UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(MARK ONE)
| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED September 30, 2010
| ¨ | ||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM ___TO ___.
Commission File Number: 1-32858
Complete Production Services, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | ||
| 72-1503959 | ||
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
11700 Katy Freeway, Suite 300 Houston, Texas | ||
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code:(281) 372-2300
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo¨
Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yesþ Noo¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ||||||||
| Accelerated filer | ¨ | |||||||
| Non-accelerated filer | ||||||||
| Smaller reporting company | ¨ | |||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso¨ Noþ
Number of shares of the common stock, par value $0.01 per share, of the registrant outstanding as of October 25, 2010: 77,901,427
Complete Production Services, Inc.
| Page | ||||||
| Item 1. | ||||||
Consolidated Balance Sheets as of September 30, | 3 | |||||
| 4 | ||||||
Consolidated Statement of Stockholders’ Equity for the Nine Months Ended September 30, | 5 | |||||
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, | 6 | |||||
| 7 | ||||||
| Item 2. | ||||||
| Item 3. | ||||||
| Item 4. | 41 | |||||
| Item | ||||||
| Item 1A. | 42 | |||||
| Item 3. | 44 | |||||
Item | ||||||
| Item 6. | 44 | |||||
2
COMPLETE PRODUCTION SERVICES, INC.
September 30, 20102011 (unaudited) and December 31, 2009
| 2010 | 2009 | |||||||
| (In thousands, except | ||||||||
| share data) | ||||||||
ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 143,265 | $ | 77,360 | ||||
| Accounts receivable, net | 281,480 | 171,284 | ||||||
| Inventory, net | 32,101 | 37,464 | ||||||
| Prepaid expenses | 20,839 | 17,943 | ||||||
| Income tax receivable | 6,815 | 57,606 | ||||||
| Current deferred tax assets | 908 | 8,158 | ||||||
| Other current assets | 163 | 111 | ||||||
| Total current assets | 485,571 | 369,926 | ||||||
| Property, plant and equipment, net | 913,307 | 941,133 | ||||||
| Intangible assets, net of accumulated amortization of $19,775 and $15,476, respectively | 8,664 | 13,243 | ||||||
| Deferred financing costs, net of accumulated amortization of $8,554 and $6,266, respectively | 10,457 | 12,744 | ||||||
| Goodwill | 249,751 | 243,823 | ||||||
| Restricted cash | 17,000 | — | ||||||
| Other long-term assets | 6,122 | 7,985 | ||||||
| Total assets | $ | 1,690,872 | $ | 1,588,854 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Current maturities of long-term debt | $ | 89 | $ | 228 | ||||
| Accounts payable | 49,268 | 31,745 | ||||||
| Accrued liabilities | 42,653 | 41,102 | ||||||
| Accrued payroll and payroll burdens | 27,340 | 13,559 | ||||||
| Accrued interest | 15,655 | 3,206 | ||||||
| Notes payable | — | 1,069 | ||||||
| Income taxes payable | 589 | 813 | ||||||
| Total current liabilities | 135,594 | 91,722 | ||||||
| Long-term debt | 650,000 | 650,002 | ||||||
| Deferred income taxes | 148,210 | 148,240 | ||||||
| Total liabilities | 933,804 | 889,964 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, $0.01 par value per share, 200,000,000 shares authorized, 76,180,549 (2009 — 75,278,406) issued and outstanding | 762 | 752 | ||||||
| Preferred stock, $0.01 par value per share, 5,000,000 shares authorized, no shares issued and outstanding | — | — | ||||||
| Additional paid-in capital | 649,183 | 636,904 | ||||||
| Retained earnings | 87,946 | 42,007 | ||||||
| Treasury stock, 167,207 (2009 — 54,313) shares at cost | (1,752 | ) | (334 | ) | ||||
| Accumulated other comprehensive income | 20,929 | 19,561 | ||||||
| Total stockholders’ equity | 757,068 | 698,890 | ||||||
| Total liabilities and stockholders’ equity | $ | 1,690,872 | $ | 1,588,854 | ||||
| 2011 | 2010 | |||||||
| (In thousands, except | ||||||||
| share data) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 208,281 | $ | 119,135 | ||||
Accounts receivable, net | 435,595 | 341,984 | ||||||
Inventory, net | 36,286 | 28,389 | ||||||
Prepaid expenses | 33,378 | 18,357 | ||||||
Income tax receivable | 22,724 | 23,462 | ||||||
Current deferred tax assets | 15,462 | 2,499 | ||||||
Other current assets | — | 1,384 | ||||||
Current assets of discontinued operations | — | 16,700 | ||||||
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Total current assets | 751,726 | 551,910 | ||||||
Property, plant and equipment, net | 1,073,825 | 950,932 | ||||||
Intangible assets, net of accumulated amortization of $25,180 and $21,293, respectively | 9,802 | 9,209 | ||||||
Deferred financing costs, net of accumulated amortization of $11,242 and $9,316, respectively | 10,246 | 9,694 | ||||||
Goodwill | 252,137 | 247,675 | ||||||
Restricted cash | 17,000 | 17,000 | ||||||
Other long-term assets | 6,226 | 5,259 | ||||||
Long-term assets of discontinued operations | — | 8,897 | ||||||
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Total assets | $ | 2,120,962 | $ | 1,800,576 | ||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 104,262 | $ | 74,502 | ||||
Accrued liabilities | 51,878 | 42,047 | ||||||
Accrued payroll and payroll burdens | 36,113 | 26,568 | ||||||
Accrued interest | 15,668 | 2,446 | ||||||
Income taxes payable | 2,200 | — | ||||||
Current liabilities of discontinued operations | — | 2,841 | ||||||
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Total current liabilities | 210,121 | 148,404 | ||||||
Long-term debt | 650,000 | 650,000 | ||||||
Deferred income taxes | 275,784 | 190,389 | ||||||
Other long-term liabilities | 4,512 | 5,916 | ||||||
Long-term liabilities of discontinued operations | — | 33 | ||||||
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Total liabilities | 1,140,417 | 994,742 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Common stock, $0.01 par value per share, 200,000,000 shares authorized, 78,012,457 (2010 — 76,443,926) issued | 780 | 764 | ||||||
Preferred stock, $0.01 par value per share, 5,000,000 shares authorized, no shares issued and outstanding | — | — | ||||||
Additional paid-in capital | 688,709 | 657,993 | ||||||
Retained earnings | 278,790 | 126,165 | ||||||
Treasury stock, 372,341 (2010 — 167,643) shares at cost | (7,408 | ) | (1,765 | ) | ||||
Accumulated other comprehensive income | 19,674 | 22,677 | ||||||
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Total stockholders’ equity | 980,545 | 805,834 | ||||||
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Total liabilities and stockholders’ equity | $ | 2,120,962 | $ | 1,800,576 | ||||
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See accompanying notes to consolidated financial statements.
3
Quarters and Nine Months Ended September 30, 2011 and 2010 and 2009 (unaudited)
| Quarter Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| (In thousands, except per share data) | ||||||||||||||||
| Revenue: | ||||||||||||||||
| Service | $ | 410,057 | $ | 223,429 | $ | 1,062,354 | $ | 767,496 | ||||||||
| Product | 8,552 | 6,484 | 26,204 | 37,496 | ||||||||||||
| 418,609 | 229,913 | 1,088,558 | 804,992 | |||||||||||||
| Service expenses | 257,487 | 157,708 | 687,872 | 519,694 | ||||||||||||
| Product expenses | 6,346 | 4,596 | 19,793 | 28,583 | ||||||||||||
| Selling, general and administrative expenses | 41,790 | 45,204 | 126,658 | 140,115 | ||||||||||||
| Depreciation and amortization | 44,805 | 50,379 | 135,596 | 153,470 | ||||||||||||
| Impairment loss | — | 36,158 | — | 36,158 | ||||||||||||
| Income (loss) before interest and taxes | 68,181 | (64,132 | ) | 118,639 | (73,028 | ) | ||||||||||
| Interest expense | 14,152 | 13,987 | 43,653 | 42,344 | ||||||||||||
| Interest income | (57 | ) | (13 | ) | (200 | ) | (43 | ) | ||||||||
| Income (loss) before taxes | 54,086 | (78,106 | ) | 75,186 | (115,329 | ) | ||||||||||
| Taxes | 21,056 | (26,081 | ) | 29,247 | (37,136 | ) | ||||||||||
| Net income (loss) | $ | 33,030 | $ | (52,025 | ) | $ | 45,939 | $ | (78,193 | ) | ||||||
| Earnings (loss) per share information: | ||||||||||||||||
| Basic earnings (loss) per share | $ | 0.43 | $ | (0.69 | ) | $ | 0.60 | $ | (1.04 | ) | ||||||
| Diluted earnings (loss) per share | $ | 0.42 | $ | (0.69 | ) | $ | 0.59 | $ | (1.04 | ) | ||||||
| Weighted average shares: | ||||||||||||||||
| Basic | 76,130 | 75,200 | 75,957 | 75,045 | ||||||||||||
| Diluted | 77,792 | 75,200 | 77,395 | 75,045 | ||||||||||||
| Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| (In thousands, except per share data) | ||||||||||||||||
Revenues | $ | 590,289 | $ | 410,270 | $ | 1,623,707 | $ | 1,064,489 | ||||||||
Service expenses | 379,192 | 257,776 | 1,042,269 | 690,023 | ||||||||||||
Selling, general and administrative expenses | 53,830 | 41,448 | 152,453 | 125,128 | ||||||||||||
Depreciation and amortization | 48,695 | 44,563 | 146,832 | 134,798 | ||||||||||||
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Income from continuing operations before interest and taxes | 108,572 | 66,483 | 282,153 | 114,540 | ||||||||||||
Interest expense | 12,917 | 14,151 | 40,709 | 43,653 | ||||||||||||
Interest income | (180 | ) | (73 | ) | (407 | ) | (249 | ) | ||||||||
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Income from continuing operations before taxes | 95,835 | 52,405 | 241,851 | 71,136 | ||||||||||||
Taxes | 36,513 | 20,814 | 91,420 | 28,609 | ||||||||||||
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Income from continuing operations | 59,322 | 31,591 | 150,431 | 42,527 | ||||||||||||
Income (loss) from discontinued operations (net of tax expense of $707, $242, $1,149 and $638, respectively) | (136 | ) | 1,439 | 2,194 | 3,412 | |||||||||||
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Net income | $ | 59,186 | $ | 33,030 | $ | 152,625 | $ | 45,939 | ||||||||
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Earnings (loss) per share information: | ||||||||||||||||
Continuing operations | $ | 0.76 | $ | 0.41 | $ | 1.94 | $ | 0.56 | ||||||||
Discontinued operations | (0.00 | ) | 0.02 | 0.03 | 0.04 | |||||||||||
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Basic earnings per share | $ | 0.76 | $ | 0.43 | $ | 1.97 | $ | 0.60 | ||||||||
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Continuing operations | $ | 0.75 | $ | 0.41 | $ | 1.90 | $ | 0.55 | ||||||||
Discontinued operations | (0.01 | ) | 0.01 | 0.03 | 0.04 | |||||||||||
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Diluted earnings per share | $ | 0.74 | $ | 0.42 | $ | 1.93 | $ | 0.59 | ||||||||
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Weighted average shares: | ||||||||||||||||
Basic | 78,004 | 76,130 | 77,578 | 75,957 | ||||||||||||
Diluted | 79,445 | 77,792 | 79,080 | 77,395 | ||||||||||||
Consolidated Statements of Comprehensive Income (Loss)
Quarters and Nine Months Ended September 30, 20102011 and 2009
2010
(unaudited)
| Quarter Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| (In thousands) | (In thousands) | |||||||||||||||
| Net income (loss) | $ | 33,030 | $ | (52,025 | ) | $ | 45,939 | $ | (78,193 | ) | ||||||
| Change in cumulative translation adjustment | 1,309 | 3,002 | 1,368 | 5,346 | ||||||||||||
| Comprehensive income (loss) | $ | 34,339 | $ | (49,023 | ) | $ | 47,307 | $ | (72,847 | ) | ||||||
| Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| (In thousands) | ||||||||||||||||
Net income | $ | 59,186 | $ | 33,030 | $ | 152,625 | $ | 45,939 | ||||||||
Change in cumulative translation adjustment | (4,647 | ) | 1,309 | (3,003 | ) | 1,368 | ||||||||||
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Comprehensive income | $ | 54,539 | $ | 34,339 | $ | 149,622 | $ | 47,307 | ||||||||
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See accompanying notes to consolidated financial statements.
4
Nine Months Ended September 30, 20102011 (unaudited)
| 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, 2009 | 75,278,406 | $ | 752 | $ | 636,904 | $ | 42,007 | $ | (334 | ) | $ | 19,561 | $ | 698,890 | ||||||||||||||
| Net income | — | — | — | 45,939 | — | — | 45,939 | |||||||||||||||||||||
| Cumulative translation adjustment | — | — | — | — | — | 1,368 | 1,368 | |||||||||||||||||||||
| Issuance of common stock: | ||||||||||||||||||||||||||||
| Exercise of stock options | 336,747 | 3 | 3,103 | — | — | — | 3,106 | |||||||||||||||||||||
| Expense related to employee stock options | — | — | 1,831 | — | — | — | 1,831 | |||||||||||||||||||||
| Excess tax benefit from share-based compensation | — | — | 612 | — | — | — | 612 | |||||||||||||||||||||
| Purchase of treasury shares | (112,894 | ) | — | — | — | (1,418 | ) | — | (1,418 | ) | ||||||||||||||||||
| Vested restricted stock | 678,290 | 7 | (7 | ) | — | — | — | — | ||||||||||||||||||||
| Amortization of non-vested restricted stock | — | — | 6,740 | — | — | — | 6,740 | |||||||||||||||||||||
| Balance at September 30, 2010 | 76,180,549 | $ | 762 | $ | 649,183 | $ | 87,946 | $ | (1,752 | ) | $ | 20,929 | $ | 757,068 | ||||||||||||||
| Number of Shares | Common Stock | Additional Paid-in Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income | Total | ||||||||||||||||||||||
| (In thousands, except share data) | ||||||||||||||||||||||||||||
Balance at December 31, 2010 | 76,443,926 | $ | 764 | $ | 657,993 | $ | 126,165 | $ | (1,765 | ) | $ | 22,677 | $ | 805,834 | ||||||||||||||
Net income | — | — | — | 152,625 | — | — | 152,625 | |||||||||||||||||||||
Cumulative translation adjustment | — | — | — | — | — | (3,003 | ) | (3,003 | ) | |||||||||||||||||||
Issuance of common stock: | ||||||||||||||||||||||||||||
Exercise of stock options | 929,852 | 9 | 15,943 | — | — | — | 15,952 | |||||||||||||||||||||
Expense related to employee stock options | — | — | 1,734 | — | — | — | 1,734 | |||||||||||||||||||||
Excess tax benefit from share-based compensation | — | — | 4,990 | — | — | — | 4,990 | |||||||||||||||||||||
Purchase of treasury shares | (204,698 | ) | (2 | ) | 2 | — | (5,643 | ) | — | (5,643 | ) | |||||||||||||||||
Vested restricted stock | 843,377 | 9 | (9 | ) | — | — | — | — | ||||||||||||||||||||
Amortization of non-vested restricted stock | — | — | 8,056 | — | — | — | 8,056 | |||||||||||||||||||||
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Balance at September 30, 2011 | 78,012,457 | $ | 780 | $ | 688,709 | $ | 278,790 | $ | (7,408 | ) | $ | 19,674 | $ | 980,545 | ||||||||||||||
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See accompanying notes to consolidated financial statements.
5
Nine Months Ended September 30, 2011 and 2010 and 2009 (unaudited)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
| Cash provided by: | ||||||||
| Operating activities: | ||||||||
| Net income (loss) | $ | 45,939 | $ | (78,193 | ) | |||
| Items not affecting cash: | ||||||||
| Depreciation and amortization | 135,596 | 153,470 | ||||||
| Impairment loss | — | 36,158 | ||||||
| Deferred income taxes | 7,575 | 2,491 | ||||||
| Excess tax benefit from share-based compensation | (612 | ) | (106 | ) | ||||
| Non-cash compensation expense | 8,571 | 9,571 | ||||||
| (Gain) loss on non-monetary asset exchange | (458 | ) | 4,868 | |||||
| (Recoveries of) provision for bad debt expense | (158 | ) | 9,311 | |||||
| Provision for write-off of note receivable | 1,926 | — | ||||||
| (Gain) loss on the disposal of assets | (94 | ) | 7,637 | |||||
| Other | 2,288 | 1,412 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (109,824 | ) | 173,370 | |||||
| Inventory | 5,606 | 1,666 | ||||||
| Prepaid expense and other current assets | (2,935 | ) | 14,536 | |||||
| Accounts payable | 17,480 | (33,702 | ) | |||||
| Income taxes | 50,410 | (27,672 | ) | |||||
| Restricted cash | (17,000 | ) | — | |||||
| Accrued liabilities and other | 27,130 | (4,754 | ) | |||||
| Net cash provided by operating activities | 171,440 | 270,063 | ||||||
| Investing activities: | ||||||||
| Additions to property, plant and equipment | (89,855 | ) | (29,094 | ) | ||||
| Acquisitions | (21,332 | ) | — | |||||
| Proceeds from disposal of capital assets | 4,436 | 20,155 | ||||||
| Net cash used in investing activities | (106,751 | ) | (8,939 | ) | ||||
| Financing activities: | ||||||||
| Issuances of long-term debt | — | 3,204 | ||||||
| Repayments of long-term debt | (141 | ) | (200,454 | ) | ||||
| Repayment of notes payable | (1,069 | ) | (6,241 | ) | ||||
| Proceeds from issuances of common stock | 3,106 | 197 | ||||||
| Purchase of treasury shares | (1,418 | ) | (126 | ) | ||||
| Excess tax benefit from share-based compensation | 612 | 106 | ||||||
| Net cash provided by (used in) financing activities | 1,090 | (203,314 | ) | |||||
| Effect of exchange rate changes on cash | 126 | (167 | ) | |||||
| Change in cash and cash equivalents | 65,905 | 57,643 | ||||||
| Cash and cash equivalents, beginning of period | 77,360 | 18,500 | ||||||
| Cash and cash equivalents, end of period | $ | 143,265 | $ | 76,143 | ||||
| Supplemental cash flow information: | ||||||||
| Cash paid for interest, net of interest capitalized | $ | 28,489 | $ | 26,744 | ||||
| Cash paid (refund received) for income taxes | $ | (29,033 | ) | $ | (17,064 | ) | ||
| Note issued to finance insurance premiums | $ | — | $ | 7,960 | ||||
| Nine Months Ended September 30, | ||||||||
| 2011 | 2010 | |||||||
| (In thousands) | ||||||||
Cash provided by: | ||||||||
Operating activities: | ||||||||
Net income | $ | 152,625 | $ | 45,939 | ||||
Items not affecting cash: | ||||||||
Depreciation and amortization | 147,308 | 135,596 | ||||||
Deferred income taxes | 72,441 | 7,575 | ||||||
Excess tax benefit from share-based compensation | (4,990 | ) | (612 | ) | ||||
Non-cash compensation expense | 9,790 | 8,571 | ||||||
Gain on non-monetary asset exchange | — | (458 | ) | |||||
Provision for bad debt expense | 844 | (158 | ) | |||||
Provision for write-off of note receivable | — | 1,926 | ||||||
(Gain) loss on retirement of assets | 1,667 | (94 | ) | |||||
Loss on discontinued operations | 136 | — | ||||||
Other | 1,756 | 2,288 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (90,532 | ) | (110,494 | ) | ||||
Inventory | (8,509 | ) | 5,606 | |||||
Prepaid expense and other current assets | (13,108 | ) | (2,935 | ) | ||||
Accounts payable | 20,625 | 17,480 | ||||||
Income taxes | 5,833 | 50,410 | ||||||
Accrued liabilities and other | 30,817 | 10,130 | ||||||
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Net cash provided by operating activities | 326,703 | 170,770 | ||||||
Investing activities: | ||||||||
Additions to property, plant and equipment | (259,925 | ) | (89,855 | ) | ||||
Acquisitions | (15,576 | ) | (21,332 | ) | ||||
Proceeds from the sale of disposal group | 19,300 | — | ||||||
Proceeds from disposal of capital assets | 6,333 | 4,436 | ||||||
Other | 169 | — | ||||||
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Net cash used in investing activities | (249,699 | ) | (106,751 | ) | ||||
Financing activities: | ||||||||
Repayments of long-term debt | — | (141 | ) | |||||
Repayment of notes payable | — | (1,069 | ) | |||||
Proceeds from issuances of common stock | 15,952 | 3,106 | ||||||
Purchase of treasury shares | (5,643 | ) | (1,418 | ) | ||||
Deferred financing fees | (2,477 | ) | — | |||||
Excess tax benefit from share-based compensation | 4,990 | 612 | ||||||
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Net cash provided by financing activities | 12,822 | 1,090 | ||||||
Effect of exchange rate changes on cash | (680 | ) | 126 | |||||
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|
| |||||
Change in cash and cash equivalents | 89,146 | 65,235 | ||||||
Cash and cash equivalents, beginning of period | 119,135 | 71,770 | ||||||
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| |||||
Cash and cash equivalents, end of period | $ | 208,281 | $ | 137,005 | ||||
|
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|
| |||||
Supplemental cash flow information: | ||||||||
Cash paid for interest, net of interest capitalized | $ | 25,825 | $ | 28,489 | ||||
Cash paid (refund received) for income taxes | $ | 10,616 | $ | (29,033 | ) | |||
Significant non-cash investing activities: | ||||||||
Non-cash capital expenditures | $ | 28,665 | $ | — | ||||
See accompanying notes to consolidated financial statements.
6
(Unaudited, in thousands, except share and per share data)
| 1. | General: |
(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 Mexico. We also had operations in Southeast Asia.
References to “Complete,” the “Company,” “we,” “our” and similar phrases used throughout this Quarterly Report on Form 10-Q relate collectively to Complete Production Services, Inc. and its consolidated affiliates.
On April 21, 2006, our common stock began trading on the New York Stock Exchange under the symbol “CPX”.
(b) Basis of presentation:
The unaudited interim 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 September 30, 20102011 and the statements of operations and the statements of comprehensive income for the quarters and nine-month periods ended September 30, 20102011 and 2009,2010, as well as the statement of stockholders’ equity for the nine months ended September 30, 20102011 and the statements of cash flows for the nine months ended September 30, 20102011 and 2009.2010. Certain information and disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted. These unaudited interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 20092010 filed with the Securities and Exchange Commission on February 19, 2010.18, 2011. We believe that these financial statements contain all adjustments necessary so that they are not misleading.
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. We review our estimates on an on-going basis, 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.
The results of operations for interim periods are not necessarily indicative of the results of operations that could be expected for the full year.
(c) Discontinued operations:
On July 6, 2011, we sold our Southeast Asian products business, through which we provided oilfield equipment sales, rentals and refurbishment services, to MTQ Corporation Limited (“MTQ”), a Singapore firm which provides engineering services to oilfield and industrial equipment users and manufacturers. Proceeds from the sale of this business totaled $21,913, of which $2,613 represented cash on hand at July 6, 2011 which was transferred to us in October 2011 pursuant to the final settlement. We recorded a loss on the sale of this business of $136 as of September 30, 2011. See Note 10, “Discontinued operations.”
| 2. | Business acquisition: |
On May 11, 2010, we acquired certain assets of a provider of gas lift services based in Oklahoma City, Oklahoma for $1,365 in cash, subject to an additional $75 holdback. 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.
7
| Net assets acquired: | �� | |||
| Property, plant and equipment | $ | 15,538 | ||
| Inventory | 322 | |||
| Accrued liabilities | (956 | ) | ||
| Intangible assets | 500 | |||
| Goodwill | 5,928 | |||
| Net assets acquired | $ | 21,332 | ||
| Consideration: | ||||
| Cash, net of cash and cash equivalents acquired | $ | 21,332 | ||
Net assets acquired: | ||||
Other current assets | $ | 725 | ||
Property, plant and equipment | 5,868 | |||
Current liabilities | (10 | ) | ||
Intangible assets | 4,560 | |||
Goodwill | 4,433 | |||
|
| |||
Net assets acquired | $ | 15,576 | ||
|
| |||
Consideration: | ||||
Cash, net of cash and cash equivalents acquired | $ | 15,576 | ||
|
|
The purchase price of thesethis acquired businessesbusiness was negotiated as an arm’s length transaction with the seller. We use various valuation techniques, including an earnings multiple approach, to evaluate acquisition targets. We also consider precedent transactions which we have undertaken and similar transactions of others in our industry. ToWe determine the fair value of assets acquired, we generally retain third-party consultants to assist with the valuation ofincluding identifiable intangible assets, and to evaluate property, plant and equipment acquired based upon, at minimum, the replacement cost of the assets. Working capital items areassets, by applying valuation techniques and by obtaining other supporting documentation from third-party consultants.
This acquisition was not deemed to be acquired at fair market value.
| September 30, | December 31, | |||||||
| 2010 | 2009 | |||||||
| Trade accounts receivable | $ | 215,229 | $ | 155,871 | ||||
| Related party receivables | 26,156 | 6,593 | ||||||
| Unbilled revenue | 45,380 | 19,409 | ||||||
| Other receivables | 961 | 1,975 | ||||||
| 287,726 | 183,848 | |||||||
| Allowance for doubtful accounts | 6,246 | 12,564 | ||||||
| $ | 281,480 | $ | 171,284 | |||||
| 3. | Accounts receivable: |
| September 30, 2011 | December 31, 2010 | |||||||
Trade accounts receivable | $ | 332,169 | $ | 249,998 | ||||
Related party receivables | 38,285 | 51,046 | ||||||
Unbilled revenue | 65,257 | 42,747 | ||||||
Other receivables | 3,749 | 2,353 | ||||||
|
|
|
| |||||
| 439,460 | 346,144 | |||||||
Allowance for doubtful accounts | 3,865 | 4,160 | ||||||
|
|
|
| |||||
| $ | 435,595 | $ | 341,984 | |||||
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| |||||
Of the related party receivables at September 30, 20102011 and December 31, 2009, $24,6092010, $37,722 and $5,968,$50,048, respectively, related to amounts due from a company for which one of our directors has an ownership interest and serves as chief executive officer and chairman of the board.
| September 30, | December 31, | |||||||
| 2010 | 2009 | |||||||
| Finished goods | $ | 21,100 | $ | 23,435 | ||||
| Manufacturing parts, materials and other | 13,046 | 14,486 | ||||||
| Work in process | 465 | 431 | ||||||
| 34,611 | 38,352 | |||||||
| Inventory reserves | 2,510 | 888 | ||||||
| $ | 32,101 | $ | 37,464 | |||||
8
| 4. | Inventory: |
| September 30, 2011 | December 31, 2010 | |||||||
Finished goods | $ | 15,565 | $ | 13,497 | ||||
Manufacturing parts, materials and other | 20,167 | 16,063 | ||||||
Work in process | 1,663 | 1,282 | ||||||
|
|
|
| |||||
| 37,395 | 30,842 | |||||||
Inventory reserves | 1,109 | 2,453 | ||||||
|
|
|
| |||||
| $ | 36,286 | $ | 28,389 | |||||
|
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| |||||
| 5. | Property, plant and equipment: |
| Cost | Accumulated Depreciation | Net Book Value | ||||||||||
September 30, 2011 | ||||||||||||
Land | $ | 11,357 | $ | — | $ | 11,357 | ||||||
Buildings | 36,310 | 5,385 | 30,925 | |||||||||
Field equipment | 1,575,633 | 748,501 | 827,132 | |||||||||
Vehicles | 126,227 | 67,577 | 58,650 | |||||||||
Office furniture and computers | 21,995 | 13,603 | 8,392 | |||||||||
Leasehold improvements | 22,749 | 7,609 | 15,140 | |||||||||
Construction in progress | 122,229 | — | 122,229 | |||||||||
|
|
|
|
|
| |||||||
| $ | 1,916,500 | $ | 842,675 | $ | 1,073,825 | |||||||
|
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|
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| |||||||
| Accumulated | ||||||||||||
| September 30, 2010 | Cost | Depreciation | Net Book Value | |||||||||
| Land | $ | 9,963 | $ | — | $ | 9,963 | ||||||
| Buildings | 30,963 | 4,034 | 26,929 | |||||||||
| Field equipment | 1,352,426 | 601,081 | 751,345 | |||||||||
| Vehicles | 128,877 | 63,784 | 65,093 | |||||||||
| Office furniture and computers | 17,427 | 10,858 | 6,569 | |||||||||
| Leasehold improvements | 25,760 | 6,299 | 19,461 | |||||||||
| Construction in progress | 33,947 | — | 33,947 | |||||||||
| $ | 1,599,363 | $ | 686,056 | $ | 913,307 | |||||||
| Accumulated | ||||||||||||
| December 31, 2009 | Cost | Depreciation | Net Book Value | |||||||||
| Land | $ | 8,884 | $ | — | $ | 8,884 | ||||||
| Buildings | 30,200 | 3,168 | 27,032 | |||||||||
| Field equipment | 1,293,292 | 497,632 | 795,660 | |||||||||
| Vehicles | 126,256 | 55,035 | 71,221 | |||||||||
| Office furniture and computers | 17,087 | 9,108 | 7,979 | |||||||||
| Leasehold improvements | 25,006 | 4,771 | 20,235 | |||||||||
| Construction in progress | 10,122 | — | 10,122 | |||||||||
| $ | 1,510,847 | $ | 569,714 | $ | 941,133 | |||||||
| Cost | Accumulated Depreciation | Net Book Value | ||||||||||
December 31, 2010 | ||||||||||||
Land | $ | 8,475 | $ | — | $ | 8,475 | ||||||
Buildings | 32,083 | 4,456 | 27,627 | |||||||||
Field equipment | 1,437,343 | 639,282 | 798,061 | |||||||||
Vehicles | 128,098 | 57,930 | 70,168 | |||||||||
Office furniture and computers | 17,938 | 11,712 | 6,226 | |||||||||
Leasehold improvements | 22,503 | 6,007 | 16,496 | |||||||||
Construction in progress | 23,879 | — | 23,879 | |||||||||
|
|
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|
| |||||||
| $ | 1,670,319 | $ | 719,387 | $ | 950,932 | |||||||
|
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| |||||||
Construction in progress at September 30, 20102011 and December 31, 20092010 primarily included progress payments to vendors for equipment to be delivered in future periods and component parts to be used in the final assembly of operating equipment, which in all cases were not yet placed into service at the time. Significant assets included in construction in progress at September 30, 2011 included a Marcellus Frac fleet, two drilling rigs and coiled tubing assets. For the quarter and nine months ended September 30, 2010,2011, we recorded capitalized interest of $583$922 and $773,$1,978, 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.
In August 2011, we completedsold a water evaporation facility located in Wyoming. The net book value of this asset totaled $1,174. Proceeds received from the sale totaled $620, resulting in a loss of a 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. We sold this disposal group to an oilfield service company located in Calgary, Alberta, Canada. $554 on the transaction.
In conjunction with this asset disposal, the buyer issued a note to us for $2,000 denominated in Canadian dollars. During the second quarterour impairment testing of long-term assets at December 31, 2010, we were notifiednoted 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 recoverability and noted no significant impairment based on an undiscounted cash flow projection, we believe that the buyersalvage value assigned to these assets was no longer appropriate. These assets were acquired several years ago, and we believe 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, effective January 1, 2011, we changed our estimate of salvage value to zero and are depreciating these assets over their remaining useful lives, which we determined to be an average of 1.3 years. This change in default on a term loanestimate has been applied prospectively and security agreement which was senioris expected to increase our note. Therefore, management recorded a provision of $1,926 for bad debt associated with this note during June 2010, but we will continue to pursue our interest in this note todepreciation expense over the extent a portion may be recoverable in a future period.
| 6. | Notes payable: |
We entered into a note arrangement to finance certain of our annual insurance premiums for the policy term from December 1, 2007 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 throughto April 2010. Concurrently, we renewed 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 prepaid asset associated with certain of these policies which is amortized over the term and which takes into account actual premium payments and deposits made to date, to record an accrued liability for premiums which are contractually committed for the policy term and to make monthly premium payments in accordance with our premium commitments and monthly note payments for amounts financed. For the nine months ended September 30, 2010, we paid $1,069 under this note payable arrangement. Effective May 1, 2011 and 2010, we renewed our annual insurance premiums for the policy term May 1, 2010 through April 30, 2011,respective twelve-month terms, but chose to prepay our premiums which had been financed through a note arrangementfor certain insurance coverages rather than finance such premiums as in prior renewals. As a result, we recorded a prepaid asset of $4,267 in May 2010 associated with these renewals. We will continue to make monthly premium payments through our broker for our workers’ compensation, general liability and auto insurance policies during this twelve-month policy term.
9
| 7. | Long-term debt: |
| 2010 | 2009 | |||||||
| U.S. revolving credit facility (a) | $ | — | $ | — | ||||
| Canadian revolving credit facility (a) | — | — | ||||||
| 8.0% senior notes (b) | 650,000 | 650,000 | ||||||
| Capital leases and other | 89 | 230 | ||||||
| 650,089 | 650,230 | |||||||
| Less: current maturities of long-term debt and capital leases | 89 | 228 | ||||||
| $ | 650,000 | $ | 650,002 | |||||
| 2011 | 2010 | |||||||
Revolving credit facility (a) | $ | — | $ | — | ||||
8.0% senior notes (b) | 650,000 | 650,000 | ||||||
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| |||||
| $ | 650,000 | $ | 650,000 | |||||
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| (a) | ||
Subject to certain limitations set forth in the Amended Credit Agreement, we had the ability to elect how interest under the Amended Credit Agreement would be computed. Interest under the Amended Credit Agreement could be determined by reference to (1) the London Inter-bank Offered Rate, or LIBOR, plus an applicable margin between 3.75% and 4.25% per annum (with the applicable margin depending upon our Excess Availability Amount, 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. If an event of default existed or continued under the Amended Credit Agreement, advances would bear interest as described above with an applicable margin rate of 4.25% plus 2.00%. Interest was payable monthly.
We incurred unused commitment fees under the Amended Credit Agreement ranging from 0.50% to 1.00% based on the average daily balance of amounts outstanding.
Letters of credit outstanding under the Amended Credit Agreement incurred fees equal to the applicable margin, as described above. If an event of default existed or continued, such fee would have been equal to the applicable margin plus 2.00%.
Under the Amended Credit Agreement, the only financial covenant to which we were subject was a “Fixed Charge Coverage Ratio” covenant, which must have exceeded 1.10 to 1.00. This covenant became effective only if our Excess Availability Amount, as defined under the Amended Credit Agreement, plus certain qualified cash and cash equivalents is less than $50,000.
For a further description of the terms of our Amended Credit Agreement, including the provisions to calculate our U.S. and Canadian borrowing base, financial covenants requirements and events of default, see our Annual Report on Form 10-K for the year ended December 31, 2010.
New Credit Agreement, effective June 13, 2011:
On June 13, 2011, we entered into a Third Amended and Restated Credit Agreement among us, a subsidiary of the Company that is designated as a borrower under the Canadian facility, if any (the “Canadian Borrower”), the lenders party thereto, Wells Fargo Bank, National Association, as the U.S. administrative agent, U.S. issuing lender and U.S. swingline lender, and the other persons from time to time party thereto (the “New Credit Agreement”), which amends and restates the Amended Credit Agreement. Defined terms not otherwise described herein shall have the meanings given to them in the New Credit Agreement.
The New Credit Agreement modifies the Amended Credit Agreement by, among other things:
changing the structure of the credit facility from an asset-based facility to a cash flow facility;
substituting Wells Fargo Bank, National Association, for Wells Fargo Capital Finance, LLC (f/k/a Wells Fargo Foothill, LLC), as U.S. administrative agent, and appointing Wells Fargo Bank, National Association, as U.S. issuing lender and U.S. swingline lender; and
increasing our U.S. revolving credit facility from $225,000 to $300,000 and terminating the existing Canadian revolving credit facility (subject to our option to convert and reallocate any portion of the U.S. revolving credit facility then held by HSBC Bank USA, N.A., into a Canadian revolving credit facility upon satisfaction of certain conditions, including obtaining the consent of HSBC Bank USA, N.A., to such conversion and reallocation)
Subject to certain limitations set forth in the New Credit Agreement, we have the option to determine how interest is computed by reference to either (i) the London Inter-bank Offered Rate, or LIBOR, plus an applicable margin between 2.25% and 3.00% based on the Total Debt Leverage Ratio (as defined in the New Credit Agreement), or (ii) the “Base Rate” (which means the higher of the Prime Rate, Federal Funds Rate plus 0.50%, or the daily one-month LIBOR plus 1.00%), plus an applicable margin between 1.25% and 2.00% based on the Total Debt Leverage Ratio (as defined in the New Credit Agreement). Advances under the Canadian revolving credit facility, if any, will bear interest as described in the New Credit Agreement. If an event of default exists or continues under the New Credit Agreement, advances may bear interest at the rates described above, plus 2.00%. Interest is payable in arrears on a quarterly basis.
Additionally, the New Credit Agreement, among other things:
permits us to effect up to two separate increases in the aggregate commitments under the credit facility, of at least $50,000 per commitment increase, and of up to $150,000 in the aggregate;
requires us to comply with a “Total Debt Leverage Ratio” covenant, which prohibits us from permitting the Total Debt Leverage Ratio (as defined in the New Credit Agreement), at the end of each fiscal quarter, to be greater than 4.00 to 1.00;
requires us to comply with a “Senior Debt Leverage Ratio” covenant, which prohibits us from permitting the Senior Debt Leverage Ratio (as defined in the New Credit Agreement), at the end of each fiscal quarter, to be greater than 2.50 to 1.00 and
requires us to comply with a “Consolidated Interest Coverage Ratio” covenant, which prohibits us from permitting the ratio of, as of the last day of each fiscal quarter, (i) the consolidated EBITDA of Complete and its consolidated Restricted Subsidiaries (as defined in the New Credit Agreement), calculated for the four fiscal quarters then ended, to (ii) the consolidated interest expense of Complete and its consolidated Restricted Subsidiaries for the four fiscal quarters then ended, to be less than 2.75 to 1.00.
We were in compliance with these debt covenant requirements as of September 30, 2011.
The term of the credit facilities provided for under the New Credit Agreement will continue until the earlier of (i) June 13, 2016 or (ii) the earlier termination in whole of the U.S. lending commitments (or Canadian lending commitments, if any) as further described in the New Credit Agreement. Events of default under the New Credit Agreement remain substantially the same as under the Amended Credit Agreement.
The obligations under the U.S. portion of the New Credit Agreement are secured by first priority security interests on substantially all of the assets (other than certain excluded assets) of Complete and any Domestic Restricted Subsidiary (as defined in the New Credit Agreement), whether now owned or hereafter acquired including, without limitation: (i) all equity interests issued by any domestic subsidiary, (ii) 100% of equity interests issued by first tier foreign subsidiaries but, in any event, no more than 66% of the outstanding voting securities issued by any first tier foreign subsidiary, and (iii) the Existing Mortgaged Properties (as defined in the New Credit Agreement). Additionally, all of the obligations under the U.S. portion of the New Credit Agreement will be guaranteed by Complete and each existing and subsequently acquired or formed Domestic Restricted Subsidiary. The obligations under the Canadian portion of the New Credit Agreement, if any, will be secured by substantially all of the assets (other than certain excluded assets) of Complete and any Restricted Subsidiary (other than our Mexican subsidiary), as further described in the New Credit Agreement. Additionally, all of the obligations under the Canadian portion of the New Credit Agreement, if any, will be guaranteed by Complete as well as certain of our subsidiaries. Subject to certain limitations, we will have the right to designate certain newly acquired and existing subsidiaries as unrestricted subsidiaries under the New Credit Agreement, and the assets of such unrestricted subsidiaries will not serve as security for either the U.S. portion or the Canadian portion, if any, of the New Credit Agreement.
There were no borrowings outstanding under the New Credit Agreement as of September 30, 2011. There were letters of credit outstanding under the U.S. revolving portion of the facility totaling $22,278, which reduced the available borrowing capacity as of September 30, 2011. We incurred fees related to our letters of credit as of September 30, 2011 at 1.50% per annum. For the nine months ended September 30, 2011, fees related to our letters of credit were calculated using a 360-day provision, at 3.75% per annum prior to the amendment on June 13, 2011, and ranged from 1.50% per annum to 1.66% thereafter resulting in a weighted average interest rate of 2.14 % per annum for the nine-month period ended September 30, 2011. Our available borrowing capacity under the revolving credit facility at September 30, 2011 was $277,722.
We will incur unused commitment fees under the New Credit Agreement ranging from 0.375% to 0.50% based on the average daily balance of amounts outstanding. The unused commitment fees were calculated at 0.375% as of September 30, 2011. For the nine months ended September 30, 2011, the weighted average interest rate associated with unused commitments was 0.57% per annum.
We recorded deferred financing fees associated with the New Credit Agreement totaling $2,477. These fees will be amortized to expense, along with the remaining balance of deferred financing fees associated with the prior amendments to this facility, over the term of the facility which matures in June 2016.
10
| (b) | On December 6, 2006, we issued 8.0% senior notes with a face value of $650,000 through a private placement of debt. These 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, which 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. 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. | ||
Pursuant to a registration rights agreement with the holders of our 8.0% senior notes, on June 1, 2007, we filed a registration statement on Form S-4 with the SEC 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.
| 8. | Stockholders’ equity: |
11
We maintain option plans under which we grant stock-based compensation to employees, officers and directors to purchase our common stock. The exercise price of each option is based on the fair value of the company’s 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.
We calculate stock compensation expense for our stock-based compensation awards by measuring 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. A further description can be found in our Annual Report on Form 10-K as of December 31, 2009.
On January 29, 2010,31, 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 790,396428,960 shares of non-vested restricted stock on January 29, 2010 at a grant price of $12.53 per share.$27.94. We expect to recognize compensation expense associated with this grant of non-vested restricted stock totaling $11,982 ratably over the three-year vesting period. We granted an additional 23,500 shares of non-vested restricted stock in May 2011 and expect to recognize compensation expense associated with these grants of non-vested restricted stock totaling $9,904. Subsequent to the annual grant on January 29, 2010, we have granted an additional 18,700 shares of non-vested restricted stock at an average price of $16.45 and expect to recognize compensation expense of $308 associated with these grants$718 ratably over the three-year vesting periods.
Assumptions: | Nine Months Ended September 30, 2011 | |||
Risk-free rate | 0.96% to 1.92% | |||
Expected term (in years) | 3.7 to 5.1 | |||
Volatility | ||||
Calculated fair value per option | $ | $13.53 | ||
We calculated an averagethe expected volatility factor forof our common stock based on our historical volatility, adjusted for certain qualitative factors, over the three-year period just prior to the grant dateexpected term of the award.options. This volatility calculationfactor was used to computecalculate the fair market value of stock option grants made during the nine months ended September 30, 2010.
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 $2,635$2,782 over the vesting period of these 20102011 stock option grants. For the quarter and nine months ended September 30, 2010,2011, we have recognized expense related to these stock option grants totaling $220$232 and $588,$618, respectively, which represents a reduction of net income before taxes. The impact on net income for the quarter and nine months ended September 30, 20102011 was a decrease of $134$144 and $359,$384, respectively, with a $0.01 reduction inno impact on diluted earnings per share for the quarter and nine months ended September 30, 2010.as reported. The unrecognized compensation costs related to the non-vested portion of these awards was $2,047$2,164 as of September 30, 20102011 and will be recognized over the applicable remaining vesting periods.
For the quarters ended September 30, 20102011 and 2009,2010, we recognized compensation expense associated with all stock option awards totaling $488$578 and $869,$488, respectively, resulting in a decrease in net income of $298$360 and an increase in net loss of $579,$298, respectively. The impact of this compensation expense on earnings per share was a $0.01 reduction in diluted earnings per share for each of the quarterquarters ended September 30, 20102011 and a $0.01 increase in loss per share for the quarter ended September 30, 2009.2010. For the nine months ended September 30, 20102011 and 2009,2010, we recognized compensation expense associated with all stock option awards totaling $1,831$1,734 and $3,259,$1,831, respectively, resulting in a
12
The following tables provide a roll forward of stock options from December 31, 20092010 to September 30, 20102011 and a summary of stock options outstanding by exercise price range at September 30, 2010:
| Options Outstanding | ||||||||
| Weighted | ||||||||
| Average | ||||||||
| Exercise | ||||||||
| Number | Price | |||||||
| Balance at December 31, 2009 | 3,383,620 | $ | 13.09 | |||||
| Granted | 510,300 | $ | 12.53 | |||||
| Exercised | (336,747 | ) | $ | 9.23 | ||||
| Cancelled | (151,805 | ) | $ | 18.41 | ||||
| Balance at September 30, 2010 | 3,405,368 | $ | 13.15 | |||||
| Options Outstanding | Options Exercisable | |||||||||||||||||||||||
| Weighted | Weighted | Weighted | Weighted | |||||||||||||||||||||
| Outstanding at | Average | Average | Exercisable at | Average | Average | |||||||||||||||||||
| September 30, | Remaining | Exercise | September 30, | Remaining | Exercise | |||||||||||||||||||
| Range of Exercise Prices | 2010 | Life (months) | Price | 2010 | Life (months) | Price | ||||||||||||||||||
| $5.00 | 68,500 | 32 | $ | 5.00 | 68,500 | 32 | $ | 5.00 | ||||||||||||||||
| $6.41 – $8.16 | 1,409,932 | 81 | $ | 6.54 | 814,979 | 67 | $ | 6.62 | ||||||||||||||||
| $11.66 – $12.53 | 582,836 | 32 | $ | 12.42 | 72,536 | 60 | $ | 11.66 | ||||||||||||||||
| $15.90 | 296,267 | 88 | $ | 15.90 | 197,511 | 76 | $ | 15.90 | ||||||||||||||||
| $17.60 – $19.87 | 554,089 | 76 | $ | 19.83 | 554,088 | 76 | $ | 19.83 | ||||||||||||||||
| $22.55 – $24.07 | 397,244 | 67 | $ | 23.96 | 397,244 | 67 | $ | 23.96 | ||||||||||||||||
| $26.26 – $27.11 | 45,000 | 80 | $ | 26.35 | 45,000 | 80 | $ | 26.35 | ||||||||||||||||
| $29.88 | 40,000 | 92 | $ | 29.88 | 26,667 | 92 | $ | 29.88 | ||||||||||||||||
| $34.19 | 11,500 | 93 | $ | 34.19 | 7,667 | 93 | $ | 34.19 | ||||||||||||||||
| 3,405,368 | 70 | $ | 13.15 | 2,184,192 | 69 | $ | 14.87 | |||||||||||||||||
| Options Outstanding | ||||||||
| Number | Weighted Average Exercise Price | |||||||
Balance at December 31, 2010 | 3,141,580 | $ | 12.68 | |||||
Granted | 231,300 | $ | 27.94 | |||||
Exercised | (929,852 | ) | $ | 17.16 | ||||
Cancelled | — | $ | — | |||||
|
| |||||||
Balance at September 30, 2011 | 2,443,028 | $ | 12.42 | |||||
|
| |||||||
| Options Outstanding | Options Exercisable | |||||||||||||||||||||||
Range of Exercise Price | Outstanding at September 30, 2011 | Weighted Average Remaining Life (months) | Weighted Average Exercise Price | Exercisable at September 30, 2011 | Weighted Average Remaining Life (months) | Weighted Average Exercise Price | ||||||||||||||||||
$5.00 | 60,000 | 20 | $ | 5.00 | 60,000 | 20 | $ | 5.00 | ||||||||||||||||
$6.41 – $8.16 | 1,251,134 | 66 | $ | 6.55 | 953,657 | 60 | $ | 6.59 | ||||||||||||||||
$11.66 - $12.53 | 483,964 | 96 | $ | 12.47 | 143,765 | 87 | $ | 12.32 | ||||||||||||||||
$15.90 | 61,900 | 76 | $ | 15.90 | 61,900 | 64 | $ | 15.90 | ||||||||||||||||
$17.67 – $19.87 | 137,863 | 64 | $ | 19.73 | 137,863 | 64 | $ | 19.73 | ||||||||||||||||
$23.27 – $24.00 | 122,367 | 55 | $ | 23.97 | 122,367 | 55 | $ | 23.97 | ||||||||||||||||
$26.26 – $27.94 | 276,300 | 105 | $ | 27.68 | 45,000 | 68 | $ | 26.35 | ||||||||||||||||
$29.88 | 40,000 | 80 | $ | 29.88 | 40,000 | 80 | $ | 29.88 | ||||||||||||||||
$34.19 | 9,500 | 81 | $ | 34.19 | 9,500 | 81 | $ | 34.19 | ||||||||||||||||
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| |||||||||||||||||||||
| 2,443,028 | 75 | $ | 12.42 | 1,574,052 | 62 | $ | 11.25 | |||||||||||||||||
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The total intrinsic value of stock options exercised during the quarter and nine months ended September 30, 20102011 was $842$865 and $2,914,$15,952, respectively. The total intrinsic value of all in-the-money vested outstanding stock options at September 30, 20102011 was $12,329.$13,644. Assuming all stock options outstanding at September 30, 20102011 were vested, the total intrinsic value of all in-the-money outstanding stock options would have been $20,558.
(b) Non-vested Restricted Stock:
We present the amortization of non-vested restricted stock as an increase in additional paid-in capital. At September 30, 2010,2011, amounts not yet recognized related to non-vested restricted stock totaled $12,201,$14,106, which represented the unamortized expense associated with awards of non-vested stock granted to
employees, officers and directors under our compensation plans, including $2,379$12,531 related to grants during the nine months ended September 30, 2010.2011. We recognized compensation expense associated with non-vested restricted stock totaling $2,428$2,869 and $1,998$2,428 for the quarters ended September 30, 20102011 and 2009,2010, respectively, and $6,740$8,056 and $6,312$6,740 for the nine months ended September 30, 2011 and 2010, and 2009, respectively.
The following table summarizes the change in non-vested restricted stock from December 31, 20092010 to September 30, 2010:
| Non-vested | ||||||||
| Restricted Stock | ||||||||
| Weighted | ||||||||
| Average | ||||||||
| Number | Grant Price | |||||||
| Balance at December 31, 2009 | 1,635,565 | $ | 10.27 | |||||
| Granted | 809,096 | $ | 12.62 | |||||
| Vested | (678,290 | ) | $ | 10.88 | ||||
| Forfeited | (91,992 | ) | $ | 10.89 | ||||
| Balance at September 30, 2010 | 1,674,379 | $ | 11.12 | |||||
13
| Non-vested Restricted Stock | ||||||||
| Number | Weighted Average Grant Price | |||||||
Balance at December 31, 2010 | 1,672,854 | $ | 11.12 | |||||
Granted | 452,460 | $ | 28.08 | |||||
Vested | (843,377 | ) | $ | 10.79 | ||||
Forfeited | (11,216 | ) | $ | 21.49 | ||||
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| |||||||
Balance at September 30, 2011 | 1,270,721 | $ | 17.29 | |||||
|
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In accordance with the provisions of the 2008 Incentive Award Plan, as amended, holders of non-vested 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 purchase shares equivalent to the cost of the withholding tax and to remit the withholding taxes on behalf of the holder. Pursuant to this provision, we purchased the following shares of our common stock during the nine months ended September 30, 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 | |||||||||
| 112,894 | $ | 1,418 | ||||||||||
Period | Shares Purchased | Average Price Paid per Share | Extended Amount | |||||||||
January 1 – 31, 2011 | 199,510 | $ | 27.45 | $ | 5,476 | |||||||
February 1 – 28, 2011 | — | — | — | |||||||||
March 1 – 31, 2011 | 1,374 | $ | 28.22 | 39 | ||||||||
April 1 – 30, 2011 | 426 | $ | 29.72 | 13 | ||||||||
May 1 – 31, 2011 | 1,065 | $ | 30.80 | 33 | ||||||||
June 1 – 30, 2011 | 644 | $ | 30.90 | 20 | ||||||||
July 1 – 31, 2011 | 1,326 | $ | 37.11 | 49 | ||||||||
August 1 – 31, 2011 | 353 | $ | 37.33 | 13 | ||||||||
September 1 - 30, 2011 | — | — | — | |||||||||
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| |||||||
| 204,698 | $ | 5,643 | ||||||||||
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9. Earnings per share:
We compute basic earnings per share by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) 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, as determined using the treasury stock method prescribed by the Financial Accounting Standards Board (“FASB”) guidance on earnings per share. The following table reconciles basic and diluted weighted average shares used in the computation of earnings (loss) per share for the quarters and nine months ended September 30, 20102011 and 2009:
| Quarter Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| (In thousands) | ||||||||||||||||
| Weighted average basic common shares outstanding | 76,130 | 75,200 | 75,957 | 75,045 | ||||||||||||
| Effect of dilutive securities: | ||||||||||||||||
| Employee stock options | 751 | — | 628 | — | ||||||||||||
| Non-vested restricted stock | 914 | — | 812 | — | ||||||||||||
| Weighted average diluted common and potential common shares outstanding | 77,795 | 75,200 | 77,397 | 75,045 | ||||||||||||
| Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| (In thousands) | ||||||||||||||||
Weighted average basic common shares outstanding | 78,004 | 76,130 | 77,578 | 75,957 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Employee stock options | 998 | 751 | 1,052 | 628 | ||||||||||||
Non-vested restricted stock | 443 | 911 | 450 | 810 | ||||||||||||
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Weighted average diluted common and potential common shares outstanding | 79,445 | 77,792 | 79,080 | 77,395 | ||||||||||||
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We excluded the impact of anti-dilutive potential common shares from the calculation of diluted weighted average shares for the quartersquarter and nine months ended September 30, 20102011 and 2009.2010. If these potential common shares were included in the calculation, the impact would have been a decrease in diluted weighted average shares outstanding of 47,89034,563 shares and 1,253,92047,870 shares for the quarters ended September 30, 20102011 and 2009,2010, respectively, and 257,78135,156 shares and 3,060,105257,781 shares for the nine months ended September 30, 2011 and 2010, respectively.
| 10. | Discontinued operations: |
On July 6, 2011, we sold our Southeast Asian products business, through which we provided oilfield equipment sales, rentals and 2009, respectively.
Although this sale did not represent a material disposition of assets relative to our total assets as presented in the accompanying balance sheets, the Southeast Asia products business 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, we accounted for it as discontinued operations. We revised our financial statements and reclassified the assets and liabilities of the Southeast Asia products business as discontinued operations as of the date of each balance sheet presented and removed the results of operations of the Southeast Asia products business from net income from continuing operations, and presented these separately as income from discontinued operations, net of tax, for each of the accompanying statements of operations.
Additionally, because our Southeast Asian products business represented over 85% of the Product Sales segment revenue, we have restructured our reportable segments to better reflect our current operations. Our remaining product sales business has been combined with our Drilling Services segment. A reconciliation of the original presentation of our reportable segments for the quarter and nine months ended September 30, 2010 to the current reportable segments is presented below in Note 11, “Segment information.”
The following table summarizes the operating results for this disposal group for the quarters and nine-month periods ended September 30, 2011 and 2010:
| Pro Forma Results | ||||||||||||||||
| Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenue | $ | — | $ | 8,339 | $ | 13,766 | $ | 24,069 | ||||||||
Income before taxes | $ | 571 | $ | 1,681 | $ | 3,343 | $ | 4,050 | ||||||||
Taxes | $ | 707 | $ | 242 | $ | 1,149 | $ | 638 | ||||||||
Net income (loss) | $ | (136 | ) | $ | 1,439 | $ | 2,194 | $ | 3,412 | |||||||
Earnings per share information: | ||||||||||||||||
Basic | $ | (0.00 | ) | $ | 0.02 | $ | 0.03 | $ | 0.04 | |||||||
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Diluted | $ | (0.01 | ) | $ | 0.01 | $ | 0.03 | $ | 0.04 | |||||||
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The following table presents the assets and liabilities of this disposal group as of July 6, 2011 and December 31, 2010.
| July 6, 2011 | December 31, 2010 | |||||||
Current assets: | ||||||||
Cash | $ | 2,613 | $ | 7,546 | ||||
Accounts receivable | $ | 6,805 | $ | 3,664 | ||||
Inventory, net | $ | 5,264 | $ | 5,147 | ||||
Prepaid expenses | $ | 455 | $ | 343 | ||||
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Current assets of discontinued operations | $ | 15,137 | $ | 16,700 | ||||
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Long-term assets: | ||||||||
Property, plant and equipment, net | $ | 4,963 | $ | 5,096 | ||||
Goodwill Other long-term assets Long-term assets of discontinued operations Current liabilities Accounts payable Accrued liabilities Income taxes payable Current liabilities of discontinued operations Long-term liabilities of discontinued operations: Deferred income taxes $ 2,858 $ 2,858 $ 941 $ 943 $ 8,762 $ 8,897 $ 2,774 $ 597 $ 781 $ 2,244 $ 431 $ — $ 3,986 $ 2,841 $ 42 $ 33
We have included cash held by the disposal group as a component of current assets of discontinued operations for the accompanying balance sheet at December 31, 2010, rather than including this amount as cash and cash equivalents of the consolidated entity at December 31, 2010. For cash flow statement presentation, the sources and uses of cash for this disposal group are presented as operating, investing and financing cash flows, as applicable, combined with such cash flows for continuing operations, as permitted by US GAAP.
| 11. | Segment information: |
We report segment information based on how our management organizes the operating segments to make operational decisions and to 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, non-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
14
Prior to July 1, 2011, we had three reportable operating segments: completion and production services (“C&PS”), drilling services and product sales. During July 2011, as a result of the sale of our Southeast Asian business, we restructured our reportable segments to better reflect our current operations. Our Southeast Asian business is accounted for as discontinued operations and we have combined the remaining product sales business with our drilling services segment.
The accounting policies of our reporting segments are the same as those used to prepare our consolidated financial statements as of September 30, 2010.2011. Inter-segment transactions are accounted for on a cost recovery basis.
| Drilling | Product | |||||||||||||||||||
| C&PS | Services | Sales | Corporate | Total | ||||||||||||||||
Quarter Ended September 30, 2010 | ||||||||||||||||||||
| Revenue from external customers | $ | 361,457 | $ | 48,600 | $ | 8,552 | $ | — | $ | 418,609 | ||||||||||
| Inter-segment revenues | $ | 33 | $ | (10 | ) | $ | 3,177 | $ | (3,200 | ) | $ | — | ||||||||
| Adjusted EBITDA, as defined | $ | 108,104 | $ | 12,936 | $ | 1,689 | $ | (9,743 | ) | $ | 112,986 | |||||||||
| Depreciation and amortization | $ | 39,078 | $ | 4,673 | $ | 539 | $ | 515 | $ | 44,805 | ||||||||||
| Operating income (loss) | $ | 69,026 | $ | 8,263 | $ | 1,150 | $ | (10,258 | ) | $ | 68,181 | |||||||||
| Capital expenditures | $ | 46,479 | $ | 1,036 | $ | 116 | $ | 330 | $ | 47,961 | ||||||||||
Quarter Ended September 30, 2009 | ||||||||||||||||||||
| Revenue from external customers | $ | 198,014 | $ | 25,415 | $ | 6,484 | $ | — | $ | 229,913 | ||||||||||
| Inter-segment revenues | $ | 1,211 | $ | 122 | $ | 1,295 | $ | (2,628 | ) | $ | — | |||||||||
| Adjusted EBITDA, as defined | $ | 31,396 | $ | (3,757 | ) | $ | 1,791 | $ | (7,025 | ) | $ | 22,405 | ||||||||
| Depreciation and amortization | $ | 43,744 | $ | 5,466 | $ | 603 | $ | 566 | $ | 50,379 | ||||||||||
| Impairment charge | $ | — | $ | 36,158 | $ | — | $ | — | $ | 36,158 | ||||||||||
| Operating income (loss) | $ | (12,348 | ) | $ | (45,381 | ) | $ | 1,188 | $ | (7,591 | ) | $ | (64,132 | ) | ||||||
| Capital expenditures | $ | 3,844 | $ | 1,912 | $ | 18 | $ | 561 | $ | 6,335 | ||||||||||
As of September 30, 2010 | ||||||||||||||||||||
| Segment assets | $ | 1,380,903 | $ | 173,149 | $ | 29,470 | $ | 107,350 | $ | 1,690,872 | ||||||||||
Nine Months Ended September 30, 2010 | ||||||||||||||||||||
| Revenue from external customers | $ | 938,205 | $ | 124,149 | $ | 26,204 | $ | — | $ | 1,088,558 | ||||||||||
| Inter-segment revenues | $ | 225 | $ | 231 | $ | 4,567 | $ | (5,023 | ) | $ | — | |||||||||
| Adjusted EBITDA, as defined | $ | 250,609 | $ | 27,018 | $ | 4,501 | $ | (27,893 | ) | $ | 254,235 | |||||||||
| Depreciation and amortization | $ | 118,641 | $ | 13,775 | $ | 1,676 | $ | 1,504 | $ | 135,596 | ||||||||||
| Operating income (loss) | $ | 131,968 | $ | 13,243 | $ | 2,825 | $ | (29,397 | ) | $ | 118,639 | |||||||||
| Capital expenditures | $ | 80,194 | $ | 8,400 | $ | 220 | $ | 1,041 | $ | 89,855 | ||||||||||
Nine Months Ended September 30, 2009 | ||||||||||||||||||||
| Revenue from external customers | $ | 681,981 | $ | 85,515 | $ | 37,496 | $ | — | $ | 804,992 | ||||||||||
| Inter-segment revenues | $ | 4,460 | $ | 734 | $ | 3,581 | $ | (8,775 | ) | $ | — | |||||||||
| Adjusted EBITDA, as defined | $ | 129,044 | $ | 6,698 | $ | 6,427 | $ | (25,569 | ) | $ | 116,600 | |||||||||
| Depreciation and amortization | $ | 133,393 | $ | 16,502 | $ | 1,861 | $ | 1,714 | $ | 153,470 | ||||||||||
| Impairment charge | $ | — | $ | 36,158 | $ | — | $ | — | $ | 36,158 | ||||||||||
| Operating income (loss) | $ | (4,349 | ) | $ | (45,962 | ) | $ | 4,566 | $ | (27,283 | ) | $ | (73,028 | ) | ||||||
| Capital expenditures | $ | 25,267 | $ | 3,004 | $ | 175 | $ | 648 | $ | 29,094 | ||||||||||
As of December 31, 2009 | ||||||||||||||||||||
| Segment assets | $ | 1,292,199 | $ | 172,605 | $ | 37,270 | $ | 86,780 | $ | 1,588,854 | ||||||||||
15
| C&PS | Drilling Services | Corporate | Total | |||||||||||||
Quarter Ended September 30, 2011 | ||||||||||||||||
Revenue from external customers | $ | 535,625 | $ | 54,664 | $ | — | $ | 590,289 | ||||||||
Inter-segment revenues | $ | 1 | $ | 7,474 | $ | (7,475 | ) | $ | — | |||||||
Adjusted EBITDA, as defined | $ | 154,249 | $ | 14,388 | $ | (11,370 | ) | $ | 157,267 | |||||||
Depreciation and amortization | $ | 43,147 | $ | 4,972 | $ | 576 | $ | 48,695 | ||||||||
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Operating income (loss) | $ | 111,102 | $ | 9,416 | $ | (11,946 | ) | $ | 108,572 | |||||||
Capital expenditures(1) | $ | 109,960 | $ | 19,792 | $ | 88 | $ | 129,840 | ||||||||
Quarter Ended September 30, 2010 | ||||||||||||||||
Revenue from external customers | $ | 361,457 | $ | 48,813 | $ | — | $ | 410,270 | ||||||||
Inter-segment revenues | $ | 33 | $ | 2,666 | $ | (2,699 | ) | $ | — | |||||||
Adjusted EBITDA, as defined | $ | 108,104 | $ | 12,685 | $ | (9,743 | ) | $ | 111,046 | |||||||
Depreciation and amortization | $ | 39,078 | $ | 4,970 | $ | 515 | $ | 44,563 | ||||||||
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Operating income (loss) | $ | 69,026 | $ | 7,715 | $ | (10,258 | ) | $ | 66,483 | |||||||
Capital expenditures | $ | 46,479 | $ | 1,072 | $ | 410 | $ | 47,961 | ||||||||
As of September 30, 2011 | ||||||||||||||||
Segment assets | $ | 1,681,007 | $ | 199,623 | $ | 240,332 | $ | 2,120,962 | ||||||||
Nine Months Ended September 30, 2011 | ||||||||||||||||
Revenue from external customers | $ | 1,464,593 | $ | 159,114 | $ | — | $ | 1,623,707 | ||||||||
Inter-segment revenues | $ | 31 | $ | 13,863 | $ | (13,894 | ) | $ | — | |||||||
Adjusted EBITDA, as defined | $ | 420,694 | $ | 40,561 | $ | (32,270 | ) | $ | 428,985 | |||||||
Depreciation and amortization | $ | 129,988 | $ | 15,063 | $ | 1,781 | $ | 146,832 | ||||||||
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Operating income (loss) | $ | 290,706 | $ | 25,498 | $ | (34,051 | ) | $ | 282,153 | |||||||
Capital expenditures(2) | $ | 244,696 | $ | 23,322 | $ | 555 | $ | 268,573 | ||||||||
Nine Months Ended September 30, 2010 | ||||||||||||||||
Revenue from external customers | $ | 938,205 | $ | 126,284 | $ | — | $ | 1,064,489 | ||||||||
Inter-segment revenues | $ | 225 | $ | 4,147 | $ | (4,372 | ) | $ | — | |||||||
Adjusted EBITDA, as defined | $ | 250,609 | $ | 26,622 | $ | (27,893 | ) | $ | 249,338 | |||||||
Depreciation and amortization | $ | 118,641 | $ | 14,653 | $ | 1,504 | $ | 134,798 | ||||||||
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Operating income (loss) | $ | 131,968 | $ | 11,969 | $ | (29,397 | ) | $ | 114,540 | |||||||
Capital expenditures | $ | 80,194 | $ | 8,436 | $ | 1,225 | $ | 89,855 | ||||||||
As of December 31, 2010 | ||||||||||||||||
Segment assets | $ | 1,485,897 | $ | 183,220 | $ | 131,459 | $ | 1,800,576 | ||||||||
| (1) | For the quarter ended September 30, 2011, capital expenditures of $129,840 represents actual cash invested of $110,853, less amounts accrued but not paid at June 30, 2011 of $9,678, plus amounts accrued but not paid at September 30, 2011 of $28,665. |
| (2) | For the nine months ended September 30, 2011, capital expenditures of $268,573 represents actual cash invested of $259,925, less amounts accrued but not paid at December 31, 2010 of $20,017, plus amounts accrued but not paid at September 30, 2011 of $28,665. |
The following table reconciles the original presentation of the three operating segments to the current presentation for the quarter and nine months ended September 30, 2010 and the year ended December 31, 2010.
Quarter Ended September 30, 2010 | Original Presentation | Discontinued Operations | Reclassification | Current Presentation | ||||||||||||
Drilling services: | ||||||||||||||||
Revenue from external customers | $ | 48,600 | $ | — | $ | 213 | $ | 48,813 | ||||||||
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Adjusted EBITDA, as defined | $ | 12,936 | $ | — | $ | (251 | ) | $ | 12,685 | |||||||
Depreciation and amortization | 4,673 | — | 297 | 4,970 | ||||||||||||
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Operating income | $ | 8,263 | $ | — | $ | (548 | ) | $ | 7,715 | |||||||
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Capital expenditures | $ | 1,036 | $ | — | $ | 36 | $ | 1,072 | ||||||||
Product Sales: | ||||||||||||||||
Revenue from external customers | $ | 8,552 | $ | (8,339 | ) | $ | (213 | ) | $ | — | ||||||
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Adjusted EBITDA, as defined | $ | 1,689 | $ | (1,940 | ) | $ | 251 | $ | — | |||||||
Depreciation and amortization | 539 | (242 | ) | (297 | ) | — | ||||||||||
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Operating income | $ | 1,150 | $ | (1,698 | ) | $ | 548 | $ | — | |||||||
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Capital expenditures | $ | 116 | $ | (80 | ) | $ | (36 | ) | $ | — | ||||||
Corporate: |
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Capital expenditures | $ | 330 | $ | — | $ | 80 | $ | 410 | ||||||||
Nine Months Ended September 30, 2010 | ||||||||||||||||
Drilling services: | ||||||||||||||||
Revenue from external customers | $ | 124,149 | $ | — | $ | 2,135 | $ | 126,284 | ||||||||
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Adjusted EBITDA, as defined | $ | 27,018 | $ | — | $ | (396 | ) | $ | 26,622 | |||||||
Depreciation and amortization | 13,775 | — | 878 | 14,653 | ||||||||||||
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Operating income | $ | 13,243 | $ | — | $ | (1,274 | ) | $ | 11,969 | |||||||
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|
|
| |||||||||
Capital expenditures | $ | 8,400 | $ | — | $ | 36 | $ | 8,436 | ||||||||
Product Sales: | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||
Revenue from external customers | $ | 26,204 | $ | (24,069 | ) | $ | (2,135 | ) | $ | — | ||||||
|
|
|
|
|
|
|
| |||||||||
Adjusted EBITDA, as defined | $ | 4,501 | $ | (4,897 | ) | $ | 396 | $ | — | |||||||
Depreciation and amortization | 1,676 | (798 | ) | (878 | ) | — | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Operating income | $ | 2,825 | $ | (4,099 | ) | $ | 1,274 | $ | — | |||||||
|
|
|
|
|
|
|
| |||||||||
Capital expenditures | $ | 220 | $ | (184 | ) | $ | (36 | ) | $ | — | ||||||
Corporate: | ||||||||||||||||
Capital expenditures | $ | 1,041 | $ | — | $ | 184 | $ | 1,225 | ||||||||
Reconciliation of segment assets as of December 31, 2010 | ||||||||||||||||
C&PS(1) | $ | 1,488,755 | $ | — | $ | (2,858 | ) | $ | 1,485,897 | |||||||
Drilling services | $ | 170,944 | $ | — | $ | 12,276 | $ | 183,220 | ||||||||
Product sales | $ | 35,015 | $ | (25,597 | ) | $ | (9,418 | ) | $ | — | ||||||
Corporate | $ | 105,862 | $ | 25,597 | $ | — | $ | 131,459 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Segment assets | $ | 1,800,576 | $ | — | $ | — | $ | 1,800,576 | ||||||||
| (1) | The $2,858 represents goodwill associated with Southeast Asia. |
We do not allocate net interest expense or tax expense to ourthe operating segments. The following table reconciles operating income (loss) as reported above to net income (loss)from continuing operations for the quarters and nine months ended September 30, 20102011 and 2009:
| Quarters Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| Segment operating income (loss) | $ | 68,181 | $ | (64,132 | ) | $ | 118,639 | $ | (73,028 | ) | ||||||
| Interest expense | 14,152 | 13,987 | 43,653 | 42,344 | ||||||||||||
| Interest income | (57 | ) | (13 | ) | (200 | ) | (43 | ) | ||||||||
| Income taxes | 21,056 | (26,081 | ) | 29,247 | (37,136 | ) | ||||||||||
| Net income (loss) | $ | 33,030 | $ | (52,025 | ) | $ | 45,939 | $ | (78,193 | ) | ||||||
Quarters Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
Segment operating income | $ | 108,572 | $ | 66,483 | $ | 282,153 | $ | 114,540 | ||||||||
Interest expense | 12,917 | 14,151 | 40,709 | 43,653 | ||||||||||||
Interest income | (180 | ) | (73 | ) | (407 | ) | (249 | ) | ||||||||
Income taxes | 36,513 | 20,814 | 91,420 | 28,609 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income from continuing operations | $ | 59,322 | $ | 31,591 | $ | 150,431 | $ | 42,527 | ||||||||
|
|
|
|
|
|
|
| |||||||||
The following table summarizes the change in the carrying amount of goodwill by segment for the nine months ended September 30, 2010:
| Drilling | Product | |||||||||||||||
| C&PS | Services | Sales | Total | |||||||||||||
Balance at December 31, 2009 | $ | 235,859 | $ | 5,563 | $ | 2,401 | $ | 243,823 | ||||||||
| Acquisitions (a) | 5,928 | — | — | 5,928 | ||||||||||||
Balance at September 30, 2010 | $ | 241,787 | $ | 5,563 | $ | 2,401 | $ | 249,751 | ||||||||
| C&PS | Drilling Services | Product Sales | Total | |||||||||||||
Balance at December 31, 2010 | $ | 244,138 | $ | 3,537 | $ | 2,858 | $ | 250,533 | ||||||||
Less: goodwill associated with discontinued operations | — | — | (2,858 | ) | (2,858 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Adjusted balance at December 31, 2010 | 244,138 | 3,537 | — | 247,675 | ||||||||||||
Acquisition (a) and other | 4,462 | — | — | 4,462 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at September 30, 2011 | $ | 248,600 | $ | 3,537 | $ | — | $ | 252,137 | ||||||||
|
|
|
|
|
|
|
| |||||||||
| (a) | For a description of our business |
| 12. | Financial instruments: |
The financial instruments recognized in the balance sheet consist of cash and cash equivalents, trade accounts receivable, accounts payable and accrued liabilities, long-term debt and senior notes. The fair value of all financial instruments approximates 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 September 30, 2010,2011, the fair value of these notes was $673,563$650,000 based on the published closing price.
A significant portion of our trade accounts receivable is 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’customers based on their financial condition and generally do not require collateral. For the quarter and nine months ended September 30, 2010, one customer2011, we had two customers who provided 11.4%approximately 18% and 8% of our sales and another customer provided 11.3% of our sales.
| 13. | 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
16
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, individually, or in the aggregate, 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 premiumpremiums 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 premiums should not have a material adverse effect on our financial position, results of operations or liquidity.
See Note 16, “Subsequent events,” for disclosure of two lawsuits that were filed against us after September 30, 2011.
| 14. | Guarantor and Non-Guarantor Condensed Consolidating Financial Statements: |
The following tables present the financial data required pursuant to SEC Regulation S-X Rule 3-10(f), which includes: (1) unaudited condensed consolidating balance sheets as of September 30, 20102011 and December 31, 2009;2010; (2) unaudited condensed consolidating statements of operations for the quarters and nine months ended September 30, 20102011 and 20092010 and (3) unaudited condensed consolidating statements of cash flows for the nine months ended September 30, 20102011 and 2009.
Condensed Consolidating Balance Sheet
September 30, 2010
| Non- | ||||||||||||||||||||
| Guarantor | guarantor | Eliminations/ | ||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Reclassifications | Consolidated | ||||||||||||||||
| Current assets | ||||||||||||||||||||
| Cash and cash equivalents | $ | 132,830 | $ | 969 | $ | 21,384 | $ | (11,918 | ) | $ | 143,265 | |||||||||
| Accounts receivable, net | 389 | 250,515 | 30,576 | — | 281,480 | |||||||||||||||
| Inventory, net | — | 20,082 | 12,019 | — | 32,101 | |||||||||||||||
| Prepaid expenses | 7,561 | 11,992 | 1,286 | — | 20,839 | |||||||||||||||
| Income tax receivable | (10,448 | ) | 13,678 | 3,585 | — | 6,815 | ||||||||||||||
| Current deferred tax assets | 908 | — | — | — | 908 | |||||||||||||||
| Other current assets | — | 163 | — | — | 163 | |||||||||||||||
| Total current assets | 131,240 | 297,399 | 68,850 | (11,918 | ) | 485,571 | ||||||||||||||
| Property, plant and equipment, net | 4,253 | 853,523 | 55,531 | — | 913,307 | |||||||||||||||
| Investment in consolidated subsidiaries | 847,251 | 114,301 | — | (961,552 | ) | — | ||||||||||||||
| Inter-company receivable | 559,052 | — | 642 | (559,694 | ) | — | ||||||||||||||
| Goodwill | 15,531 | 231,362 | 2,858 | — | 249,751 | |||||||||||||||
| Other long-term assets, net | 30,726 | 9,627 | 1,890 | — | 42,243 | |||||||||||||||
| Total assets | $ | 1,588,053 | $ | 1,506,212 | $ | 129,771 | $ | (1,533,164 | ) | $ | 1,690,872 | |||||||||
| Current liabilities | ||||||||||||||||||||
| Current maturities of long-term debt | $ | — | $ | 89 | $ | — | $ | — | $ | 89 | ||||||||||
| Accounts payable | 831 | 54,226 | 6,129 | (11,918 | ) | 49,268 | ||||||||||||||
| Accrued liabilities | 17,418 | 20,814 | 4,421 | — | 42,653 | |||||||||||||||
| Accrued payroll and payroll burdens | 3,364 | 21,331 | 2,645 | — | 27,340 | |||||||||||||||
| Accrued interest | 15,644 | 3 | 8 | — | 15,655 | |||||||||||||||
| Accrued taxes payable | — | — | 589 | — | 589 | |||||||||||||||
| Total current liabilities | 37,257 | 96,463 | 13,792 | (11,918 | ) | 135,594 | ||||||||||||||
| Long-term debt | 650,000 | — | — | — | 650,000 | |||||||||||||||
| Inter-company payable | — | 558,704 | 990 | (559,694 | ) | — | ||||||||||||||
| Deferred income taxes | 143,728 | 3,794 | 688 | — | 148,210 | |||||||||||||||
| Total liabilities | 830,985 | 658,961 | 15,470 | (571,612 | ) | 933,804 | ||||||||||||||
| Stockholders’ equity | ||||||||||||||||||||
| Total stockholders’ equity | 757,068 | 847,251 | 114,301 | (961,552 | ) | 757,068 | ||||||||||||||
| Total liabilities and stockholders’ equity | $ | 1,588,053 | $ | 1,506,212 | $ | 129,771 | $ | (1,533,164 | ) | $ | 1,690,872 | |||||||||
17
| Parent | Guarantor Subsidiaries | Non- guarantor Subsidiaries | Eliminations/ Reclassifications | Consolidated | ||||||||||||||||
Current assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 177,411 | $ | 2,777 | $ | 42,927 | $ | (14,834 | ) | $ | 208,281 | |||||||||
Accounts receivable, net | 238 | 390,433 | 44,924 | — | 435,595 | |||||||||||||||
Inventory, net | — | 29,060 | 7,226 | — | 36,286 | |||||||||||||||
Prepaid expenses | 7,885 | 21,573 | 3,920 | — | 33,378 | |||||||||||||||
Income tax receivable | 22,723 | — | 1 | — | 22,724 | |||||||||||||||
Current deferred tax assets | 15,462 | — | — | — | 15,462 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total current assets | 223,719 | 443,843 | 98,998 | (14,834 | ) | 751,726 | ||||||||||||||
Property, plant and equipment, net | 4,166 | 1,024,307 | 45,352 | — | 1,073,825 | |||||||||||||||
Investment in consolidated subsidiaries | 1,125,091 | 122,003 | — | (1,247,094 | ) | — | ||||||||||||||
Inter-company receivable | 568,641 | — | (80 | ) | (568,561 | ) | — | |||||||||||||
Goodwill | 15,531 | 236,606 | — | — | 252,137 | |||||||||||||||
Other long-term assets, net | 31,569 | 10,886 | 819 | — | 43,274 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total assets | $ | 1,968,717 | $ | 1,837,645 | $ | 145,089 | $ | (1,830,489 | ) | $ | 2,120,962 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Current liabilities | ||||||||||||||||||||
Accounts payable | $ | 22,436 | $ | 88,404 | $ | 8,256 | $ | (14,834 | ) | $ | 104,262 | |||||||||
Accrued liabilities | 23,274 | 19,206 | 9,398 | — | 51,878 | |||||||||||||||
Accrued payroll and payroll burdens | 3,193 | 30,809 | 2,111 | — | 36,113 | |||||||||||||||
Accrued interest | 15,661 | — | 7 | — | 15,668 | |||||||||||||||
Income taxes payable | — | — | 2,200 | — | 2,200 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total current liabilities | 64,564 | 138,419 | 21,972 | (14,834 | ) | 210,121 | ||||||||||||||
Long-term debt | 650,000 | — | — | — | 650,000 | |||||||||||||||
Inter-company payable | — | 566,882 | 1,679 | (568,561 | ) | — | ||||||||||||||
Deferred income taxes | 272,557 | 3,803 | (576 | ) | — | 275,784 | ||||||||||||||
Other long-term liabilities | 1,051 | 3,450 | 11 | — | 4,512 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total liabilities | 988,172 | 712,554 | 23,086 | (583,395 | ) | 1,140,417 | ||||||||||||||
Stockholders’ equity | ||||||||||||||||||||
Total stockholders’ equity | 980,545 | 1,125,091 | 122,003 | (1,247,094 | ) | 980,545 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total liabilities and stockholders’ equity | $ | 1,968,717 | $ | 1,837,645 | $ | 145,089 | $ | (1,830,489 | ) | $ | 2,120,962 | |||||||||
|
|
|
|
|
|
|
|
|
|
December 31, 2009
| Guarantor | Non- guarantor | Eliminations/ | ||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Reclassifications | Consolidated | ||||||||||||||||
| Current assets | ||||||||||||||||||||
| Cash and cash equivalents | $ | 64,871 | $ | 519 | $ | 17,001 | $ | (5,031 | ) | $ | 77,360 | |||||||||
| Accounts receivable, net | 610 | 143,135 | 27,539 | — | 171,284 | |||||||||||||||
| Inventory, net | — | 23,001 | 14,463 | — | 37,464 | |||||||||||||||
| Prepaid expenses | 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 | — | 111 | — | — | 111 | |||||||||||||||
| Total current assets | 112,940 | 200,019 | 61,998 | (5,031 | ) | 369,926 | ||||||||||||||
| Property, plant and equipment, net | 4,222 | 876,304 | 60,607 | — | 941,133 | |||||||||||||||
| Investment in consolidated subsidiaries | 755,435 | 104,974 | — | (860,409 | ) | — | ||||||||||||||
| Inter-company receivable | 607,325 | — | — | (607,325 | ) | — | ||||||||||||||
| Goodwill | 15,531 | 225,434 | 2,858 | — | 243,823 | |||||||||||||||
| Other long-term assets, net | 16,026 | 13,803 | 4,143 | — | 33,972 | |||||||||||||||
| Total assets | $ | 1,511,479 | $ | 1,420,534 | $ | 129,606 | $ | (1,472,765 | ) | $ | 1,588,854 | |||||||||
| Current liabilities | ||||||||||||||||||||
| Current maturities of long-term debt | $ | — | $ | 228 | $ | — | $ | — | $ | 228 | ||||||||||
| Accounts payable | 445 | 30,028 | 6,303 | (5,031 | ) | 31,745 | ||||||||||||||
| Accrued liabilities | 14,064 | 18,257 | 8,781 | — | 41,102 | |||||||||||||||
| Accrued payroll and payroll burdens | 388 | 10,847 | 2,324 | — | 13,559 | |||||||||||||||
| Accrued interest | 3,198 | — | 8 | — | 3,206 | |||||||||||||||
| Notes payable | 1,068 | 1 | — | — | 1,069 | |||||||||||||||
| Income taxes payable | — | — | 813 | — | 813 | |||||||||||||||
| Total current liabilities | 19,163 | 59,361 | 18,229 | (5,031 | ) | 91,722 | ||||||||||||||
| Long-term debt | 650,000 | — | 2 | — | 650,002 | |||||||||||||||
| Inter-company payable | — | 601,947 | 5,378 | (607,325 | ) | — | ||||||||||||||
| Deferred income taxes | 143,427 | 3,793 | 1,020 | — | 148,240 | |||||||||||||||
| Total liabilities | 812,590 | 665,101 | 24,629 | (612,356 | ) | 889,964 | ||||||||||||||
| Stockholders’ equity | ||||||||||||||||||||
| Total stockholders’ equity | 698,889 | 755,433 | 104,977 | (860,409 | ) | 698,890 | ||||||||||||||
| Total liabilities and stockholders’ equity | $ | 1,511,479 | $ | 1,420,534 | $ | 129,606 | $ | (1,472,765 | ) | $ | 1,588,854 | |||||||||
| Parent | Guarantor Subsidiaries | Non- guarantor Subsidiaries | Eliminations/ Reclassifications | Consolidated | ||||||||||||||||
Current assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 111,834 | $ | 569 | $ | 23,500 | $ | (16,768 | ) | $ | 119,135 | |||||||||
Accounts receivable, net | 696 | 313,936 | 27,352 | — | 341,984 | |||||||||||||||
Inventory, net | — | 21,935 | 6,454 | — | 28,389 | |||||||||||||||
Prepaid expenses | 6,388 | 10,980 | 989 | — | 18,357 | |||||||||||||||
Income tax receivable | 10,164 | 13,298 | — | — | 23,462 | |||||||||||||||
Current deferred tax assets | 2,499 | — | — | — | 2,499 | |||||||||||||||
Other current assets | 882 | 502 | — | — | 1,384 | |||||||||||||||
Current assets of discontinued operations | — | — | 16,700 | — | 16,700 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total current assets | 132,463 | 361,220 | 74,995 | (16,768 | ) | 551,910 | ||||||||||||||
Property, plant and equipment, net | 4,730 | 898,013 | 48,189 | — | 950,932 | |||||||||||||||
Investment in consolidated subsidiaries | 930,631 | 115,449 | — | (1,046,080 | ) | — | ||||||||||||||
Inter-company receivable | 554,482 | — | 445 | (554,927 | ) | — | ||||||||||||||
Goodwill | 15,531 | 232,144 | — | — | 247,675 | |||||||||||||||
Other long-term assets, net | 29,966 | 10,161 | 1,035 | — | 41,162 | |||||||||||||||
Long-term assets of discontinued operations | — | — | 8,897 | — | 8,897 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total assets | $ | 1,667,803 | $ | 1,616,987 | $ | 133,561 | $ | (1,617,775 | ) | $ | 1,800,576 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Current liabilities | ||||||||||||||||||||
Accounts payable | $ | 376 | $ | 82,952 | $ | 7,942 | $ | (16,768 | ) | $ | 74,502 | |||||||||
Accrued liabilities | 18,269 | 21,355 | 2,423 | — | 42,047 | |||||||||||||||
Accrued payroll and payroll burdens | 4,353 | 19,325 | 2,890 | — | 26,568 | |||||||||||||||
Accrued interest | 2,439 | 1 | 6 | — | 2,446 | |||||||||||||||
Income taxes payable | (1,043 | ) | — | 1,043 | — | — | ||||||||||||||
Current liabilities of discontinued operations | — | — | 2,841 | — | 2,841 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total current liabilities | 24,394 | 123,633 | 17,145 | (16,768 | ) | 148,404 | ||||||||||||||
Long-term debt | 650,000 | — | — | — | 650,000 | |||||||||||||||
Inter-company payable | — | 553,907 | 1,020 | (554,927 | ) | — �� | ||||||||||||||
Deferred income taxes | 186,693 | 3,794 | (98 | ) | — | 190,389 | ||||||||||||||
Other long-term liabilities | 882 | 5,022 | 12 | — | 5,916 | |||||||||||||||
Long-term liabilities of discontinued operations | — | — | 33 | — | 33 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total liabilities | 861,969 | 686,356 | 18,112 | (571,695 | ) | 994,742 | ||||||||||||||
Stockholders’ equity | ||||||||||||||||||||
Total stockholders’ equity | 805,834 | 930,631 | 115,449 | (1,046,080 | ) | 805,834 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total liabilities and stockholders’ equity | $ | 1,667,803 | $ | 1,616,987 | $ | 133,561 | $ | (1,617,775 | ) | $ | 1,800,576 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Condensed Consolidated Statement of Operations
Quarter Ended September 30, 2011
| Parent | Guarantor Subsidiaries | Non- guarantor Subsidiaries | Eliminations/ Reclassifications | Consolidated | ||||||||||||||||
Revenues | $ | — | $ | 545,547 | $ | 45,856 | $ | (1,114 | ) | $ | 590,289 | |||||||||
Service expenses | — | 345,915 | 34,391 | (1,114 | ) | 379,192 | ||||||||||||||
Selling, general and administrative expenses | 11,370 | 37,801 | 4,659 | — | 53,830 | |||||||||||||||
Depreciation and amortization | 396 | 45,652 | 2,647 | — | 48,695 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income (loss) from continuing operations before interest and taxes | (11,766 | ) | 116,179 | 4,159 | — | 108,572 | ||||||||||||||
Interest expense | 12,243 | 1,429 | 12 | (767 | ) | 12,917 | ||||||||||||||
Interest income | (850 | ) | (4 | ) | (93 | ) | 767 | (180 | ) | |||||||||||
Equity in earnings of consolidated affiliates | (72,036 | ) | (4,429 | ) | — | 76,465 | — | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income (loss) from continuing operations before taxes | 48,877 | 119,183 | 4,240 | (76,465 | ) | 95,835 | ||||||||||||||
Taxes | (10,308 | ) | 44,816 | 2,005 | — | 36,513 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income (loss) from continuing operations | $ | 59,185 | $ | 74,367 | $ | 2,235 | $ | (76,465 | ) | $ | 59,322 | |||||||||
Loss from discontinued operations | — | — | (136 | ) | — | (136 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) | $ | 59,185 | $ | 74,367 | $ | 2,099 | $ | (76,465 | ) | $ | 59,186 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Condensed Consolidated Statement of Operations
Quarter Ended September 30, 2010
| Non- | ||||||||||||||||||||
| Guarantor | guarantor | Eliminations/ | ||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Reclassifications | Consolidated | ||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Service | $ | — | $ | 380,985 | $ | 30,804 | $ | (1,732 | ) | $ | 410,057 | |||||||||
| Product | — | 209 | 8,343 | — | 8,552 | |||||||||||||||
| — | 381,194 | 39,147 | (1,732 | ) | 418,609 | |||||||||||||||
| Service expenses | — | 235,375 | 23,844 | (1,732 | ) | 257,487 | ||||||||||||||
| Product expenses | — | 122 | 6,224 | — | 6,346 | |||||||||||||||
| Selling, general and administrative expenses | 9,743 | 29,492 | 2,555 | — | 41,790 | |||||||||||||||
| Depreciation and amortization | 345 | 41,570 | 2,890 | — | 44,805 | |||||||||||||||
| Income (loss) before interest and taxes | (10,088 | ) | 74,635 | 3,634 | — | 68,181 | ||||||||||||||
| Interest expense | 14,478 | 1,188 | 18 | (1,532 | ) | 14,152 | ||||||||||||||
| Interest income | (1,580 | ) | (1 | ) | (8 | ) | 1,532 | (57 | ) | |||||||||||
| Equity in earnings of consolidated affiliates | (49,101 | ) | (2,864 | ) | — | 51,965 | — | |||||||||||||
| Income (loss) before taxes | 26,115 | 76,312 | 3,624 | (51,965 | ) | 54,086 | ||||||||||||||
| Taxes | (6,915 | ) | 27,211 | 760 | — | 21,056 | ||||||||||||||
| Net income (loss) | $ | 33,030 | $ | 49,101 | $ | 2,864 | $ | (51,965 | ) | $ | 33,030 | |||||||||
18
| Parent | Guarantor Subsidiaries | Non- guarantor Subsidiaries | Eliminations/ Reclassifications | Consolidated | ||||||||||||||||
Revenues | $ | — | $ | 381,194 | $ | 30,808 | $ | (1,732 | ) | $ | 410,270 | |||||||||
Service expenses | — | 235,497 | 24,011 | (1,732 | ) | 257,776 | ||||||||||||||
Selling, general and administrative expenses | 9,743 | 29,492 | 2,213 | — | 41,448 | |||||||||||||||
Depreciation and amortization | 345 | 41,570 | 2,648 | — | 44,563 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income (loss) from continuing operations before interest and taxes | (10,088 | ) | 74,635 | 1,936 | — | 66,483 | ||||||||||||||
Interest expense | 14,478 | 1,188 | 17 | (1,532 | ) | 14,151 | ||||||||||||||
Interest income | (1,580 | ) | (1 | ) | (24 | ) | 1,532 | (73 | ) | |||||||||||
Equity in earnings of consolidated affiliates | (49,101 | ) | (2,864 | ) | — | 51,965 | — | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income (loss) from continuing operations before taxes | 26,115 | 76,312 | 1,943 | (51,965 | ) | 52,405 | ||||||||||||||
Taxes | (6,915 | ) | 27,211 | 518 | — | 20,814 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income (loss) from continuing operations | $ | 33,030 | $ | 49,101 | $ | 1,425 | $ | (51,965 | ) | $ | 31,591 | |||||||||
Income from discontinued operations | — | — | 1,439 | — | 1,439 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) | $ | 33,030 | $ | 49,101 | $ | 2,864 | $ | (51,965 | ) | $ | 33,030 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Nine Months Ended September 30, 2009
| Non- | ||||||||||||||||||||
| Guarantor | guarantor | Eliminations/ | ||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Reclassifications | Consolidated | ||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Service | $ | — | $ | 197,004 | $ | 28,019 | $ | (1,594 | ) | $ | 223,429 | |||||||||
| Product | — | (194 | ) | 6,678 | — | 6,484 | ||||||||||||||
| — | 196,810 | 34,697 | (1,594 | ) | 229,913 | |||||||||||||||
| Service expenses | — | 139,093 | 20,209 | (1,594 | ) | 157,708 | ||||||||||||||
| Product expenses | — | 224 | 4,372 | — | 4,596 | |||||||||||||||
| Selling, general and administrative expenses | 7,030 | 35,925 | 2,249 | — | 45,204 | |||||||||||||||
| Depreciation and amortization | 414 | 46,884 | 3,081 | — | 50,379 | |||||||||||||||
| Impairment charge | — | 36,158 | — | — | 36,158 | |||||||||||||||
| Income (loss) before interest and taxes | (7,444 | ) | (61,474 | ) | 4,786 | — | (64,132 | ) | ||||||||||||
| Interest expense | 13,894 | 1,809 | 52 | (1,768 | ) | 13,987 | ||||||||||||||
| Interest income | (1,777 | ) | (2 | ) | (2 | ) | 1,768 | (13 | ) | |||||||||||
| Equity in earnings of consolidated affiliates | 47,359 | (3,740 | ) | — | (43,619 | ) | — | |||||||||||||
| Income (loss) before taxes | (66,920 | ) | (59,541 | ) | 4,736 | 43,619 | (78,106 | ) | ||||||||||||
| Taxes | (14,895 | ) | (12,182 | ) | 996 | — | (26,081 | ) | ||||||||||||
| Net income (loss) | $ | (52,025 | ) | $ | (47,359 | ) | $ | 3,740 | $ | 43,619 | $ | (52,025 | ) | |||||||
| Parent | Guarantor Subsidiaries | Non- guarantor Subsidiaries | Eliminations/ Reclassifications | Consolidated | ||||||||||||||||
Revenues | $ | — | $ | 1,508,919 | $ | 119,164 | $ | (4,376 | ) | $ | 1,623,707 | |||||||||
Service expenses | — | 955,931 | 90,714 | (4,376 | ) | 1,042,269 | ||||||||||||||
Selling, general and administrative expenses | 32,270 | 110,670 | 9,513 | — | 152,453 | |||||||||||||||
Depreciation and amortization | 1,254 | 137,147 | 8,431 | — | 146,832 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income (loss) from continuing operations before interest and taxes | (33,524 | ) | 305,171 | 10,506 | — | 282,153 | ||||||||||||||
Interest expense | 40,844 | 2,670 | 60 | (2,865 | ) | 40,709 | ||||||||||||||
Interest income | (3,082 | ) | (6 | ) | (184 | ) | 2,865 | (407 | ) | |||||||||||
Equity in earnings of consolidated affiliates | (197,463 | ) | (9,567 | ) | — | 207,030 | — | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income (loss) from continuing operations before taxes | 126,177 | 312,074 | 10,630 | (207,030 | ) | 241,851 | ||||||||||||||
Taxes | (26,448 | ) | 114,611 | 3,257 | — | 91,420 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income (loss) from continuing operations | $ | 152,625 | $ | 197,463 | $ | 7,373 | $ | (207,030 | ) | $ | 150,431 | |||||||||
Income from discontinued operations | — | — | 2,194 | — | 2,194 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) | $ | 152,625 | $ | 197,463 | $ | 9,567 | $ | (207,030 | ) | $ | 152,625 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Condensed Consolidated Statement of Operations
Nine Months Ended September 30, 2010
| Non- | ||||||||||||||||||||
| Guarantor | guarantor | Eliminations/ | ||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Reclassifications | Consolidated | ||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Service | $ | — | $ | 973,389 | $ | 94,159 | $ | (5,194 | ) | $ | 1,062,354 | |||||||||
| Product | — | 2,135 | 24,069 | — | 26,204 | |||||||||||||||
| — | 975,524 | 118,228 | (5,194 | ) | 1,088,558 | |||||||||||||||
| Service expenses | — | 621,371 | 71,695 | (5,194 | ) | 687,872 | ||||||||||||||
| Product expenses | — | 1,654 | 18,139 | — | 19,793 | |||||||||||||||
| Selling, general and administrative expenses | 27,893 | 88,393 | 10,372 | — | 126,658 | |||||||||||||||
| Depreciation and amortization | 1,011 | 125,186 | 9,399 | — | 135,596 | |||||||||||||||
| Income (loss) before interest and taxes | (28,904 | ) | 138,920 | 8,623 | — | 118,639 | ||||||||||||||
| Interest expense | 43,923 | 4,627 | 50 | (4,947 | ) | 43,653 | ||||||||||||||
| Interest income | (5,142 | ) | (5 | ) | — | 4,947 | (200 | ) | ||||||||||||
| Equity in earnings of consolidated affiliates | (90,456 | ) | (7,948 | ) | — | 98,404 | — | |||||||||||||
| Income (loss) before taxes | 22,771 | 142,246 | 8,573 | (98,404 | ) | 75,186 | ||||||||||||||
| Taxes | (23,168 | ) | 51,790 | 625 | — | 29,247 | ||||||||||||||
| Net income (loss) | $ | 45,939 | $ | 90,456 | $ | 7,948 | $ | (98,404 | ) | $ | 45,939 | |||||||||
| Non- | ||||||||||||||||||||
| Guarantor | guarantor | Eliminations/ | ||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Reclassifications | Consolidated | ||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Service | $ | — | $ | 686,237 | $ | 85,273 | $ | (4,014 | ) | $ | 767,496 | |||||||||
| Product | — | 13,639 | 23,857 | — | 37,496 | |||||||||||||||
| — | 699,876 | 109,130 | (4,014 | ) | 804,992 | |||||||||||||||
| Service expenses | — | 462,332 | 61,376 | (4,014 | ) | 519,694 | ||||||||||||||
| Product expenses | — | 12,979 | 15,604 | — | 28,583 | |||||||||||||||
| Selling, general and administrative expenses | 25,569 | 98,888 | 15,658 | — | 140,115 | |||||||||||||||
| Depreciation and amortization | 1,190 | 142,524 | 9,756 | — | 153,470 | |||||||||||||||
| Impairment charge | — | 36,158 | — | — | 36,158 | |||||||||||||||
| Income (loss) before interest and taxes | (26,759 | ) | (53,005 | ) | 6,736 | — | (73,028 | ) | ||||||||||||
| Interest expense | 42,373 | 5,243 | 146 | (5,418 | ) | 42,344 | ||||||||||||||
| Interest income | (5,452 | ) | (5 | ) | (4 | ) | 5,418 | (43 | ) | |||||||||||
19
| Parent | Guarantor Subsidiaries | Non- guarantor Subsidiaries | Eliminations/ Reclassifications | Consolidated | ||||||||||||||||
Revenues | $ | — | $ | 975,524 | $ | 94,159 | $ | (5,194 | ) | $ | 1,064,489 | |||||||||
Service expenses | — | 623,025 | 72,192 | (5,194 | ) | 690,023 | ||||||||||||||
Selling, general and administrative expenses | 27,893 | 88,393 | 8,842 | — | 125,128 | |||||||||||||||
Depreciation and amortization | 1,011 | 125,186 | 8,601 | — | 134,798 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income (loss) from continuing operations before interest and taxes | (28,904 | ) | 138,920 | 4,524 | — | 114,540 | ||||||||||||||
Interest expense | 43,923 | 4,627 | 50 | (4,947 | ) | 43,653 | ||||||||||||||
Interest income | (5,142 | ) | (5 | ) | (49 | ) | 4,947 | (249 | ) | |||||||||||
Equity in earnings of consolidated affiliates | (90,456 | ) | (7,948 | ) | — | 98,404 | — | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income (loss) from continuing operations before taxes | 22,771 | 142,246 | 4,523 | (98,404 | ) | 71,136 | ||||||||||||||
Taxes | (23,168 | ) | 51,790 | (13 | ) | — | 28,609 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income (loss) from continuing operations | $ | 45,939 | $ | 90,456 | $ | 4,536 | $ | (98,404 | ) | $ | 42,527 | |||||||||
Income from discontinued operations | — | — | 3,412 | — | 3,412 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) | $ | 45,939 | $ | 90,456 | $ | 7,948 | $ | (98,404 | ) | $ | 45,939 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| Non- | ||||||||||||||||||||
| Guarantor | guarantor | Eliminations/ | ||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Reclassifications | Consolidated | ||||||||||||||||
| Equity in earnings of consolidated affiliates | 44,998 | (5,778 | ) | — | (39,220 | ) | — | |||||||||||||
| Income (loss) before taxes | (108,678 | ) | (52,465 | ) | 6,594 | 39,220 | (115,329 | ) | ||||||||||||
| Taxes | (30,485 | ) | (7,467 | ) | 816 | — | (37,136 | ) | ||||||||||||
| Net income (loss) | $ | (78,193 | ) | $ | (44,998 | ) | $ | 5,778 | $ | 39,220 | $ | (78,193 | ) | |||||||
Nine Months Ended September 30, 2011
| Parent | Guarantor Subsidiaries | Non- guarantor Subsidiaries | Eliminations/ Reclassifications | Consolidated | ||||||||||||||||
Cash provided by: | ||||||||||||||||||||
Net income (loss) | $ | 152,625 | $ | 197,463 | $ | 9,567 | $ | (207,030 | ) | $ | 152,625 | |||||||||
Items not affecting cash: | ||||||||||||||||||||
Equity in earnings of consolidated affiliates | (197,463 | ) | (9,567 | ) | — | 207,030 | — | |||||||||||||
Depreciation and amortization | 1,254 | 137,147 | 8,907 | — | 147,308 | |||||||||||||||
Other | 6,556 | 75,074 | 14 | — | 81,644 | |||||||||||||||
Changes in operating assets and liabilities | 103,877 | (147,727 | ) | (12,958 | ) | 1,934 | (54,874 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash provided by operating activities | 66,849 | 252,390 | 5,530 | 1,934 | 326,703 | |||||||||||||||
Investing activities: | ||||||||||||||||||||
Additions to property, plant and equipment | (104 | ) | (253,671 | ) | (6,150 | ) | — | (259,925 | ) | |||||||||||
Inter-company receipts | (14,159 | ) | — | 525 | 13,634 | — | ||||||||||||||
Acquisitions | — | (15,576 | ) | — | — | (15,576 | ) | |||||||||||||
Proceeds from the sale of disposal group | — | — | 19,300 | — | 19,300 | |||||||||||||||
Proceeds from the disposal of capital assets | — | 6,090 | 243 | — | 6,333 | |||||||||||||||
Other | 169 | — | — | — | 169 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash provided by (used for) investing activities | (14,094 | ) | (263,157 | ) | 13,918 | 13,634 | (249,699 | ) | ||||||||||||
Financing activities: | ||||||||||||||||||||
Inter-company borrowings | — | 12,975 | 659 | (13,634 | ) | — | ||||||||||||||
Proceeds from issuances of common stock | 15,952 | — | — | — | 15,952 | |||||||||||||||
Purchase of treasury shares | (5,643 | ) | — | — | — | (5,643 | ) | |||||||||||||
Other | 2,513 | — | — | — | 2,513 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash provided by (used in) financing activities | 12,822 | 12,975 | 659 | (13,634 | ) | 12,822 | ||||||||||||||
Effect of exchange rate changes on cash | — | — | (680 | ) | — | (680 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Change in cash and cash equivalents | 65,577 | 2,208 | 19,427 | 1,934 | 89,146 | |||||||||||||||
Cash and cash equivalents, beginning of period | 111,834 | 569 | 23,500 | (16,768 | ) | 119,135 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Cash and cash equivalents, end of period | $ | 177,411 | $ | 2,777 | $ | 42,927 | $ | (14,834 | ) | $ | 208,281 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Condensed Consolidated Statement of Cash Flows
Nine Months Ended September 30, 2010
| Non- | ||||||||||||||||||||
| Guarantor | guarantor | Eliminations/ | ||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Reclassifications | Consolidated | ||||||||||||||||
| Cash provided by: | ||||||||||||||||||||
| Net income (loss) | $ | 45,939 | $ | 90,456 | $ | 7,948 | $ | (98,404 | ) | $ | 45,939 | |||||||||
| Items not affecting cash: | ||||||||||||||||||||
| Equity in earnings of consolidated affiliates | (90,456 | ) | (7,948 | ) | — | 98,404 | — | |||||||||||||
| Depreciation and amortization | 1,011 | 125,186 | 9,399 | — | 135,596 | |||||||||||||||
| Other | 12,173 | 7,316 | (451 | ) | — | 19,038 | ||||||||||||||
| Changes in operating assets and liabilities | 50,829 | (68,475 | ) | (5,242 | ) | (6,245 | ) | (29,133 | ) | |||||||||||
| Net cash provided by (used in) operating activities | 19,496 | 146,535 | 11,654 | (6,245 | ) | 171,440 | ||||||||||||||
| Investing activities: | ||||||||||||||||||||
| Additions to property, plant and equipment | (1,041 | ) | (85,682 | ) | (3,132 | ) | — | (89,855 | ) | |||||||||||
| Inter-company receipts | 48,273 | — | — | (48,273 | ) | — | ||||||||||||||
| Acquisitions | — | (21,332 | ) | — | — | (21,332 | ) | |||||||||||||
| Proceeds from the disposal of capital assets | — | 4,311 | 125 | — | 4,436 | |||||||||||||||
| Net cash provided by (used for) investing activities | 47,232 | (102,703 | ) | (3,007 | ) | (48,273 | ) | (106,751 | ) | |||||||||||
| Financing activities: | ||||||||||||||||||||
| Repayments of long-term debt | — | (139 | ) | (2 | ) | — | (141 | ) | ||||||||||||
| Repayments of notes payable | (1,069 | ) | — | — | — | (1,069 | ) | |||||||||||||
| Inter-company borrowings | — | (43,243 | ) | (4,388 | ) | 47,631 | — | |||||||||||||
| Proceeds from issuances of common stock | 3,106 | — | — | — | 3,106 | |||||||||||||||
| Purchase of treasury shares | (1,418 | ) | — | — | — | (1,418 | ) | |||||||||||||
| Other | 612 | — | — | — | 612 | |||||||||||||||
| Net cash provided by (used in) financing activities | 1,231 | (43,382 | ) | (4,390 | ) | 47,631 | 1,090 | |||||||||||||
| Effect of exchange rate changes on cash | — | — | 126 | — | 126 | |||||||||||||||
| Change in cash and cash equivalents | 67,959 | 450 | 4,383 | (6,887 | ) | 65,905 | ||||||||||||||
| Cash and cash equivalents, beginning of period | 64,871 | 519 | 17,001 | (5,031 | ) | 77,360 | ||||||||||||||
| Cash and cash equivalents, end of period | $ | 132,830 | $ | 969 | $ | 21,384 | $ | (11,918 | ) | $ | 143,265 | |||||||||
| Non- | ||||||||||||||||||||
| Guarantor | guarantor | Eliminations/ | ||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Reclassifications | Consolidated | ||||||||||||||||
| Cash provided by: | ||||||||||||||||||||
| Net income (loss) | $ | (78,193 | ) | $ | (44,998 | ) | $ | 5,778 | $ | 39,220 | $ | (78,193 | ) | |||||||
| Items not affecting cash: | ||||||||||||||||||||
| Equity in earnings of consolidated affiliates | 44,998 | (5,778 | ) | — | (39,220 | ) | — | |||||||||||||
| Depreciation and amortization | 1,190 | 142,524 | 9,756 | — | �� | 153,470 | ||||||||||||||
| Impairment charge | — | 36,158 | — | — | 36,158 | |||||||||||||||
| Other | 10,877 | 20,520 | 3,787 | — | 35,184 | |||||||||||||||
| Changes in operating assets and liabilities, net of effect of acquisitions | 65,708 | 54,019 | (4,836 | ) | 8,553 | 123,444 | ||||||||||||||
| Net cash provided by operating activities | 44,580 | 202,445 | 14,485 | 8,553 | 270,063 | |||||||||||||||
20
| Parent | Guarantor Subsidiaries | Non- guarantor Subsidiaries | Eliminations/ Reclassifications | Consolidated | ||||||||||||||||
Cash provided by: | ||||||||||||||||||||
Net income (loss) | $ | 45,939 | $ | 90,456 | $ | 7,948 | $ | (98,404 | ) | $ | 45,939 | |||||||||
Items not affecting cash: | ||||||||||||||||||||
Equity in earnings of consolidated affiliates | (90,456 | ) | (7,948 | ) | — | 98,404 | — | |||||||||||||
Depreciation and amortization | 1,011 | 125,186 | 9,399 | — | 135,596 | |||||||||||||||
Other | 12,173 | 7,316 | (451 | ) | — | 19,038 | ||||||||||||||
Changes in operating assets and liabilities | 50,829 | (68,475 | ) | (5,912 | ) | (6,245 | ) | (29,803 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash provided by (used in) operating activities | 19,496 | 146,535 | 10,984 | (6,245 | ) | 170,770 | ||||||||||||||
Investing activities: | ||||||||||||||||||||
Additions to property, plant and equipment | (1,041 | ) | (85,682 | ) | (3,132 | ) | — | (89,855 | ) | |||||||||||
Inter-company receipts | 48,273 | — | — | (48,273 | ) | — | ||||||||||||||
Acquisitions | — | (21,332 | ) | — | — | (21,332 | ) | |||||||||||||
Proceeds from the disposal of capital assets | — | 4,311 | 125 | — | 4,436 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash provided by (used for) investing activities | 47,232 | (102,703 | ) | (3,007 | ) | (48,273 | ) | (106,751 | ) | |||||||||||
Financing activities: | ||||||||||||||||||||
Repayments of long-term debt | — | (139 | ) | (2 | ) | — | (141 | ) | ||||||||||||
Repayments of notes payable | (1,069 | ) | — | — | — | (1,069 | ) | |||||||||||||
Inter-company borrowings | — | (43,243 | ) | (4,388 | ) | 47,631 | — | |||||||||||||
Proceeds from issuances of common stock | 3,106 | — | — | — | 3,106 | |||||||||||||||
Purchase of treasury shares | (1,418 | ) | — | — | — | (1,418 | ) | |||||||||||||
Other | 612 | — | — | — | 612 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash provided by (used in) financing activities | 1,231 | (43,382 | ) | (4,390 | ) | 47,631 | 1,090 | |||||||||||||
Effect of exchange rate changes on cash | — | — | 126 | — | 126 | |||||||||||||||
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|
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|
|
|
| |||||||||||
Change in cash and cash equivalents | 67,959 | 450 | 3,713 | (6,887 | ) | 65,235 | ||||||||||||||
Cash and cash equivalents, beginning of period | 64,871 | 519 | 11,411 | (5,031 | ) | 71,770 | ||||||||||||||
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|
|
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| |||||||||||
Cash and cash equivalents, end of period | $ | 132,830 | $ | 969 | $ | 15,124 | $ | (11,918 | ) | $ | 137,005 | |||||||||
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| |||||||||||
| 15. | Recent accounting pronouncements and authoritative literature: |
| Non- | ||||||||||||||||||||
| Guarantor | guarantor | Eliminations/ | ||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Reclassifications | Consolidated | ||||||||||||||||
| Investing activities: | ||||||||||||||||||||
| Additions to property, plant and equipment | (649 | ) | (25,016 | ) | (3,429 | ) | — | (29,094 | ) | |||||||||||
| Inter-company receipts | 187,949 | (502 | ) | — | (187,447 | ) | — | |||||||||||||
| Proceeds from the disposal of capital assets | — | 19,860 | 295 | — | 20,155 | |||||||||||||||
| Net cash provided by (used for) investing activities | 187,300 | (5,658 | ) | (3,134 | ) | (187,447 | ) | (8,939 | ) | |||||||||||
| Financing activities: | ||||||||||||||||||||
| Issuances of long-term debt | 1,645 | — | 1,559 | — | 3,204 | |||||||||||||||
| Repayments of long-term debt | (187,638 | ) | (3,759 | ) | (9,057 | ) | — | (200,454 | ) | |||||||||||
| Repayments of notes payable | (6,241 | ) | — | — | — | (6,241 | ) | |||||||||||||
| Inter-company borrowings | — | (192,501 | ) | 5,054 | 187,447 | — | ||||||||||||||
| Proceeds from issuances of common stock | 197 | — | — | — | 197 | |||||||||||||||
| Other | (20 | ) | — | — | — | (20 | ) | |||||||||||||
| Net cash provided by (used in) financing activities | (192,057 | ) | (196,260 | ) | (2,444 | ) | 187,447 | (203,314 | ) | |||||||||||
| Effect of exchange rate changes on cash | — | — | (167 | ) | — | (167 | ) | |||||||||||||
| Change in cash and cash equivalents | 39,823 | 527 | 8,740 | 8,553 | 57,643 | |||||||||||||||
| Cash and cash equivalents, beginning of period | 25,399 | 346 | 5,078 | (12,323 | ) | 18,500 | ||||||||||||||
| Cash and cash equivalents, end of period | $ | 65,222 | $ | 873 | $ | 13,818 | $ | (3,770 | ) | $ | 76,143 | |||||||||
21
In JulyDecember 2010, the FASB issued “Receivables (Topic 310): Disclosure aboutprovided additional guidance related to business combinations to require each public entity that presents comparative financial statements to disclose the Credit Qualityrevenue and earnings of Financing Receivablesthe 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 Allowance for Credit Losses.”business combination included in the reported pro forma revenue and earnings. This guidance will require companies to provide more information aboutshould be applied prospectively for business combinations for which the credit quality of their financing receivables in financial statements including, but not limited to, significant purchases and sales of financing receivables, aging information and credit quality indicators. We do not currently factor our receivables. We will adopt this accounting standard upon its effectiveacquisition date for periods endingis on or after December 15, 2010, and we do not anticipate thatJanuary 1, 2011, for calendar-year reporting entities. We adopted this adoption will have a significantstandard on January 1, 2011 with no material impact on our financial position, results of operations or cash flows.
22
In September 2011, the FASB issued an update to existing guidance on the assessment of goodwill impairment. This update simplifies the assessment of goodwill for impairment by allowing companies to consider qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before performing the two-step impairment test required under the existing standards. This guidance also clarifies the examples of events or circumstances that would be considered in a goodwill impairment evaluation. We have elected to early adopt this update to be effective for the fiscal year beginning January 1, 2011. The adoption of this update did not have a material impact on our condensed consolidated financial statements.
| 16. | Subsequent events: |
On October 9, 2011, we became party to a merger agreement between Superior Energy Services, Inc. (“SPN”), a Delaware corporation, SPN Fairway Acquisition, Inc., a newly formed Delaware corporation which is an indirect wholly-owned subsidiary of SPN, and us. Pursuant to this agreement, each share of our common stock issued and outstanding immediately prior to the effective date of the merger will be converted automatically into the right to receive 0.945 shares of common stock, par value $0.001 per share, of SPN and $7.00 in cash. Pursuant to the agreement, we will merge with and into SPN Fairway Acquisition, Inc., which will be the surviving corporation and an indirect wholly-owned subsidiary of SPN. The completion of the merger is expected as early as December 2011, subject to
approvals of SPN’s and our stockholders. On November 2, 2011, the Federal Trade Commission informed both us and SPN that the Hart-Scott Rodino Antitrust Act waiting period was terminated effective November 2, 2011. For terms of the agreement, including circumstances under which the merger agreement can be terminated and the ramifications of such a termination, as well as other terms and conditions, refer to the agreement and plan of merger filed as Exhibit 2.1 to our Current Report on Form 8-K with the Securities and Exchange Commission on October 11, 2011.
On October 14, 2011 and October 26, 2011, putative class action complaints captioned Hetherington v. Winkler, et al., C.A. No. 6935-VCP (“Hetherington Complaint”), and Walsh v. Winkler, et al., C.A. No. 6984-VCP (“Walsh Complaint”), respectively, were filed in the Court of Chancery of the State of Delaware on behalf of an alleged class of Complete stockholders. On November 1, 2011, a putative class action complaint captioned City of Monroe Employees’ Retirement System v. Complete Production Services, Inc. et al., 2011-66385 (“City of Monroe Complaint”) was filed in the District Court of Harris County, Texas, on behalf of an alleged class of Complete Stockholders. The complaints name as defendants all members of our board of directors, our company, SPN and SPN Fairway Acquisition, Inc. The plaintiffs allege that the defendants breached their fiduciary duties to our stockholders in connection with the proposed merger, or aided and abetted the other defendants’ breaches of their fiduciary duties. The complaints allege that the proposed merger between us and SPN involves an unfair price, an inadequate sales process and unreasonable deal protection devices. The Hetherington Complaint claims that defendants agreed to the transaction to benefit SPN and that neither our company, nor our board of directors, have adequately explained the reason for the proposed merger. The Walsh Complaint claims that defendants acted for their personal interests rather than the interests of our stockholders. The City of Monroe complaint claims that defendants engaged in self-dealing and failed to seek maximum value for stockholders. All three complaints seek injunctive relief including to enjoin the merger, rescissory damages in the event the merger is completed, and an award of attorneys’ and other fees and costs, in addition to other relief. We and our board of directors believe that the plaintiffs’ allegations lack merit and intend to contest them vigorously.
On October 25, 2011, we purchased all the issued and outstanding equity interests of Rising Star Services, L.P., a company based in Odessa, Texas which provides hydraulic fracturing, cementing and acidizing services throughout the Permian Basin. Total consideration paid at closing was $77,817, net of cash acquired and subject to a final working capital adjustment. The agreement includes additional contingent consideration up to $6,500, which, if earned, would be payable within two years of the transaction date. We are currently evaluating the preliminary purchase price allocation associated with this transaction, but expect to record goodwill of approximately $37,500 in October 2011, all of which would be allocated to our completion and production services business segment. We believe that this acquisition expands our geographic reach into the Permian Basin and enhances our pressure pumping service offerings.
On October 31, 2011, we acquired substantially all of the assets of two fluid handling businesses based in northern Wyoming, for a total of $16,522 in cash. We are currently evaluating the preliminary purchase price allocation associated with this transaction, but expect to record goodwill of approximately $8,500 in October 2011, all of which would be allocated to our completion and production services business segment. We believe that this acquisition expands our fluid handling position and supplements our trucking business in the northern Niobrara Basin.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements and information in this Quarterly Report on Form 10-Q may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Act of 1995. These forward-looking statements are based on our current expectations, assumptions, estimates and projections about us and the oil and gas industry. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. These forward-looking statements involve risks and uncertainties that may be outside of our control and could cause actual results to differ materially from those in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to: market prices for oil and gas, the level of oil and gas drilling, economic and competitive conditions, capital expenditures, regulatory changes and other uncertainties. Other factors that could cause our actual results to differ from our projected results are described in: (1) Part II, “Item 1A. Risk Factors” and elsewhere in this report, (2) our Annual Report on Form 10-K for the fiscal year ended December 31, 2009,2010, (3) our reports and registration statements filed from time to time with the SEC and (4) other announcements we make from time to time. In light of these risks, uncertainties and assumptions, the forward-looking events discussed below may not occur. Unless otherwise required by law, we undertake no obligation to update publicly any forward-looking statements, even if new information becomes available or other events occur in the future.
The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “plan,” “expect” and similar expressions are intended to identify forward-looking statements. All statements other than statements of current or historical fact contained in this Quarterly Report on Form 10-Q are forward-looking statements.
Reference to “Complete,” the “Company,” “we,” “our” and similar phrases used throughout this Quarterly Report on Form 10-Q relate collectively to Complete Production Services, Inc. and its consolidated subsidiaries.
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
The following discussion and analysis should be read in conjunction with the accompanying unaudited consolidated financial statements and related notes as of September 30, 20102011 and for the quarters and nine months ended September 30, 20102011 and 2009,2010, included elsewhere herein.
Overview
We are a leading provider of specialized services and products focused on helping oil and gas companies develop hydrocarbon reserves, reduce operating costs and enhance production. We focus on basins within North America that we believe have attractive long-term potential for growth, and we deliver targeted, value-added services and products required by our customers within each specific basin. We believe our range of services and products positions us to meet the many needs of our customers at the wellsite, from drilling and completion through production and eventual abandonment. We manage our 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.
We operatepreviously operated in three business segments:
Completion and Production Services.Through our completion and production services segment, we establish, maintain and enhance the flow of oil and gas throughout the life of a well. This segment is divided into the following primary service lines:
| • | Intervention Services.Well intervention requires the use of specialized equipment to perform an array of wellbore services. Our fleet of intervention service equipment includes coiled tubing units, pressure pumping units, nitrogen units, well service rigs, snubbing units and a variety of support equipment. Our intervention services provide customers with innovative solutions to increase production of oil and gas. |
23
| • | Downhole and Wellsite Services.Our downhole and wellsite services include electric-line, slickline, production optimization, production testing, rental and fishing services. | ||
| • | Fluid Handling.We provide a variety of services to help our customers obtain, move, store and dispose of fluids that are involved in the development and production of their reservoirs. Through our fleet of specialized trucks, frac tanks and other assets, we provide fluid transportation, heating, pumping and disposal services for our customers. |
Drilling Services.Through our drilling services segment, we provide contractservices and equipment that initiate or stimulate oil and gas production by providing land drilling and specialized rig relocation and logistics services.
General
The primary factors influencing demand for our services and products are the level of drilling and workover activity of our customers and the complexity of such activity, which in turn, depends on current and anticipated future oil and gas prices, production depletion rates and the resultant levels of cash flows generated and allocated by our customers to their drilling and workover budgets. As a result, demand for our services and products is cyclical, substantially depends on activity levels in the North American oil and gas industry and is highly sensitive to current and expected oil and natural gas prices.
We consider the drilling and well service rig counts to be an indication of spending by our customers in the oil and gas industry for exploration and development of new and existing hydrocarbon reserves. These spending levels are a primary driver of our business, and we believe that our customers tend to invest more in these activities when oil and gas prices are at higher levels, are increasing, or are expected to increase. The following tables summarize average North American drilling and well service rig activity, as measured by Baker Hughes Incorporated (“BHI”) and the Cameron International Corporation/Guiberson /AESC Service Rig Count for “Active Rigs”:
AVERAGE RIG COUNTS
| Quarter | Quarter | Nine Months | Nine Months | |||||||||||||
| Ended | Ended | Ended | Ended | |||||||||||||
| 9/30/10 | 9/30/09 | 9/30/10 | 9/30/09 | |||||||||||||
BHI Rotary Rig Count: | ||||||||||||||||
| U.S. Land | 1,601 | 936 | 1,459 | 1,036 | ||||||||||||
| U.S. Offshore | 18 | 34 | 35 | 47 | ||||||||||||
| Total U.S. | 1,619 | 970 | 1,494 | 1,083 | ||||||||||||
| Canada | 360 | 186 | 327 | 203 | ||||||||||||
| Total North America | 1,979 | 1,156 | 1,821 | 1,286 | ||||||||||||
| Quarter Ended 9/30/11 | Quarter Ended 9/30/10 | Nine Months Ended 9/30/11 | Nine Months Ended 9/30/10 | |||||||||||||
BHI Rotary Rig Count: | ||||||||||||||||
U.S. Land | 1,911 | 1,601 | 1,805 | 1,459 | ||||||||||||
U.S. Offshore | 34 | 18 | 30 | 35 | ||||||||||||
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|
|
|
|
|
|
| |||||||||
Total U.S. | 1,945 | 1,619 | 1,835 | 1,494 | ||||||||||||
Canada | 441 | 360 | 401 | 327 | ||||||||||||
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|
|
|
|
|
| |||||||||
Total North America | 2,386 | 1,979 | 2,236 | 1,821 | ||||||||||||
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|
| |||||||||
| Source: | ||
| Quarter | Quarter | Nine Months | Nine Months | |||||||||||||
| Ended | Ended | Ended | Ended | |||||||||||||
| 9/30/10 | 9/30/09 | 9/30/10 | 9/30/09 | |||||||||||||
Cameron International Corporation/Guiberson/AESC Well Service Rig Count (Active Rigs): | ||||||||||||||||
| United States | 1,890 | 1,620 | 1,816 | 1,755 | ||||||||||||
| Canada | 553 | 428 | 479 | 452 | ||||||||||||
| Total North America | 2,443 | 2,048 | 2,295 | 2,207 | ||||||||||||
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| Quarter Ended 9/30/11 | Quarter Ended 9/30/10 | Nine Months Ended 9/30/11 | Nine Months Ended 9/30/10 | |||||||||||||
Cameron International Corporation/Guiberson/AESC Well Service Rig Count (Active Rigs): | ||||||||||||||||
United States | 2,122 | 1,890 | 2,064 | 1,816 | ||||||||||||
Canada | 731 | 553 | 705 | 479 | ||||||||||||
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|
|
|
|
|
|
| |||||||||
Total North America | 2,853 | 2,443 | 2,769 | 2,295 | ||||||||||||
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| |||||||||
| Source: | Cameron International Corporation/Guiberson/AESC Well Service Rig Count for “Active |
Outlook
Oilfield market conditions improved throughout 2010 and through the first nine months of 2011 due to higher oil prices, which are positive about the outlook for our businessencouraging increased investments in 2010. Despite relatively lowoil plays and in gas fields that have meaningful natural gas liquids content. At current commodity prices, we have experienced anoverall activity levels are anticipated to increase near-term. Oil and natural gas liquid focused activity is expected to continue increasing in utilizationthe service intensive unconventional resource plays while dry natural gas directed activity is expected to remain subdued as a result of ample supplies.
We believe our assets and more favorable pricing for many of our service lines during 2010 compared to 2009. Although we cannot be certain that these improvementscustomers will continue we believe the sustainability of current oil prices, due to economic indicators of an improved global economy relativerely upon service providers with local knowledge and a proven ability to 2009, and the need for our customers to hold recently acquired acreage, will create incentives to maintain, if not expand, activityeffectively execute complex services on more service intensive, longer-lateral horizontal wells, particularly in oil and liquid-rich fields and emerging basins such as the Bakken Shale in North Dakota, the Eagle Ford Shale in south Texas and the Marcellus Shale in Pennsylvania. Activity levels in the more mature gas marketswhere our customers are less certain and may experience declines dueshifting a greater portion of their activities. Our business has transitioned from a predominantly gas-oriented business, to lower natural gas prices, however we remain optimistic regarding the long-term outlook for natural gas. We continue to believe that growth ina majority oil and gas activityliquids-oriented business. We believe we are well positioned in North America will be largely related to multi-stage, horizontalhigh-growth basins and that our core services, which include pressure pumping, coiled tubing, well completions,servicing and we believe that customersfluid handling, will continue to seek relationships withdirectly benefit from an increasing level of service providers who offer quality reliable service.
Our long-term growth strategy has not changed. We seekbeen to maximizeadd like-kind equipment, expand our equipment utilizationservice offerings through internal capital investment and grow through organic investments in like equipment andaccelerate our growth by acquiring complementary businesses towhich expand our service offerings in a current operating area or to extend our geographical footprint into targeted basins. In 2009,Furthermore, we reducedcontinue to evaluate our overall capital investmentexisting service and product offerings and seek to $38.5 million,dispose of businesses which are deemed to be non-core services, when market conditions and we did not complete any business acquisitions.the terms for such transactions are deemed favorable. For 2010,2011, we expect to spend between $170.0 million and $180.0approximately $425 million for capital investment and we invested $21.3 million to acquire two businesses. We continue to evaluate additional business acquisition opportunities.
On October 9, 2011, we became party to a merger agreement between Superior Energy Services, Inc. (“SPN”), a Delaware corporation, SPN Fairway Acquisition, Inc., a newly formed Delaware corporation which is an indirect wholly-owned subsidiary of SPN, and us. Pursuant to this agreement, each share of our Canadiancommon stock issued and outstanding immediately prior to the effective date of the merger will be converted automatically into the right to receive 0.945 shares of common stock, par value $0.001 per share, of SPN and $7.00 in cash. Pursuant to the agreement, we will merge with and into SPN Fairway Acquisition, Inc., which will be the surviving corporation and an indirect wholly-owned subsidiary exchanged certain non-monetary assets withof SPN. The completion of the merger is expected as early as December 2011, subject to approvals of SPN’s and our stockholders. On November 2, 2011, the Federal Trade Commission informed both us and SPN that the Hart-Scott Rodino Antitrust Act waiting period was terminated effective November 2, 2011. For terms of the agreement, including circumstances under which the merger agreement can be terminated and the ramifications of such a net book valuetermination, as well as other terms and conditions, refer to the agreement and plan of $9.3 million relatedmerger filed as Exhibit 2.1 to our production testing business for certain e-line assets of a competitor. We recorded a non-cash lossCurrent Report on Form 8-K with the transaction of $4.9 million, which represented the difference between the carrying valueSecurities and the fair market value of the assets surrendered. We believe the e-line assets will generate incremental future cash flows compared to the production testing assets exchanged.
Acquisitions
On May 11, 2010, we acquired certain assets of a provider of gas lift services based in Oklahoma City, Oklahoma for $1.4 million in cash, subject to an additional $0.1 million holdback. We recorded goodwill totaling $1.0 million 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.
On October 25, 2011, we purchased all the issued and outstanding equity interests of Rising Star Services, L.P., a company based in Odessa, Texas which provides hydraulic fracturing, cementing and acidizing services throughout the Permian Basin. Total consideration paid at closing was $77.8 million, net of cash acquired and subject to a final working capital adjustment. The agreement includes additional contingent consideration up to $6.5 million, which, if earned, would be payable within two years of the transaction date. We are currently evaluating the preliminary purchase price allocation associated with this transaction, but expect to record goodwill of approximately $37.5 million in October 2011, all of which would be allocated to our completion and production services business segment. We believe that this acquisition expands our geographic reach into the Permian Basin and enhances our pressure pumping service offerings.
On October 31, 2011, we acquired substantially all of the assets of two fluid handling businesses based in northern Wyoming, for a total of $16.5 million in cash. We are currently evaluating the preliminary purchase price allocation associated with this transaction, but expect to record goodwill of approximately $8.5 million in October 2011, all of which would be allocated to our completion and production services business segment. We believe that this acquisition expands our fluid handling position and supplements our trucking business in the Eagle Ford Shalenorthern Niobrara Basin.
Discontinued Operations
On July 6, 2011, we sold our Southeast Asian products business, through which we provided oilfield equipment sales, rentals and refurbishment services, to MTQ Corporation Limited (“MTQ”), a Singapore firm which provides engineering services to oilfield and industrial equipment users and manufacturers. Proceeds from the sale of this business totaled $21.9 million, of which $2.6 million represented cash on hand at July 6, 2011 which was transferred to us in south Texas.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles (“U.S. 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
25
For a description of our critical accounting policies and estimates as well as certain sensitivity disclosures related to those estimates, see our Annual Report on Form 10-K for the year ended December 31, 2009.2010. Our critical accounting policies and estimates have not changed materially during the nine months ended September 30, 2010.
As mentioned above, in July 2011, we sold our Southeast Asian products business and are accounting for this disposal group as discontinued operations. The remainder of the Product Sales business has been combined into our Drilling Services segment. A reconciliation of the original presentation of our reportable segments for the quarter and nine months ended September 30, 2010 to the current reportable segments is presented in Note 11, “Segment information,” in our notes to consolidated financial statements included elsewhere in this Form 10-Q.
Results of Operations
| Percent | ||||||||||||||||
| Quarter | Quarter | Change | Change | |||||||||||||
| Ended | Ended | 2010/ | 2010/ | |||||||||||||
| 9/30/10 | 9/30/09 | 2009 | 2009 | |||||||||||||
| (unaudited, in thousands) | ||||||||||||||||
Revenue: | ||||||||||||||||
| Completion and production services | $ | 361,457 | $ | 198,014 | $ | 163,443 | 83 | % | ||||||||
| Drilling services | 48,600 | 25,415 | 23,185 | 91 | % | |||||||||||
| Product sales | 8,552 | 6,484 | 2,068 | 32 | % | |||||||||||
| Total | $ | 418,609 | $ | 229,913 | $ | 188,696 | 82 | % | ||||||||
Adjusted EBITDA: | ||||||||||||||||
| Completion and production services | $ | 108,104 | $ | 31,396 | $ | 76,708 | 244 | % | ||||||||
| Drilling services | 12,936 | (3,757 | ) | 16,693 | 444 | % | ||||||||||
| Product sales | 1,689 | 1,791 | (102 | ) | (6 | %) | ||||||||||
| Corporate | (9,743 | ) | (7,025 | ) | (2,718 | ) | (39 | %) | ||||||||
| Total | $ | 112,986 | $ | 22,405 | $ | 90,581 | 404 | % | ||||||||
| Percent | ||||||||||||||||
| Nine Months | Nine Months | Change | Change | |||||||||||||
| Ended | Ended | 2010/ | 2010/ | |||||||||||||
| 9/30/10 | 9/30/09 | 2009 | 2009 | |||||||||||||
| (unaudited, in thousands) | ||||||||||||||||
Revenue: | ||||||||||||||||
| Completion and production services | $ | 938,205 | $ | 681,981 | $ | 256,224 | 38 | % | ||||||||
| Drilling services | 124,149 | 85,515 | 38,634 | 45 | % | |||||||||||
| Product sales | 26,204 | 37,496 | (11,292 | ) | (30 | %) | ||||||||||
| Total | $ | 1,088,558 | $ | 804,992 | $ | 283,566 | 35 | % | ||||||||
Adjusted EBITDA: | ||||||||||||||||
| Completion and production services | $ | 250,609 | $ | 129,044 | $ | 121,565 | 94 | % | ||||||||
| Drilling services | 27,018 | 6,698 | 20,320 | 303 | % | |||||||||||
| Product sales | 4,501 | 6,427 | (1,926 | ) | (30 | %) | ||||||||||
| Corporate | (27,893 | ) | (25,569 | ) | (2,324 | ) | (9 | %) | ||||||||
| Total | $ | 254,235 | $ | 116,600 | $ | 137,635 | 118 | % | ||||||||
| Quarter Ended 9/30/11 | Quarter Ended 9/30/10 | Change 2011/ 2010 | Percent Change 2011/ 2010 | |||||||||||||
| (unaudited, in thousands) | ||||||||||||||||
Revenue: | ||||||||||||||||
Completion and production services | $ | 535,625 | $ | 361,457 | $ | 174,168 | 48 | % | ||||||||
Drilling services | 54,664 | 48,813 | 5,851 | 12 | % | |||||||||||
|
|
|
|
|
| |||||||||||
Total | $ | 590,289 | $ | 410,270 | $ | 180,019 | 44 | % | ||||||||
|
|
|
|
|
| |||||||||||
Adjusted EBITDA: | ||||||||||||||||
Completion and production services | $ | 154,249 | $ | 108,104 | $ | 46,145 | 43 | % | ||||||||
Drilling services | 14,388 | 12,685 | 1,703 | 13 | % | |||||||||||
Corporate | (11,370 | ) | (9,743 | ) | (1,627 | ) | 17 | % | ||||||||
|
|
|
|
|
| |||||||||||
Total | $ | 157,267 | $ | 111,046 | $ | 46,221 | 42 | % | ||||||||
|
|
|
|
|
| |||||||||||
| Nine Months Ended 9/30/11 | Nine Months Ended 9/30/10 | Change 2011/ 2010 | Percent Change 2011/ 2010 | |||||||||||||
| (unaudited, in thousands) | ||||||||||||||||
Revenue: | ||||||||||||||||
Completion and production services | $ | 1,464,593 | $ | 938,205 | $ | 526,388 | 56 | % | ||||||||
Drilling services | 159,114 | 126,284 | 32,830 | 26 | % | |||||||||||
|
|
|
|
|
| |||||||||||
Total | $ | 1,623,707 | $ | 1,064,489 | $ | 559,218 | 53 | % | ||||||||
|
|
|
|
|
| |||||||||||
Adjusted EBITDA: Completion and production services Drilling services Corporate Total $ 420,694 $ 250,609 $ 170,085 68 % 40,561 26,622 13,939 52 % (32,270 ) (27,893 ) (4,377 ) 16 % $ 428,985 $ 249,338 $ 179,647 72 %
| “Corporate” | includes amounts related to corporate personnel costs, other general expenses and stock-based compensation charges. | |
26
| Completion and | ||||||||||||||||||||
| Production | Drilling | Product | ||||||||||||||||||
| Services | Services | Sales | Corporate | Total | ||||||||||||||||
| (unaudited, in thousands) | ||||||||||||||||||||
Quarter Ended September 30, 2010 | ||||||||||||||||||||
| Adjusted EBITDA, as defined | $ | 108,104 | $ | 12,936 | $ | 1,689 | $ | (9,743 | ) | $ | 112,986 | |||||||||
| Depreciation and amortization | $ | 39,078 | $ | 4,673 | $ | 539 | $ | 515 | $ | 44,805 | ||||||||||
| Operating income (loss) | $ | 69,026 | $ | 8,263 | $ | 1,150 | $ | (10,258 | ) | $ | 68,181 | |||||||||
Quarter Ended September 30, 2009 | ||||||||||||||||||||
| Adjusted EBITDA, as defined | $ | 31,396 | $ | (3,757 | ) | $ | 1,791 | $ | (7,025 | ) | $ | 22,405 | ||||||||
| Depreciation and amortization | $ | 43,744 | $ | 5,466 | $ | 603 | $ | 566 | $ | 50,379 | ||||||||||
| Impairment charge | $ | — | $ | 36,158 | $ | — | $ | — | $ | 36,158 | ||||||||||
| Operating income (loss) | $ | (12,348 | ) | $ | (45,381 | ) | $ | 1,188 | $ | (7,591 | ) | $ | (64,132 | ) | ||||||
Nine Months Ended September 30, 2010 | ||||||||||||||||||||
| Adjusted EBITDA, as defined | $ | 250,609 | $ | 27,018 | $ | 4,501 | $ | (27,893 | ) | $ | 254,235 | |||||||||
| Depreciation and amortization | $ | 118,641 | $ | 13,775 | $ | 1,676 | $ | 1,504 | $ | 135,596 | ||||||||||
| Operating income (loss) | $ | 131,968 | $ | 13,243 | $ | 2,825 | $ | (29,397 | ) | $ | 118,639 | |||||||||
Nine Months Ended September 30, 2009 | ||||||||||||||||||||
| Adjusted EBITDA, as defined | $ | 129,044 | $ | 6,698 | $ | 6,427 | $ | (25,569 | ) | $ | 116,600 | |||||||||
| Depreciation and amortization | $ | 133,393 | $ | 16,502 | $ | 1,861 | $ | 1,714 | $ | 153,470 | ||||||||||
| Impairment charge | $ | — | $ | 36,158 | $ | — | $ | — | $ | 36,158 | ||||||||||
| Operating income (loss) | $ | (4,349 | ) | $ | (45,962 | ) | $ | 4,566 | $ | (27,283 | ) | $ | (73,028 | ) | ||||||
| Completion and Production Services | Drilling Services | Corporate | Total | |||||||||||||
| (unaudited, in thousands) | ||||||||||||||||
Quarter Ended September 30, 2011 | ||||||||||||||||
Adjusted EBITDA, as defined | $ | 154,249 | $ | 14,388 | $ | (11,370 | ) | $ | 157,267 | |||||||
Depreciation and amortization | $ | 43,147 | $ | 4,972 | $ | 576 | $ | 48,695 | ||||||||
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Operating income (loss) | $ | 111,102 | $ | 9,416 | $ | (11,946 | ) | $ | 108,572 | |||||||
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Quarter Ended September 30, 2010 | ||||||||||||||||
Adjusted EBITDA, as defined | $ | 108,104 | $ | 12,685 | $ | (9,743 | ) | $ | 111,046 | |||||||
Depreciation and amortization | $ | 39,078 | $ | 4,970 | $ | 515 | $ | 44,563 | ||||||||
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Operating income (loss) | $ | 69,026 | $ | 7,715 | $ | (10,258 | ) | $ | 66,483 | |||||||
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Nine Months Ended September 30, 2011 | ||||||||||||||||
Adjusted EBITDA, as defined | $ | 420,694 | $ | 40,561 | $ | (32,270 | ) | $ | 428,985 | |||||||
Depreciation and amortization | $ | 129,988 | $ | 15,063 | $ | 1,781 | $ | 146,832 | ||||||||
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Operating income (loss) | $ | 290,706 | $ | 25,498 | $ | (34,051 | ) | $ | 282,153 | |||||||
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Nine Months Ended September 30, 2010 | ||||||||||||||||
Adjusted EBITDA, as defined | $ | 250,609 | $ | 26,622 | $ | (27,893 | ) | $ | 249,338 | |||||||
Depreciation and amortization | $ | 118,641 | $ | 14,653 | $ | 1,504 | $ | 134,798 | ||||||||
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Operating income (loss) | $ | 131,968 | $ | 11,969 | $ | (29,397 | ) | $ | 114,540 | |||||||
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We do not allocate net interest expense or tax expense to our operating segments. The following table reconciles operating income (loss) as reported above to net income (loss)from continuing operations for the quarters and nine months ended September 30, 20102011 and 2009:
| Quarters Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| Segment operating income (loss) | $ | 68,181 | $ | (64,132 | ) | $ | 118,639 | $ | (73,028 | ) | ||||||
| Interest expense | 14,152 | 13,987 | 43,653 | 42,344 | ||||||||||||
| Interest income | (57 | ) | (13 | ) | (200 | ) | (43 | ) | ||||||||
| Income taxes | 21,056 | (26,081 | ) | 29,247 | (37,136 | ) | ||||||||||
| Net income (loss) | $ | 33,030 | $ | (52,025 | ) | $ | 45,939 | $ | (78,193 | ) | ||||||
Quarters Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
Segment operating income | $ | 108,572 | $ | 66,483 | $ | 282,153 | $ | 114,540 | ||||||||
Interest expense | 12,917 | 14,151 | 40,709 | 43,653 | ||||||||||||
Interest income | (180 | ) | (73 | ) | (407 | ) | (249 | ) | ||||||||
Income taxes | 36,513 | 20,814 | 91,420 | 28,609 | ||||||||||||
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Net income from continuing operations | $ | 59,322 | $ | 31,591 | $ | 150,431 | $ | 42,527 | ||||||||
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Below is a discussion of our operating results by segment for these periods.
27
Revenue
Revenue for the quarter ended September 30, 20102011 increased by $188.7$180.0 million, or 82%44%, to $418.6$590.3 million from $229.9$410.3 million for the same period in 2009.2010. The changes by segment were as follows:
| • | Completion and Production Services.Segment revenue increased | ||
| • | Drilling Services.Segment revenue increased | ||
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 $101.5$121.4 million, or 63%47%, to $263.8$379.2 million for the quarter ended September 30, 20102011 from $162.3$257.8 million for the quarter ended September 30, 2009.2010. The following table summarizes service and product expenses as a percentage of revenues for the quarters ended September 30, 20102011 and 2009:
| Quarter Ended | ||||||||||||
| 9/30/10 | 9/30/09 | Change | ||||||||||
Segment: | ||||||||||||
| Completion and production services | 62 | % | 69 | % | (7 | %) | ||||||
| Drilling services | 69 | % | 83 | % | (14 | %) | ||||||
| Product sales | 74 | % | 71 | % | 3 | % | ||||||
| Total | 63 | % | 71 | % | (8 | %) | ||||||
Service Expenses as a Percentage of Revenue | ||||||||||||
| Quarter Ended | ||||||||||||
| Segment: | 9/30/11 | 9/30/10 | Change | |||||||||
Completion and production services | 64 | % | 62 | % | 2 | % | ||||||
Drilling services | 67 | % | 69 | % | (2 | %) | ||||||
Total | 64 | % | 63 | % | 1 | % | ||||||
Total service expenses as a percentage of overall revenue decreased for the quarter ended September 30, 2010 compared to the same period in 2009 primarily due to increased asset utilization and pricing improvements. Service and product expenses as a percentage of revenue for the completion and production and drilling services business segments decreasedslightly when comparing the quarter ended September 30, 20102011 to the same period in 2009 due to an increase2010, as improvements in overall oilfield activity,asset utilization and pricing were offset by higher labor and service mix, particularly a shift to historically higher-margin service lines. Service and product expenses as a percentage of revenue for the products segments increased 3% for the quarter ended September 30, 2010 compared to the quarter ended September 2009 primarily due to changes in product mix. Our products business is generally project-specific and margins can fluctuate between periods depending upon the type of products sold and repair work being performed.
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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 decreased $3.4increased $12.4 million, or 8%30%, for the quarter ended September 30, 20102011 to $41.8$53.8 million from $45.2$41.4 million during the quarter ended September 30, 2009. The2010. This increase was primarily related to higher payroll related costs resulting from increased headcount, higher incentive compensation costs based on favorable operating results for 2009 include charges for bad debt associated with specifically-identified uncollectible accounts, losses onand the retirementreinstatement of fixed assetsmatching contributions to our 401(k) and inventory adjustments. Excluding these items, selling, general and administrative expenses increased in 2010 compared to 2009deferred compensation plans, as well as a foreign exchange loss due to an increase in payrollthe devaluation of the Mexican Peso against the U.S. dollar and higher outside service costs associated with increased headcountrelating to the impending merger and an increase in incentive compensation based upon earnings.other matters. The quarter ended September 30, 2010 also benefited from the recovery of bad debt. As a percentage of revenues, selling, general and administrative expense was 10%9% and 20%10% for the quarters ended September 30, 2011 and 2010, and 2009, respectively.
Depreciation and Amortization
Depreciation and amortization expense decreased $5.6increased $4.1 million, or 11%9%, to $44.8$48.7 million for the quarter ended September 30, 20102011 from $50.4$44.6 million for the quarter ended September 30, 2009.2010. The decreaseincrease in depreciation and amortization expense was attributableprimarily related to the normal run-off of depreciation associated with existing assets while relatively few assets have beencapital investment in equipment which was placed ininto service during the current year. In addition, there were significant asset retirements in 2009 including an impairment of our drilling rigs totaling $36.2 milliontwelve-month period from October 2010 through September 2011 as of September 30, 2009well as additional depreciation and an impairment charge in late 2009 related to certainamortization expense associated with equipment and identifiable intangible assets acquiredassociated with two acquisitions during the fourth quarter of 2010 and one in 2008.May 2011. As a percentage of revenue, depreciation and amortization wasexpense decreased to 8% from 11% and 22% for the quarters ended September 30, 2011 and 2010, and 2009, respectively.
Impairment lossInterest expense
Interest expense decreased 9%, or $1.3 million, to $12.9 million for the quarter ended September 2011 compared to $14.2 million for the quarter ended September 30, 2010. The overall decrease in interest expense was largely due to lower fees associated with an impairment charge relatedamendment to our contract drilling business of $36.2 millionrevolving credit facilities in the third quarter of 2009 after determining that the carrying value of certain of these drilling rigs exceeded the undiscounted cash flowsJune 2011, as well as an increase in capitalized interest associated with these assets and the fair market value estimates for these assets.
Taxes
We recorded a provision of $21.1$36.5 million for the quarter ended September 30, 2011 at an effective rate of approximately 38% and a provision of $20.8 million for the quarter ended September 30, 2010 at an effective rate of approximately 39% and40%. The lower tax rate for the nine months ended September 30, 2011 was due to a greater benefit from the domestic production activities deduction relative to 2010, as well as the mix of earnings amongst the various tax benefitjurisdictions in which we operate.
Discontinued operations
We recorded a loss of $26.1$0.1 million forduring the quarter ended September 30, 2009 at an effective rate2011 associated with the sale of approximately 33%. The increaseour Southeast Asian products business in July 2011. Net income earned from this disposal group during the effective tax ratesame period in 2010 was primarily due to an increase in pre-tax earnings in various tax jurisdictions resulting in higher state income taxes, a decrease in benefit from the foreign tax rate differential and the impact of non-deductible items.
Nine Months Ended September 30, 20102011 Compared to the Nine Months Ended September 30, 20092010 (Unaudited)
Revenue
Revenue for the nine months ended September 30, 20102011 increased by $283.6$559.2 million, or 35%53%, to $1,088.6$1,623.7 million from $805.0$1,064.5 million for the same period in 2010. The changes by segment were as follows:
| • | Completion and Production Services.Segment revenue increased $526.4 million, or 56%, for the nine months ended September 30, 2011 compared to the same period in 2010 primarily due to an increase in activity levels in the oil and gas industry. We experienced favorable year-over-year improvements for most of our business lines, especially our pressure pumping, coiled tubing and fluid handling businesses as higher demand for our services resulted in better utilization and pricing of our existing equipment. We invested in equipment, including pressure pumping frac fleets, coiled tubing units and fluid handling assets, which we placed into service during the past twelve months. In addition, we acquired several small businesses during 2010 and one business in May 2011 which contributed to our revenue growth in this segment. |
| • | Drilling Services. Segment revenue increased $32.8 million, or 26%, for the nine months ended September 30, 2011 compared to the same period in 2010, primarily due to increased activity levels in the oil and gas industry and improved utilization and pricing in our rig logistics and contract drilling businesses. |
Service Expenses
Service 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 $352.3 million, or 51%, to $1,042.3 million for the nine months ended September 30, 2009. The changes by segment were as follows:
29
Service Expenses as a Percentage of Revenue | ||||||||||||
| Nine Months Ended | ||||||||||||
| Segment: | 9/30/11 | 9/30/10 | Change | |||||||||
Completion and production services | 64 | % | 64 | % | — | |||||||
Drilling services | 68 | % | 71 | % | (3 | %) | ||||||
Total | 64 | % | 65 | % | (1 | %) | ||||||
Service and Product Expenses as a Percentage of Revenue
| Nine Months Ended | ||||||||||||
| 9/30/10 | 9/30/09 | Change | ||||||||||
Segment: | ||||||||||||
| Completion and production services | 64 | % | 67 | % | (3 | %) | ||||||
| Drilling services | 71 | % | 74 | % | (3 | %) | ||||||
| Product sales | 76 | % | 76 | % | (0 | %) | ||||||
| Total | 65 | % | 68 | % | (3 | %) | ||||||
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $13.4increased $27.4 million, or 10%22% to $126.7$152.5 million, for the nine months ended September 30, 20102011 compared to $140.1$125.1 million for the same period in 2009. The results for 2009 include charges for2010. This increase was primarily related to higher payroll related costs resulting from increases in headcount, merit increases which were awarded during the second quarter of 2011, an increase in incentive compensation based on higher earnings and the reinstatement of matching contributions to our 401(k) and deferred compensation plans. We also experienced higher insurance costs in 2011, as well as increased outside service costs relating to the impending merger and other matters, an increase in bad debt associated with specifically-identified uncollectible accounts,expense and an increase in losses on the retirementdisposition of fixed assets and inventory adjustments. In addition, we recordedassets. As a loss on the non-monetary exchange of certain assets in Canada during the first quarter of 2009 which totaled $4.9 million. The overall decrease in selling, general and administrative expense in 2010 was partially offset by higher earnings-based incentive compensation, as well as 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 2009, as a
30
Depreciation and Amortization
Depreciation and amortization expense decreased $17.9increased $12.0 million, or 12%9%, to $135.6$146.8 million for the nine months ended September 30, 20102011 from $153.5$134.8 million for the nine months ended September 30, 2009.2010. The decreaseincrease in depreciation and amortization expense was attributableprimarily related to the normal run-off of depreciation associated with existing assets while relatively few assets have beencapital investment in equipment which was placed ininto service during the current year.twelve-month period from October 2010 through September 2011. In addition, there were significant asset retirementswe acquired several small businesses in 2009 including an impairment2010 which contributed a full nine months of our drilling rigs totaling $36.2 million as ofdepreciation and amortization expense for the nine months ended September 30, 2009, sale-leaseback transactions2011 but had a less significant impact for the same period in 2010, and we acquired a small business in May 2011 which contributed depreciation expense as well as amortization expense associated with our small vehicle fleet and a facility in Wyoming and an impairment charge in late 2009 related to certain intangible assets acquired in 2008.assets. As a percentage of revenue, depreciation and amortization expense decreased to 12%9% from 19%13% for the nine months ended September 30, 2011 and 2010, and 2009, respectively.
Interest Expense
Interest expense increased $1.4decreased 7%, or $3.0 million, or 3%,to $40.7 million for the nine months ended September 2011 compared to $43.7 million for the same period in 2010. The overall decrease in interest expense was primarily due to lower fees associated with an amendment to our revolving credit facilities in June 2011, as well as an increase in capitalized interest associated with construction in progress, which increased significantly in 2011 compared to 2010 as we increased our investments in capital equipment.
Taxes
We recorded a tax provision of $91.4 million for the nine months ended September 30, 2010 from $42.3 million for the nine months ended September 30, 2009. The increase in interest expense was primarily attributable to higher costs associated with our credit facility, which was amended during the fourth quarter of 2009. The weighted-average interest2011 at an effective rate of borrowings outstanding at September 30, 2010approximately 38% and 2009 was 8.0%.
Discontinued operations
On July 6, 2011, we sold our Southeast Asian products business. During the nine months ended September 30, 2011, we recorded net income of $2.2 million associated with this business, which included a loss on the disposal of $0.1 million. Net income earned from this disposal group during the same period in 2010 was $3.4 million.
Liquidity and Capital Resources
As of September 30, 2010,2011, we had working capital, net of cash, of $206.7$333.3 million and cash and cash equivalents of $143.3$208.3 million, compared to working capital, net of cash, of $200.8$284.4 million and cash and cash equivalents of $77.4$119.1 million at December 31, 2009. This increase in2010, excluding cash associated with discontinued operations. Our working capital, wasnet of cash, increased at September 30, 2011 compared to December 31, 2010 primarily due to an increase in accounts receivable, associated with favorable operational results,trade receivables, partially offset by an increase in accrued expenses including interest expense associated with the semi-annual payments on our senior notes. Cash increased primarily due to favorable operating results for the first nine months of 2010.
We anticipate that our 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 offerings and/or future public equity offerings may also be used to fund future acquisitions or to satisfy our other liquidity
31
The following table summarizes cash flows by type for the periods indicated (in thousands):
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2010 | 2009 | |||||||
| Cash flows provided by (used in): | ||||||||
| Operating activities | $ | 171,440 | $ | 270,063 | ||||
| Investing activities | (106,751 | ) | (8,939 | ) | ||||
| Financing activities | 1,090 | (203,314 | ) | |||||
| Nine Months Ended September 30, | ||||||||
| 2011 | 2010 | |||||||
Cash flows provided by (used in): | ||||||||
Operating activities | $ | 326,703 | $ | 170,770 | ||||
Investing activities | (249,699 | ) | (106,751 | ) | ||||
Financing activities | 12,822 | 1,090 | ||||||
Net cash provided by operating activities decreased by $98.6increased $155.9 million for the nine months ended September 30, 20102011, compared to the same period in 2009. Operating2010. This increase in operating cash flows for 2009 were positively impacted byin 2011 reflects an increase in cash receipts as overall oilfield activity levels declined and receivables were collected. During the first nine months of 2010, and in the quarter ended September 30, 2010 in particular, cash receipts activity has remained favorable, but an increase in sales has resulted in an increase in outstanding receivables at September 30, 2010. Partially offsetting this decrease in operating cash flows associated with trade receivables wasincreased sales as demand for our services and products increased during the receipt ofperiod. In addition, we entered into several long-term contracts to provide pressure pumping services and deployed significant assets. We believe our long-term take-or-pay contracts will provide a $43.7 million tax refund in April 2010.
Net cash used in investing activities increased by $97.8$142.9 million for the nine months ended September 30, 20102011 compared to the same period in 2009.2010. This increase was the result of ourprimarily resulted from a significant increase in investment in capital equipmentexpenditures, including several frac fleets and business acquisitions which totaled $89.9 millioncoiled tubing units placed into service in 2011, and $21.3 million, respectively, for the nine months ended September 30, 2010. For the nine months ended September 30, 2009, our investment in capital equipment was approx. $29.1 million, partiallydrilling rigs, primarily during the third quarter of 2011. These expenditures were offset by the proceeds of $19.3 million from the retirementsale of fixed assets, with noour Southeast Asian business acquisitions.
Net cash provided by financing activities was $1.1increased $11.7 million for the nine months ended September 30, 20102011, compared to net cash used for financing activities of $203.3 million for the same period in 2009.2010. The primary source of funds was proceeds from the issuance of common stock associated with the exercise of employee stock options, partially offset by the purchase of treasury shares in settlement of tax liabilities associated with stock-based compensation. We also paid financing fees of $2.5 million in 2011 in conjunction with the amendment of our credit facility. In addition, we paid $1.1 million to settle a note payable associated with the firstfinancing of insurance premiums during the nine months of 2009, we repaid $197.2 million of net borrowings underended September 30, 2010.
We believe that our debt facilities. No borrowings or repayments were made under these debt facilitiescash balance, operating cash flows and borrowing capacity will be sufficient to fund our operations for the first nine months of 2010. Our long-term debt, including current maturities, was $650.1 million as of September 30, 2010 and $650.2 million as of December 31, 2009.
Dividends
We did not pay dividends on our $0.01 par value common stock during the nine months ended September 30, 20102011 or during the years ended December 31, 2010, 2009 2008 and 2007.2008. We do not intend to pay dividends in the foreseeable future, but rather plan to build our cash balance near-term and reinvest such funds in our business. Furthermore, ourOur credit facility contains restrictive debt covenants which preclude us from paying futurelimit our ability to pay dividends on our common stock.
32
Senior Notes.
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 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, which 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. 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.
Pursuant to a registration rights agreement with the holders of our 8.0% senior notes, on June 1, 2007, we filed a registration statement on Form S-4 with the SEC 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 Facility.
Prior to June 13, 2011, we maintained a senior secured facility (the “Credit“Amended 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 toinstitutions which was structured as an asset-based facility subject to borrowing base restrictions. In connection with the Third Amendment,facility, Wells Fargo Capital Finance, LLC (formerly known as Wells Fargo Foothill, LLC) replaced Wells Fargo Bank, National Association,served as U.S. Administrative Agent and also servesserved as U.S. Issuing Lender and U.S. Swingline Lender under the Amended Credit Agreement.Lender. The Amended Credit Agreement providesprovided for a U.S. revolving credit facility of up to $225$225.0 million that matureswas to mature in December 2011 and a Canadian revolving credit facility of up to $15$15.0 million (with Integrated Production Services Ltd., one of our wholly-owned subsidiaries, as the borrower thereof (“Canadian Borrower”)) that matureswas to mature in December 2011. The Amended Credit Agreement includesincluded a provision for a “commitment increase”, as defined therein, which permitspermitted 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$75.0 million, with each committed increase equal to at least $25$25.0 million in the
U.S., or $5$5.0 million in Canada, and in accordance with other provisions as stipulated in the Amended Credit Agreement. Certain portions of the credit facilities arewere available to be borrowed in U.S. dollars, Canadian dollars and other currencies approved by the lenders.
33
We incurred fees related to our letters of credit as of September 30, 2010 at 4.0% per annum. For the nine months ended September 30, 2010, fees related to our letters of credit were calculated using a 360-day provision, at 4.1% per annum. The net excess availability under our borrowing base calculations for the U.S. and Canadian revolving facilities at September 30, 2010 was $183.9 million and $7.0 million respectively.
Letters of credit outstanding under the Amended Credit Agreement incurred fees equal to the applicable margin, as described above. If an event of default existed or continued, such fee would have been equal to the applicable margin plus 2.00%.
Under the Amended Credit Agreement, the only financial covenant to which we were subject was a “Fixed Charge Coverage Ratio” covenant, which must have exceeded 1.10 to 1.00. This covenant became effective only if our Excess Availability Amount, as defined under the Amended Credit Agreement, plus certain qualified cash and cash equivalents is less than $50.0 million.
For a further description of the terms of our Amended Credit Agreement, including the provisions to calculate our U.S. and Canadian borrowing base, financial covenants requirements and events of default, see our Annual Report on Form 10-K for the year ended December 31, 2010.
New Credit Agreement, effective June 13, 2011:
On June 13, 2011, we entered into a Third Amended and Restated Credit Agreement among us, a subsidiary of the Company that is designated as a borrower under the Canadian facility, if any (the “Canadian Borrower”), the lenders party thereto, Wells Fargo Bank, National Association, as the U.S. administrative agent, U.S. issuing lender and U.S. swingline lender, and the other persons from time to time party thereto (the “New Credit Agreement”), which amends and restates the Amended Credit Agreement. Defined terms not otherwise described herein shall have the meanings given to them in the New Credit Agreement.
The New Credit Agreement modifies the Amended Credit Agreement by, among other things:
changing the structure of the credit facility from an asset-based facility to a cash flow facility;
substituting Wells Fargo Bank, National Association, for Wells Fargo Capital Finance, LLC (f/k/a Wells Fargo Foothill, LLC), as U.S. administrative agent, and appointing Wells Fargo Bank, National Association, as U.S. issuing lender and U.S. swingline lender; and
increasing our U.S. revolving credit facility from $225.0 million to $300.0 million and terminating the existing Canadian revolving credit facility (subject to our option to convert and reallocate any portion of the U.S. revolving credit facility then held by HSBC Bank USA, N.A., into a Canadian revolving credit facility upon satisfaction of certain conditions, including obtaining the consent of HSBC Bank USA, N.A., to such conversion and reallocation).
Subject to certain limitations set forth in the New Credit Agreement, we have the option to determine how interest is computed by reference to either (i) the London Inter-bank Offered Rate, or LIBOR, plus an applicable margin between 2.25% and 3.00% based on the Total Debt Leverage Ratio (as defined in the New Credit Agreement), or (ii) the “Base Rate” (which means the higher of the Prime Rate, Federal Funds Rate plus 0.50%, or the daily one-month LIBOR plus 1.00%), plus an applicable margin between 1.25% and 2.00% based on the Total Debt Leverage Ratio (as defined in the New Credit Agreement). Advances under the Canadian revolving credit facility, if any, will bear interest as described in the New Credit Agreement. If an event of default exists or continues under the New Credit Agreement, advances may bear interest at the rates described above, plus 2.00%. Interest is payable in arrears on a quarterly basis.
Additionally, the New Credit Agreement, among other things:
permits us to effect up to two separate increases in the aggregate commitments under the credit facility, of at least $50.0 million per commitment increase, and of up to $150.0 million in the aggregate;
requires us to comply with a “Total Debt Leverage Ratio” covenant, which prohibits us from permitting the Total Debt Leverage Ratio (as defined in the New Credit Agreement), at the end of each fiscal quarter, to be greater than 4.00 to 1.00;
requires us to comply with a “Senior Debt Leverage Ratio” covenant, which prohibits us from permitting the Senior Debt Leverage Ratio (as defined in the New Credit Agreement), at the end of each fiscal quarter, to be greater than 2.50 to 1.00 and
requires us to comply with a “Consolidated Interest Coverage Ratio” covenant, which prohibits us from permitting the ratio of, as of the last day of each fiscal quarter, (i) the consolidated EBITDA of Complete and its consolidated Restricted Subsidiaries (as defined in the New Credit Agreement), calculated for the four fiscal quarters then ended, to (ii) the consolidated interest expense of Complete and its consolidated Restricted Subsidiaries for the four fiscal quarters then ended, to be less than 2.75 to 1.00.
We were in compliance with these debt covenant requirements as of September 30, 2011.
The term of the credit facilities provided for under the New Credit Agreement will continue until the earlier of (i) June 13, 2016 or (ii) the earlier termination in whole of the U.S. lending commitments (or Canadian lending commitments, if any) as further described in the New Credit Agreement. Events of default under the New Credit Agreement remain substantially the same as under the Amended Credit Agreement.
The obligations under the U.S. portion of the New Credit Agreement are secured by first priority security interests on substantially all of the assets (other than certain excluded assets) of Complete and any Domestic Restricted Subsidiary (as defined in the New Credit Agreement), whether now owned or hereafter acquired including, without limitation: (i) all equity interests issued by any domestic subsidiary, (ii) 100% of equity interests issued by first tier foreign subsidiaries but, in any event, no more than 66% of the outstanding voting securities issued by any first tier foreign subsidiary, and (iii) the Existing Mortgaged Properties (as defined in the New Credit Agreement). Additionally, all of the obligations under the U.S. portion of the New Credit Agreement will be guaranteed by Complete and each existing and subsequently acquired or formed Domestic Restricted Subsidiary. The obligations under the Canadian portion of the New Credit Agreement, if any, will be secured by substantially all of the assets (other than certain excluded assets) of Complete and any Restricted Subsidiary (other than our Mexican subsidiary), as further described in the New Credit Agreement. Additionally, all of the obligations under the Canadian portion of the New Credit Agreement, if any, will be guaranteed by Complete as well as certain of our subsidiaries. Subject to certain limitations, we will have the right to designate certain newly acquired and existing subsidiaries as unrestricted subsidiaries under the New Credit Agreement, and the assets of such unrestricted subsidiaries will not serve as security for either the U.S. portion or the Canadian portion, if any, of the New Credit Agreement.
There were no borrowings outstanding under the New Credit Agreement as of September 30, 2011. There were letters of credit outstanding under the U.S. revolving portion of the facility totaling $22.3 million, which reduced the available borrowing capacity as of September 30, 2011. We incurred fees related to our letters of credit as of September 30, 2011 at 1.50% per annum. For the nine months ended September 30, 2011, fees related to our letters of credit were calculated using a 360-day provision, at 3.75% per annum prior to the amendment on June 13, 2011, and ranged from 1.50% to 1.66% per annum thereafter, resulting in a weighted average interest rate of 2.14% per annum for the nine-month period ended September 30, 2011. Our available borrowing capacity under the revolving credit facility at September 30, 2011 was $277.7 million.
We will incur unused commitment fees under the New Credit Agreement ranging from 0.375% to 0.50% based on the average daily balance of amounts outstanding. The unused commitment fees were calculated at 1.00%0.375% as of September 30, 2010.
We recorded deferred financing fees associated with the New Credit Agreement in the quarter ended September 2011 totaling $2.5 million. These fees will be amortized to expense, along with the remaining balance of deferred financing fees associated with the prior amendments to this facility, over the term of the facility which matures in June 2016.
Outstanding Debt and Commitments
Our long-term debt and lease obligations have not changed materially sincecontractual commitments at September 30, 2011 are substantially the same as those at December 31, 2009, however2010. However, we have entered into agreements to purchase certain equipment for use in our business during the first nine monthsremainder of 20102011 which exceed $31.0 million.totaled in excess of $124.2 million at September 30, 2011, compared to $45.4 million at December 31, 2010. 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 believe that our cash on hand, available borrowing capacity under our credit facilities and our operating cash flows should be sufficient to fund our firm purchase commitments.
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
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Recent Accounting Pronouncements and Authoritative Guidance
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 the quarter ended September 30, 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 during the quarter 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 from the FASB and SEC related to the implications of this new legislation on accounting and disclosure requirements. We expect that this legislation will have an impact on our financial position, results of operations and cash flows, but we cannot determine the extent of the impact at this time.
In JulyDecember 2010, the FASB issued “Receivables (Topic 310): Disclosure aboutprovided additional guidance related to business combinations to require each public entity that presents comparative financial statements to disclose the Credit Qualityrevenue and earnings of Financing Receivablesthe 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 Allowance for Credit Losses.”business combination included in the reported pro forma revenue and earnings. This guidance will require companies to provide more information aboutshould be applied prospectively for business combinations for which the credit quality of their financing receivables in financial statements including, but not limited to, significant purchases and sales of financing receivables, aging information and credit quality indicators. We do not currently factor our receivables. We will adopt this accounting standard upon its effectiveacquisition date for periods endingis on or after December 15, 2010, and we do not anticipate thatJanuary 1, 2011, for calendar-year reporting entities. We adopted this adoption will have a significantstandard on January 1, 2011 with no material impact on our financial position, results of operations or cash flows.
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In September 2011, the FASB issued an update to existing guidance on the assessment of goodwill impairment. This update simplifies the assessment of goodwill for impairment by allowing companies to consider qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before performing the two-step impairment test required under the existing standards. This guidance also clarifies the examples of events or circumstances that would be considered in a goodwill impairment evaluation. We have elected to early adopt this update to be effective for the fiscal year beginning January 1, 2011. The adoption of this update did not have a material impact on our condensed consolidated financial statements.
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 ten years. The terms of the light vehicle leases range from three to four years. The terms of the specialized equipment leases range from monthly to seven years.
| Item 3. | 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 oil and 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 nine months ended September 30, 2010,2011, approximately 5%4% of our revenues and approximately 4% of our total assets 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 nine months ended September 30, 20102011 by approximately $0.5$0.6 million. 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 statement of operations. 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 nine months ended September 30, 20102011 by approximately $0.4$0.6 million. Currently, we conduct a portion of our business in Mexico in the local currency, the Mexican peso.
| Item 4. | Controls and Procedures. |
Our management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as such terms are defined in Rules 13a —– 15(e) and 15d —– 15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in our reports filed or submitted 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 required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving
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In 2010, our management approved a plan to implement new accounting software which will replacereplaced our existing accounting systems at several of our operating divisions in a phased approach, whereby twoapproach. Two divisions will convertconverted during the fourth quarter of 2010 and two other divisions will convert effective January 1,converted in 2011. In addition, we are implementingimplemented a new chart of accounts which is beingwas adopted as these divisions convertconverted to the new software. Although we believe the new software once implemented, will enhance our internal controls over financial reporting and we believe that we have taken the necessary steps to maintain appropriate internal control over financial reporting during and after this period of system change, we will continuously monitor controls through and around the system to provide reasonable assurance that our controls are effective during and after each step of this implementation process.
There have been no changes in our internal control over financial reporting during the quarter ended September 30, 20102011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| Item 1. | Legal Proceedings. |
On October 14, 2011 and October 26, 2011, putative class action complaints captioned Hetherington v. Winkler, et al., C.A. No. 6935-VCP (“Hetherington Complaint”), and Walsh v. Winkler, et al., C.A. No. 6984-VCP (“Walsh Complaint”), respectively, were filed in the Court of Chancery of the State of Delaware on behalf of an alleged class of Complete stockholders. On November 1, 2011, a putative class action complaint captioned City of Monroe Employees’ Retirement System v. Complete Production Services, Inc. et al., 2011-66385 (“City of Monroe Complaint”) was filed in the District Court of Harris County, Texas, on behalf of an alleged class of Complete Stockholders. The complaints name as defendants all members of our board of directors, our company, Superior Energy Services, Inc. (“SPN”) and SPN Fairway Acquisition, Inc. The plaintiffs allege that the defendants breached their fiduciary duties to our stockholders in connection with the proposed merger, or aided and abetted the other defendants’ breaches of their fiduciary duties. The complaints allege that the proposed merger between us and SPN involves an unfair price, an inadequate sales process and unreasonable deal protection devices. The Hetherington Complaint claims that defendants agreed to the transaction to benefit SPN and that neither our company, nor our board of directors, have adequately explained the reason for the proposed merger. The Walsh Complaint claims that defendants acted for their personal interests rather than the interests of our stockholders. The City of Monroe complaint claims that defendants engaged in self-dealing and failed to seek maximum value for stockholders. All three complaints seek injunctive relief including to enjoin the merger, rescissory damages in the event the merger is completed, and an award of attorneys’ and other fees and costs, in addition to other relief. We and our board of directors believe that the plaintiffs’ allegations lack merit and intend to contest them vigorously.
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, individually, or in the aggregate, 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 premiumpremiums 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 premiums should not have a material adverse effect on our financial position, results of operations or liquidity.
| Item 1A. | Risk Factors. |
Our business faces many risks. Any of the risks discussed elsewhere in this Quarterly Report on Form 10-Q or our other SEC filings, could have a material impact on our business, financial position or results of operations. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations. For a detailed discussion of the risk factors that should be understood by any investor contemplating investment in our stock, please refer to the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2009 and2010. There has been no material change to the risk factors as set forth in our QuarterlyAnnual Report on Form 10-Q10-K for the quarteryear ended June 30,December 31, 2010, except for the following:
Our pending merger with SPN may not be completed and may result in significant disruptions to our business.
On October 9, 2011, we entered into a definitive agreement with SPN under which we will merge with a wholly-owned subsidiary of SPN and our outstanding common shares will be cancelled in exchange for 0.945 shares of Superior common stock and $7.00 in cash. The transaction is subject to approval of our and SPN’s stockholders and clearance by the relevant antitrust authorities, as well as other conditions described in the merger agreement. These conditions might not be satisfied and the proposed merger might not be completed. In the event that the proposed merger is not completed:
Our relationships with our employees, customers and business partners may be adversely affected or disrupted as a result of uncertainties with regard to our business and prospects;
We may be required to pay a termination fee of up to $70 million to SPN in specific circumstances if the merger agreement is terminated;
We will still be required to pay significant transaction costs related to the proposed merger, such as legal, financial advisor, accounting, and other fees; and
The market price of shares of our common stock may decline to the extent that the current market price of those shares reflects a market assumption that the proposed merger will be completed.
In response to the announcement of the merger, customers may delay or defer purchasing decisions. Any delay or deferral of purchasing decisions by customers could negatively affect our business and results of operations. Similarly, regardless of whether the merger is completed or not, our current and prospective employees may experience uncertainty about their future role with SPN until SPN’s strategies with regard to us are announced or executed. This may adversely affect our ability to attract and retain key management and employees. During the pendency of the merger, our management’s attention from our day-to-day business may be diverted as they focus on completing the merger.
Any of these events could adversely affect our business, cash flows, and operating results.
We may be subject to future changes in the law regarding the regulation of hydraulic fracturing. Any changes in laws or government regulations could increase our costs of doing business.
Our hydraulic fracturing and fluid handling operations are subject to a range of applicable federal, state and local laws, including those discussed under the heading “Environmental Matters” in Item 1 of our Annual Report on Form 10-K as of December 31, 2010.
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| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
| (d) | ||||||||||||||||
| Maximum | ||||||||||||||||
| Number (or | ||||||||||||||||
| Approximate | ||||||||||||||||
| (c) Total | Dollar | |||||||||||||||
| number of | Value) of | |||||||||||||||
| Shares | shares | |||||||||||||||
| Purchased | that May | |||||||||||||||
| (b) | as Part of | Yet Be | ||||||||||||||
| Average | Publicly | Purchased | ||||||||||||||
| (a) Total Number | Price | Announced | Under the | |||||||||||||
| of Shares | Paid per | Plans or | Plans or | |||||||||||||
| Period | Purchased | Share | Programs | Programs | ||||||||||||
| July 1 - 31, 2010 | 591 | $ | 14.38 | * | * | |||||||||||
Period | (a) Total Number of Shares Purchased | (b) Average Price Paid per Share | (c) Total number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of shares that May Yet Be Purchased Under the Plans or Programs | ||||
July 1 – 31, 2011 | 1,326 | $37.11 | * | * | ||||
August 1 – 31, 2011 | 353 | $37.33 | * | * | ||||
September 1 – 30, 2011 | — | — | * | * |
*We do not have a publicly announced stock repurchase program. We had 1,207,721 shares of non-vested restricted stock outstanding at September 30, 2011. The holders of these shares have the option to either remit taxes due related to the vesting of these shares or to authorize us to purchase the shares at the current market value in a sufficient amount to settle the related tax withholding. The amount purchased will depend on the market value at the time and whether or not the holders choose to surrender shares in settlement of the related tax withholding.
None.
| Item 6. | Exhibits. |
The exhibits listed in the accompanying Exhibit Index are incorporated by reference into this Item 6.
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| COMPLETE PRODUCTION SERVICES, INC. | ||||||
November 4, 2011 | ||||||
| By: | | /s/ Jose A. Bayardo | ||||
Date | ||||||
| Jose A. Bayardo | ||||||
| Sr. Vice President and | ||||||
| Chief Financial Officer | ||||||
(Duly Authorized Officer and Principal Financial Officer) | ||||||
EXHIBIT INDEX
| Exhibit No. | ||||||
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Exhibit Title | ||||||||
| 31.1* | — | Certification of Chief Executive Officer Pursuant to Rule 13a – 14(a) and Rule 15a – 14(a) of the Securities and Exchange Act of 1934, as Amended | ||||||
| 31.2* | — | Certification of Chief Financial Officer Pursuant to Rule 13a – 14(a) and Rule 15a – 14(a) of the Securities and Exchange Act of 1934, as Amended | ||||||
| 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 | ||||||
| 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 | ||||||
| 101* | — | |||||||
| Complete Production Services, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, | ||||||||
| * | Filed herewith. | |
| ** | Furnished |
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