000 shares of common stock with par value of $0.01 per share and to 5,000,000 shares of preferred stock from 1,000 shares of preferred stock with a par value of $0.01 per share.
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COMPLETE PRODUCTION SERVICES, INC.
| |
(b) | Initial Public Offering: |
Notes to Consolidated Financial Statements — (Continued)
(b) Initial Public Offering:
On April 26, 2006, we sold 13,000,000 shares of our common stock, $.01 par value per share, in our initial public offering. These shares were offered to the public at $24.00 per share, and we recorded proceeds of approximately $292,500 after underwriter fees of $19,500. In addition, we incurred transaction costs of $3,865 associated with the issuance that were netted against the proceeds of the offering. Our stock began trading on the New York Stock Exchange on April 21, 2006. We used approximately $127,500 of the proceeds from this offering to retire principal and interest outstanding under the U.S. revolving credit facility as of April 28, 2006. Of the remaining funds, approximately $165,000 was invested in tax-free or tax-advantaged municipal bond funds and similar financial instruments with a term of less than one year. We liquidated these short-term investments during 2006 to purchase capital assets, to acquire complementary businesses and for other general corporate purposes. We considered our short-term investments as held for sale in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” as they did not appreciate or depreciate with changes in market value but rather provided only investment income.
89
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)(c) Stock-based Compensation:
The following table summarizes the pro forma impact of our initial public offering on earnings per share for the year ended December 31, 2006, assuming the 13,000,000 shares had been issued on January 1, 2006. No pro forma adjustments have been made to net income as reported.
| | | | |
| | 2006 | |
|
Net income as reported | | $ | 139,086 | |
Basic earnings per share, as reported: | | | | |
Continuing operations | | $ | 1.90 | |
Discontinued operations | | $ | 0.21 | |
| | | | |
| | $ | 2.11 | |
| | | | |
Basic earnings per share, pro forma: | | | | |
Continuing operations | | $ | 1.79 | |
Discontinued operations | | $ | 0.20 | |
| | | | |
| | $ | 1.99 | |
| | | | |
Diluted earnings per share, as reported: | | | | |
Continuing operations | | $ | 1.84 | |
Discontinued operations | | $ | 0.20 | |
| | | | |
| | $ | 2.04 | |
| | | | |
Diluted earnings per share, pro forma: | | | | |
Continuing operations | | $ | 1.73 | |
Discontinued operations | | $ | 0.20 | |
| | | | |
| | $ | 1.93 | |
| | | | |
| |
(c) | Stock-based Compensation: |
We maintain each of the option plans previously maintained by our predecessor companies. Under the three option plans,under which we grant stock-based compensation could be granted to employees, officers and directors to purchase up to 2,540,485our common shares, 3,003,463 common shares and 986,216 common shares, respectively.stock. The exercise price of each option is based on the fair value of the individualissuing company’s common stock at the date of grant. Options may be exercised over a five or ten-year period and generally a third of the options vest on each of the first three anniversaries from the grant date. Upon exercise of stock options, we issue our common stock.
For grants of stock-based compensation on or after January 1, 2006, we apply the prospective transition method prescribed by U.S. GAAP, whereby we recognize expense associated with new awards of stock-based compensation ratably, as determined using a Black-Scholes pricing model, over the expected term of the award.
In November 2006, we assumed the stock option plan of Pumpco, which included 145,000 outstanding employee stock options at an exercise price of $5.00 per share. The exercise price of these stock options was $5.00 per share, which was below market price at the date of grant pursuant to theagreed-upon conversion rate negotiated as part of the acquisition. These options vestvested ratably over athe three-year term. Upon exercise of these Pumpco stock options, we issue shares of our common stock.
We adopted SFAS No. 123R on January(i) Employee Stock Options Granted Between October 1, 2006. This pronouncement requires that we measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award, with limited exceptions, by using an option pricing model to determine fair value.
| |
(i) | Employee Stock Options Granted Prior to September 30, 2005: |
As required by SFAS No. 123R, we continue to account for stock-based compensation for grants made prior to September 30, 2005 the date of our initial filing with the Securities and Exchange Commission, using the intrinsicDecember 31, 2005:
90
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
value method prescribed by APB No. 25, whereby no compensation expense is recognized for stock-based compensation grants that have an exercise price equal to the fair value of the stock on the date of grant.
| |
(ii) | Employee Stock Options Granted Between October 1, 2005 and December 31, 2005: |
For grants of stock-based compensation between October 1, 2005 and December 31, 2005, (prior to adoption of SFAS No. 123R), we have utilized the modified prospective transition method to record expense associated with these stock-based compensation instruments. Under this transition method, beginning January 1, 2006, we began to recognize expense related to these option grants over the applicable vesting period, with expense calculated by applying a Black-Scholes pricing model with the following assumptions: risk-free rate of 4.23% to 4.47%; expected term of 4.5 years and no dividend rate. The weighted average fair value of these option grants was $2.05 per share.
For the yearsyear ended December 31, 2008, 2007 and 2006, the compensation expense recognized related to these stock options was $270, $307 and $307, respectively, which reduced net income by $174, $200 and $195, respectively.$174. There was no impact on basic and diluted earnings per share from continuing operations as reported for the yearsyear ended December 31, 2008 2007 and 2006 attributable to the compensation expense recognized related to these stock options. These awards were 100% vested at December 31, 2008.
| |
(iii) | Employee Stock Options Granted On or After January 1, 2006: |
(ii) Employee Stock Options Granted On or After January 1, 2006:
For grants of stock-based compensation on or after January 1, 2006, we apply the prospective transition method under SFAS No. 123R,prescribed by U.S. GAAP, whereby we recognize expense associated with new awards of stock-based compensation ratably, as determined using a Black-Scholes pricing model, over the expected term of the award.
During the years ended December 31, 20082010 and 2007,2009, the Compensation Committee of our Board of Directors authorized the grant of 368,596 and 885,700 employee stock options, respectively, 605,176 and 79,110 non-vested restricted shares issuableissued to our officers and employees respectively. These480,300 and 875,300 employee stock options, respectively, and 774,800 and 1,191,400 non-vested restricted shares, were issued pursuant to this authorization in the respective years.respectively. The stock options granted on January 29, 2010 had an exercise price of $12.53 per share. Stock option grants in 20082009 had an exercise price which ranged from $8.16$6.41 to $34.19 per share. Stock option grants in 2007 had an exercise price which ranged from $17.67 to $27.11$6.78 per share. The exercise price represented the fair market value of the shares on the date of grant. These stock option grants vest ratably over a three- to four-yearthree-year term. Additionally, theIn addition, our directors received stock option grants during 2010 and 2009 of stock based compensation during 200830,000 and 2007, which included 40,000 stock options granted in each of these yearsshares, respectively, which vest ratably over a three-year period. In addition,Furthermore, the directors received 13,456
89
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
34,296 shares of non-vested restricted stock that vestin 2010 which vests 100% on May 22, 2009January 29, 2011 and 17,144received 109,608 shares of non-vested restricted stock thatin 2009 which vested 100% on May 24, 2008.January 30, 2010. The fair value of this stock-based compensationthe stock option grants was determined by applying a Black-Scholes option pricing model based on the following assumptions:
| | | | | | | | |
| | For the Year Ended December 31, | | For the Year Ended December 31, |
Assumptions: | | 2008 | | 2007 | | 2010 | | 2009 |
|
Risk-free rate | | 0.68% to 3.24% | | 4.16% to 4.98% | | 1.38% to 2.34% | | 0.89% to 2.51% |
Expected term (in years) | | 2.2 to 5.1 | | 2.2 to 5.1 | | 3.7 to 5.1 | | 2.2 to 5.1 |
Volatility | | 17% to 27% | | 29% to 38% | | 50% | | 29% to 47% |
Calculated fair value per option | | $1.33 to $6.75 | | $4.21 to $9.33 | | $4.83 to $5.81 | | $1.14 to $3.01 |
The weighted average fair valuesvalue of 2008, 2007 and 2006 stock option grants werefor the years ended December 31, 2010, 2009 and 2008 was $5.74, $1.82 and $4.62, $6.14 and $9.46, respectively.
We completed our initial public offering in April 2006. PriorFor stock option grants made prior to the second quarter of 2008, we did not have sufficient historical market data in order to determine the volatility of our common stock. In accordance with the provisions of SFAS No. 123R,U.S. GAAP, we analyzed the market data of peer companies and calculated an average volatility factor based upon changes in the closing price of these companies’ common stock for a three-year period. This volatility factor was then applied as a variable to determine the fair value of our stock options granted prior to the second quarter of 2008.option grants. For stock options granted during or after the second quarter of 2008, we calculated an
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COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
average volatility factor for our common stock for the period from April 21, 2006 through the respective quarter end.end, or for the three-year period then ended. These volatility calculations were used to compute the calculation of the fair market value of these stock option grants during the last three quarters ofmade subsequent to June 30, 2008.
We projected a rate of stock option forfeitures based upon historical experience and management assumptions related to the expected term of the options. After adjusting for these forfeitures, we expect to recognize expense totaling $15,407$19,538 related to our stock option grants made after January 1, 2006. For the years ended December 31, 2008, 20072010, 2009 and 2006,2008, we have recognized expense related to these stock option grants totaling $5,166, $4,118$2,321, $3,943 and $1,498,$5,166, respectively, which represents a reduction of net income before taxes and minority interest.taxes. The impact on net income (loss) was a reduction of $3,332, $2,677$1,439, $2,926 and $956,$3,332, respectively. The unrecognized compensation costs related to the non-vested portion of these awards was $4,486$2,418 as of December 31, 20082010 and will be recognized over the applicable remaining vesting periods.
The non-vested restricted shares were granted at fair value on the date of grant. If the restricted non-vested shares are not forfeited, we will recognize compensation expense related to our 2008, 20072010, 2009 and 20062008 grants to officers and employees totaling $14,025, $1,600$9,781, $7,634 and $1,555,$14,025, respectively, over the three-year vesting period, ourperiod. We expect to recognize expense associated with grants to our directors in 2010, 2009 and 2008 2007totaling $430, $703 and 2006 totaling $402, $450 and $400, respectively, over a twelve-month vesting period.
The following tables provide a roll forward of stock options from December 31, 2005 to December 31, 2008 and a summary of stock options outstanding by exercise price range at December 31, 2008:
| | | | | | | | |
| | Options Outstanding | |
| | | | | Weighted
| |
| | | | | Average
| |
| | | | | Exercise
| |
| | Number | | | Price | |
|
Balance at December 31, 2005 | | | 3,512,444 | | | $ | 5.42 | |
Granted | | | 1,008,900 | | | $ | 21.19 | |
Exercised | | | (506,406 | ) | | $ | 3.52 | |
Cancelled | | | (150,378 | ) | | $ | 8.41 | |
| | | | | | | | |
Balance at December 31, 2006 | | | 3,864,560 | | | $ | 9.67 | |
Granted | | | 925,700 | | | $ | 20.19 | |
Exercised | | | (934,095 | ) | | $ | 4.40 | |
Cancelled | | | (125,404 | ) | | $ | 17.06 | |
| | | | | | | | |
Balance at December 31, 2007 | | | 3,730,761 | | | $ | 13.36 | |
Granted | | | 408,596 | | | $ | 17.90 | |
Exercised | | | (1,238,819 | ) | | $ | 9.70 | |
Cancelled | | | (154,026 | ) | | $ | 20.11 | |
| | | | | | | | |
Balance at December 31, 2008 | | | 2,746,512 | | | $ | 15.33 | |
| | | | | | | | |
9290
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Options Outstanding | | Options Exercisable |
| | | | Weighted
| | Weighted
| | | | Weighted
| | Weighted
|
| | Outstanding at
| | Average
| | Average
| | Exercisable at
| | Average
| | Average
|
| | December 31,
| | Remaining
| | Exercise
| | December 31,
| | Remaining
| | Exercise
|
Range of Exercise Price | | 2008 | | Life (Months) | | Price | | 2008 | | Life (months) | | Price |
|
$2.00 | | | 53,565 | | | | 7 | | | $ | 2.00 | | | | 53,565 | | | | 7 | | | $ | 2.00 | |
$4.48 - $4.80 | | | 59,262 | | | | 13 | | | $ | 4.78 | | | | 59,262 | | | | 13 | | | $ | 4.78 | |
$5.00 | | | 127,865 | | | | 46 | | | $ | 5.00 | | | | 82,032 | | | | 42 | | | $ | 5.00 | |
$6.69 - $8.16 | | | 604,233 | | | | 76 | | | $ | 6.71 | | | | 448,222 | | | | 74 | | | $ | 6.69 | |
$11.66 | | | 288,755 | | | | 81 | | | $ | 11.66 | | | | 288,755 | | | | 81 | | | $ | 11.66 | |
$15.90 | | | 345,000 | | | | 109 | | | $ | 15.90 | | | | — | | | | — | | | | — | |
$17.60 - $19.87 | | | 661,520 | | | | 97 | | | $ | 19.83 | | | | 142,605 | | | | 97 | | | $ | 19.80 | |
$22.55 - $24.07 | | | 504,312 | | | | 88 | | | $ | 23.95 | | | | 264,311 | | | | 88 | | | $ | 23.96 | |
$26.26 - $27.11 | | | 45,000 | | | | 101 | | | $ | 26.35 | | | | 15,000 | | | | 101 | | | $ | 26.35 | |
$29.88 | | | 40,000 | | | | 113 | | | $ | 29.88 | | | | — | | | | — | | | | — | |
$34.19 | | | 17,000 | | | | 114 | | | $ | 34.19 | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2,746,512 | | | | 85 | | | $ | 15.33 | | | | 1,353,752 | | | | 74 | | | $ | 12.35 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
The following tables provide a roll forward of stock options from December 31, 2007 to December 31, 2010 and a summary of stock options outstanding by exercise price range at December 31, 2010:
| | | | | | | | |
| | Options Outstanding | |
| | | | | Weighted
| |
| | | | | Average
| |
| | | | | Exercise
| |
| | Number | | | Price | |
|
Balance at December 31, 2007 | | | 3,730,761 | | | $ | 13.36 | |
Granted | | | 408,596 | | | $ | 17.90 | |
Exercised | | | (1,238,819 | ) | | $ | 9.70 | |
Cancelled | | | (154,026 | ) | | $ | 20.11 | |
| | | | | | | | |
Balance at December 31, 2008 | | | 2,746,512 | | | $ | 15.33 | |
Granted | | | 915,300 | | | $ | 6.41 | |
Exercised | | | (123,858 | ) | | $ | 4.01 | |
Cancelled | | | (154,334 | ) | | $ | 20.17 | |
| | | | | | | | |
Balance at December 31, 2009 | | | 3,383,620 | | | $ | 13.09 | |
Granted | | | 510,300 | | | $ | 12.53 | |
Exercised | | | (599,035 | ) | | $ | 13.49 | |
Cancelled | | | (153,305 | ) | | $ | 18.16 | |
| | | | | | | | |
Balance at December 31, 2010 | | | 3,141,580 | | | $ | 12.68 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Options Outstanding | | | Options Exercisable | |
| | | | | Weighted
| | | Weighted
| | | | | | Weighted
| | | Weighted
| |
| | Outstanding at
| | | Average
| | | Average
| | | Exercisable at
| | | Average
| | | Average
| |
| | December 31,
| | | Remaining
| | | Exercise
| | | December 31,
| | | Remaining
| | | Exercise
| |
Range of Exercise Price | | 2010 | | | Life (Months) | | | Price | | | 2010 | | | Life (months) | | | Price | |
|
$5.00 | | | 65,000 | | | | 29 | | | $ | 5.00 | | | | 65,000 | | | | 29 | | | $ | 5.00 | |
$6.69 - $8.16 | | | 1,386,031 | | | | 77 | | | $ | 6.54 | | | | 793,276 | | | | 63 | | | $ | 6.63 | |
$11.66 - $12.53 | | | 573,569 | | | | 103 | | | $ | 12.43 | | | | 63,269 | | | | 57 | | | $ | 11.66 | |
$15.90 | | | 275,400 | | | | 85 | | | $ | 15.90 | | | | 176,644 | | | | 73 | | | $ | 15.90 | |
$17.60 - $19.87 | | | 412,011 | | | | 73 | | | $ | 19.82 | | | | 412,011 | | | | 73 | | | $ | 19.82 | |
$22.55 - $24.07 | | | 333,069 | | | | 64 | | | $ | 23.97 | | | | 333,069 | | | | 64 | | | $ | 23.97 | |
$26.26 - $27.11 | | | 45,000 | | | | 77 | | | $ | 26.35 | | | | 45,000 | | | | 77 | | | $ | 26.35 | |
$29.88 | | | 40,000 | | | | 89 | | | $ | 29.88 | | | | 26,667 | | | | 89 | | | $ | 29.88 | |
$34.19 | | | 11,500 | | | | 90 | | | $ | 34.19 | | | | 7,667 | | | | 90 | | | $ | 34.19 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 3,141,580 | | | | 80 | | | $ | 12.68 | | | | 1,922,603 | | | | 66 | | | $ | 14.32 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
The total intrinsic value of stock options exercised during the years ended December 31, 20082010 and 20072009 was $24,063$7,888 and $16,636,$568, respectively. The total intrinsic value of allin-the-money vested outstanding stock options at December 31, 20082010 was $1,442.$29,330. Assuming all stock options outstanding at December 31, 20082010 were vested, the total intrinsic value of allin-the-money outstanding stock options would have been $1,805.$53,394.
| |
(d) | Amended and Restated 2001 Stock Incentive Plan: |
On March 28, 2006, our Board of Directors approved an amendment to the 2001 Stock Incentive Plan which increased the maximum number of shares issuable under the plan to 4,500,000 from 2,540,485, pursuant to which we could grant up to 1,959,515 additional shares of stock-based compensation, as of that date, to our directors, officers and employees. On April 12, 2006, stockholders owning more than a majority of the shares of our common stock adopted the amendment to the 2001 Stock Incentive Plan.
| |
(e) | 2008 Incentive Award Plan: |
In March 2008, upon the recommendation of the Compensation Committee and subject to approval by stockholders, our Board of Directors approved the Complete Production Services, Inc. 2008 Incentive Award Plan, which was intended to succeed the prior stock option plan, the Amended and Restated 2001 Stock Incentive Plan,
91
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
pursuant to which, 2,500,000 shares of common stock were authorized for future issuance to our directors, officers and employees in conjunction with stock-based compensation arrangements. On May 22, 2008, stockholders owning more than a majority of the shares of our common stock adopted the 2008 Stock Incentive Plan. We subsequently filed a registration statement onForm S-8 and made grants to our directors, officers and employees. In March 2009, upon the recommendation of the Compensation Committee and as approved by our stockholders owning more than a majority of the shares of our common stock on May 24, 2009, we amended the 2008 Incentive Award Plan to increase the number of shares authorized for future issuance to up to 6,400,000 shares. As amended, the aggregate number of shares of common stock available for issuance under the 2008 Incentive Award Plan will be reduced by (i) 1.3 shares for each share of common stock delivered in settlement of any full value award, and (ii) 1.0 shares for each share of common stock delivered in settlement of any option, stock appreciation right or any other award that is not a full value award. If all of the shares authorized by the amendment to the 2008 Incentive Award Plan were granted as full value awards, then there would be 4,900,000 shares granted as full value awards and no shares available for issuance as awards that were not full value awards. For purposes of the 2008 Incentive Award Plan, full value awards mean any award other than (i) an option, (ii) a stock appreciation right or (iii) any other award for which the holder pays the intrinsic value existing as of the date of grant (whether directly or by forgoing a right to receive a payment from us or any subsidiary of ours). We subsequently filed a registration statement onForm S-8 and made grants to our directors, officers and employees under the 2008 Incentive Award Plan, as amended. The 2008 Stock Incentive Plan provides that forfeitures under the Amended and Restated 2001 Stock Incentive Plan will become available for issuance under the 2008 Stock Incentive Award Plan.
| |
(f)(e) | Non-vested Restricted Stock: |
In accordance with SFAS No. 123R, we do not present deferred compensation as a contra-equity account, but ratherWe present the amortization of non-vested restricted stock as an increase in additional paid-in capital. At December 31, 20082010 and 2007,2009, amounts not yet recognized related to non-vested stock totaled $10,080$9,704 and $2,977,$9,727, respectively, which represented the unamortized expense associated with awards of non-vested stock granted to employees, officers and directors under our compensation plans, including $9,293 and $1,248 related to grants
93
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
made in 2008 and 2007, respectively.plans. Compensation expense associated with these grants of non-vested stock is determined as the fair value of the shares on the date of grant, and recognized ratably over the applicable vesting periods. We recognized compensation expense associated with non-vested restricted stock totaling $6,934, $3,142$9,233, $8,222 and $2,738$6,934 for the years ended December 31, 2010, 2009 and 2008, 2007 and 2006, respectively.
92
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
The following table summarizes the change in non-vested restricted stock from December 31, 20052007 to December 31, 2008:2010:
| | | | | | | | | | | | | | | | |
| | Non-vested
| | Non-vested
| |
| | Restricted Stock | | Restricted Stock | |
| | | | Weighted
| | | | Weighted
| |
| | | | Average
| | | | Average
| |
| | Number | | Grant Price | | Number | | Grant Price | |
|
Balance at December 31, 2005 | | | 786,170 | | | $ | 5.74 | | |
Granted | | | 145,643 | | | $ | 22.79 | | |
Vested | | | (213,996 | ) | | $ | 7.53 | | |
Forfeited | | | (27,744 | ) | | $ | 8.39 | | |
| | | | |
Balance at December 31, 2006 | | | 690,073 | | | $ | 8.67 | | |
Granted | | | 96,254 | | | $ | 21.30 | | |
Vested | | | (156,944 | ) | | $ | 12.93 | | |
Forfeited | | | (3,512 | ) | | $ | 23.50 | | |
| | | | |
Balance at December 31, 2007 | | | 625,871 | | | $ | 9.46 | | | | 625,871 | | | $ | 9.46 | |
Granted | | | 618,632 | | | $ | 23.32 | | | | 618,632 | | | $ | 23.32 | |
Vested | | | (422,461 | ) | | $ | 9.94 | | | | (422,461 | ) | | $ | 9.94 | |
Forfeited | | | (32,851 | ) | | $ | 12.47 | | | | (32,851 | ) | | $ | 12.47 | |
| | | | | | | | |
Balance at December 31, 2008 | | | 789,191 | | | $ | 19.95 | | | | 789,191 | | | $ | 19.95 | |
Granted | | | | 1,301,008 | | | $ | 6.41 | |
Vested | | | | (406,880 | ) | | $ | 16.75 | |
Forfeited | | | | (47,754 | ) | | $ | 9.85 | |
| | | | | | |
Balance at December 31, 2009 | | | | 1,635,565 | | | $ | 10.27 | |
Granted | | | | 809,096 | | | $ | 12.62 | |
Vested | | | | (679,815 | ) | | $ | 10.89 | |
Forfeited | | | | (91,992 | ) | | $ | 10.89 | |
| | | | |
Balance at December 31, 2010 | | | | 1,672,854 | | | $ | 11.12 | |
| | | | |
| |
(g) | (f) Common Shares Issued for Acquisitions: |
On November 8, 2006, we issued 1,010,566 shares of our common stock as purchase consideration for Pumpco. See Note 19, Related Party Transactions. In connection with this issuance, we recorded common stock and additional paid-in capital totaling $21,424, an issuance price of $21.20 per share which was the closing price of our common stock on November 8, 2006. The number of shares issued was calculated based upon the determined market value of Pumpco’s common stock and theagreed-upon purchase price negotiated with the seller.
On October 4, 2008, we issued 588,292 unregistered shares of our $0.01 par value common stock as a portion of the purchase consideration for Appalachian Well Service, Inc. and its wholly owned subsidiary. See Note 3, Business combinations.“Business combinations”. In connection with this issuance, we recorded common stock and additional paid-in capital totaling $8,854, based on an issuance price of $15.04 per share, based on an average of the closing and opening price of our common stock on the business day proceeding and following the acquisition date. The number of shares issued was calculated based upon theagreed-upon purchase price negotiated with the seller.
(g) Treasury shares:
In accordance with the provisions of the 2008 Incentive Award Plan, holders of unvested restricted stock were given the option to either remit to us the required withholding taxes associated with the vesting of restricted stock, or to authorize us to repurchase shares equivalent to the cost of the withholding tax and to remit the withholding taxes
9493
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
on behalf of the holder. Pursuant to this provision, we repurchased the following shares during the year ended December 31, 2010:
| | | | | | | | | | | | |
| | Shares
| | | Average Price
| | | Extended
| |
Period | | Purchased | | | Paid per Share | | | Amount | |
|
January 1 — 31, 2010 | | | 109,360 | | | $ | 12.53 | | | $ | 1,370 | |
March 1 — 31, 2010 | | | 902 | | | | 14.06 | | | | 13 | |
April 1 — 30, 2010 | | | 426 | | | | 11.84 | | | | 5 | |
May 1 — 31, 2010 | | | 1,260 | | | | 14.48 | | | | 18 | |
June 1 — 30, 2010 | | | 355 | | | | 14.83 | | | | 4 | |
July 1 — 31, 2010 | | | 591 | | | | 14.38 | | | | 8 | |
December 1 — 31, 2010 | | | 436 | | | | 29.00 | | | | 13 | |
| | | | | | | | | | | | |
| | | 113,330 | | | | | | | $ | 1,431 | |
| | | | | | | | | | | | |
These shares were included as treasury stock at cost in the accompanying balance sheet as of December 31, 2010. We expect to purchase additional shares in the future pursuant to this plan provision.
We compute basic earnings per share by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common and potential common share includes the weighted average of additional shares associated with the incremental effect of dilutive employee stock options and non-vested restricted stock, contingent shares, stock warrants and convertible debentures, as determined using the treasury stock method prescribed by SFAS No. 128, “Earnings Per Share.”the FASB guidance on earnings per share. The following table reconciles basic and diluted weighted average shares used in the computation of earnings per share for the years ended December 31, 2008, 20072010, 2009 and 2006:2008:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | Year Ended December 31, | |
| | 2008 | | 2007 | | 2006 | | | 2010 | | 2009 | | 2008 | |
| | (In thousands) | | | (In thousands) | |
|
Weighted average basic common shares outstanding | | | 73,600 | | | | 71,991 | | | | 65,843 | | | | 76,048 | | | | 75,095 | | | | 73,600 | |
Effect of dilutive securities: | | | | | | | | | | | | | | | | | | | | | | | | |
Employee stock options | | | — | | | | 1,078 | | | | 1,613 | | | | 759 | | | | — | | | | — | |
Non-vested restricted stock | | | — | | | | 283 | | | | 313 | | | | 877 | | | | — | | | | — | |
Contingent shares(a) | | | — | | | | — | | | | 306 | | |
| | | | | | | | | | | | | | |
Weighted average diluted common and potential common shares outstanding | | | 73,600 | | | | 73,352 | | | | 68,075 | | | | 77,684 | | | | 75,095 | | | | 73,600 | |
| | | | | | | | | | | | | | |
| | |
(a) | | Contingent shares represent potential common stock issuable to the former owners of Parchman and MGM pursuant to the respective purchase agreements based upon 2005 operating results. On March 31, 2006, we calculated and issued the actual shares earned totaling 1,214 shares. |
For each of the yearyears ended December 31, 2009 and 2008, we incurred a net loss and thus all potential common shares were deemed to be anti-dilutive. We excluded the impact of anti-dilutive potential common shares from the calculation of diluted weighted average shares for the years ended December 31, 2008, 20072010, 2009 and 2006.2008. If these potential common shares were included, the impact would have been a decrease in weighted average shares outstanding of 1,245,148194,211 shares, 231,2332,474,169 shares and 41,5551,245,148 shares, respectively, for the years ended December 31, 2008, 20072010, 2009 and 2006.2008.
| |
14. | Discontinued operations: |
In May 2008, our Board of Directors authorized and committed to a plan to sell certain business assets located primarily in north Texas which included our product supply stores, certain drilling logistics assets and other completion and production services assets. Although this sale doesdid not represent a material disposition of assets relative to our total assets, as presented in the accompanying balance sheets, the disposal group doesdid represent a significant portion of the assets and operations which were attributable to our product sales business segment for the periods presented, and therefore, was accounted for
94
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
as a disposal group that is held for sale in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”sale. We revised our financial statements, pursuant to SFAS No. 144, and reclassified the assets and liabilities of the disposal group as held for sale as of the date of each balance sheet presentedin accordance with U.S. GAAP and removed the results of operations of the disposal group from net income from continuing operations, and presented these separately as income from discontinued operations, net of tax, for each of the accompanying statementsstatement of operations.operations for the year ended December 31, 2008. We ceased depreciating the assets of this disposal group in May 2008 and adjusted the net assets to the lower of carrying value or fair value less selling costs, which resulted in a pre-tax charge of approximately $200. In addition, we allocated $11,109 of goodwill associated with the original formation of Complete Production Services, Inc. to this business. Our company was formed from the combination of three entities under common control in September 2005, which resulted inbusiness, and impaired this goodwill of $93,792. Of
95
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
this amount, $11,109 was deemed to be attributable to this disposal group and was impaired as of the date of the transaction. Thus, this amount has been included in the calculation of the loss on the sale of this disposal group.
On May 19, 2008, we completed the sale of the disposal group for $50,150 in cash and we received assets with a fair market value of $7,987. In addition, we retained the receivables and payables associated with the operating results of these entities as of the date of the sale. The carrying value of the related net assets was approximately $51,353 on May 19, 2008, excluding allocated goodwill of $11,109. We recorded a loss of $6,935 associated with the sale of this disposal group, which represents the excess of the carrying value of the assets less selling costs over the sales price and a charge of approximately $2,610 related to income tax on the transaction. The income tax on the disposal was primarily attributable to the $11,109 of allocated goodwill which was non-deductible for tax purposes and resulted in a taxable gain on the disposal. We sold this disposal group to Select Energy Services, L.L.C., an oilfield service company located in Gainesville, Texas which iswas owned by a former officer of one of our subsidiaries. Pursuant to the agreement, we will sublet office space to Select Energy Services, L.L.C., and provideprovided certain administrative functions for a period of one year at anagreed-upon rate for services per hour. Proceeds from the sale of this disposal group were used to repay outstanding borrowings under our U.S. revolving credit facility and for other general corporate purposes.
The following table summarizes operating results for this disposal group for the periods indicated:
| | | | | | | | | | | | |
| | Period
| | | | |
| | January 1, 2008
| | | | |
| | through
| | Year Ended
| | Year Ended
|
| | May 19,
| | December 31,
| | December 31,
|
| | 2008 | | 2007 | | 2006 |
|
Revenue | | $ | 59,553 | | | $ | 159,794 | | | $ | 127,813 | |
Income before taxes | | $ | 3,330 | | | $ | 18,333 | | | $ | 19,619 | |
Net income (loss) before loss on disposal in 2008 | | $ | 2,076 | | | $ | 11,443 | | | $ | 12,247 | |
Net income (loss) | | $ | (4,859 | ) | | $ | 11,443 | | | $ | 12,247 | |
96
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
The captions related to discontinued operations in the accompanying balance sheet at December 31, 2007 included the following account balances:
| | | | |
| | December 31,
|
| | 2007 |
|
Current assets held for sale: | | | | |
Accounts receivable | | $ | 23,003 | |
Inventory | | | 27,191 | |
Other | | | 113 | |
| | | | |
| | $ | 50,307 | |
| | | | |
Long-term assets held for sale: | | | | |
Property, plant and equipment, net | | $ | 21,505 | |
Goodwill | | | 11,358 | |
Intangible assets | | | 187 | |
| | | | |
| | $ | 33,050 | |
| | | | |
Current liabilities of held for sale operations: | | | | |
Accounts payable | | $ | 8,260 | |
Accrued expenses | | | 1,168 | |
Other | | | 277 | |
| | | | |
| | $ | 9,705 | |
| | | | |
Long-term liabilities of held for sale operations: | | | | |
Long-term deferred tax liabilities and other | | $ | 2,085 | |
| | | | |
| | $ | 2,085 | |
| | | | |
In August 2006, our Board of Directors authorized and committed to a plan to sell certain manufacturing and production enhancement operations of a subsidiary located in Alberta, Canada, which includes certain assets located in south Texas. Although this sale did not represent a material disposition of assets relative to our total assets, the disposal group did represent a significant portion of the assets and operations which were attributable to our product sales business segment for the periods presented, and therefore, was accounted for as a disposal group that is held for sale in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” We revised our financial statements, pursuant to SFAS No. 144, and reclassified the assets and liabilities of the disposal group as held for sale as of the date of each balance sheet presented and removed the results of operations of the disposal group from net income from continuing operations, and presented these separately as income from discontinued operations, net of tax, for the accompanying statements of operations for the year ended December 31, 2006. We ceased depreciating the assets of this disposal group in September 2006 and adjusted the net assets to the lower of carrying value or fair value less selling costs, which resulted in a pre-tax charge of approximately $100.
On October 31, 2006, we completed the sale of the disposal group for $19,310 in cash and a $2,000 Canadian dollar denominated note (an equivalent of 1,715 U.S. dollars at December 31, 2006) which matures on October 31, 2009 and accrues interest at a specified Canadian bank prime rate plus 1.50% per annum. The carrying value of the related net assets was $21,705 on October 31, 2006. We recorded a loss of $603 associated with the sale of this disposal group, which represents the excess of the sales price over the carrying value of the assets less selling costs, the benefit of a transaction gain related to a release of cumulative translation adjustment associated with this business, and a charge of approximately $1,000 related to capital tax in Canada. We sold this disposal group to Paintearth Energy Services, Inc., an oilfield service company located in Calgary, Alberta, Canada, that employs two
97
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
of our former employees as key managers. The sales agreement allowed Paintearth Energy Services, Inc. to use our subsidiary’s trade name for a period of 120 days from November 1, 2006 through February 28, 2007. Proceeds from the sale of this disposal group were used to repay outstanding borrowings under the Canadian revolving portion of our credit facility. In January 2009, we amended the note issued in conjunction with the sale of this disposal group. See Note 24, Subsequent events.
Operating results for this disposal group for the period January 1, 2006 through October 31, 2006, excluding the loss on the sale of the disposal group, were as follows:
| | | | |
| | Period
|
| | January 1, 2006
|
| | through
|
| | October 31,
|
| | 2006 |
|
Revenue | | $ | 37,292 | |
Income before taxes and minority interest | | $ | 3,393 | |
Net income before loss on disposal in 2006 | | $ | 2,406 | |
Net income | | $ | 1,803 | |
| | | | | | | | |
| | Period
| | |
| | January 1, 2008
| | |
| | through
| | |
| | May 19,
| | |
| | 2008 | | |
|
Revenue | | $ | 59,553 | | | | | |
Income before taxes | | $ | 3,330 | | | | | |
Net income before loss on disposal in 2008 | | $ | 2,076 | | | | | |
Net income loss | | $ | (4,859 | ) | | | | |
SFAS No. 131, “Disclosure About Segments of an Enterprise and Related Information,” establishes standards for the reporting ofWe report segment information about operating segments, products and services, geographic areas, and major customers. The method of determining what information to report is based on the wayhow our management organizes the operating segments for makingto make operational decisions and assessingto assess financial performance. We evaluate performance and allocate resources based on net income (loss) from continuing operations before net interest expense, taxes, depreciation and amortization, minoritynon-controlling interest and impairment loss (“Adjusted EBITDA”). The calculation of Adjusted EBITDA should not be viewed as a substitute for calculations under U.S. GAAP, in particular net income. Adjusted EBITDA is included in this Annual Report onForm 10-K because our management considers it an important supplemental measure of our performance and believes that it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry, some of which present EBITDA when reporting their results. We regularly evaluate our performance as compared to other companies in our industry that have different financing and capital structuresand/or tax rates by using Adjusted EBITDA. In addition, we use Adjusted EBITDA in evaluating acquisition targets. Management also believes that Adjusted EBITDA is a useful tool for measuring our ability to meet our future debt service, capital expenditures and working capital requirements, and Adjusted EBITDA is commonly used by us and our investors to measure our ability to service indebtedness. Adjusted EBITDA is not a substitute for the U.S. GAAP measures of earnings or cash flow and is not necessarily a measure of our ability to fund our cash needs. It should be noted that companies calculate EBITDA (including Adjusted EBITDA) differently and,
95
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
therefore, EBITDA has material limitations as a performance measure because it excludes interest expense, taxes, depreciation and amortization. Adjusted EBITDA calculated by us may not be comparable to the EBITDA (or Adjusted EBITDA) calculation of another company.company and also differs from the calculation of EBITDA under our credit facilities (see Note 11 for a description of the calculation of EBITDA under our existing credit facility, as amended). See the table below for a reconciliation of Adjusted EBITDA to operating income (loss) by segment.
We have three reportable operating segments: completion and production services (“C&PS”), drilling services and product sales. The accounting policies of our reporting segments are the same as those used to prepare our consolidated financial statements as of December 31, 2008, 20072010, 2009 and 2006.2008. Inter-segment transactions are accounted for on a cost recovery basis.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Drilling
| | | Product
| | | | | | | |
| | C&PS | | | Services | | | Sales | | | Corporate | | | Total | |
|
Year Ended December 31, 2010 | | | | | | | | | | | | | | | | | | | | | | | | |
Revenue from external customers | | $ | 1,354,797 | | | $ | 172,821 | | | $ | 33,775 | | | $ | — | | | | | | | $ | 1,561,393 | |
Inter-segment revenues | | $ | 248 | | | $ | 236 | | | $ | 5,998 | | | $ | (6,482 | ) | | | | | | $ | — | |
Adjusted EBITDA, as defined | | $ | 369,826 | | | $ | 38,973 | | | $ | 5,197 | | | $ | (39,088 | ) | | | | | | $ | 374,908 | |
Depreciation and amortization | | $ | 159,110 | | | $ | 18,480 | | | $ | 2,211 | | | $ | 2,022 | | | | | | | $ | 181,823 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | | $ | 210,716 | | | $ | 20,493 | | | $ | 2,986 | | | $ | (41,110 | ) | | | | | | $ | 193,085 | |
Capital expenditures | | $ | 156,787 | | | $ | 10,950 | | | $ | 320 | | | $ | 1,862 | | | | | | | $ | 169,919 | |
As of December 31, 2010 | | | | | | | | | | | | | | | | | | | | | | | | |
Segment assets | | $ | 1,488,755 | | | $ | 170,944 | | | $ | 35,015 | | | $ | 105,862 | | | | | | | $ | 1,800,576 | |
Year Ended December 31, 2009 | | | | | | | | | | | | | | | | | | | | | | | | |
Revenue from external customers | | $ | 897,584 | | | $ | 114,729 | | | $ | 44,081 | | | $ | — | | | | | | | $ | 1,056,394 | |
Inter-segment revenues | | $ | 105 | | | $ | 746 | | | $ | 8,237 | | | $ | (9,088 | ) | | | | | | $ | — | |
Adjusted EBITDA, as defined | | $ | 165,787 | | | $ | 9,641 | | | $ | 7,966 | | | $ | (34,313 | ) | | | | | | $ | 149,081 | |
Depreciation and amortization | | $ | 174,929 | | | $ | 21,067 | | | $ | 2,460 | | | $ | 2,276 | | | | | | | $ | 200,732 | |
Write-off of deferred financing fees | | $ | — | | | $ | — | | | $ | — | | | $ | (528 | ) | | | | | | $ | (528 | ) |
Fixed asset and other intangible impairment loss | | $ | 2,488 | | | $ | 36,158 | | | $ | — | | | $ | — | | | | | | | $ | 38,646 | |
Goodwill impairment loss | | $ | 97,643 | | | $ | — | | | $ | — | | | $ | — | | | | | | | $ | 97,643 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | | $ | (109,273 | ) | | $ | (47,584 | ) | | $ | 5,506 | | | $ | (36,061 | ) | | | | | | $ | (187,412 | ) |
Capital expenditures | | $ | 30,930 | | | $ | 6,680 | | | $ | 228 | | | $ | 649 | | | | | | | $ | 38,487 | |
As of December 31, 2009 | | | | | | | | | | | | | | | | | | | | | | | | |
Segment assets | | $ | 1,292,199 | | | $ | 172,605 | | | $ | 37,270 | | | $ | 86,780 | | | | | | | $ | 1,588,854 | |
Year Ended December 31, 2008 | | | | | | | | | | | | | | | | | | | | | | | | |
Revenue from external customers | | $ | 1,541,709 | | | $ | 234,104 | | | $ | 59,102 | | | $ | — | | | | | | | $ | 1,834,915 | |
Inter-segment revenues | | $ | 576 | | | $ | 860 | | | $ | 30,358 | | | $ | (31,794 | ) | | | | | | $ | — | |
Adjusted EBITDA, as defined | | $ | 467,100 | | | $ | 58,743 | | | $ | 12,677 | | | $ | (38,293 | ) | | | | | | $ | 500,227 | |
Depreciation and amortization | | $ | 156,298 | | | $ | 19,961 | | | $ | 2,537 | | | $ | 2,401 | | | | | | | $ | 181,197 | |
Goodwill impairment loss | | $ | 243,203 | | | $ | 27,410 | | | $ | 1,393 | | | $ | — | | | | | | | $ | 272,006 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | | $ | 67,599 | | | $ | 11,372 | | | $ | 8,747 | | | $ | (40,694 | ) | | | | | | $ | 47,024 | |
Capital expenditures | | $ | 211,648 | | | $ | 34,253 | | | $ | 6,244 | | | $ | 1,631 | | | | | | | $ | 253,776 | |
As of December 31, 2008 | | | | | | | | | | | | | | | | | | | | | | | | |
Segment assets | | $ | 1,631,875 | | | $ | 251,015 | | | $ | 52,048 | | | $ | 52,415 | | | | | | | $ | 1,987,353 | |
9896
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
| | | | | | | | | | | | | | | | | | | | |
| | | | | Drilling
| | | Product
| | | | | | | |
| | C&PS | | | Services | | | Sales | | | Corporate | | | Total | |
|
Year Ended December 31, 2008 | | | | | | | | | | | | | | | | | | | | |
Revenue from external customers | | $ | 1,545,348 | | | $ | 234,104 | | | $ | 59,102 | | | $ | — | | | $ | 1,838,554 | |
Inter-segment revenues | | $ | 576 | | | $ | 860 | | | $ | 30,358 | | | $ | (31,794 | ) | | $ | — | |
EBITDA, as defined | | $ | 473,376 | | | $ | 58,743 | | | $ | 12,677 | | | $ | (38,293 | ) | | $ | 506,503 | |
Depreciation and amortization | | $ | 156,198 | | | $ | 19,961 | | | $ | 2,537 | | | $ | 2,401 | | | $ | 181,097 | |
Impairment charge | | $ | 243,203 | | | $ | 27,410 | | | $ | 1,393 | | | $ | — | | | $ | 272,006 | |
| | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | | $ | 73,975 | | | $ | 11,372 | | | $ | 8,747 | | | $ | (40,694 | ) | | $ | 53,400 | |
Capital expenditures | | $ | 211,687 | | | $ | 34,253 | | | $ | 6,244 | | | $ | 1,631 | | | $ | 253,815 | |
As of December 31, 2008 | | | | | | | | | | | | | | | | | | | | |
Segment assets | | $ | 1,639,399 | | | $ | 251,015 | | | $ | 52,048 | | | $ | 52,415 | | | $ | 1,994,877 | |
Year Ended December 31, 2007 | | | | | | | | | | | | | | | | | | | | |
Revenue from external customers | | $ | 1,242,314 | | | $ | 212,272 | | | $ | 40,857 | | | $ | — | | | $ | 1,495,443 | |
Inter-segment revenues | | $ | 1,148 | | | $ | 2,223 | | | $ | 38,715 | | | $ | (42,086 | ) | | $ | — | |
EBITDA, as defined | | $ | 398,628 | | | $ | 61,418 | | | $ | 9,943 | | | $ | (28,136 | ) | | $ | 441,853 | |
Depreciation and amortization | | $ | 112,836 | | | $ | 14,572 | | | $ | 2,064 | | | $ | 1,881 | | | $ | 131,353 | |
Impairment charge | | $ | 13,094 | | | $ | — | | | $ | — | | | $ | — | | | $ | 13,094 | |
| | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | | $ | 272,698 | | | $ | 46,846 | | | $ | 7,879 | | | $ | (30,017 | ) | | $ | 297,406 | |
Capital expenditures | | $ | 305,940 | | | $ | 60,259 | | | $ | 4,323 | | | $ | 2,032 | | | $ | 372,554 | |
As of December 31, 2007 | | | | | | | | | | | | | | | | | | | | |
Segment assets | | $ | 1,651,653 | | | $ | 287,563 | | | $ | 89,492 | | | $ | 26,051 | | | $ | 2,054,759 | |
Year Ended December 31, 2006 | | | | | | | | | | | | | | | | | | | | |
Revenue from external customers | | $ | 860,508 | | | $ | 194,517 | | | $ | 29,586 | | | $ | — | | | $ | 1,084,611 | |
Inter-segment revenues | | $ | 136 | | | $ | 1,684 | | | $ | 39,920 | | | $ | (41,740 | ) | | $ | — | |
EBITDA, as defined | | $ | 252,621 | | | $ | 70,428 | | | $ | 8,536 | | | $ | (20,922 | ) | | $ | 310,663 | |
Depreciation and amortization | | $ | 64,393 | | | $ | 9,069 | | | $ | 834 | | | $ | 1,606 | | | $ | 75,902 | |
Write-off of deferred financing fees | | $ | — | | | $ | — | | | $ | — | | | $ | (170 | ) | | $ | (170 | ) |
| | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | | $ | 188,228 | | | $ | 61,359 | | | $ | 7,702 | | | $ | (22,358 | ) | | $ | 234,931 | |
Capital expenditures | | $ | 234,380 | | | $ | 57,853 | | | $ | 9,349 | | | $ | 2,340 | | | $ | 303,922 | |
As of December 31, 2006 | | | | | | | | | | | | | | | | | | | | |
Segment assets | | $ | 1,369,906 | | | $ | 245,806 | | | $ | 96,537 | | | $ | 28,075 | | | $ | 1,740,324 | |
Inter-segment sales in 2008, 20072010, 2009 and 20062008 were largely due to service work performed and drilling rigs assembled by a subsidiary in the product sales business segment that sold suchprovided these services and rigs to a subsidiary in the drilling services business segment as well as other subsidiaries primarily in the completion and production services business segment.
99
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
The following table reconciles segment information for our business segments as originally reported for the years ended December 31, 2007 and 2006, to the information revised for discontinued operations:
| | | | | | | | | | | | |
| | Original
| | | Discontinued
| | | Revised
| |
| | Presentation | | | Operations | | | Presentation | |
|
Year Ended December 31, 2007 | | | | | | | | | | | | |
Completion and production services: | | | | | | | | | | | | |
Revenue from external customers | | $ | 1,262,100 | | | $ | 19,786 | | | $ | 1,242,314 | |
| | | | | | | | | | | | |
EBITDA, as defined | | $ | 404,893 | | | $ | 6,265 | | | $ | 398,628 | |
Depreciation and amortization | | | 114,139 | | | | 1,303 | | | | 112,836 | |
Impairment charge | | | 13,094 | | | | — | | | | 13,094 | |
| | | | | | | | | | | | |
Operating income | | $ | 277,660 | | | $ | 4,962 | | | $ | 272,698 | |
| | | | | | | | | | | | |
Drilling services: | | | | | | | | | | | | |
Revenue from external customers | | $ | 240,377 | | | $ | 28,105 | | | $ | 212,272 | |
| | | | | | | | | | | | |
EBITDA, as defined | | $ | 69,628 | | | $ | 8,210 | | | $ | 61,418 | |
Depreciation and amortization | | | 17,023 | | | | 2,451 | | | | 14,572 | |
| | | | | | | | | | | | |
Operating income | | $ | 52,605 | | | $ | 5,759 | | | $ | 46,846 | |
| | | | | | | | | | | | |
Product Sales: | | | | | | | | | | | | |
Revenue from external customers | | $ | 152,760 | | | $ | 111,903 | | | $ | 40,857 | |
| | | | | | | | | | | | |
EBITDA, as defined | | $ | 18,443 | | | $ | 8,500 | | | $ | 9,943 | |
Depreciation and amortization | | | 2,918 | | | | 854 | | | | 2,064 | |
| | | | | | | | | | | | |
Operating income | | $ | 15,525 | | | $ | 7,646 | | | $ | 7,879 | |
| | | | | | | | | | | | |
Year Ended December 31, 2006 | | | | | | | | | | | | |
Completion and production services: | | | | | | | | | | | | |
Revenue from external customers | | $ | 873,493 | | | $ | 12,985 | | | $ | 860,508 | |
| | | | | | | | | | | | |
EBITDA, as defined | | $ | 257,630 | | | $ | 5,009 | | | $ | 252,621 | |
Depreciation and amortization | | | 65,317 | | | | 924 | | | | 64,393 | |
| | | | | | | | | | | | |
Operating income | | $ | 192,313 | | | $ | 4,085 | | | $ | 188,228 | |
| | | | | | | | | | | | |
Drilling services: | | | | | | | | | | | | |
Revenue from external customers | | $ | 215,255 | | | $ | 20,738 | | | $ | 194,517 | |
| | | | | | | | | | | | |
EBITDA, as defined | | $ | 78,543 | | | $ | 8,115 | | | $ | 70,428 | |
Depreciation and amortization | | | 10,599 | | | | 1,530 | | | | 9,069 | |
| | | | | | | | | | | | |
Operating income | | $ | 67,944 | | | $ | 6,585 | | | $ | 61,359 | |
| | | | | | | | | | | | |
Product Sales: | | | | | | | | | | | | |
Revenue from external customers | | $ | 123,676 | | | $ | 94,090 | | | $ | 29,586 | |
| | | | | | | | | | | | |
EBITDA, as defined | | $ | 18,708 | | | $ | 10,172 | | | $ | 8,536 | |
Depreciation and amortization | | | 1,943 | | | | 1,109 | | | | 834 | |
| | | | | | | | | | | | |
Operating income | | $ | 16,765 | | | $ | 9,063 | | | $ | 7,702 | |
| | | | | | | | | | | | |
100
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
We do not allocate net interest expense or tax expense or minority interest to the operating segments. The write-off of deferred financing fees of $170$528 for the year ended December 31, 2006 was recorded as a decrease in2009 reduced Adjusted EBITDA, as defined, for the Corporate and Other segment. The following table reconciles operating income (loss) as reported above to net income from continuing operations for each of the years ended December 31, 2008, 20072010, 2009 and 2006.2008.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2008 | | 2007 | | 2006 | | | 2010 | | 2009 | | 2008 | |
|
Segment operating income | | $ | 53,400 | | | $ | 297,406 | | | $ | 234,931 | | |
Segment operating income (loss) | | | $ | 193,085 | | | $ | (187,412 | ) | | $ | 47,024 | |
Interest expense | | | 59,729 | | | | 61,328 | | | | 40,645 | | | | 57,669 | | | | 56,895 | | | | 59,729 | |
Interest income | | | (301 | ) | | | (325 | ) | | | (1,387 | ) | | | (322 | ) | | | (79 | ) | | | (301 | ) |
Income taxes | | | 74,568 | | | | 86,851 | | | | 70,516 | | | | 51,580 | | | | (63,088 | ) | | | 72,305 | |
Write-off of deferred financing fees | | | — | | | | — | | | | 170 | | | | — | | | | 528 | | | | — | |
Minority interest | | | — | | | | (569 | ) | | | (49 | ) | |
| | | | | | | | | | | | | | |
Net income (loss) from continuing operations | | $ | (80,596 | ) | | $ | 150,121 | | | $ | 125,036 | | | $ | 84,158 | | | $ | (181,668 | ) | | $ | (84,709 | ) |
| | | | | | | | | | | | | | |
The following table summarizes the changes in the carrying amount of goodwill for continuing operations by segment for the three-year period ended December 31, 2008:2010:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Drilling
| | Product
| | | | | | | Drilling
| | Product
| | | |
| | C&PS | | Services | | Sales | | Total | | | C&PS | | Services | | Sales | | Total | |
|
Balance at December 31, 2005 | | $ | 247,792 | | | $ | 33,827 | | | $ | 12,032 | | | $ | 293,651 | | |
Acquisitions | | | 230,681 | | | | 1,049 | | | | — | | | | 231,730 | | |
Stock issued in accordance with earn-out provisions of purchase agreements | | | 27,359 | | | | — | | | | — | | | | 27,359 | | |
Foreign currency translation | | | (69 | ) | | | — | | | | — | | | | (69 | ) | |
| | | | | | | | | | |
Balance at December 31, 2006 | | $ | 505,763 | | | $ | 34,876 | | | $ | 12,032 | | | $ | 552,671 | | |
Acquisitions | | | 19,391 | | | | — | | | | — | | | | 19,391 | | |
Impairment charge(a) | | | (13,360 | ) | | | — | | | | — | | | | (13,360 | ) | |
Amount paid pursuant to earn-out agreement | | | 800 | | | | — | | | | — | | | | 800 | | |
Contingency adjustment and other(b) | | | (6,068 | ) | | | (579 | ) | | | — | | | | (6,647 | ) | |
Foreign currency translation | | | 7,178 | | | | — | | | | 455 | | | | 7,633 | | |
| | | | | | | | | | |
Balance at December 31, 2007 | | $ | 513,704 | | | $ | 34,297 | | | $ | 12,487 | | | $ | 560,488 | | | $ | 512,363 | | | $ | 32,973 | | | $ | 3,794 | | | $ | 549,130 | |
Impairment associated with discontinued operations(c) | | | (1,341 | ) | | | (1,324 | ) | | | (8,693 | ) | | | (11,358 | ) | |
| | | | | | | | | | |
Balance at December 31, 2007, adjusted for discontinued operations | | $ | 512,363 | | | $ | 32,973 | | | $ | 3,794 | | | $ | 549,130 | | |
Acquisitions | | | 71,209 | | | | — | | | | — | | | | 71,209 | | | | 71,209 | | | | — | | | | — | | | | 71,209 | |
Impairment charge(a) | | | (243,481 | ) | | | (27,410 | ) | | | (1,393 | ) | | | (272,284 | ) | | | (243,481 | ) | | | (27,410 | ) | | | (1,393 | ) | | | (272,284 | ) |
Contingency adjustment and other | | | (128 | ) | | | — | | | | — | | | | (128 | ) | | | (128 | ) | | | — | | | | — | | | | (128 | ) |
Foreign currency translation | | | (6,335 | ) | | | — | | | | — | | | | (6,335 | ) | | | (6,335 | ) | | | — | | | | — | | | | (6,335 | ) |
| | | | | | | | | | | | | | | | | | |
Balance at December 31, 2008 | | $ | 333,628 | | | $ | 5,563 | | | $ | 2,401 | | | $ | 341,592 | | | $ | 333,628 | | | $ | 5,563 | | | $ | 2,401 | | | $ | 341,592 | |
Impairment charge(a) | | | | (97,643 | ) | | | — | | | | — | | | | (97,643 | ) |
Contingency adjustment and other | | | | (126 | ) | | | — | | | | — | | | | (126 | ) |
| | | | | | | | | | | | | | | | | | |
Balance at December 31, 2009 | | | $ | 235,859 | | | $ | 5,563 | | | $ | 2,401 | | | $ | 243,823 | |
Acquisitions | | | | 6,710 | | | | — | | | | — | | | | 6,710 | |
| | | | | | | | | | |
Balance at December 31, 2010 | | | $ | 242,569 | | | $ | 5,563 | | | $ | 2,401 | | | $ | 250,533 | |
| | | | | | | | | | |
| | |
(a) | | In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” we are required to test ourWe evaluate goodwill for impairment annually, or more often if indicators of impairment exist. We performed this test for 2007 and determined that goodwill associated with our Canadian reportable unit was deemed to be impaired as of the test date, resulting in an impairment charge of $13,360. For the year ending December 31, 2008, we determined that goodwill associated with our Canadian reportable unit was further impaired as of the annual test date. However, during the fourth quarter of 2008, we believe thatFurthermore, due to the decline in the U.S. debt and equity markets, as well as the credit |
101
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
| | |
| | market, constituted a triggering event, as defined in SFAS No. 142. As such, we performedre-performed the prescribed impairment testing at December 31, 2008 and noted impairment which impacted several of our reportable units. Therefore, we recorded an impairment charge of $272,006 for the year ended December 31, 2008. For the year ending December 31, 2009, we determined that goodwill associated with several of our reportable units was also impaired so we recorded an impairment charge of $97,643. See Note 2, Significant Accounting Policies“Significant accounting policies — Fair Value Measurements. |
|
(b) | | The contingency adjustment includes a reclassification of $3,485 from goodwill to identifiable intangible assets, primarily non-compete agreements and customer relationships, which were identified upon acquisition but for which the fair value was recently determined based upon estimates calculated by a third-party appraiser. Of this amount, $2,017 related to the acquisition of Pumpco Services, Inc. in November 2006. In addition, we recorded an adjustment to reduce goodwill related to the acquisition of Pumpco Services, Inc. totaling $3,136 associated with certain federal income tax liabilities recorded at the acquisition date that were deemed to be unnecessary based upon the 2006 federal tax return prepared in 2007. Partially offsetting these reductions to goodwill were additional charges associated with final working capital adjustments for several 2006 and 2007 acquisitions. |
|
(c) | | See Note 10 — Discontinued operations.measurements.” |
97
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
Geographic information (d)(b):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | United
| | | | Other
| | | | | United
| | | | Other
| | |
| | States | | Canada | | International | | Total | | | States | | Canada | | International | | Total |
|
Year Ended December 31, 2010 | | | | | | | | | | | | | |
Revenue by sale origin to external customers | | | $ | 1,398,091 | | | $ | 81,190 | | | $ | 82,112 | | | $ | 1,561,393 | |
Income from continuing operations before taxes | | | $ | 123,595 | | | $ | 1,255 | | | $ | 10,888 | | | $ | 135,738 | |
December 31, 2010 | | | | | | | | | | | | | |
Long-lived assets | | | $ | 1,190,545 | | | $ | 34,256 | | | $ | 23,865 | | | $ | 1,248,666 | |
Year Ended December 31, 2009 | | | | | | | | | | | | | |
Revenue by sale origin to external customers | | | $ | 910,297 | | | $ | 55,514 | | | $ | 90,583 | | | $ | 1,056,394 | |
Income (loss) from continuing operations before taxes | | | $ | (254,884 | ) | | $ | (11,069 | ) | | $ | 21,197 | | | $ | (244,756 | ) |
December 31, 2009 | | | | | | | | | | | | | |
Long-lived assets | | | $ | 1,151,320 | | | $ | 40,577 | | | $ | 27,031 | | | $ | 1,218,928 | |
Year Ended December 31, 2008 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenue by sale origin to external customers | | $ | 1,650,815 | | | $ | 86,250 | | | $ | 101,489 | | | $ | 1,838,554 | | | $ | 1,647,176 | | | $ | 86,250 | | | $ | 101,489 | | | $ | 1,834,915 | |
Income (loss) before taxes and minority interest | | $ | (3,426 | ) | | $ | (26,412 | ) | | $ | 23,810 | | | $ | (6,028 | ) | |
Income (loss) from continuing operations before taxes | | | $ | (9,802 | ) | | $ | (26,412 | ) | | $ | 23,810 | | | $ | (12,404 | ) |
December 31, 2008 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Long-lived assets | | $ | 1,477,103 | | | $ | 47,170 | | | $ | 23,470 | | | $ | 1,547,743 | | | $ | 1,477,336 | | | $ | 47,170 | | | $ | 23,470 | | | $ | 1,547,976 | |
Year Ended December 31, 2007 | | | | | | | | | | | | | | | | | |
Revenue by sale origin to external customers | | $ | 1,336,490 | | | $ | 80,933 | | | $ | 78,020 | | | $ | 1,495,443 | | |
Income (loss) before taxes and minority interest | | $ | 241,799 | | | $ | (13,484 | ) | | $ | 8,088 | | | $ | 236,403 | | |
December 31, 2007 | | | | | | | | | | | | | | | | | |
Long-lived assets | | $ | 1,518,318 | | | $ | 94,434 | | | $ | 13,683 | | | $ | 1,626,435 | | |
Year Ended December 31, 2006 | | | | | | | | | | | | | | | | | |
Revenue by sale origin to external customers | | $ | 939,895 | | | $ | 88,533 | | | $ | 56,183 | | | $ | 1,084,611 | | |
Income (loss) before taxes and minority interest | | $ | 178,815 | | | $ | 5,977 | | | $ | 10,711 | | | $ | 195,503 | | |
December 31, 2006 | | | | | | | | | | | | | | | | | |
Long-lived assets | | $ | 1,226,342 | | | $ | 117,809 | | | $ | 5,533 | | | $ | 1,349,684 | | |
| | |
(d)(b) | | The segment operating results provided above represent amounts for continuing operations as presented on the accompanying statements of operations. Long-lived assets presented above represent amounts associated with all operations as of the periods then ended as indicated. Revenues from external customers are assigned to geographic regionsregion based upon the domicile of the subsidiary providing the services or products to the customers. |
We did not have revenues from any single customer which amounts to 10% or more of our total annual revenue for the years ended December 31, 2008, 2007 or 2006.
102
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
| |
16. | Legal matters and contingencies: |
In the normal course of our business, we are a party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning our commercial operations, products, employees and other matters, including warranty and product liability claims and occasional claims by individuals alleging exposure to hazardous materials, on the job injuries and fatalities as a result of our products or operations. Many of the claims filed against us relate to motor vehicle accidents which can result in the loss of life or serious bodily injury. Some of these claims relate to matters occurring prior to our acquisition of businesses. In certain cases, we are entitled to indemnification from the sellers of such businesses.
Although we cannot know or predict with certainty the outcome of any claim or proceeding or the effect such outcomes may have on us, we believe that any liability resulting from the resolution of any of these matters, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on our financial position, results of operations or liquidity.
We have historically incurred additional insurance premium related to a cost-sharing provision of our general liability insurance policy, and we cannot be certain that we will not incur additional costs until either existing claims become further developed or until the limitation periods expire for each respective policy year. Any such additional
98
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
premiums should not have a material adverse effect on our financial position, results of operations or liquidity. We incurred no additional premium related to this cost-sharing provision of our general liability policy in 2008, but paid approximately $1,400 of additional premium for the yearyears ended December 31, 2007.2010, 2009 or 2008.
| |
17. | Financial instruments: |
(a) Interest rate risk:
We manage ourcurrently have little exposure to interest rate risks through a combination of fixed and floating rate borrowings.risks. At December 31, 2008, 23%2010, 100% of our long-termoutstanding debt was floating rate borrowings. Of the remaining debt, 99% relatesrelated to the senior notes issued in December 2006 with a fixed interest rate of 8%. We are exposed to variable interest rate impact related to our outstanding letters of credit under our amended credit facility, See Note 11, “Long-term debt.”
| |
(b) | Foreign currency rate risk: |
We are exposed to foreign currency fluctuations in relation to our foreign operations. Approximately 5% of our revenues from continuing operations were derived from operations conducted in Canadian dollars for the years ended December 31, 20082010 and 2007.2009. For our Canadian operations, we recorded net income from continuing operations before taxes of $1,255 for the year ended December 31, 2010 and a net loss from continuing operations before taxes and minority interest of $26,412 and $13,484$11,069 for the yearsyear ended December 31, 2008 and 2007, respectively.2009. Total assets denominated in Canadian dollars at December 31, 20082010 and 20072009 were $66,355$71,842 and $120,378,$59,343, respectively.
A significant portion of our trade accounts receivable are from companies in the oil and gas industry, and as such, we are exposed to normal industry credit risks. We evaluate the credit-worthiness of our major new and existing customers’ financial condition and generally do not require collateral.
103
COMPLETE PRODUCTION SERVICES, INC.
NotesFor the year ended December 31, 2010, we had two customers who provided 12.2% and 10.7% of our total annual revenue. For the year ended December 31, 2009, the same two customers represented 9.9% and 9.7% of our revenue. We did not have revenues from any single customer which amounted to Consolidated Financial Statements — (Continued)10% or more of our total annual revenue for the year ended December 31, 2008.
| |
18. | Commitments and contingences: |
We have non-cancelable operating lease commitments for equipment and office space. These commitments for the next five years wereand thereafter are as follows at December 31, 2008:2010:
| | | | | | | | |
2009 | | $ | 20,849 | | |
2010 | | | 15,667 | | |
2011 | | | 11,099 | | | $ | 27,287 | |
2012 | | | 8,354 | | | | 21,624 | |
2013 | | | 6,378 | | | | 17,538 | |
2014 | | | | 10,487 | |
2015 | | | | 4,954 | |
Thereafter | | | 8,166 | | | | 11,055 | |
| | | | | | |
| | $ | 70,513 | | | $ | 92,945 | |
| | | | | | |
We expensed operating lease payments totaling $22,750, $22,446$31,595, $25,477 and $19,108$22,750 for the years ended December 31, 2010, 2009 and 2008, 2007 and 2006, respectively.
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COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
| |
19. | Related party transactions: |
We believe all transactions with related parties have terms and conditions no less favorable to us than transactions with unaffiliated parties.
We have entered into lease agreements for properties owned by certain of our employees and former officers. The leases expire at different times through December 2016. Total lease expense pursuant to these leases was $2,828, $2,991$2,993, $2,749 and $2,306$2,828 for the years ended December 31, 2008, 20072010, 2009 and 2006,2008, respectively.
In connection with CES’the Complete Energy Services, Inc. (“CES”) acquisition of Hamm Co. in 2004, CES entered into thata certain Strategic Customer Relationship Agreement with Continental Resources, Inc. (“CRI”). By virtue of the Combination, through a subsidiary, we are now party to such agreement. The agreement provides CRI the option to engage a limited amount of our assets into a long-term contract at market rates. Mr. Hamm is a majority owner of CRI and serves as a member of our board of directors.
We provided services to companies that were majority-owned by certain of our directors during 2010 which totaled $131,524, of which $131,337 was sold to CRI and $187 was sold to other companies. In 2009, these sales totaled $40,623, of which $40,343 was sold to CRI, and $280 was sold to other companies and in 2008, whichthese sales totaled $61,194, of which $60,634 was sold to CRI, and $560 was sold to other companies. In 2007, these sales totaled $52,027, of which $51,340 was sold to CRI, and $687 was sold to other companies and, in 2006, these sales totaled $37,405, of which $37,008 was sold to CRI, and $397 was sold to other companies. We also purchased services from companies that are majority-owned by certain of our directors which totaled $2,866$556 in 2010, of which $490 was purchased from CRI and $66 was purchased from other companies. These purchases for 2009 totaled $1,423, of which $1,191 was purchased from CRI and $232 was purchased from other companies and in 2008, these purchases totaled $2,866, of which $2,750 was purchased from CRI and $116 was purchased from other companies. These purchases for 2007 totaled $1,260, of which $1,211 was purchased from CRI and $49 was purchased from other companies and, in 2006, these purchases totaled $755, of which $614 was purchased from CRI and $141 was purchased from other companies. At December 31, 20082010 and 2007,2009, our trade receivables included amounts from CRI of $10,542$50,048 and $7,611,$5,957, respectively, and ourwith no balance in trade payables included amounts due to CRIfor either of $181 and $47, respectively.these periods.
We provided services to companies majority-owned by certain of our officers, or current or former officers of our subsidiaries, for the years ended December 31, 2008, 20072010, 2009 and 2006.2008. In 2010, these sales totaled $4,065, of which $2,537 was sold to HEP Oil (“HEP”), $21 was sold to Peak Oilfield and $1,507 was sold to other companies. For 2009, these sales totaled $3,552, of which $2,433 was sold to HEP, $9 was sold to Peak Oilfield and $1,110 was sold to other companies. For 2008, these sales totaled $11,256, of which $3,348 was sold to HEP, Oil (“HEP”), $1,660 was sold to Cimarron, $3,513 was sold to Peak Oilfield and $2,735 was sold to other companies. For 2007, these sales totaled $4,914, of which $2,974 was sold to HEP, $39 was sold to Cimarron, $1,527 was sold to Peak Oilfield and $374 was sold to other companies. In 2006, these sales totaled $8,346, of which $8,324 was sold to HEP and $22 was sold to other companies. HEP, Cimarron and Peak Oilfield are owned by a former officer of one of our subsidiaries who resigned his position in late 2006 but continued to provide consulting services through early 2007. We also purchased services from companies majority-owned by certain officers, or current or former officers of one of our subsidiaries. For 2008,2010, these purchases totaled $60,546,$180,119, of which $25,344$56,994 was purchased from Ortowski Construction primarily related to the manufacture of pressure
104
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
pumping units, $7,910Resource Transport, $40,245 was purchased from Texas Specialty Sands, LLC primarily for the purchase of sand used for pressure pumping activities, $31,552 was purchased from Ortowski Construction primarily related to the manufacture of pressure pumping units, $30,217 was purchased from ORTEQ Energy Services, a heavy equipment construction company which also manufactures pressure pumping equipment, $7,772 was purchased from ProFuel, $7,935 was purchased from Wood Flowline Products, LLC $43 was purchased from Select Energy Services LLC and affiliates and $5,361 was purchased from other companies. For 2009, these purchases totaled $40,373, of which $13,920 was purchased from Ortowski Construction, $12,005 was purchased from Texas Specialty Sands, LLC, $3,302 was purchased from Resource Transport, $2,642 was purchased from ProFuel, $3,535 was purchased from Wood Flowline Products, LLC, $24 was purchased from Select Energy Services LLC and affiliates and $4,945 was purchased from other companies. For 2008, these purchases totaled $61,708, of which $25,344 was purchased from Ortowski Construction, $7,910 was purchased from Texas Specialty Sands, LLC, $4,809 was purchased from Resource Transport, $5,601 was purchased from ProFuel, $16,595 was purchased from Select Energy Services LLC and affiliates and $287$1,449 was purchased from other companies. Ortowski Construction, ORTEQ Energy Services, Texas Specialty Sands, LLC, Resource Transport, and Pro Fuel and Wood Flowline Products, LLC are owned by parties, one of whom is a former employee, who are related to a current employee who is an officer of one of our subsidiaries.a subsidiary, or the officer himself. Select Energy Services LLC is owned by a former officer of one of our subsidiaries who purchased a disposal group from us during May 2008. Of the total purchases
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COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
from Select Energy Services, LLC, $11,098 was purchased from the businesses sold as part of this disposal group for the period May 19, 2008 through December 31, 2008. For 2007, these purchases from related companies totaled $70,550, of which $64,503 was purchased from Ortowski Construction, $70 was purchased from HEP and $5,977 was purchased from other companies. In 2006, we purchased $5,598, of which $216 was purchased from HEP and $5,382 was purchased from other companies. At December 31, 20082010 and 2007,2009, our trade receivables included amounts from HEP of $384$310 and $405,$270, respectively. Our trade payables
One of our Mexican subsidiaries, Servicios Petrotec de S.A. de C.V., has purchased services from entities in which certain of our current and accrued expenses atformer employees have ownership interests. We purchased fluid transportation, industrial cleaning, pumping equipment and safety equipment, totaling $1,575, $1,262 and $1,485 for the years ended December 31, 2010, 2009 and 2008, and 2007 included amounts payable to Ortowski construction of $175 and $6,105, respectively. Amounts payable at December 31, 2008 to Texas Specialty Sand, LLC, Resource Transport, and ProFuel totaled $581, $199 and $187, respectively. There were no amounts payable to HEP or Cimarron at December 31, 2008 and 2007.
We provided services totaling $1,697, $2,068$1,430, $1,012 and $5,367$1,697 for the years ended December 31, 2008, 20072010, 2009 and 2006,2008, respectively, to Laramie Energy LLC and Laramie Energy II (collectively “Laramie”), companies for which one of our directors serves as an officer. At December 31, 20082010 and 2007,2009, our trade receivables included amounts due from Laramie totaling $383$858 and $27,$326, respectively.
For the years ended December 31, 2008, 20072010, 2009 and 2006,2008, we provided services totaling $9,468, $11,016$8,555, $3,613 and $3,659,$9,468, respectively, and purchased services totaling $14,108, $13,757$3,456, $8,784 and $28,114,$14,108, respectively, from companies, or their affiliates, that formerly employed our current officers or for customers on whose board of directors or management team certain of our current directors serve.
We entered intopaid $3,450 in May 2009 pursuant to subordinated note agreements with certain employees, including currentformer officers of subsidiaries, whereby we are obligated to pay an aggregate principal amount of $8,450 pursuantrelated to promissory notes issued in conjunction with 2005 and 2004 business acquisitions. Of this amount, $5,000 was repaid in May 2006. The remaining notes mature in 2009. See Note 11, Long-term Debt.
On December 1, 2001, Bison Oilfield Tools, Ltd. (“Bison”), and PEG, a subsidiary of IPS, entered into a lease agreement pursuant to which PEG leases real property from Bison. A former director of IPS controls Bison as the president of its two general partners. IPS paid Bison $4 per month through December 2006.
Premier Integrated Technologies Ltd. (“PIT”), an affiliate of IPS, purchased $1,493, $2,290$3,823, $2,427 and $2,083$1,493 of machining services from a company controlled by employees of PIT during the years ended December 31, 2008, 20072010, 2009 and 2006,2008, respectively.
On September 29, 2005, we entered into an Asset Purchase Agreement with Spindletop and Mr. Schmitz, a former officer of one of our subsidiaries. Pursuant to the agreement, we purchased the assets of Spindletop in exchange for approximately $200 cash and 90,364 shares of our common stock. Mr. Schmitz was a member of our key operational management who resigned as an officer of one of our subsidiaries in late 2006. Mr. Schmitz remained in our employ as of December 31, 2006. On January 1, 2007, Mr. Schmitz purchased the assets of one of our subsidiaries for $412, resulting in a gain on the sale of $156. On May 19, 2008, we sold certain business assets located primarily in north Texas which included our product supply stores, certain drilling logistics assets and other completion and production services assets to Select Energy Services, L.L.C., an oilfield service company located in Gainesville, Texas which is partially owned by Mr. Schmitz.Schmitz who resigned as an officer of one of our subsidiaries in late 2006. The proceeds from the sale totaled $50,150 in cash and we received assets with a fair market value of $7,987. We recorded a loss of $6,935 associated with the sale of this disposal group, and we will provide certain administrative functions for a period of one year at anagreed-upon rate. For the period May 20, 2008 through December 31, 2008, we sold services totaling $1,509 and purchased products and services totaling $11,098 from these former subsidiaries. See Note 14, Discontinued“Discontinued operations.” At December 31, 2010, our trade receivables and payables included amounts related to these disposed businesses which totaled $7 and $177, respectively and at December 31, 2009, our trade receivables and payables included amounts related to these disposed businesses which totaled $21 and $295, respectively.
Effective January 1, 2009, we adopted and established (and subsequently amended and restated for compliance and other issues) the Complete Production Services, Inc. Deferred Compensation Plan, whereby eligible participants, including members of senior management, non-employee directors and certain highly-compensated individuals, could defer up to 90% of their compensation and up to 90% of the employees’ annual incentive bonus, or 100% of director compensation for services rendered, into various investment options pre-tax. For amounts deferred, we will match the contributiondollar-for-dollar up to four percent of compensation minus $3.3, and we may make other discretionary contributions pursuant to resolutions of this plan’s administrative committee. Participants immediately vest in amounts deferred as well as any matching or discretionary contributions we make. Participants bear the risk of loss associated with investment gains or losses. We intend that this plan will meet all the requirements necessary to be a nonqualified, unfunded, unsecured plan of deferred compensation within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended. We have recorded an asset and corresponding liability totaling $882 related to the rabbi trust associated
105101
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
with our deferred compensation plan. For the years ended December 31, 2008, our trade receivables2010 and payables included amounts2009, we expensed an insignificant amount related to these disposed businesses which totaled $323 and $529, respectively.matching contributions associated with this deferred compensation plan.
On November 8, 2006, we acquired Pumpco, a provider of pressure pumping services in the Barnett Shale play of north Texas, in exchange for consideration of $144,635 in cash, net of cash acquired, the issuance of 1,010,566 shares of our common stock and the assumption of $30,250 of debt held by Pumpco at the time of the acquisition. Pumpco was purchased from the stockholders of Pumpco. Prior to the acquisition,SCF-VI, L.P.(“SCF-VI”) was the majority stockholder of Pumpco.SCF-VI is an affiliate ofSCF-IV, L.P.(“SCF-IV”), which held approximately 35% of our outstanding common stock at the time of the acquisition. Andy Waite and David Baldwin were our Directors at the time of the acquisition and serve as officers of the ultimate general partner ofSCF-VI. Our Board of Directors established a Special Committee of directors, each independent ofSCF-IV or any of its affiliates, to review and approve the terms of the transaction. UBS Investment Bank acted as exclusive financial advisor to the Special Committee. In addition, John Schmitz, one of our key members of management during 2006, was a stockholder of Pumpco prior to the acquisition. The nature and amount of the consideration paid was determined by negotiations between the stockholders of Pumpco and our management and the Special Committee of our Board of Directors.
We maintain defined contribution retirement plans for substantially all of our U.S. and Canadian employees who have completed six months of service. Employees may voluntarily contribute up to a maximum percentage of their salaries to these plans subject to certain statutory maximum dollar values. The maximums range from 20% to 60%, depending on the plan. We make matching contributions at 25% — 50% of the first 6% or 7% of the employee’s contributions, depending on the plan. The employer contributions vest immediately with respect to the Canadian RRSP plan and U.S. 401(k) plan. In response to market conditions, effective May 1, 2009, we amended our 401(k) plan and deferred compensation plan to suspend matching contributions to such plans through December 31, 2010. We re-instated our matching contribution in 2011, see Note 24, “Subsequent events.”
We expensed $6,101, $5,216$436, $2,231 and $3,194$6,101 related to our various defined contribution plans for the years ended December 31, 2008, 20072010, 2009 and 2006,2008, respectively.
We provide a seniority premium benefit to substantially all of our Mexican employees, through a subsidiary, in accordance with Mexican law. The benefit consists of a one-time payment equivalent to12-days wages for each year of service (calculated at the employee’s current wage rate but not exceeding twice the minimum wage), payable upon voluntary termination after fifteen years of service, involuntary termination or death. In addition, we provide statutory mandated severance benefits to substantially all Mexican employees, which includes a one-time payment of three months wages, plus20-days wages for each year of service, payable upon involuntary termination without cause and charged to income as incurred. We accrued $1,591$1,249 and $814$1,604 at December 31, 20082010 and 2007,2009, respectively, related to our liability under this benefit arrangement in Mexico.
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COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
| |
21. | Unaudited selected quarterly data: |
The following table presents selected quarterly financial data for the years ended December 31, 20082010 and 20072009 (unaudited, in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2008 — Quarter Ended | | | 2010 — Quarter Ended |
| | March 31, | | June 30, | | September 30, | | December 31, | | | March 31, | | June 30, | | September 30, | | December 31, |
|
Revenues | | $ | 417,178 | | | $ | 441,085 | | | $ | 493,233 | | | $ | 487,058 | | | $ | 309,704 | | | $ | 360,245 | | | $ | 418,609 | | | $ | 472,835 | |
Operating income (loss) | | $ | 80,477 | | | $ | 75,140 | | | $ | 96,041 | | | $ | (198,258 | ) | |
Net income (loss) from continuing operations | | $ | 41,773 | | | $ | 39,843 | | | $ | 52,343 | | | $ | (214,555 | ) | |
Operating income | | | $ | 10,589 | | | $ | 39,869 | | | $ | 68,181 | | | $ | 74,446 | |
Net income (loss) | | $ | 43,924 | | | $ | 32,986 | | | $ | 52,190 | | | $ | (214,555 | ) | | $ | (2,762 | ) | | $ | 15,671 | | | $ | 33,030 | | | $ | 38,219 | |
Earnings per share — continuing operations(a): | | | | | | | | | | | | | | | | | |
Earnings (loss) per share(a): | | | | | | | | | | | | | |
Basic | | $ | 0.58 | | | $ | 0.54 | | | $ | 0.71 | | | $ | (2.87 | ) | | $ | (0.04 | ) | | $ | 0.21 | | | $ | 0.43 | | | $ | 0.50 | |
Diluted | | $ | 0.57 | | | $ | 0.54 | | | $ | 0.70 | | | $ | (2.87 | ) | | $ | (0.04 | ) | | $ | 0.20 | | | $ | 0.42 | | | $ | 0.49 | |
Earnings per share(a): | | | | | | | | | | | | | | | | | |
Basic | | $ | 0.61 | | | $ | 0.45 | | | $ | 0.71 | | | $ | (2.87 | ) | |
Diluted | | $ | 0.60 | | | $ | 0.44 | | | $ | 0.70 | | | $ | (2.87 | ) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2007 — Quarter Ended | | | 2009 — Quarter Ended |
| | March 31, | | June 30, | | September 30, | | December 31, | | | March 31, | | June 30, | | September 30, | | December 31, |
|
Revenues | | $ | 366,222 | | | $ | 366,814 | | | $ | 373,405 | | | $ | 389,002 | | | $ | 336,681 | | | $ | 238,398 | | | $ | 229,913 | | | $ | 251,402 | |
Operating income | | $ | 87,172 | | | $ | 77,961 | | | $ | 72,174 | | | $ | 60,099 | | |
Net income from continuing operations | | $ | 44,217 | | | $ | 40,105 | | | $ | 38,791 | | | $ | 27,008 | | |
Net income | | $ | 47,351 | | | $ | 43,783 | | | $ | 41,608 | | | $ | 28,822 | | |
Earnings per share — continuing operations(a): | | | | | | | | | | | | | | | | | |
Operating income (loss) | | | $ | 14,006 | | | $ | (22,902 | ) | | $ | (64,132 | ) | | $ | (114,384 | ) |
Net loss | | | $ | (336 | ) | | $ | (25,832 | ) | | $ | (52,025 | ) | | $ | (103,475 | ) |
Loss per share(a): | | | | | | | | | | | | | |
Basic | | $ | 0.62 | | | $ | 0.56 | | | $ | 0.54 | | | $ | 0.37 | | | $ | 0.00 | | | $ | (0.34 | ) | | $ | (0.69 | ) | | $ | (1.38 | ) |
Diluted | | $ | 0.61 | | | $ | 0.55 | | | $ | 0.53 | | | $ | 0.37 | | | $ | 0.00 | | | $ | (0.34 | ) | | $ | (0.69 | ) | | $ | (1.38 | ) |
Earnings per share(a): | | | | | | | | | | | | | | | | | |
Basic | | $ | 0.66 | | | $ | 0.61 | | | $ | 0.58 | | | $ | 0.40 | | |
Diluted | | $ | 0.65 | | | $ | 0.60 | | | $ | 0.57 | | | $ | 0.39 | | |
| | |
(a) | | Quarterly earnings per share amounts were calculated based upon the weighted average number of shares outstanding for the applicable quarter. Therefore the sum of the quarterly earnings per share results may not agree to earnings per share for the year in the accompanying Statements of Operations, as the annual results were calculated based upon the weighted average number of shares outstanding for the year. |
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COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
| |
22. | Guarantor and non-guarantor condensed consolidating financial statements: |
The following tables present the financial data required by SECRegulation S-XRule 3-10(f) related to condensed consolidating financial statements, and includes the following: (1) condensed consolidating balance sheets for the years ended December 31, 20082010 and 2007;2009; (2) condensed consolidating statements of operations for the years ended December 31, 2008, 20072010, 2009 and 2006;2008; and (3) condensed consolidating statements of cash flows for the years ended December 31, 2008, 20072010, 2009 and 2006.2008.
Condensed Consolidating Balance Sheet
December 31, 20082010
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Guarantor
| | Non-guarantor
| | Eliminations/
| | | | | | | Guarantor
| | Non-guarantor
| | Eliminations/
| | | |
| | Parent | | Subsidiaries | | Subsidiaries | | Reclassifications | | Consolidated | | | Parent | | Subsidiaries | | Subsidiaries | | Reclassifications | | Consolidated | |
|
Current assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 25,399 | | | $ | 936 | | | $ | 5,078 | | | $ | (12,323 | ) | | $ | 19,090 | | | $ | 111,834 | | | $ | 569 | | | $ | 31,046 | | | $ | (16,768 | ) | | $ | 126,681 | |
Trade accounts receivable, net | | | 201 | | | | 312,591 | | | | 30,561 | | | | — | | | | 343,353 | | |
Accounts receivable, net | | | | 696 | | | | 313,936 | | | | 31,016 | | | | — | | | | 345,648 | |
Inventory, net | | | — | | | | 28,051 | | | | 13,840 | | | | — | | | | 41,891 | | | | — | | | | 21,935 | | | | 11,601 | | | | — | | | | 33,536 | |
Prepaid expenses | | | 1,060 | | | | 19,375 | | | | 1,037 | | | | — | | | | 21,472 | | | | 6,388 | | | | 10,980 | | | | 1,332 | | | | — | | | | 18,700 | |
Tax receivable | | | 21,021 | | | | 307 | | | | — | | | | — | | | | 21,328 | | |
Income tax receivable | | | | 10,164 | | | | 13,298 | | | | — | | | | — | | | | 23,462 | |
Current deferred tax assets | | | | 2,499 | | | | — | | | | — | | | | — | | | | 2,499 | |
Other current assets | | | | 882 | | | | 502 | | | | — | | | | — | | | | 1,384 | |
| | | | | | | | | | | | | | | | | | | | | | |
Total current assets | | | 47,681 | | | | 361,260 | | | | 50,516 | | | | (12,323 | ) | | | 447,134 | | | | 132,463 | | | | 361,220 | | | | 74,995 | | | | (16,768 | ) | | | 551,910 | |
Property, plant and equipment, net | | | 4,956 | | | | 1,097,241 | | | | 64,256 | | | | — | | | | 1,166,453 | | | | 4,730 | | | | 898,013 | | | | 53,285 | | | | — | | | | 956,028 | |
Investment in consolidated subsidiaries | | | 937,773 | | | | 88,669 | | | | — | | | | (1,026,442 | ) | | | — | | | | 930,631 | | | | 115,449 | | | | — | | | | (1,046,080 | ) | | | — | |
Inter-company receivable | | | 784,125 | | | | (502 | ) | | | — | | | | (783,623 | ) | | | — | | | | 554,482 | | | | — | | | | 445 | | | | (554,927 | ) | | | — | |
Goodwill | | | 55,354 | | | | 283,657 | | | | 2,581 | | | | — | | | | 341,592 | | | | 15,531 | | | | 232,144 | | | | 2,858 | | | | — | | | | 250,533 | |
Other long-term assets, net | | | 14,009 | | | | 22,163 | | | | 3,526 | | | | — | | | | 39,698 | | | | 29,966 | | | | 10,161 | | | | 1,978 | | | | — | | | | 42,105 | |
| | | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 1,843,898 | | | $ | 1,852,488 | | | $ | 120,879 | | | $ | (1,822,388 | ) | | $ | 1,994,877 | | | $ | 1,667,803 | | | $ | 1,616,987 | | | $ | 133,561 | | | $ | (1,617,775 | ) | | $ | 1,800,576 | |
| | | | | | | | | | | | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current maturities of long-term debt | | $ | — | | | $ | 3,792 | | | $ | 11 | | | $ | — | | | $ | 3,803 | | |
Accounts payable | | | 2,201 | | | | 59,052 | | | | 8,553 | | | | (12,323 | ) | | | 57,483 | | | $ | 376 | | | $ | 82,952 | | | $ | 8,539 | | | $ | (16,768 | ) | | $ | 75,099 | |
Accrued liabilities | | | 13,422 | | | | 17,916 | | | | 6,247 | | | | — | | | | 37,585 | | | | 18,269 | | | | 21,355 | | | | 4,667 | | | | — | | | | 44,291 | |
Accrued payroll and payroll burdens | | | 5,362 | | | | 22,960 | | | | 2,971 | | | | — | | | | 31,293 | | | | 4,353 | | | | 19,325 | | | | 2,890 | | | | — | | | | 26,568 | |
Accrued interest | | | 2,704 | | | | — | | | | 50 | | | | — | | | | 2,754 | | | | 2,439 | | | | 1 | | | | 6 | | | | — | | | | 2,446 | |
Notes payable | | | 1,353 | | | | — | | | | — | | | | — | | | | 1,353 | | |
Taxes payable | | | (1,900 | ) | | | — | | | | 1,900 | | | | — | | | | — | | |
Current deferred tax liabilities | | | — | | | | 1,289 | | | | — | | | | — | | | | 1,289 | | |
Income taxes payable | | | | (1,043 | ) | | | — | | | | 1,043 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | |
Total current liabilities | | | 23,142 | | | | 105,009 | | | | 19,732 | | | | (12,323 | ) | | | 135,560 | | | | 24,394 | | | | 123,633 | | | | 17,145 | | | | (16,768 | ) | | | 148,404 | |
Long-term debt | | | 836,000 | | | | 299 | | | | 7,543 | | | | — | | | | 843,842 | | | | 650,000 | | | | — | | | | — | | | | — | | | | 650,000 | |
Inter-company payable | | | — | | | | 784,125 | | | | (502 | ) | | | (783,623 | ) | | | — | | | | — | | | | 553,907 | | | | 1,020 | | | | (554,927 | ) | | | — | |
Deferred income taxes | | | 115,641 | | | | 25,281 | | | | 5,437 | | | | — | | | | 146,359 | | | | 186,693 | | | | 3,794 | | | | (65 | ) | | | — | | | | 190,422 | |
Minority interest | | | — | | | | — | | | | — | | | | — | | | | — | | |
Other long-term liabilities | | | | 882 | | | | 5,022 | | | | 12 | | | | — | | | | 5,916 | |
| | | | | | | | | | | | | | | | | | | | | | |
Total liabilities | | | 974,783 | | | | 914,714 | | | | 32,210 | | | | (795,946 | ) | | | 1,125,761 | | | | 861,969 | | | | 686,356 | | | | 18,112 | | | | (571,695 | ) | | | 994,742 | |
Stockholders’ equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total stockholders’ equity | | | 869,115 | | | | 937,774 | | | | 88,669 | | | | (1,026,442 | ) | | | 869,116 | | | | 805,834 | | | | 930,631 | | | | 115,449 | | | | (1,046,080 | ) | | | 805,834 | |
| | | | | | | | | | | | | | | | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 1,843,898 | | | $ | 1,852,488 | | | $ | 120,879 | | | $ | (1,822,388 | ) | | $ | 1,994,877 | | | $ | 1,667,803 | | | $ | 1,616,987 | | | $ | 133,561 | | | $ | (1,617,775 | ) | | $ | 1,800,576 | |
| | | | | | | | | | | | | | | | | | | | | | |
108103
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
Condensed Consolidating Balance Sheet
December 31, 20072009
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Guarantor
| | Non-guarantor
| | Eliminations/
| | | | | | | Guarantor
| | Non-guarantor
| | Eliminations/
| | | |
| | Parent | | Subsidiaries | | Subsidiaries | | Reclassifications | | Consolidated | | | Parent | | Subsidiaries | | Subsidiaries | | Reclassifications | | Consolidated | |
|
Current assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 8,217 | | | $ | 5,549 | | | $ | 6,605 | | | $ | (6,747 | ) | | $ | 13,624 | | | $ | 64,871 | | | $ | 519 | | | $ | 17,001 | | | $ | (5,031 | ) | | $ | 77,360 | |
Trade accounts receivable, net | | | 62 | | | | 276,706 | | | | 28,914 | | | | — | | | | 305,682 | | |
Accounts receivable, net | | | | 610 | | | | 143,135 | | | | 27,539 | | | | — | | | | 171,284 | |
Inventory, net | | | — | | | | 16,022 | | | | 13,855 | | | | — | | | | 29,877 | | | | — | | | | 23,001 | | | | 14,463 | | | | — | | | | 37,464 | |
Prepaid expenses | | | 2,021 | | | | 20,826 | | | | 896 | | | | — | | | | 23,743 | | | | 3,897 | | | | 13,052 | | | | 994 | | | | — | | | | 17,943 | |
Income tax receivable | | | | 35,404 | | | | 20,201 | | | | 2,001 | | | | — | | | | 57,606 | |
Current deferred tax assets | | | | 8,158 | | | | — | | | | — | | | | — | | | | 8,158 | |
Other current assets | | | 5,092 | | | | — | | | | — | | | | — | | | | 5,092 | | | | — | | | | 111 | | | | — | | | | — | | | | 111 | |
Current assets held for sale | | | — | | | | 50,307 | | | | — | | | | — | | | | 50,307 | | |
| | | | | | | | | | | | | | | | | | | | | | |
Total current assets | | | 15,392 | | | | 369,410 | | | | 50,270 | | | | (6,747 | ) | | | 428,325 | | | | 112,940 | | | | 200,019 | | | | 61,998 | | | | (5,031 | ) | | | 369,926 | |
Property, plant and equipment, net | | | 4,623 | | | | 953,169 | | | | 55,398 | | | | — | | | | 1,013,190 | | | | 4,222 | | | | 876,304 | | | | 60,607 | | | | — | | | | 941,133 | |
Investment in consolidated subsidiaries | | | 850,238 | | | | 114,529 | | | | — | | | | (964,767 | ) | | | — | | | | 755,435 | | | | 104,974 | | | | — | | | | (860,409 | ) | | | — | |
Inter-company receivable | | | 894,356 | | | | 371 | | | | — | | | | (894,727 | ) | | | — | | | | 607,325 | | | | — | | | | — | | | | (607,325 | ) | | | — | |
Goodwill | | | 82,683 | | | | 418,035 | | | | 48,412 | | | | — | | | | 549,130 | | | | 15,531 | | | | 225,434 | | | | 2,858 | | | | — | | | | 243,823 | |
Other long-term assets, net | | | 14,804 | | | | 12,321 | | | | 3,939 | | | | — | | | | 31,064 | | | | 16,026 | | | | 13,803 | | | | 4,143 | | | | — | | | | 33,972 | |
Long-term assets held for sale | | | — | | | | 33,050 | | | | — | | | | — | | | | 33,050 | | |
| | | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 1,862,096 | | | $ | 1,900,885 | | | $ | 158,019 | | | $ | (1,866,241 | ) | | $ | 2,054,759 | | | $ | 1,511,479 | | | $ | 1,420,534 | | | $ | 129,606 | | | $ | (1,472,765 | ) | | $ | 1,588,854 | |
| | | | | | | | | | | | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current maturities of long-term debt | | $ | — | | | $ | 328 | | | $ | 70 | | | $ | — | | | $ | 398 | | | $ | — | | | $ | 228 | | | $ | — | | | $ | — | | | $ | 228 | |
Accounts payable | | | 1,364 | | | | 53,159 | | | | 8,631 | | | | (6,747 | ) | | | 56,407 | | | | 445 | | | | 30,028 | | | | 6,303 | | | | (5,031 | ) | | | 31,745 | |
Accrued liabilities | | | 5,792 | | | | 39,355 | | | | 7,425 | | | | — | | | | 52,572 | | | | 14,064 | | | | 18,257 | | | | 8,781 | | | | — | | | | 41,102 | |
Accrued payroll and payroll burdens | | | 1,278 | | | | 21,555 | | | | 1,217 | | | | — | | | | 24,050 | | | | 388 | | | | 10,847 | | | | 2,324 | | | | — | | | | 13,559 | |
Accrued interest | | | 4,462 | | | | — | | | | 91 | | | | — | | | | 4,553 | | | | 3,198 | | | | — | | | | 8 | | | | — | | | | 3,206 | |
Notes payable | | | 15,319 | | | | 35 | | | | — | | | | — | | | | 15,354 | | | | 1,068 | | | | 1 | | | | — | | | | — | | | | 1,069 | |
Taxes payable | | | — | | | | — | | | | 6,506 | | | | — | | | | 6,506 | | |
Current liabilities of held for sale operations | | | — | | | | 9,705 | | | | — | | | | — | | | | 9,705 | | |
Income taxes payable | | | | — | | | | — | | | | 813 | | | | — | | | | 813 | |
| | | | | | | | | | | | | | | | | | | | | | |
Total current liabilities | | | 28,215 | | | | 124,137 | | | | 23,940 | | | | (6,747 | ) | | | 169,545 | | | | 19,163 | | | | 59,361 | | | | 18,229 | | | | (5,031 | ) | | | 91,722 | |
Long-term debt | | | 810,000 | | | | 3,690 | | | | 12,295 | | | | — | | | | 825,985 | | | | 650,000 | | | | — | | | | 2 | | | | — | | | | 650,002 | |
Inter-company payable | | | — | | | | 894,356 | | | | 371 | | | | (894,727 | ) | | | — | | | | — | | | | 601,947 | | | | 5,378 | | | | (607,325 | ) | | | — | |
Deferred income taxes | | | 93,557 | | | | 26,379 | | | | 6,885 | | | | — | | | | 126,821 | | | | 143,427 | | | | 3,793 | | | | 1,020 | | | | — | | | | 148,240 | |
Minority interest | | | — | | | | 2,085 | | | | — | | | | — | | | | 2,085 | | |
| | | | | | | | | | | | | | | | | | | | | | |
Total liabilities | | | 931,772 | | | | 1,050,647 | | | | 43,491 | | | | (901,474 | ) | | | 1,124,436 | | | | 812,590 | | | | 665,101 | | | | 24,629 | | | | (612,356 | ) | | | 889,964 | |
Stockholders’ equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total stockholders’ equity | | | 930,324 | | | | 850,238 | | | | 114,528 | | | | (964,767 | ) | | | 930,323 | | | | 698,889 | | | | 755,433 | | | | 104,977 | | | | (860,409 | ) | | | 698,890 | |
| | | | | | | | | | | | | | | | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 1,862,096 | | | $ | 1,900,885 | | | $ | 158,019 | | | $ | (1,866,241 | ) | | $ | 2,054,759 | | | $ | 1,511,479 | | | $ | 1,420,534 | | | $ | 129,606 | | | $ | (1,472,765 | ) | | $ | 1,588,854 | |
| | | | | | | | | | | | | | | | | | | | | | |
109104
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
Condensed Consolidated Statement of Operations
Year Ended December 31, 2010
| | | | | | | | | | | | | | | | | | | | |
| | | | | Guarantor
| | | Non-guarantor
| | | Eliminations/
| | | | |
| | Parent | | | Subsidiaries | | | Subsidiaries | | | Reclassifications | | | Consolidated | |
|
Revenue: | | | | | | | | | | | | | | | | | | | | |
Service | | $ | — | | | $ | 1,401,665 | | | $ | 132,774 | | | $ | (6,821 | ) | | $ | 1,527,618 | |
Product | | | — | | | | 3,247 | | | | 30,528 | | | | — | | | | 33,775 | |
| | | | | | | | | | | | | | | | | | | | |
| | | — | | | | 1,404,912 | | | | 163,302 | | | | (6,821 | ) | | | 1,561,393 | |
Service expenses | | | — | | | | 889,862 | | | | 102,052 | | | | (6,821 | ) | | | 985,093 | |
Product expenses | | | — | | | | 3,452 | | | | 22,495 | | | | — | | | | 25,947 | |
Selling, general and administrative expenses | | | 39,090 | | | | 122,189 | | | | 14,166 | | | | — | | | | 175,445 | |
Depreciation and amortization | | | 1,354 | | | | 168,104 | | | | 12,365 | | | | — | | | | 181,823 | |
| | | | | | | | | | | | | | | | | | | | |
Income (loss) before interest and taxes | | | (40,444 | ) | | | 221,305 | | | | 12,224 | | | | — | | | | 193,085 | |
Interest expense | | | 58,132 | | | | 5,653 | | | | 105 | | | | (6,221 | ) | | | 57,669 | |
Interest income | | | (6,511 | ) | | | (8 | ) | | | (24 | ) | | | 6,221 | | | | (322 | ) |
Equity in earnings of consolidated affiliates | | | (140,929 | ) | | | (8,926 | ) | | | — | | | | 149,855 | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Income (loss) before taxes | | | 48,864 | | | | 224,586 | | | | 12,143 | | | | (149,855 | ) | | | 135,738 | |
Taxes | | | (35,294 | ) | | | 83,657 | | | | 3,217 | | | | — | | | | 51,580 | |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 84,158 | | | $ | 140,929 | | | $ | 8,926 | | | $ | (149,855 | ) | | $ | 84,158 | |
| | | | | | | | | | | | | | | | | | | | |
105
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
Condensed Consolidated Statement of Operations
Year Ended December 31, 2009
| | | | | | | | | | | | | | | | | | | | |
| | | | | Guarantor
| | | Non-guarantor
| | | Eliminations/
| | | | |
| | Parent | | | Subsidiaries | | | Subsidiaries | | | Reclassifications | | | Consolidated | |
|
Revenue: | | | | | | | | | | | | | | | | | | | | |
Service | | $ | — | | | $ | 902,157 | | | $ | 115,768 | | | $ | (5,612 | ) | | $ | 1,012,313 | |
Product | | | — | | | | 13,752 | | | | 30,329 | | | | — | | | | 44,081 | |
| | | | | | | | | | | | | | | | | | | | |
| | | — | | | | 915,909 | | | | 146,097 | | | | (5,612 | ) | | | 1,056,394 | |
Service expenses | | | — | | | | 613,823 | | | | 83,953 | | | | (5,612 | ) | | | 692,164 | |
Product expenses | | | — | | | | 13,273 | | | | 19,928 | | | | — | | | | 33,201 | |
Selling, general and administrative expenses | | | 33,785 | | | | 129,240 | | | | 18,395 | | | | — | | | | 181,420 | |
Depreciation and amortization | | | 1,602 | | | | 185,601 | | | | 13,529 | | | | — | | | | 200,732 | |
Fixed asset and other intangibles impairment loss | | | — | | | | 38,646 | | | | — | | | | — | | | | 38,646 | |
Goodwill impairment loss | | | — | | | | 97,643 | | | | — | | | | — | | | | 97,643 | |
| | | | | | | | | | | | | | | | | | | | |
Income (loss) before interest and taxes | | | (35,387 | ) | | | (162,317 | ) | | | 10,292 | | | | — | | | | (187,412 | ) |
Interest expense | | | 56,955 | | | | 6,713 | | | | 177 | | | | (6,950 | ) | | | 56,895 | |
Interest income | | | (7,010 | ) | | | (6 | ) | | | (13 | ) | | | 6,950 | | | | (79 | ) |
Write-off of deferred financing costs | | | 528 | | | | — | | | | — | | | | — | | | | 528 | |
Equity in earnings of consolidated affiliates | | | 133,340 | | | | (8,846 | ) | | | — | | | | (124,494 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Income (loss) before taxes | | | (219,200 | ) | | | (160,178 | ) | | | 10,128 | | | | 124,494 | | | | (244,756 | ) |
Taxes | | | (37,532 | ) | | | (26,838 | ) | | | 1,282 | | | | — | | | | (63,088 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (181,668 | ) | | $ | (133,340 | ) | | $ | 8,846 | | | $ | 124,494 | | | $ | (181,668 | ) |
| | | | | | | | | | | | | | | | | | | | |
106
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
Condensed Consolidated Statement of Operations
Year Ended December 31, 2008
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Guarantor
| | Non-guarantor
| | Eliminations/
| | | | | | | Guarantor
| | Non-guarantor
| | Eliminations/
| | | |
| | Parent | | Subsidiaries | | Subsidiaries | | Reclassifications | | Consolidated | | | Parent | | Subsidiaries | | Subsidiaries | | Reclassifications | | Consolidated | |
|
Revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Service | | $ | — | | | $ | 1,641,394 | | | $ | 142,625 | | | $ | (4,567 | ) | | $ | 1,779,452 | | | $ | — | | | $ | 1,637,755 | | | $ | 142,625 | | | $ | (4,567 | ) | | $ | 1,775,813 | |
Product | | | — | | | | 13,988 | | | | 45,114 | | | | — | | | | 59,102 | | | | — | | | | 13,988 | | | | 45,114 | | | | — | | | | 59,102 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | — | | | | 1,655,382 | | | | 187,739 | | | | (4,567 | ) | | | 1,838,554 | | | | — | | | | 1,651,743 | | | | 187,739 | | | | (4,567 | ) | | | 1,834,915 | |
Service expenses | | | — | | | | 994,495 | | | | 101,957 | | | | (4,567 | ) | | | 1,091,885 | | | | — | | | | 997,184 | | | | 101,957 | | | | (4,567 | ) | | | 1,094,574 | |
Product expenses | | | — | | | | 11,507 | | | | 30,407 | | | | — | | | | 41,914 | | | | — | | | | 11,507 | | | | 30,407 | | | | — | | | | 41,914 | |
Selling, general and administrative expenses | | | 38,293 | | | | 142,667 | | | | 17,292 | | | | — | | | | 198,252 | | | | 38,293 | | | | 142,615 | | | | 17,292 | | | | — | | | | 198,200 | |
Depreciation and amortization | | | 1,516 | | | | 164,965 | | | | 14,616 | | | | — | | | | 181,097 | | | | 1,516 | | | | 165,065 | | | | 14,616 | | | | — | | | | 181,197 | |
Impairment charge | | | 27,670 | | | | 218,500 | | | | 25,836 | | | | — | | | | 272,006 | | | | 27,670 | | | | 218,500 | | | | 25,836 | | | | — | | | | 272,006 | |
| | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations before interest and taxes | | | (67,479 | ) | | | 123,248 | | | | (2,369 | ) | | | — | | | | 53,400 | | | | (67,479 | ) | | | 116,872 | | | | (2,369 | ) | | | — | | | | 47,024 | |
Interest expense | | | 62,247 | | | | 10,939 | | | | 634 | | | | (14,091 | ) | | | 59,729 | | | | 62,247 | | | | 10,939 | | | | 634 | | | | (14,091 | ) | | | 59,729 | |
Interest income | | | (14,245 | ) | | | (13 | ) | | | (134 | ) | | | 14,091 | | | | (301 | ) | | | (14,245 | ) | | | (13 | ) | | | (134 | ) | | | 14,091 | | | | (301 | ) |
Equity in earnings of consolidated affiliates | | | 10,431 | | | | 8,111 | | | | — | | | | (18,542 | ) | | | — | | | | 10,431 | | | | 8,111 | | | | — | | | | (18,542 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations before taxes and minority interest | | | (125,912 | ) | | | 104,211 | | | | (2,869 | ) | | | 18,542 | | | | (6,028 | ) | |
Income (loss) from continuing operations before taxes | | | | (125,912 | ) | | | 97,835 | | | | (2,869 | ) | | | 18,542 | | | | (12,404 | ) |
Taxes | | | (40,457 | ) | | | 109,783 | | | | 5,242 | | | | — | | | | 74,568 | | | | (40,457 | ) | | | 107,520 | | | | 5,242 | | | | — | | | | 72,305 | |
| | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations | | | (85,455 | ) | | | (5,572 | ) | | | (8,111 | ) | | | 18,542 | | | | (80,596 | ) | | | (85,455 | ) | | | (9,685 | ) | | | (8,111 | ) | | | 18,542 | | | | (84,709 | ) |
Discontinued operations (net of tax) | | | — | | | | (4,859 | ) | | | — | | | | — | | | | (4,859 | ) | | | — | | | | (4,859 | ) | | | — | | | | — | | | | (4,859 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (85,455 | ) | | $ | (10,431 | ) | | $ | (8,111 | ) | | $ | 18,542 | | | $ | (85,455 | ) | | $ | (85,455 | ) | | $ | (14,544 | ) | | $ | (8,111 | ) | | $ | 18,542 | | | $ | (89,568 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
110107
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
Condensed Consolidated Statement of OperationsCash Flows
Year Ended December 31, 20072010
| | | | | | | | | | | | | | | | | | | | |
| | | | | Guarantor
| | | Non-guarantor
| | | Eliminations/
| | | | |
| | Parent | | | Subsidiaries | | | Subsidiaries | | | Reclassifications | | | Consolidated | |
|
Revenue: | | | | | | | | | | | | | | | | | | | | |
Service | | $ | — | | | $ | 1,338,528 | | | $ | 120,368 | | | $ | (4,310 | ) | | $ | 1,454,586 | |
Product | | | — | | | | 2,272 | | | | 38,585 | | | | — | | | | 40,857 | |
| | | | | | | | | | | | | | | | | | | | |
| | | — | | | | 1,340,800 | | | | 158,953 | | | | (4,310 | ) | | | 1,495,443 | |
Service expenses | | | — | | | | 759,334 | | | | 91,918 | | | | (4,310 | ) | | | 846,942 | |
Product expenses | | | — | | | | 2,233 | | | | 25,388 | | | | — | | | | 27,621 | |
Selling, general and administrative expenses | | | 28,136 | | | | 137,475 | | | | 13,416 | | | | — | | | | 179,027 | |
Depreciation and amortization | | | 1,102 | | | | 119,909 | | | | 10,342 | | | | — | | | | 131,353 | |
Impairment loss | | | — | | | | — | | | | 13,094 | | | | — | | | | 13,094 | |
| | | | | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations before interest, taxes, impairment charge and minority interest | | | (29,238 | ) | | | 321,849 | | | | 4,795 | | | | — | | | | 297,406 | |
Interest expense | | | 63,554 | | | | 21,348 | | | | 1,101 | | | | (24,675 | ) | | | 61,328 | |
Interest income | | | (24,715 | ) | | | — | | | | (285 | ) | | | 24,675 | | | | (325 | ) |
Equity in earnings of consolidated affiliates | | | (195,659 | ) | | | (474 | ) | | | — | | | | 196,133 | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations before taxes and minority interest | | | 127,582 | | | | 300,975 | | | | 3,979 | | | | (196,133 | ) | | | 236,403 | |
Taxes | | | (33,982 | ) | | | 116,759 | | | | 4,074 | | | | — | | | | 86,851 | |
| | | | | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations before minority interest | | | 161,564 | | | | 184,216 | | | | (95 | ) | | | (196,133 | ) | | | 149,552 | |
Minority interest | | | — | | | | — | | | | (569 | ) | | | — | | | | (569 | ) |
| | | | | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations | | | 161,564 | | | | 184,216 | | | | 474 | | | | (196,133 | ) | | | 150,121 | |
Discontinued operations (net of tax) | | | — | | | | 11,443 | | | | — | | | | — | | | | 11,443 | |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 161,564 | | | $ | 195,659 | | | $ | 474 | | | $ | (196,133 | ) | | $ | 161,564 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | Guarantor
| | | Non-guarantor
| | | Eliminations/
| | | | |
| | Parent | | | Subsidiaries | | | Subsidiaries | | | Reclassifications | | | Consolidated | |
|
Cash provided by: | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 84,158 | | | $ | 140,929 | | | $ | 8,926 | | | $ | (149,855 | ) | | $ | 84,158 | |
Items not affecting cash: | | | | | | | | | | | | | | | | | | | | |
Equity in loss of consolidated affiliates | | | (140,929 | ) | | | (8,926 | ) | | | — | | | | 149,855 | | | | — | |
Depreciation and amortization | | | 1,354 | | | | 168,104 | | | | 12,365 | | | | — | | | | 181,823 | |
Other | | | 15,066 | | | | 50,422 | | | | (632 | ) | | | — | | | | 64,856 | |
Changes in operating assets and liabilities, net of effect of acquisitions | | | 30,112 | | | | (134,999 | ) | | | 1,500 | | | | (11,292 | ) | | | (114,679 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) operating activities | | | (10,239 | ) | | | 215,530 | | | | 22,159 | | | | (11,292 | ) | | | 216,158 | |
Investing activities: | | | | | | | | | | | | | | | | | | | | |
Additions to property, plant and equipment | | | (1,862 | ) | | | (138,808 | ) | | | (4,353 | ) | | | — | | | | (145,023 | ) |
Inter-company receipts | | | 52,843 | | | | — | | | | — | | | | (52,843 | ) | | | — | |
Business acquisitions, net of cash acquired | | | — | | | | (33,721 | ) | | | — | | | | — | | | | (33,721 | ) |
Proceeds from sale of fixed assets | | | — | | | | 5,317 | | | | 165 | | | | — | | | | 5,482 | |
Other | | | (826 | ) | | | — | | | | — | | | | — | | | | (826 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used for) investing activities | | | 50,155 | | | | (167,212 | ) | | | (4,188 | ) | | | (52,843 | ) | | | (174,088 | ) |
Financing activities: | | | | | | | | | | | | | | | | | | | | |
Repayments of long-term debt | | | — | | | | (228 | ) | | | (2 | ) | | | — | | | | (230 | ) |
Repayments of notes payable | | | (1,069 | ) | | | — | | | | — | | | | — | | | | (1,069 | ) |
Inter-company borrowings (repayments) | | | — | | | | (48,040 | ) | | | (4,358 | ) | | | 52,398 | | | | — | |
Proceeds from issuances of common stock | | | 8,082 | | | | — | | | | — | | | | — | | | | 8,082 | |
Treasury stock purchased | | | (1,431 | ) | | | — | | | | — | | | | — | | | | (1,431 | ) |
Other | | | 1,465 | | | | — | | | | — | | | | — | | | | 1,465 | |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | 7,047 | | | | (48,268 | ) | | | (4,360 | ) | | | 52,398 | | | | 6,817 | |
Effect of exchange rate changes on cash | | | — | | | | — | | | | 434 | | | | — | | | | 434 | |
| | | | | | | | | | | | | | | | | | | | |
Change in cash and cash equivalents | | | 46,963 | | | | 50 | | | | 14,045 | | | | (11,737 | ) | | | 49,321 | |
Cash and cash equivalents, beginning of period | | | 64,871 | | | | 519 | | | | 17,001 | | | | (5,031 | ) | | | 77,360 | |
| | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents, end of period | | $ | 111,834 | | | $ | 569 | | | $ | 31,046 | | | $ | (16,768 | ) | | $ | 126,681 | |
| | | | | | | | | | | | | | | | | | | | |
111108
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
Condensed Consolidated Statement of OperationsCash Flows
Year Ended December 31, 20062009
| | | | | | | | | | | | | | | | | | | | |
| | | | | Guarantor
| | | Non-guarantor
| | | Eliminations/
| | | | |
| | Parent | | | Subsidiaries | | | Subsidiaries | | | Reclassifications | | | Consolidated | |
|
Revenue: | | | | | | | | | | | | | | | | | | | | |
Service | | $ | — | | | $ | 941,800 | | | $ | 117,137 | | | $ | (3,912 | ) | | $ | 1,055,025 | |
Product | | | — | | | | 792 | | | | 28,794 | | | | — | | | | 29,586 | |
| | | | | | | | | | | | | | | | | | | | |
| | | — | | | | 942,592 | | | | 145,931 | | | | (3,912 | ) | | | 1,084,611 | |
Service expenses | | | — | | | | 529,024 | | | | 87,688 | | | | (3,912 | ) | | | 612,800 | |
Product expenses | | | — | | | | 122 | | | | 16,424 | | | | — | | | | 16,546 | |
Selling, general and administrative expenses | | | 20,752 | | | | 110,863 | | | | 12,817 | | | | — | | | | 144,432 | |
Depreciation and amortization | | | 1,192 | | | | 64,769 | | | | 9,941 | | | | — | | | | 75,902 | |
| | | | | | | | | | | | | | | | | | | | |
Income from continuing operations before interest, taxes and minority interest | | | (21,944 | ) | | | 237,814 | | | | 19,061 | | | | — | | | | 234,931 | |
Interest expense | | | 40,238 | | | | 17,972 | | | | 1,920 | | | | (19,485 | ) | | | 40,645 | |
Interest income | | | (20,733 | ) | | | — | | | | (139 | ) | | | 19,485 | | | | (1,387 | ) |
Write-off of deferred financing costs | | | — | | | | 170 | | | | — | | | | — | | | | 170 | |
Equity in earnings of consolidated affiliates | | | (162,045 | ) | | | (13,786 | ) | | | — | | | | 175,831 | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations before taxes and minority interest | | | 120,596 | | | | 233,458 | | | | 17,280 | | | | (175,831 | ) | | | 195,503 | |
Taxes | | | (18,490 | ) | | | 83,660 | | | | 5,346 | | | | — | | | | 70,516 | |
| | | | | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations before minority interest | | | 139,086 | | | | 149,798 | | | | 11,934 | | | | (175,831 | ) | | | 124,987 | |
Minority interest | | | — | | | | — | | | | (49 | ) | | | — | | | | (49 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) from continuing operations | | | 139,086 | | | | 149,798 | | | | 11,983 | | | | (175,831 | ) | | | 125,036 | |
Discontinued operations (net of tax) | | | — | | | | 12,247 | | | | 1,803 | | | | — | | | | 14,050 | |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 139,086 | | | $ | 162,045 | | | $ | 13,786 | | | $ | (175,831 | ) | | $ | 139,086 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | Guarantor
| | | Non-guarantor
| | | Eliminations/
| | | | |
| | Parent | | | Subsidiaries | | | Subsidiaries | | | Reclassifications | | | Consolidated | |
|
Cash provided by: | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (181,668 | ) | | $ | (133,340 | ) | | $ | 8,846 | | | $ | 124,494 | | | $ | (181,668 | ) |
Items not affecting cash: | | | | | | | | | | | | | | | | | | | | |
Equity in loss of consolidated affiliates | | | 133,340 | | | | (8,846 | ) | | | — | | | | (124,494 | ) | | | — | |
Depreciation and amortization | | | 1,602 | | | | 185,601 | | | | 13,529 | | | | — | | | | 200,732 | |
Fixed asset and other intangibles impairment loss | | | — | | | | 38,646 | | | | — | | | | — | | | | 38,646 | |
Goodwill impairment loss | | | — | | | | 97,643 | | | | — | | | | — | | | | 97,643 | |
Other | | | 14,603 | | | | 14,658 | | | | 3,697 | | | | — | | | | 32,958 | |
Changes in operating assets and liabilities | | | 96,585 | | | | 1,758 | | | | (8,742 | ) | | | 7,292 | | | | 96,893 | |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by operating activities | | | 64,462 | | | | 196,120 | | | | 17,330 | | | | 7,292 | | | | 285,204 | |
Investing activities: | | | | | | | | | | | | | | | | | | | | |
Additions to property, plant and equipment | | | (649 | ) | | | (32,431 | ) | | | (4,351 | ) | | | — | | | | (37,431 | ) |
Inter-company receipts | | | 172,228 | | | | (502 | ) | | | — | | | | (171,726 | ) | | | — | |
Proceeds from sale of fixed assets | | | — | | | | 19,996 | | | | 804 | | | | — | | | | 20,800 | |
Other | | | — | | | | (1,497 | ) | | | — | | | | — | | | | (1,497 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used for) investing activities | | | 171,579 | | | | (14,434 | ) | | | (3,547 | ) | | | (171,726 | ) | | | (18,128 | ) |
Financing activities: | | | | | | | | | | | | | | | | | | | | |
Issuances of long-term debt | | | 1,635 | | | | — | | | | 1,559 | | | | — | | | | 3,194 | |
Repayments of long-term debt | | | (187,628 | ) | | | (3,907 | ) | | | (9,074 | ) | | | — | | | | (200,609 | ) |
Repayments of notes payable | | | (8,244 | ) | | | — | | | | — | | | | — | | | | (8,244 | ) |
Inter-company borrowings (repayments) | | | — | | | | (177,606 | ) | | | 5,880 | | | | 171,726 | | | | — | |
Proceeds from issuances of common stock | | | 496 | | | | — | | | | — | | | | — | | | | 496 | |
Treasury stock purchased | | | (132 | ) | | | — | | | | — | | | | — | | | | (132 | ) |
Deferred financing fees | | | (2,911 | ) | | | — | | | | — | | | | — | | | | (2,911 | ) |
Other | | | 215 | | | | — | | | | — | | | | — | | | | 215 | |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | (196,569 | ) | | | (181,513 | ) | | | (1,635 | ) | | | 171,726 | | | | (207,991 | ) |
Effect of exchange rate changes on cash | | | — | | | | — | | | | (225 | ) | | | — | | | | (225 | ) |
| | | | | | | | | | | | | | | | | | | | |
Change in cash and cash equivalents | | | 39,472 | | | | 173 | | | | 11,923 | | | | 7,292 | | | | 58,860 | |
Cash and cash equivalents, beginning of period | | | 25,399 | | | | 346 | | | | 5,078 | | | | (12,323 | ) | | | 18,500 | |
| | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents, end of period | | $ | 64,871 | | | $ | 519 | | | $ | 17,001 | | | $ | (5,031 | ) | | $ | 77,360 | |
| | | | | | | | | | | | | | | | | | | | |
112109
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
Condensed Consolidated Statement of Cash Flows
Year Ended December 31, 2008
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Guarantor
| | Non-guarantor
| | Eliminations/
| | | | | | | Guarantor
| | Non-guarantor
| | Eliminations/
| | | |
| | Parent | | Subsidiaries | | Subsidiaries | | Reclassifications | | Consolidated | | | Parent | | Subsidiaries | | Subsidiaries | | Reclassifications | | Consolidated | |
|
Cash provided by: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (85,455 | ) | | $ | (10,431 | ) | | $ | (8,111 | ) | | $ | 18,542 | | | $ | (85,455 | ) | | $ | (89,568 | ) | | $ | (14,544 | ) | | $ | (8,111 | ) | | $ | 22,655 | | | $ | (89,568 | ) |
Items not affecting cash: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity in loss of consolidated affiliates | | | 10,431 | | | | 8,111 | | | | — | | | | (18,542 | ) | | | — | | | | 14,544 | | | | 8,111 | | | | — | | | | (22,655 | ) | | | — | |
Depreciation and amortization | | | 1,516 | | | | 166,959 | | | | 14,616 | | | | — | | | | 183,091 | | | | 1,516 | | | | 167,059 | | | | 14,616 | | | | — | | | | 183,191 | |
Impairment charge | | | 27,670 | | | | 218,500 | | | | 25,836 | | | | — | | | | 272,006 | | | | 27,670 | | | | 218,500 | | | | 25,836 | | | | — | | | | 272,006 | |
Other | | | 5,182 | | | | 39,114 | | | | 680 | | | | — | | | | 44,976 | | | | 5,182 | | | | 35,204 | | | | 680 | | | | — | | | | 41,066 | |
Changes in operating assets and liabilities, net of effect of acquisitions | | | (61,520 | ) | | | 11,069 | | | | (8,143 | ) | | | (5,576 | ) | | | (64,170 | ) | | | (61,520 | ) | | | 18,953 | | | | (8,143 | ) | | | (5,576 | ) | | | (56,286 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Net cash provided by operating activities | | | (102,176 | ) | | | 433,322 | | | | 24,878 | | | | (5,576 | ) | | | 350,448 | | |
Net cash provided by (used in) operating activities | | | | (102,176 | ) | | | 433,283 | | | | 24,878 | | | | (5,576 | ) | | | 350,409 | |
Investing activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Business acquisitions, net of cash acquired | | | — | | | | (180,154 | ) | | | — | | | | — | | | | (180,154 | ) | | | — | | | | (180,154 | ) | | | — | | | | — | | | | (180,154 | ) |
Additions to property, plant and equipment | | | (1,632 | ) | | | (229,346 | ) | | | (22,837 | ) | | | — | | | | (253,815 | ) | | | (1,632 | ) | | | (229,307 | ) | | | (22,837 | ) | | | — | | | | (253,776 | ) |
Inter-company receipts | | | 87,395 | | | | — | | | | — | | | | (87,395 | ) | | | — | | | | 87,395 | | | | — | | | | — | | | | (87,395 | ) | | | — | |
Proceeds from sale of disposal group | | | — | | | | 50,150 | | | | — | | | | — | | | | 50,150 | | | | — | | | | 50,150 | | | | — | | | | — | | | | 50,150 | |
Other | | | — | | | | 9,369 | | | | 313 | | | | — | | | | 9,682 | | | | — | | | | 9,369 | | | | 313 | | | | — | | | | 9,682 | |
| | | | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used for) investing activities | | | 85,763 | | | | (349,981 | ) | | | (22,524 | ) | | | (87,395 | ) | | | (374,137 | ) | | | 85,763 | | | | (349,942 | ) | | | (22,524 | ) | | | (87,395 | ) | | | (374,098 | ) |
Financing activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuances of long-term debt | | | 341,043 | | | | — | | | | 9,072 | | | | — | | | | 350,115 | | | | 341,043 | | | | — | | | | 9,072 | | | | — | | | | 350,115 | |
Repayments of long-term debt | | | (314,605 | ) | | | (814 | ) | | | (13,863 | ) | | | — | | | | (329,282 | ) | | | (314,605 | ) | | | (814 | ) | | | (13,863 | ) | | | — | | | | (329,282 | ) |
Repayments of notes payable | | | (14,001 | ) | | | — | | | | — | | | | — | | | | (14,001 | ) | | | (14,001 | ) | | | — | | | | — | | | | — | | | | (14,001 | ) |
Inter-company borrowings (repayments) | | | — | | | | (87,140 | ) | | | (255 | ) | | | 87,395 | | | | — | | | | — | | | | (87,140 | ) | | | (255 | ) | | | 87,395 | | | | — | |
Proceeds from issuances of common stock | | | 12,014 | | | | — | | | | — | | | | — | | | | 12,014 | | | | 12,014 | | | | — | | | | — | | | | — | | | | 12,014 | |
Other | | | 9,144 | | | | — | | | | — | | | | — | | | | 9,144 | | | | 9,144 | | | | — | | | | — | | | | — | | | | 9,144 | |
| | | | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing Activities | | | 33,595 | | | | (87,954 | ) | | | (5,046 | ) | | | 87,395 | | | | 27,990 | | |
Net cash provided by (used in) financing activities | | | | 33,595 | | | | (87,954 | ) | | | (5,046 | ) | | | 87,395 | | | | 27,990 | |
Effect of exchange rate changes on cash | | | — | | | | — | | | | 1,165 | | | | — | | | | 1,165 | | | | — | | | | — | | | | 1,165 | | | | — | | | | 1,165 | |
| | | | | | | | | | | | | | | | | | | | | | |
Change in cash and cash equivalents | | | 17,182 | | | | (4,613 | ) | | | (1,527 | ) | | | (5,576 | ) | | | 5,466 | | | | 17,182 | | | | (4,613 | ) | | | (1,527 | ) | | | (5,576 | ) | | | 5,466 | |
Cash and cash equivalents, beginning of period | | | 8,217 | | | | 5,549 | | | | 6,605 | | | | (6,747 | ) | | | 13,624 | | | | 8,217 | | | | 4,959 | | | | 6,605 | | | | (6,747 | ) | | | 13,034 | |
| | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents, end of period | | $ | 25,399 | | | $ | 936 | | | $ | 5,078 | | | $ | (12,323 | ) | | $ | 19,090 | | | $ | 25,399 | | | $ | 346 | | | $ | 5,078 | | | $ | (12,323 | ) | | $ | 18,500 | |
| | | | | | | | | | | | | | | | | | | | | | |
113
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
Condensed Consolidated Statement of Cash Flows
Year Ended December 31, 2007
| | | | | | | | | | | | | | | | | | | | |
| | | | | Guarantor
| | | Non-guarantor
| | | Eliminations/
| | | | |
| | Parent | | | Subsidiaries | | | Subsidiaries | | | Reclassifications | | | Consolidated | |
|
Cash provided by: | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 161,564 | | | $ | 195,659 | | | $ | 474 | | | $ | (196,133 | ) | | $ | 161,564 | |
Items not affecting cash: | | | | | | | | | | | | | | | | | | | | |
Equity in earnings of consolidated affiliates | | | (195,659 | ) | | | (474 | ) | | | — | | | | 196,133 | | | | — | |
Depreciation and amortization | | | 1,102 | | | | 124,517 | | | | 10,342 | | | | — | | | | 135,961 | |
Impairment charge | | | — | | | | — | | | | 13,094 | | | | — | | | | 13,094 | |
Other | | | 1,604 | | | | 49,725 | | | | (2,225 | ) | | | — | | | | 49,104 | |
Changes in operating assets and liabilities, net of effect of acquisitions | | | 78,277 | | | | (102,458 | ) | | | 6,220 | | | | (3,259 | ) | | | (21,220 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by operating activities | | | 46,888 | | | | 266,969 | | | | 27,905 | | | | (3,259 | ) | | | 338,503 | |
Investing activities: | | | | | | | | | | | | | | | | | | | | |
Business acquisitions, net of cash acquired | | | — | | | | (50,406 | ) | | | — | | | | — | | | | (50,406 | ) |
Additions to property, plant and equipment | | | (2,029 | ) | | | (349,568 | ) | | | (16,062 | ) | | | — | | | | (367,659 | ) |
Inter-company advances | | | (116,113 | ) | | | — | | | | — | | | | 116,113 | | | | — | |
Other | | | — | | | | 8,325 | | | | 945 | | | | — | | | | 9,270 | |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used for) investing activities | | | (118,142 | ) | | | (391,649 | ) | | | (15,117 | ) | | | 116,113 | | | | (408,795 | ) |
Financing activities: | | | | | | | | | | | | | | | | | | | | |
Issuances of long-term debt | | | 333,684 | | | | — | | | | 10,106 | | | | — | | | | 343,790 | |
Repayments of long-term debt | | | (252,352 | ) | | | (1,230 | ) | | | (15,187 | ) | | | — | | | | (268,769 | ) |
Repayments of notes payable | | | (18,846 | ) | | | — | | | | — | | | | — | | | | (18,846 | ) |
Inter-company borrowings (repayments) | | | — | | | | 121,926 | | | | (5,813 | ) | | | (116,113 | ) | | | — | |
Proceeds from issuances of common stock | | | 4,179 | | | | — | | | | — | | | | — | | | | 4,179 | |
Other | | | 6,289 | | | | — | | | | — | | | | — | | | | 6,289 | |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing Activities | | | 72,954 | | | | 120,696 | | | | (10,894 | ) | | | (116,113 | ) | | | 66,643 | |
Effect of exchange rate changes on cash | | | — | | | | — | | | | (2,601 | ) | | | — | | | | (2,601 | ) |
| | | | | | | | | | | | | | | | | | | | |
Change in cash and cash equivalents | | | 1,700 | | | | (3,984 | ) | | | (707 | ) | | | (3,259 | ) | | | (6,250 | ) |
Cash and cash equivalents, beginning of period | | | 6,517 | | | | 9,533 | �� | | | 7,312 | | | | (3,488 | ) | | | 19,874 | |
| | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents, end of period | | $ | 8,217 | | | $ | 5,549 | | | $ | 6,605 | | | $ | (6,747 | ) | | $ | 13,624 | |
| | | | | | | | | | | | | | | | | | | | |
114
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
Condensed Consolidated Statement of Cash Flows
Year Ended December 31, 2006
| | | | | | | | | | | | | | | | | | | | |
| | | | | Guarantor
| | | Non-guarantor
| | | Eliminations/
| | | | |
| | Parent | | | Subsidiaries | | | Subsidiaries | | | Reclassifications | | | Consolidated | |
|
Cash provided by: | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 139,086 | | | $ | 162,045 | | | $ | 13,786 | | | $ | (175,831 | ) | | $ | 139,086 | |
Items not affecting cash: | | | | | | | | | | | | | | | | | | | | |
Equity in earnings of consolidated affiliates | | | (162,045 | ) | | | (13,786 | ) | | | — | | | | 175,831 | | | | — | |
Depreciation and amortization | | | 1,192 | | | | 68,332 | | | | 10,289 | | | | — | | | | 79,813 | |
Other | | | 8,946 | | | | 29,502 | | | | (641 | ) | | | — | | | | 37,807 | |
Changes in operating assets and liabilities, net of effect of acquisitions | | | 37,966 | | | | (105,435 | ) | | | 1,994 | | | | (3,488 | ) | | | (68,963 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by operating activities | | | 25,145 | | | | 140,658 | | | | 25,428 | | | | (3,488 | ) | | | 187,743 | |
Investing activities: | | | | | | | | | | | | | | | | | | | | |
Business acquisitions, net of cash acquired | | | — | | | | (360,730 | ) | | | (8,876 | ) | | | — | | | | (369,606 | ) |
Additions to property, plant and equipment | | | (810 | ) | | | (289,680 | ) | | | (13,432 | ) | | | — | | | | (303,922 | ) |
Inter-company advances | | | (504,609 | ) | | | — | | | | — | | | | 504,609 | | | | — | |
Purchase of short-term securities | | | (165,000 | ) | | | — | | | | — | | | | — | | | | (165,000 | ) |
Proceeds from sale of short-term securities | | | 165,000 | | | | — | | | | — | | | | — | | | | 165,000 | |
Proceeds from sale of disposal group | | | — | | | | — | | | | 19,310 | | | | — | | | | 19,310 | |
Other | | | (808 | ) | | | 4,168 | | | | (5 | ) | | | — | | | | 3,355 | |
| | | | | | | | | | | | | | | | | | | | |
Net cash used for investing activities | | | (506,227 | ) | | | (646,242 | ) | | | (3,003 | ) | | | 504,609 | | | | (650,863 | ) |
Financing activities: | | | | | | | | | | | | | | | | | | | | |
Issuances of long-term debt | | | 598,133 | | | | — | | | | 10,570 | | | | — | | | | 608,703 | |
Repayments of long-term debt | | | (1,028,631 | ) | | | — | | | | (25,158 | ) | | | — | | | | (1,053,789 | ) |
Repayments of notes payable | | | (13,589 | ) | | | — | | | | — | | | | — | | | | (13,589 | ) |
Inter-company borrowings (repayments) | | | — | | | | 509,074 | | | | (4,465 | ) | | | (504,609 | ) | | | — | |
Borrowings under senior notes | | | 650,000 | | | | — | | | | — | | | | — | | | | 650,000 | |
Proceeds from issuances of common stock | | | 291,674 | | | | — | | | | — | | | | — | | | | 291,674 | |
Other | | | (11,623 | ) | | | — | | | | — | | | | — | | | | (11,623 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | 485,964 | | | | 509,074 | | | | (19,053 | ) | | | (504,609 | ) | | | 471,376 | |
Effect of exchange rate changes on cash | | | — | | | | — | | | | 213 | | | | — | | | | 213 | |
| | | | | | | | | | | | | | | | | | | | |
Change in cash and cash equivalents | | | 4,882 | | | | 3,490 | | | | 3,585 | | | | (3,488 | ) | | | 8,469 | |
Cash and cash equivalents, beginning of period | | | 1,635 | | | | 6,043 | | | | 3,727 | | | | — | | | | 11,405 | |
| | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents, end of period | | $ | 6,517 | | | $ | 9,533 | | | $ | 7,312 | | | $ | (3,488 | ) | | $ | 19,874 | |
| | | | | | | | | | | | | | | | | | | | |
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COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
| |
23. | Recent accounting pronouncements and authoritative literature: |
In February 2007,The FASB has addressed the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendmentissue of FASB Statement No. 115.” This pronouncement permits entities to use the fair value method to measure certain financial assets and liabilities by electing an irrevocable option to use the fair value method at specified election dates. After election of the option, subsequent changes in fair value would result in the recognition of unrealized gains or losses as period costsbusiness combinations during the period the change occurred. SFAS No. 159 became effective on January 1, 2008. We have not elected to adopt the fair value option prescribed by SFAS No. 159 for assets and liabilities held as of December 31, 2008, but we will consider the provisions of SFAS No. 159 and may elect to apply the fair value option for assets or liabilities associated with future transactions.
recent years. In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidating Financial Statements — an Amendment of ARB No. 51.” This pronouncement establishes accountingguidance regarding business combinations that substantially replaced previously existing guidance, while maintaining the precepts prescribed therein, and reporting standards for non-controlling interests, commonly referred to as minority interests. Specifically, this statement requires that the non-controlling interest be presented as a component of equity on the balance sheet, and that net income be presented prior to adjustment for the non-controlling interests’ portion of earnings with the portion of net income attributable to the parent company and the non-controlling interest both presented on the face of the statement of operations. In addition, this pronouncement provides a single method of accounting for changes in the parent’s ownership interest in the non-controlling entity, and requires the parent to recognize a gain or loss in net income when a subsidiary with a non-controlling interest is deconsolidated. Additional disclosure items are required related to the non-controlling interest. This pronouncement becomes effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The statement should be applied prospectively as of the beginning of the fiscal year that the statement is adopted. However, the disclosure requirements must be applied retrospectively for all periods presented. We are currently evaluating the impact that SFAS No. 160 may have on our financial position, results of operations and cash flows.
In December 2007, the FASB revised SFAS No. 141, “Business Combinations” which will replace that pronouncement in its entirety. While the revised statement will retain the fundamental requirements of SFAS No. 141, it will also requirefurther requiring that all assets and liabilities and non-controlling interests of an acquired business be measured at their fair value, with limited exceptions, including the recognition of acquisition-related costs and anticipated restructuring costs separate from the acquired net assets. In addition, the statement provides guidance for recognizingentities must recognize pre-acquisition contingencies, and states that an acquirer must recognizeas well as assets and liabilities assumed arising from contractual contingencies as of the acquisition date, measured at acquisition-date fair values, butand must recognize all other contractual contingencies as of the acquisition date, measured at their acquisition-date fair values only if it is more likely than not that these contingencies meet the definition of an asset or liability in FASB Concepts Statement No. 6, “Elements of Financial Statements.” Furthermore,liability. In addition, this statementstandard provides guidance for measuring goodwill and recording a bargain purchase, defined as a business combination in which total acquisition-date fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred plus any non-controlling interest in the acquiree, and it requiresstates that the acquirer recognize that excess in earnings as a gain attributable to the acquirer. This statement becomes effective at the beginning of the first annual reporting period beginning on or after December 15, 2008, and must be applied prospectively. We are currently evaluating the impact that this statement may have on our financial position, results of operations and cash flows.
In June 2008, the FASB issued a FASB Staff Position (“FSP”)No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities,” which states that unvested share-based awards which have non-forfeitable rights to participate in dividend distributions should be considered participating securities in order to calculate earnings per share in accordance with the “Two-Class Method” described in SFAS No. 128, “Earnings per Share.” This guidance becomes effective for fiscal years beginning after December 15, 2008, with retrospective application to prior periods. Early adoption is not permitted. We are currently evaluating the impact that this guidance may have on our financial position, results of operations and cash flows.acquiring
116110
COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
In September 2008,entity must recognize that excess in earnings as a gain attributable to the acquirer. The FASB issued an FSPNo. FAS 144-d, “Amendingamended this guidance in April 2009 as it relates to accounting for assets and liabilities assumed in a business combination which arise from contingencies. This amendment requires that contingent assets acquired and liabilities assumed in a business combination to be recognized at fair value on the Criteriaacquisition date if fair value can be reasonably estimated during the measurement period. If fair value cannot be reasonably estimated during the measurement period, the contingent asset or liability would be recognized as a contingency, in accordance with existing U.S. GAAP, with reasonable estimation of the amount of loss, if any. This amendment also eliminated the specific subsequent accounting guidance for Reporting a Discontinued Operation,” which clarifiescontingent assets and liabilities, without significantly revising the definition of a discontinued operation as either: (1) a componentoriginal guidance. However, contingent consideration arrangements of an entity which has been disposed of or classified as held for sale which meetsacquiree assumed by the criteria of an operating segment as defined under SFAS No. 131, or (2) asacquirer in a business as such term is defined in SFAS No. 141R which becomescombination would still be initially and subsequently measured at fair value. We originally adopted the revised guidance for business combinations when it became effective on January 1, 2009, and the amendment thereto, subsequently in 2009. In December 2010, the FASB updated this guidance to require each public entity that presents comparative financial statements to disclose the revenue and earnings of the combined entity as if the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. In addition, this amendment expands the supplemental pro forma disclosures related to such a business combination to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. This most recent amendment should be accounted for prospectively for business combinations for which meets the criteriaacquisition date is on or after January 1, 2011, for calendar-year reporting entities. Early adoption is permitted. Although we did not early adopt this standard, we do not expect this guidance to have a material impact on our financial position, results of operations or cash flows. We will comply with this update for business combinations that have a material impact on our financial results.
In May 2009, the FASB issued a standard regarding subsequent events that provides guidance as to when an entity should recognize events or transactions occurring after a balance sheet date in its financial statements and the necessary disclosures related to these events. Specifically, the entity should recognize subsequent events that provide evidence about conditions that existed at the balance sheet date, including significant estimates used to prepare financial statements. Originally, this standard required entities to disclose the date through which subsequent events had been evaluated and whether that date was the date the financial statements were issued or the date the financial statements were available to be classifiedissued. We adopted this accounting standard effective June 30, 2009 and applied its provisions prospectively. In February 2010, the FASB modified this standard to eliminate the requirement for publicly-traded entities to disclose the date through which subsequent events have been evaluated.
In January 2010, the FASB issued “Fair Value Measurements and Disclosure (Topic 820)” which clarified the disclosure requirements of existing U.S. GAAP related to fair value measurements. This standard requires additional disclosures about recurring and non-recurring fair value measurements as heldfollows: (1) for saletransfers in and out of Level 1 and Level 2 fair value measurements, as those terms are currently defined in existing authoritative literature, a reporting entity is required to disclose the amount of the movement between levels and an explanation for the movement; (2) for activity at Level 3, primarily fair value measurements based on acquisition. This proposedunobservable inputs, a reporting entity is required to present separately information about purchases, sales, issuances and settlements, as opposed to presenting such transactions on a net basis; (3) in the event of a disaggregation, a reporting entity is required to provide fair value measurement disclosure for each class of assets and liabilities; and (4) a reporting entity is required to provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and non-recurring fair value measurements for items that fall in either Level 2 or Level 3. These disclosure requirements are effective for interim and annual reporting periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements for which disclosure becomes effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.
On March 30, 2010, the President of the United States signed the Health Care and Education Reconciliation Act of 2010, which is a reconciliation bill that amends the Patient Protection and Affordable Care Act that was signed by the President on March 23, 2010. Certain provisions of this law became effective during 2010. We have reviewed our health insurance plan provisions with third-party consultants and continue to evaluate our position
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COMPLETE PRODUCTION SERVICES, INC.
Notes to Consolidated Financial Statements — (Continued)
relative to the changes in the law. We do not believe that the provisions which have taken effect will have a significant impact on the operation of our existing health insurance plan. However, future provisions under the law which become effective in subsequent periods may impact our health insurance plan and our overall financial position. We are evaluating these provisions as they become effective and continue to seek guidance further modifies certainfrom the FASB and SEC related to the implications of this new legislation on accounting and disclosure requirements. We are currently evaluating the effectexpect that this proposed guidance maylegislation will have an impact on our financial position, results of operations and cash flows.flows, but we cannot determine the extent of the impact at this time.
In January 2009,December 2010, the FASB issued FSP No.FAS 107-badditional guidance related to accounting for intangible assets and APB28-a,goodwill. The amendments in this update modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with the existing guidance and examples, which require that goodwill of a reporting unit be tested for impairment between annual test dates if an event occurs or circumstances change that would amend SFAS No. 107, “Disclosures About Fair Value of Financial Instruments” and APB Opinion No. 28, “Interim Financial Reporting,” to require disclosure ofmore likely than not reduce the fair value of financial instruments in interim financial statements as well as annual financial statements. In addition, entities would be required to disclose the method and significant assumptions used to estimate the fair value of financial instruments. If ratified, this proposed guidance would becomea reporting unit below its carrying amount. This update is effective for public entities with fiscal years beginning after December 15, 2010 and interim and annual periods ending after March 15, 2009.within those years. Early adoption is not permitted. We are currently evaluating the effect this proposed guidance may have on our financial position, results of operations and cash flows.
On January 30, 2009,31, 2011, the Compensation Committee of our Board of Directors approved the annual grant of stock options and non-vested restricted stock to certain employees, officers and directors. Pursuant to this authorization, we issued 1,287,008428,860 shares of non-vested restricted stock at a grant price of $6.41.$27.94. We expect to recognize compensation expense associated with this grant of non-vested restricted stock totaling $8,250$11,982 ratably over the three-year vesting period. In addition, we granted 905,300213,200 stock options to purchase shares of our common stock at an exercise price of $6.41.$27.94. These stock options vest ratably over a three-year period. We will recognize compensation expense associated with these stock option grants over the vesting period in accordance with SFAS No. 123R. Further, we plan to seek shareholder approval in May 2009 to increase the shares available for grant through our stock compensation plans, pursuant to which, we expect to issue additional stock-based compensationperiod.
Pursuant to our directors, officers2008 Incentive Award Plan, holders of unvested restricted stock have the option to authorize us to repurchase shares equivalent to the cost of the withholding tax associated with the vesting of restricted stock and employees.to remit the withholding taxes on behalf of the holder. Pursuant to this provision, we purchased 64,348 shares of our common stock on January 29, 2011 for $27.29 per share, 91,417 shares on January 30, 2011 for $27.29 per share and 43,869 shares on January 31, 2011 for $27.94 per share. These shares were included in treasury stock at cost.
Effective January 1, 2009,2011, we adopted and establishedreinstated the Complete Production Services, Inc. Deferred Compensation Plan, whereby eligible participants, including membersmatching contributions for our defined contribution retirement plans to provide for 100% matching of senior management, directors and certain highly-compensated individuals, could defercontributions, up to 90% of their compensation and up to 90%4% of the employees’employee’s salary, depending on the plan. For a description of our retirement plans, see Note 20, “Retirement plans.”
During the review of our property, plant and equipment at December 31, 2010 in conjunction with our annual incentive bonus, or, 100%impairment testing of director compensationlong-term assets, we noted approximately $5,814 of salvage value assigned to various coiled tubing and wireline assets at one of our operating divisions. Although we evaluated these assets and the assets of the overall reporting unit for services rendered, into various investment options pre-tax. For amounts deferred,recoverability and noted no significant impairment based on an undiscounted cash flow projection, we will matchbelieve that the contribution dollar-for-dollar upsalvage value assigned to four percent of compensation minus $10,these assets is no longer appropriate. These assets were acquired several years ago, and we may make other discretionary contributions pursuantbelieve the estimate for salvage value used at that time was appropriate. However, increasingly, our business is focusing on larger-diameter coiled tubing units and more technologically-advanced equipment. As such, we have changed our estimate of salvage value to resolutionszero and expect to depreciate these assets over their remaining useful lives, an average of this plan’s administrative committee. Participants immediately vest1.3 years at December 31, 2010. This change in amounts deferred as well as any matching or discretionary contributions we make. Participants bearestimate will be applied prospectively and is expected to increase our depreciation expense over the risk of loss associated with investment gains or losses. We intend that this plan will meet all the requirements necessary to be a nonqualified, unfunded, unsecured plan of deferred compensation within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended.
In conjunction with the sale of a disposal group in 2006, we received a $2,000 Canadian dollar-denominated note from Paintearth Energy Services, Inc. on October 31, 2006 which was to mature on October 31, 2009 and accrued interest at 6% per annum. On January 31, 2009, we and the borrower amended this note to extend the maturity date to October 31, 2011. Interest is to be calculatednext five years as follows: (1) for the calendar year 2009, the announced prime rate of a specified Canadian bank plus one2011 — $4,867; 2012 — $789; 2013 — $134 and one-half percent per annum; (2) for the calendar year 2010, the greater of five percent per annum or the prime rate of a specified Canadian bank plus two percent per annum; and (3) for the calendar year 2011 and thereafter, if applicable, the greater of five percent per annum or the prime rate of a specified Canadian bank plus three percent per annum. This note receivable has been classified as a long-term asset in the accompanying Balance Sheet as of December 31, 2008.2014 — $24.
117112
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Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. |
None.
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Item 9A. | Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
As required byRule 13a-15(b) under the Securities Exchange Act of 1934, as amended we have(the “Exchange Act”), management has evaluated, under the supervision and with the participation of our management, including our principal executive officerChief Executive Officer and principal financial officer,Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined inRules 13a-15(e) and15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report onForm 10-K.Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure
Disclosure controls and procedures were effective as of December 31, 2008,refer to controls and other procedures designed to ensure that information is accumulated and communicatedrequired to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure andbe disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC.Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding our required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating and implementing possible controls and procedures.
Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2010, the end of the period covered by this Annual Report onForm 10-K, our disclosure controls and procedures were effective at a reasonable assurance level to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a — 15(f) and 15d — 15(f) under the Exchange Act). Our internal control over financial reporting is a process designed by management, under the supervision of the Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America, 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 accounting principles generally accepted in the United States, and that our receipts and expenditures are being made only in accordance with authorizations of management and our 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 our consolidated financial statements.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improver override. Because of its inherent limitations, there is a risk that internal control over financial reporting may not prevent or detect, on a timely basis, material 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
113
degree of compliance with the policies and procedures may deteriorate. Accordingly, even effective internal control over financial reporting can only provide reasonable assurance of achieving their control objectives.
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010. In making this assessment, management used the criteria set forth by the committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control — Integrated Framework.
Based on our evaluation under the framework inInternal Control — Integrated Framework, our management concluded that, our internal control over financial reporting was effective as of December 31, 2010.
Grant Thornton LLP, the independent registered accounting firm who audited the consolidated financial statements included in this Annual Report, has issued a report on our internal control over financial reporting dated February 18, 2011, also included in this Annual Report and expressed an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2010.
Changes in Internal Control over Financial Reporting
During the three months endedAs of December 31, 2008,2010, there were no changes in our system of internal control over financial reporting (as defined in Rules 13a — 15(f) and 15d — 15(f) under the Exchange Act) that occurred during the last fiscal quarter then ended that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal ControlIn 2010, our management approved a plan to implement new accounting software which will replace our existing accounting systems at several of our operating divisions in a phased approach. Two divisions converted during the fourth quarter of 2010 and two divisions will convert during 2011. In addition, we implemented a new chart of accounts which is being adopted as these divisions convert to the new software. Although we believe the new software, once implemented, will enhance our internal controls over Financial Reporting
Our management is responsible for establishingfinancial reporting and maintaining adequatewe believe that we have taken the necessary steps to maintain appropriate internal control over financial reporting (as defined in Rules 13a — 15(f)during this period of system change, we will continuously monitor controls through and 15d — 15(f) underaround the Securities and Exchange Act of 1934). Our internal control over financial reporting is a process designed by management, under the supervision of the Chief Executive Officer and Chief Financial Officer,system to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America, 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 accounting principles generally accepted in the United States, and that our receipts and expenditures are being made only in accordance with authorizations of management and our 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 o our consolidated 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 becauseare effective during and after each step of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. Accordingly, even effective internal control over financial reporting can only provide reasonable assurance of achieving their control objectives.
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008. In making this assessment, management used the criteria set forth by the committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control — Integrated Framework.
Based on our evaluation under the framework inInternal Control — Integrated Framework, our management concluded that, as of December 31, 2008, our internal control over financial reporting was effective.
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Grant Thornton LLP, the independent registered accounting firm who audited the consolidated financial statements included in this Annual Report, has issued a report on our internal control over financial reporting dated February 27, 2009, also included in this Annual Report.implementation process.
Joseph C. Winkler
Chairman and Chief Executive Officer
February 27, 200918, 2011
Jose A. Bayardo
Sr. Vice President and Chief Financial Officer
February 27, 200918, 2011
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Item 9B. | Other Information. |
None.
PART III
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Item 10. | Directors, Executive Officers and Corporate Governance. |
Item 10 willThe information to be incorporatedincluded in the sections entitled, “Election of Directors” and “Executive Officers,” respectively, in the Definitive Proxy Statement of the Annual Meeting of Stockholders to be filed by reference pursuant to Regulation 14A under the Securities Exchange Act of 1934. The Registrant expects to file a definitive proxy statementus with the
114
Securities and Exchange Commission withinno later than 120 days after December 31, 2010 (the “2010 Proxy Statement”) is incorporated herein by reference.
The information to be included in the closesection entitled “Section 16(a) Beneficial Ownership Reporting Compliance” in the 2011 Proxy Statement is incorporated herein by reference.
The information to be included in the section entitled “Corporate Governance” in the 2011 Proxy Statement is incorporated herein by reference.
We have filed, as exhibits to this Annual Report onForm 10-K, the certifications of our Principal Executive Officer and Principal Financial Officer required pursuant to Section 302 of the year ended December 31, 2008.Sarbanes-Oxley Act of 2002.
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Item 11. | Executive Compensation. |
Item 11 willThe information to be included in the sections entitled “Executive Compensation” and “Directors’ Compensation” in the 2011 Proxy Statement is incorporated herein by reference pursuant to Regulation 14A under the Securities Exchange Act of 1934. The Registrant expects to file a definitive proxy statement with the Securities and Exchange Commission within 120 days after the close of the year ended December 31, 2008.reference.
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Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
Item 12 willThe information to be included in the section entitled “Security Ownership of Certain Beneficial Owners and Management” in the 2011 Proxy Statement is incorporated herein by reference pursuant to Regulation 14A under the Securities Exchange Act of 1934. The Registrant expects to file a definitive proxy statement with the Securities and Exchange Commission within 120 days after the close of the year ended December 31, 2008.reference.
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Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
Item 13 willThe information to be included in the sections entitled “Certain Relationships and Related Transactions” and “Board Independence” in the 2011 Proxy Statement is incorporated herein by reference pursuant to Regulation 14A under the Securities Exchange Act of 1934. The Registrant expects to file a definitive proxy statement with the Securities and Exchange Commission within 120 days after the close of the year ended December 31, 2008.reference.
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Item 14. | Principal Accounting Fees and Services. |
Item 14 willThe information to be included in the section entitled “Independent Registered Public Accountants” in the 2011 Proxy Statement is incorporated herein by reference pursuant to Regulation 14A under the Securities Exchange Act of 1934. The Registrant expects to file a definitive proxy statement with the Securities and Exchange Commission within 120 days after the close of the year ended December 31, 2008.reference.
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PART IV
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Item 15. | Exhibits, Financial Statement Schedules. |
(a) List the following documents filed as a part of the report:
| | | | |
Description | | Page No. |
|
| | | 6162 | |
2009 | | | 6364 | |
2008 | | | 6465 | |
2008 | | | 6566 | |
2008 | | | 6667 | |
| | | 67 | |
2008 | | | 68 | |
Notes to Consolidated Financial Statements | | | 69 | |
(b) Exhibits Please see our Exhibit Index, on Page 117.
The following exhibits are incorporated by reference into the filing indicated or are filed herewith.
| | | | | | | | |
| | | | | | Incorporated by
|
Exhibit
| | | | | | Reference to the
|
No. | | | | Exhibit Title | | Following |
|
| | | | | | | | |
| 2 | .1 | | — | | Stock Purchase Agreement dated November 8, 2006 among Complete Production Services, Inc., Integrated Production Services, LLC and Pumpco Services Inc. and Each Seller Listed on Schedule I Thereto | | Form 8-K, filed November 14, 2006 |
| | | | | | | | |
| 3 | .1 | | — | | Amended and Restated Certificate of Incorporation | | Form S-1/A, filed January 18, 2006,(file no. 333-128750) |
| | | | | | | | |
| 3 | .2 | | — | | Amended and Restated Bylaws | | Form 8-K, filed February 27, 2008 |
| | | | | | | | |
| 4 | .1 | | — | | Specimen Stock Certificate representing common stock | | Form S-1/A, filed April 4, 2006,(file no. 333-128750) |
| | | | | | | | |
| 4 | .2 | | — | | Indenture dated December 6, 2006, between Complete Production Services, Inc. and the Guarantors Named Therein, with Wells Fargo Bank, National Association, as Trustee, for 8% Senior Notes due 2016 | | Form 8-K, filed December 8, 2006 |
| | | | | | | | |
| 4 | .3 | | — | | Registration Rights Agreement dated November 8, 2006 pursuant to Stock Purchase Agreement dated November 8, 2006 among Complete Production Services, Inc., Integrated Production Services, LLC and Pumpco Services Inc. and Each Seller Listed on Schedule I Thereto | | Form 8-K, filed November 14, 2006 |
| | | | | | | | |
| 4 | .4 | | — | | First Supplemental Indenture, dated August 28, 2007, among Complete Production Services, Inc., the subsidiary guarantors party thereto, and Wells Fargo Bank, National Association, as trustee | | Form 10-Q, filed November 2, 2007,(file no. 001-32858) |
| | | | | | | | |
| 10 | .1 | | — | | Form of Indemnification Agreement | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) |
| | | | | | | | |
| 10 | .2* | | — | | Employment Agreement dated as of June 20, 2005 with Joseph C. Winkler | | Form S-1, filed September 30, 2005,(file no. 333-128750) |
| | | | | | | | |
| 10 | .3 | | — | | Amended and Restated Stockholders’ Agreement by and among Complete Production Services Inc. and the stockholders listed therein | | Form S-1/A, filed March 20, 2006,(file no. 333-128750) |
| | | | | | | | |
| 10 | .4 | | — | | Combination Agreement dated as of August 9, 2005, with Complete Energy Services, Inc., I.E. Miller Services, Inc. and Complete Energy Services, LLC and I.E. Miller Services, LLC | | Form S-1, filed September 30, 2005,(file no. 333-128750) |
120
| | | | | | | | |
| | | | | | Incorporated by
|
Exhibit
| | | | | | Reference to the
|
No. | | | | Exhibit Title | | Following |
|
| | | | | | | | |
| 10 | .5 | | — | | Second Amended and Restated Credit Agreement, dated as of December 6, 2006 by and among Complete Production Services, Inc., as U.S. Borrower, Integrated Production Services Ltd., as Canadian Borrower, Wells Fargo Bank, National Association, as U.S. Administrative Agent, U.S. Issuing Lender and U.S. Swingline Lender, HSBC Bank Canada, as Canadian Administrative Agent, Canadian Issuing Lender and Canadian Swingline Lender, and the Lenders party thereto, Wells Fargo Bank, National Association as Lead Arranger and Amegy Bank N.A. and Comerica Bank, as Co-Documentation Agents | | Form 10-K, filed March 9, 2007,(file no. 001-32858) |
| | | | | | | | |
| 10 | .6* | | — | | Integrated Production Services, Inc. 2001 Stock Incentive Plan | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) |
| | | | | | | | |
| 10 | .7* | | — | | Complete Energy Services, Inc. 2003 Stock Incentive Plan | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) |
| | | | | | | | |
| 10 | .8* | | — | | First Amendment to Complete Energy Services, Inc. 2003 Stock Incentive Plan | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) |
| | | | | | | | |
| 10 | .9* | | — | | Second Amendment to Complete Energy Services, Inc. 2003 Stock Incentive Plan | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) |
| | | | | | | | |
| 10 | .10* | | — | | Amended and Restated Integrated Production Services, Inc. 2003 Parchman Restricted Stock Plan | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) |
| | | | | | | | |
| 10 | .11* | | — | | Amended and Restated 2001 Stock Incentive Plan | | Form S-1/A, filed April 4, 2006, (file no. 333-128750) |
| | | | | | | | |
| 10 | .12* | | — | | Amendment No. 1 to the Complete Production Services, Inc. Amended and Restated 2001 Stock Incentive Plan | | Form 10-K, filed March 9, 2007, (file no. 001-32858) |
| | | | | | | | |
| 10 | .13* | | — | | I.E. Miller Services, Inc. 2004 Stock Incentive Plan | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) |
| | | | | | | | |
| 10 | .14 | | — | | Strategic Customer Relationship Agreement | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) |
| | | | | | | | |
| 10 | .15* | | — | | Form of Restricted Stock Grant Agreement (Employee) | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) |
| | | | | | | | |
| 10 | .16* | | — | | Form of Restricted Stock Grant Agreement (Non-employee Director) | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) |
| | | | | | | | |
| 10 | .17* | | — | | Form of Non-Qualified Option Grant Agreement (Executive Officer) | | Form S-1/A, filed April 4, 2006, (file no. 333-128750) |
| | | | | | | | |
| 10 | .18* | | — | | Form of Non-Qualified Option Grant Agreement (Non-Employee Director) | | Form S-1/A, filed April 4, 2006, (file no. 333-128750) |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| 10 | .19* | | — | | Compensation Package Term Sheet — J. Michael Mayer | | Form S-1/A, filed March 20, 2006, (file no. 333-128750) |
| | | | | | | | |
| 10 | .20* | | — | | Compensation Package Term Sheet — James F. Maroney, III | | Form S-1/A, filed March 20, 2006, (file no. 333-128750) |
| | | | | | | | |
| 10 | .21* | | — | | Compensation Package Term Sheet — Kenneth L. Nibling | | Form S-1/A, filed March 20, 2006, (file no. 333-128750) |
| | | | | | | | |
| 10 | .22* | | — | | Incentive Plan Guidelines for Senior Management | | Form 8-K, filed February 22, 2007 |
| | | | | | | | |
| 10 | .23* | | — | | Form of Non-qualified Stock Option Grant Agreement | | Form 8-K, filed February 2, 2007 |
| | | | | | | | |
| 10 | .24* | | — | | Form of Restricted Stock Agreement — Executive Officer (Post-September 2006) | | Form 8-K, filed February 2, 2007 |
| | | | | | | | |
| 10 | .25* | | — | | Restricted Stock Agreement Terms and Conditions (Revised 2006) — Employee | | Form 10-K, filed March 9, 2007, (file no. 001-32858) |
| | | | | | | | |
| 10 | .26* | | — | | Signature Page for Restricted Stock Agreement — Employee | | Form 10-K, filed March 9, 2007, (file no. 001-32858) |
| | | | | | | | |
| 10 | .27* | | — | | Non-Employee Director Restricted Stock Agreement | | Form 10-K, filed March 9, 2007, (file no. 001-32858) |
| | | | | | | | |
| 10 | .28* | | — | | Stock Option Terms and Conditions (Revised 2006) — Employee | | Form 10-K, filed March 9, 2007, (file no. 001-32858) |
| | | | | | | | |
| 10 | .29* | | — | | Signature Page for Executive Officers | | Form 10-K, filed March 9, 2007, (file no. 001-32858) |
| | | | | | | | |
| 10 | .30* | | — | | Director Option Agreement | | Form 10-K, filed March 9, 2007, (file no. 001-32858) |
| | | | | | | | |
| 10 | .31* | | — | | Form of Executive Agreement | | Form 10-Q, filed May 4, 2007, (file no. 001-32858) |
121
| | | | | | | | |
| | | | | | Incorporated by
|
Exhibit
| | | | | | Reference to the
|
No. | | | | Exhibit Title | | Following |
|
| | | | | | | | |
| 10 | .32* | | — | | Amendment to Employment Agreement, dated March 21, 2007 between Complete Production Services, Inc. and Mr. Joseph C. Winkler | | Form 10-Q, filed May 4, 2007, (file no. 001-32858) |
| | | | | | | | |
| 10 | .33* | | — | | Pumpco Services, Inc. 2005 Stock Incentive Plan | | Registration Statement on Form S-8, filed March 28, 2007, (file no. 333-141628) |
| | | | | | | | |
| 10 | .34 | | — | | First Amendment to Second Amended and Restated Credit Agreement, dated as of December 6, 2006 by and among Complete Production Services, Inc., as U.S. Borrower, Integrated Production Services Ltd., as Canadian Borrower, Wells Fargo Bank, National Association, as U.S. Administrative Agent, U.S. Issuing Lender and U.S. Swingline Lender, HSBC Bank Canada, as Canadian Administrative Agent, Canadian Issuing Lender and Canadian Swingline Lender, and the Lenders party thereto, Wells Fargo Bank, National Association as Lead Arranger and Amegy Bank N.A. and Comerica Bank, as Co-Documentation Agents, effective June 29, 2007. | | Form 10-Q, filed August 3, 2007, (file no. 001-32858) |
| | | | | | | | |
| 10 | .35 | | — | | Second Amendment to Credit Agreement and Omnibus Amendment to Security Documents, dated October 9, 2007 but effective October 19, 2007, among Complete Production Services, Inc., Integrated Production Services, Ltd., Wells Fargo Bank, National Association, as administrative agent, swing line lender and issuing lender and HSBC Bank Canada, as administrative agent, swing line lender and issuing lender. | | Form 10-Q, filed November 2, 2007, (file no. 001-32858) |
| | | | | | | | |
| 10 | .36* | | — | | Complete Production Services, Inc. 2008 Incentive Award Plan | | Registration Statement on Form S-8, filed May 22, 2008, (file no. 333-141628) |
| | | | | | | | |
| 10 | .37* | | — | | Form of Non-Qualified Stock Option Agreement | | Form 10-Q, filed August 1, 2008, (file no. 001-32858) |
| | | | | | | | |
| 10 | .38* | | — | | Agreement for Non-Employee Directors | | Form 10-Q, filed August 1, 2008, (file no. 001-32858) |
| | | | | | | | |
| 10 | .39* | | — | | Form of Signature Page for Stock Option Agreement Terms and Conditions | | Form 10-Q, filed August 1, 2008, (file no. 001-32858) |
| | | | | | | | |
| 10 | .40* | | — | | Restricted Stock Agreement Terms and Conditions | | Form 10-Q, filed August 1, 2008, (file no. 001-32858) |
| | | | | | | | |
| 10 | .41* | | — | | Form of Stock Agreement | | Form 10-Q, filed August 1, 2008, (file no. 001-32858) |
| | | | | | | | |
| 10 | .42* | | — | | Signature Page to the Restricted Stock Award Agreement Terms and Conditions | | Form 10-Q, filed August 1, 2008, (file no. 001-32858) |
| | | | | | | | |
| 10 | .43* | | — | | Restricted Stock Agreement for Non-Employee Directors | | Form 10-Q, filed August 1, 2008, (file no. 001-32858) |
| | | | | | | | |
| 10 | .44* | | — | | Retirement Agreement between Complete Production Services, Inc. and J. Michael Mayer, effective October 7, 2008. | | Form 8-K, filed October 9, 2008, (file no. 001-32858) |
| | | | | | | | |
| 10 | .45* | | — | | Complete Production Services, Inc. Deferred Compensation Plan, effective January 1, 2009 | | Filed herewith |
| | | | | | | | |
| 10 | .46* | | — | | Amended and Restated Employment Agreement, effective December 31, 2008 between Complete Production Services, Inc. and Mr. Joseph C. Winkler | | Filed herewith |
| | | | | | | | |
| 10 | .47* | | — | | Form of Amended and Restated Complete Production Services Executive Agreement | | Filed herewith |
| | | | | | | | |
| 21 | .1 | | — | | Subsidiaries of Complete Production Services, Inc. | | Filed herewith |
| | | | | | | | |
| 23 | .1 | | — | | Consent of Grant Thornton LLP | | Filed herewith |
| | | | | | | | |
| 24 | .1 | | — | | Power of Attorney (included on signature page) | | Filed herewith |
| | | | | | | | |
| 31 | .1 | | — | | Certification of Chief Executive Officer Pursuant to Rule 13a — 14 of the Securities and Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | Filed herewith |
122
| | | | | | | | |
| | | | | | Incorporated by
|
Exhibit
| | | | | | Reference to the
|
No. | | | | Exhibit Title | | Following |
|
| | | | | | | | |
| 31 | .2 | | — | | Certification of Chief Financial Officer Pursuant to Rule 13a — 14 of the Securities and Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | Filed herewith |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| 32 | .1 | | — | | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | Filed herewith |
| | | | | | | | |
| 32 | .2 | | — | | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | Filed herewith |
| | |
* | | Management employment agreements, compensatory arrangements or option plans |
123115
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
COMPLETE PRODUCTION SERVICES, INC.
| | |
| By: | /s/ JOSEPH C. WINKLER |
Name: Joseph C. Winkler
| | |
| Title: | Chief Executive Officer |
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Joseph C. Winkler and Jose A. Bayardo, and each of them severally, his true and lawful attorney or attorneys-in-fact and agents, with full power to act with or without the others and with full power of substitution and resubstitution,re-substitution, to execute in his name, place and stead, in any and all capacities, any or all amendments to this Annual Report onForm 10-K, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents and each of them, full power and authority to do and perform in the name of on behalf of the undersigned, in any and all capacities, each and every act and thing necessary or desirable to be done in and about the premises, to all intents and purposes and as fully as they might or could do in person, hereby ratifying, approving and confirming all that said attorneys-in-fact and agents or their substitutes may lawfully do or cause to be done by virtue hereof.
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 | | Position | | Date |
|
| | | | |
/s/ JOSEPH C. WINKLER Joseph C. Winkler | | Chief Executive Officer and Chairman of the Board (Principal Executive Officer) | | February 27, 200918, 2011 |
| | | | |
/s/ JOSE A. BAYARDO Jose A. Bayardo | | Sr. Vice President and Chief Financial Officer (Principal Financial Officer) | | February 27, 200918, 2011 |
| | | | |
/s/ ROBERT L. WEISGARBERDEWAYNE WILLIAMS
Robert L. WeisgarberDewayne Williams | | Vice President-Accounting and Controller (Principal Accounting Officer) | | February 27, 2009 |
| | | | |
/s/ ANDREW L. WAITE
Andrew L. Waite | | Director | | February 27, 200918, 2011 |
| | | | |
/s/ ROBERT BOSWELL Robert Boswell | | Director | | February 27, 200918, 2011 |
| | | | |
/s/ HAROLD G. HAMM Harold G. Hamm | | Director | | February 27, 200918, 2011 |
| | | | |
/s/ MIKE MCSHANE Mike McshaneMcShane | | Director | | February 27, 200918, 2011 |
| | | | |
/s/ W. MATT RALLS W. Matt Ralls | | Director | | February 27, 200918, 2011 |
| | | | |
/s/ MARCUS WATTS Marcus Watts | | Director | | February 27, 2009 |
| | | | |
/s/ R. GRAHAM WHALING
R. GRAHAM WHALING | | Director | | February 27, 200918, 2011 |
| | | | |
/s/ JAMES D. WOODS James D. Woods | | Director | | February 27, 200918, 2011 |
124116
The following exhibits are incorporated by reference into the filing indicated or are filed herewith.
EXHIBIT INDEX
| | | | | | | | | | | | |
| | | | | | | Incorporated by
| | | | | | | Incorporated by
|
Exhibit
| Exhibit
| | | | | | Reference to the
| Exhibit
| | | | | | Reference to the
|
No. | No. | | | | Exhibit Title | | Following | No. | | | | Exhibit Title | | Following |
|
| | |
| 2 | .1 | | — | | Stock Purchase Agreement dated November 8, 2006 among Complete Production Services, Inc., Integrated Production Services, LLC and Pumpco Services Inc. and Each Seller Listed on Schedule I Thereto | | Form 8-K, filed November 14, 2006 | 3 | .1 | | — | | Amended and Restated Certificate of Incorporation | | Form S-1/A, filed January 18, 2006, (file no. 333-128750) |
| | |
| 3 | .1 | | — | | Amended and Restated Certificate of Incorporation | | Form S-1/A, filed January 18, 2006, (file no. 333-128750) | 3 | .2 | | — | | Amended and Restated Bylaws | | Form 8-K, filed February 27, 2008 |
| | |
| 3 | .2 | | — | | Amended and Restated Bylaws | | Form 8-K, filed February 27, 2008 | 4 | .1 | | — | | Specimen Stock Certificate representing common stock | | Form S-1/A, filed April 4, 2006, (file no. 333-128750) |
| | |
| 4 | .1 | | — | | Specimen Stock Certificate representing common stock | | Form S-1/A, filed April 4, 2006, (file no. 333-128750) | 4 | .2 | | — | | Indenture dated December 6, 2006, between Complete Production Services, Inc. and the Guarantors Named Therein, with Wells Fargo Bank, National Association, as Trustee, for 8% Senior Notes due 2016 | | Form 8-K, filed December 8, 2006 |
| | |
| 4 | .2 | | — | | Indenture dated December 6, 2006, between Complete Production Services, Inc. and the Guarantors Named Therein, with Wells Fargo Bank, National Association, as Trustee, for 8% Senior Notes due 2016 | | Form 8-K, filed December 8, 2006 | 4 | .3 | | — | | Registration Rights Agreement dated November 8, 2006 pursuant to Stock Purchase Agreement dated November 8, 2006 among Complete Production Services, Inc., Integrated Production Services, LLC and Pumpco Services Inc. and Each Seller Listed on Schedule I Thereto | | Form 8-K, filed November 14, 2006 |
| | |
| 4 | .3 | | — | | Registration Rights Agreement dated November 8, 2006 pursuant to Stock Purchase Agreement dated November 8, 2006 among Complete Production Services, Inc., Integrated Production Services, LLC and Pumpco Services Inc. and Each Seller Listed on Schedule I Thereto | | Form 8-K, filed November 14, 2006 | 4 | .4 | | — | | First Supplemental Indenture, dated August 28, 2007, among Complete Production Services, Inc., the subsidiary guarantors party thereto, and Wells Fargo Bank, National Association, as trustee | | Form 10-Q, filed November 2, 2007, (file no. 001-32858) |
| | |
| 4 | .4 | | — | | First Supplemental Indenture, dated August 28, 2007, among Complete Production Services, Inc., the subsidiary guarantors party thereto, and Wells Fargo Bank, National Association, as trustee | | Form 10-Q, filed November 2, 2007, (file no. 001-32858) | 10 | .1 | | — | | Form of Indemnification Agreement | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) |
| | |
| 10 | .1 | | — | | Form of Indemnification Agreement | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) | 10 | .2* | | — | | Employment Agreement dated as of June 20, 2005 with Joseph C. Winkler | | Form S-1, filed September 30, 2005, (file no. 333-128750) |
| | |
| 10 | .2* | | — | | Employment Agreement dated as of June 20, 2005 with Joseph C. Winkler | | Form S-1, filed September 30, 2005, (file no. 333-128750) | 10 | .3 | | — | | Amended and Restated Stockholders’ Agreement by and among Complete Production Services Inc. and the stockholders listed therein | | Form S-1/A, filed March 20, 2006, (file no. 333-128750) |
| | |
| 10 | .3 | | — | | Amended and Restated Stockholders’ Agreement by and among Complete Production Services Inc. and the stockholders listed therein | | Form S-1/A, filed March 20, 2006, (file no. 333-128750) | 10 | .4 | | — | | Combination Agreement dated as of August 9, 2005, with Complete Energy Services, Inc., I.E. Miller Services, Inc. and Complete Energy Services, LLC and I.E. Miller Services, LLC | | Form S-1, filed September 30, 2005, (file no. 333-128750) |
| | |
| 10 | .4 | | — | | Combination Agreement dated as of August 9, 2005, with Complete Energy Services, Inc., I.E. Miller Services, Inc. and Complete Energy Services, LLC and I.E. Miller Services, LLC | | Form S-1, filed September 30, 2005, (file no. 333-128750) | 10 | .5 | | — | | Second Amended and Restated Credit Agreement, dated as of December 6, 2006 by and among Complete Production Services, Inc., as U.S. Borrower, Integrated Production Services Ltd., as Canadian Borrower, Wells Fargo Bank, National Association, as U.S. Administrative Agent, U.S. Issuing Lender and U.S. Swingline Lender, HSBC Bank Canada, as Canadian Administrative Agent, Canadian Issuing Lender and Canadian Swingline Lender, and the Lenders party thereto, Wells Fargo Bank, National Association as Lead Arranger and Amegy Bank N.A. and Comerica Bank, as Co-Documentation Agents | | Form 10-K, filed March 9, 2007, (file no. 001-32858) |
| | |
| 10 | .5 | | — | | Second Amended and Restated Credit Agreement, dated as of December 6, 2006 by and among Complete Production Services, Inc., as U.S. Borrower, Integrated Production Services Ltd., as Canadian Borrower, Wells Fargo Bank, National Association, as U.S. Administrative Agent, U.S. Issuing Lender and U.S. Swingline Lender, HSBC Bank Canada, as Canadian Administrative Agent, Canadian Issuing Lender and Canadian Swingline Lender, and the Lenders party thereto, Wells Fargo Bank, National Association as Lead Arranger and Amegy Bank N.A. and Comerica Bank, as Co-Documentation Agents | | Form 10-K, filed March 9, 2007, (file no. 001-32858) | 10 | .6* | | — | | Integrated Production Services, Inc. 2001 Stock Incentive Plan | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) |
| | |
| 10 | .6* | | — | | Integrated Production Services, Inc. 2001 Stock Incentive Plan | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) | 10 | .7* | | — | | Complete Energy Services, Inc. 2003 Stock Incentive Plan | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) |
| | |
| 10 | .7* | | — | | Complete Energy Services, Inc. 2003 Stock Incentive Plan | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) | 10 | .8* | | — | | First Amendment to Complete Energy Services, Inc. 2003 Stock Incentive Plan | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) |
| | |
| 10 | .8* | | — | | First Amendment to Complete Energy Services, Inc. 2003 Stock Incentive Plan | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) | 10 | .9* | | — | | Second Amendment to Complete Energy Services, Inc. 2003 Stock Incentive Plan | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) |
| | |
| 10 | .9* | | — | | Second Amendment to Complete Energy Services, Inc. 2003 Stock Incentive Plan | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) | 10 | .10* | | — | | Amended and Restated Integrated Production Services, Inc. 2003 Parchman Restricted Stock Plan | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) |
| | |
| 10 | .10* | | — | | Amended and Restated Integrated Production Services, Inc. 2003 Parchman Restated Stock Plan | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) | 10 | .11* | | — | | Amended and Restated 2001 Stock Incentive Plan | | Form S-1/A, filed April 4, 2006, (file no. 333-128750) |
| | |
| 10 | .11* | | — | | Amended and Restated 2001 Stock Incentive Plan | | Form S-1/A, filed April 4, 2006, (file no. 333-128750) | 10 | .12* | | — | | Amendment No. 1 to the Complete Production Services, Inc. Amended and Restated 2001 Stock Incentive Plan | | Form 10-K, filed March 9, 2007 (file no. 001-32858) |
| | |
| | 10 | .13* | | — | | I.E. Miller Services, Inc. 2004 Stock Incentive Plan | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) |
117
| | | | | | | | | | | | |
| | | | | | | Incorporated by
| | | | | | | Incorporated by
|
Exhibit
| Exhibit
| | | | | | Reference to the
| Exhibit
| | | | | | Reference to the
|
No. | No. | | | | Exhibit Title | | Following | No. | | | | Exhibit Title | | Following |
|
| | |
| 10 | .12* | | — | | Amendment No. 1 to the Complete Production Services, Inc. Amended and Restated 2001 Stock Incentive Plan | | Form 10-K, filed March 9, 2007 (file no. 001-32858) | 10 | .14 | | — | | Strategic Customer Relationship Agreement | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) |
| | |
| 10 | .13* | | — | | I.E. Miller Services, Inc. 2004 Stock Incentive Plan | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) | 10 | .15* | | — | | Form of Restricted Stock Grant Agreement (Employee) | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) |
| | |
| 10 | .14 | | — | | Strategic Customer Relationship Agreement | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) | 10 | .16* | | — | | Form of Restricted Stock Grant Agreement (Non-employee Director) | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) |
| | |
| 10 | .15* | | — | | Form of Restricted Stock Grant Agreement (Employee) | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) | 10 | .17* | | — | | Form of Non-Qualified Option Grant Agreement (Executive Officer) | | Form S-1/A, filed April 4, 2006, (file no. 333-128750) |
| | |
| 10 | .16* | | — | | Form of Restricted Stock Grant Agreement (Non-employee Director) | | Form S-1/A, filed November 15, 2005, (file no. 333-128750) | 10 | .18* | | — | | Form of Non-Qualified Option Grant Agreement (Non-Employee Director) | | Form S-1/A, filed April 4, 2006, (file no. 333-128750) |
| | |
| 10 | .17* | | — | | Form of Non-Qualified Option Grant Agreement (Executive Officer) | | Form S-1/A, filed April 4, 2006, (file no. 333-128750) | 10 | .19* | | — | | Compensation Package Term Sheet — James F. Maroney, III | | Form S-1/A, filed March 20, 2006, (file no. 333-128750) |
| | |
| 10 | .18 | | — | | Form of Non-Qualified Option Grant Agreement (Non-Employee Director) | | Form S-1/A, filed April 4, 2006, (file no. 333-128750) | 10 | .20* | | — | | Compensation Package Term Sheet — Kenneth L. Nibling | | Form S-1/A, filed March 20, 2006, (file no. 333-128750) |
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| 10 | .19* | | — | | Compensation Package Term Sheet — J. Michael Mayer | | Form S-1/A, filed March 20, 2006, (file no. 333-128750) | 10 | .21* | | — | | Incentive Plan Guidelines for Senior Management | | Form 8-K, filed February 22, 2007 |
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| 10 | .20* | | — | | Compensation Package Term Sheet — James F. Maroney, III | | Form S-1/A, filed March 20, 2006, (file no. 333-128750) | 10 | .22* | | — | | Form of Non-qualified Stock Option Grant Agreement | | Form 8-K, filed February 2, 2007 |
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| 10 | .21* | | — | | Compensation Package Term Sheet — Kenneth L. Nibling | | Form S-1/A, filed March 20, 2006, (file no. 333-128750) | 10 | .23* | | — | | Form of Restricted Stock Agreement — Executive Officer (Post-September 2006) | | Form 8-K, filed February 2, 2007 |
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| 10 | .22* | | — | | Incentive Plan Guidelines for Senior Management | | Form 8-K, filed February 22, 2007 | 10 | .24* | | — | | Restricted Stock Agreement Terms and Conditions (Revised 2006) — Employee | | Form 10-K, filed March 9, 2007, (file no. 001-32858) |
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| 10 | .23* | | — | | Form of Non-qualified Stock Option Grant Agreement | | Form 8-K, filed February 2, 2007 | 10 | .25* | | — | | Signature Page for Restricted Stock Agreement — Employee | | Form 10-K, filed March 9, 2007, (file no. 001-32858) |
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| 10 | .24* | | — | | Form of Restricted Stock Agreement — Executive Officer (Post-September 2006) | | Form 8-K, filed February 2, 2007 | 10 | .26* | | — | | Non-Employee Director Restricted Stock Agreement | | Form 10-K, filed March 9, 2007, (file no. 001-32858) |
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| 10 | .25* | | — | | Restricted Stock Agreement Terms and Conditions (Revised 2006) — Employee | | Form 10-K, filed March 9, 2007, (file no. 001-32858) | 10 | .27* | | — | | Stock Option Terms and Conditions (Revised 2006) — Employee | | Form 10-K, filed March 9, 2007, (file no. 001-32858) |
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| 10 | .26* | | — | | Signature Page for Restricted Stock Agreement — Employee | | Form 10-K, filed March 9, 2007, (file no. 001-32858) | 10 | .28* | | — | | Signature Page for Executive Officers | | Form 10-K, filed March 9, 2007, (file no. 001-32858) |
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| 10 | .27* | | — | | Non-Employee Director Restricted Stock Agreement | | Form 10-K, filed March 9, 2007, (file no. 001-32858) | 10 | .29* | | — | | Director Option Agreement | | Form 10-K, filed March 9, 2007, (file no. 001-32858) |
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| 10 | .28* | | — | | Stock Option Terms and Conditions (Revised 2006) — Employee | | Form 10-K, filed March 9, 2007, (file no. 001-32858) | 10 | .30* | | — | | Form of Executive Agreement | | Form 10-Q, filed May 4, 2007, (file no. 001-32858) |
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| | | | | | | | | 10 | .31* | | — | | Amendment to Employment Agreement, dated March 21, 2007 between Complete Production Services, Inc. and Mr. Joseph C. Winkler | | Form 10-Q, filed May 4, 2007, (file no. 001-32858) |
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| 10 | .29* | | — | | Signature Page for Executive Officers | | Form 10-K, filed March 9, 2007, (file no. 001-32858) | 10 | .32* | | — | | Pumpco Services, Inc. 2005 Stock Incentive Plan | | Registration Statement on Form S-8, filed March 28, 2007, (file no. 333-141628) |
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| 10 | .30* | | — | | Director Option Agreement | | Form 10-K, filed March 9, 2007, (file no. 001-32858) | 10 | .33 | | — | | First Amendment to Second Amended and Restated Credit Agreement, dated as of December 6, 2006 by and among Complete Production Services, Inc., as U.S. Borrower, Integrated Production Services Ltd., as Canadian Borrower, Wells Fargo Bank, National Association, as U.S. Administrative Agent, U.S. Issuing Lender and U.S. Swingline Lender, HSBC Bank Canada, as Canadian Administrative Agent, Canadian Issuing Lender and Canadian Swingline Lender, and the Lenders party thereto, Wells Fargo Bank, National Association as Lead Arranger and Amegy Bank N.A. and Comerica Bank, as Co-Documentation Agents, effective June 29, 2007. | | Form 10-Q, filed August 3, 2007, (file no. 001-32858) |
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| 10 | .31* | | — | | Amendment to Employment Agreement, dated March 21, 2007 between Complete Production Services, Inc. and Mr. Joseph C. Winkler | | Form 10-Q, filed May 4, 2007, (file no. 001-32858) | 10 | .34 | | — | | Second Amendment to Credit Agreement and Omnibus Amendment to Security Documents, dated October 9, 2007 but effective October 19, 2007, among Complete Production Services, Inc., Integrated Production Services, Ltd., Wells Fargo Bank, National Association, as administrative agent, swing line lender and issuing lender and HSBC Bank Canada, as administrative agent, swing line lender and issuing lender. | | Form 10-Q, filed November 2, 2007, (file no. 001-32858) |
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| 10 | .32* | | — | | Form of Executive Agreement | | Form 10-Q, filed May 4, 2007, (file no. 001-32858) | 10 | .35* | | — | | Complete Production Services, Inc. 2008 Incentive Award Plan | | Appendix A of Definitive Proxy Statement on Schedule 14, filed April 7, 2008 |
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| 10 | .33* | | — | | Pumpco Services, Inc. 2005 Stock Incentive Plan | | Registration Statement on Form S-8, filed March 28, 2007, (file no. 333-141628) | 10 | .36* | | — | | Form of Non-Qualified Stock Option Agreement | | Form 10-Q, filed August 1, 2008, (file no. 001-32858) |
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| 10 | .34 | | — | | First Amendment to Second Amended and Restated Credit Agreement, dated as of December 6, 2006 by and among Complete Production Services, Inc., as U.S. Borrower, Integrated Production Services Ltd., as Canadian Borrower, Wells Fargo Bank, National Association, as U.S. Administrative Agent, U.S. Issuing Lender and U.S. Swingline Lender, HSBC Bank Canada, as Canadian Administrative Agent, Canadian Issuing Lender and Canadian Swingline Lender, and the Lenders party thereto, Wells Fargo Bank, National Association as Lead Arranger and Amegy Bank N.A. and Comerica Bank, as Co-Documentation Agents, effective June 29, 2007. | | Form 10-Q, filed August 3, 2007, (file no. 001-32858) | |
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