UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q | ||
(Mark One)
☒xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172019
or
☐oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File No. 001-34037
Commission Company Name: SUPERIOR ENERGY SERVICES INC
SUPERIOR ENERGY SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware | 75-2379388 | |||
(State or other jurisdiction of | (I.R.S. Employer | |||
incorporation or organization) | Identification No.) | |||
1001 Louisiana Street, Suite 2900 | 77002 | |||
Houston, TX | (Zip Code) | |||
(Address of principal executive offices) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol | Name of each exchange on which registered |
Common Stock, $.001 par value | SPN | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒x No ☐¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒x No ☐¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large | Accelerated filer | |
Non-accelerated filer |
| Smaller reporting company |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐¨ No ☒ x
The number of shares of the registrant’s common stock outstanding on October 20, 2017November 1, 2019 was 153,083,270.146,849,439.
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q for
the Quarterly Period Ended September 30, 20172019
Page | ||
PART I. | FINANCIAL INFORMATION | |
Item 1. | 3 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25 |
Item 3. | ||
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30 | ||
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| 31 |
PART II. | OTHER INFORMATION | |
Item | 32 | |
Item |
| 32 |
Item 6. | 32 |
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements and Notes
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SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | ||||||||
Condensed Consolidated Balance Sheets | Condensed Consolidated Balance Sheets | Condensed Consolidated Balance Sheets | ||||||||
September 30, 2017 and December 31, 2016 | ||||||||||
(in thousands, except share data) | (in thousands, except share data) | (in thousands, except share data) | ||||||||
(unaudited) | (unaudited) | (unaudited) | ||||||||
| 9/30/2017 |
| 12/31/2016 | |||||||
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| September 30, 2019 | December 31, 2018 | |||
ASSETS |
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Current assets: |
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Cash and cash equivalents | $ | 167,025 |
| $ | 187,591 | $ | 259,889 | $ | 158,050 | |
Accounts receivable, net of allowance for doubtful accounts of $27,075 and |
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$29,740 at September 30, 2017 and December 31, 2016, respectively |
| 424,776 |
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| 297,164 | |||||
Income taxes receivable |
| - |
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| 101,578 | |||||
Accounts receivable, net of allowance for doubtful accounts of $14,500 and | ||||||||||
$12,080 at September 30, 2019 and December 31, 2018, respectively | 368,530 | 447,353 | ||||||||
Prepaid expenses |
| 38,709 |
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| 37,288 | 64,760 | 45,802 | |||
Inventory and other current assets |
| 139,828 |
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| 130,772 | 139,840 | 121,700 | |||
Assets held for sale |
| 27,330 |
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| 27,158 | |||||
Total current assets |
| 797,668 |
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| 781,551 | 833,019 | 772,905 | |||
Property, plant and equipment, net of accumulated depreciation and depletion of |
| 1,379,560 |
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| 1,605,365 | |||||
Property, plant and equipment, net of accumulated depreciation and depletion of | 891,540 | 1,109,126 | ||||||||
Operating lease right-of-use assets | 96,190 | - | ||||||||
Goodwill |
| 807,488 |
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| 803,917 | 135,922 | 136,788 | |||
Notes receivable |
| 59,226 |
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| 56,650 | 67,042 | 63,993 | |||
Intangible and other long-term assets, net of accumulated amortization of $80,122 |
| 167,189 |
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| 222,772 | |||||
Restricted cash | 2,753 | 5,698 | ||||||||
Intangible and other long-term assets, net of accumulated amortization of $24,686 | 97,285 | 127,452 | ||||||||
Total assets | $ | 3,211,131 |
| $ | 3,470,255 | $ | 2,123,751 | $ | 2,215,962 | |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable | $ | 126,368 |
| $ | 94,831 | $ | 110,398 | $ | 139,325 | |
Accrued expenses |
| 237,823 |
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| 218,192 | 220,623 | 219,180 | |||
Income taxes payable |
| 801 |
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| 694 | 3,842 | 734 | |||
Current portion of decommissioning liabilities |
| 27,237 |
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| 22,164 | 3,621 | 3,538 | |||
Liabilities held for sale |
| 8,755 |
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| 8,653 | |||||
Total current liabilities |
| 400,984 |
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| 344,534 | 338,484 | 362,777 | |||
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Deferred income taxes |
| 150,612 |
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| 243,611 | |||||
Long-term debt, net | 1,285,755 | 1,282,921 | ||||||||
Decommissioning liabilities |
| 101,544 |
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| 101,513 | 131,263 | 126,558 | |||
Long-term debt, net |
| 1,281,714 |
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| 1,284,600 | |||||
Operating lease liabilities | 76,255 | - | ||||||||
Other long-term liabilities |
| 161,522 |
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| 192,077 | 148,907 | 152,967 | |||
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Stockholders’ equity: |
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Preferred stock of $0.01 par value. Authorized - 5,000,000 shares; none issued |
| - |
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| - | |||||
Preferred stock of $0.01 par value. Authorized - 5,000,000 shares; NaN issued | - | - | ||||||||
Common stock of $0.001 par value |
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Authorized-250,000,000, Issued and Outstanding - 153,083,270 at September 30, 2017 |
| 153 |
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| 152 | |||||
Authorized - 250,000,000, Issued and Outstanding - 156,573,565 at September 30, 2019 | 157 | 155 | ||||||||
Additional paid in capital |
| 2,705,526 |
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| 2,691,553 | 2,748,477 | 2,735,125 | |||
Accumulated other comprehensive loss, net |
| (68,873) |
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| (80,248) | (76,987) | (73,177) | |||
Retained deficit |
| (1,522,051) |
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| (1,307,537) | (2,528,560) | (2,371,364) | |||
Total stockholders’ equity |
| 1,114,755 |
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| 1,303,920 | 143,087 | 290,739 | |||
Total liabilities and stockholders’ equity | $ | 3,211,131 |
| $ | 3,470,255 | $ | 2,123,751 | $ | 2,215,962 | |
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See accompanying notes to condensed consolidated financial statements. | See accompanying notes to condensed consolidated financial statements. | See accompanying notes to condensed consolidated financial statements. | ||||||||
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SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | |||||||||||
Condensed Consolidated Statements of Operations | |||||||||||
(in thousands, except per share data) | |||||||||||
(unaudited) | |||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||
Revenues: | |||||||||||
Services | $ | 325,946 | $ | 471,218 | $ | 1,046,388 | $ | 1,317,798 | |||
Rentals | 99,771 | 101,850 | 282,820 | 273,136 | |||||||
Total revenues | 425,717 | 573,068 | 1,329,208 | 1,590,934 | |||||||
Costs and expenses: | |||||||||||
Cost of services (exclusive of depreciation, depletion, amortization and accretion) | 255,087 | 372,837 | 801,143 | 1,017,102 | |||||||
Cost of rentals (exclusive of depreciation, depletion, amortization and accretion) | 39,119 | 31,552 | 119,654 | 100,557 | |||||||
Depreciation, depletion, amortization and accretion - services | 51,889 | 81,911 | 178,088 | 251,398 | |||||||
Depreciation, depletion, amortization and accretion - rentals | 15,500 | 17,981 | 46,958 | 52,186 | |||||||
General and administrative expenses | 62,768 | 68,895 | 208,597 | 214,611 | |||||||
Reduction in value of assets | 9,571 | - | 40,952 | - | |||||||
Loss from operations | (8,217) | (108) | (66,184) | (44,920) | |||||||
Other expense: | |||||||||||
Interest expense, net | (24,505) | (24,952) | (74,275) | (74,733) | |||||||
Other income (expense) | (3,353) | (277) | (4,476) | (4,394) | |||||||
Loss from continuing operations before income taxes | (36,075) | (25,337) | (144,935) | (124,047) | |||||||
Income taxes | 2,366 | (3,521) | 12,261 | (16,846) | |||||||
Net loss from continuing operations | (38,441) | (21,816) | (157,196) | (107,201) | |||||||
Loss from discontinued operations, net of income tax | - | - | - | (729) | |||||||
Net loss | $ | (38,441) | $ | (21,816) | $ | (157,196) | $ | (107,930) | |||
Basic and diluted loss per share: | |||||||||||
Net loss from continuing operations | $ | (0.25) | $ | (0.14) | $ | (1.01) | $ | (0.70) | |||
Loss from discontinued operations | - | - | - | - | |||||||
Net loss | $ | (0.25) | $ | (0.14) | $ | (1.01) | $ | (0.70) | |||
Weighted average shares outstanding | 156,573 | 154,529 | 155,808 | 154,047 |
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | |||||||||||
Condensed Consolidated Statements of Comprehensive Loss | |||||||||||
(in thousands) | |||||||||||
(unaudited) | |||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||
Net loss | $ | (38,441) | $ | (21,816) | $ | (157,196) | $ | (107,930) | |||
Change in cumulative translation adjustment, net of tax | (2,967) | (826) | (3,810) | (3,491) | |||||||
Comprehensive loss | $ | (41,408) | $ | (22,642) | $ | (161,006) | $ | (111,421) | |||
See accompanying notes to condensed consolidated financial statements. |
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SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | |||||||||||
Condensed Consolidated Statements of Operations | |||||||||||
Three and Nine Months Ended September 30, 2017 and 2016 | |||||||||||
(in thousands, except per share data) | |||||||||||
(unaudited) | |||||||||||
| Three Months |
| Nine Months | ||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Revenues: |
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Services | $ | 431,874 |
| $ | 266,093 |
| $ | 1,170,455 |
| $ | 873,985 |
Rentals |
| 74,155 |
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| 60,132 |
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| 206,578 |
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| 221,644 |
Total revenues |
| 506,029 |
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| 326,225 |
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| 1,377,033 |
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| 1,095,629 |
Costs and expenses: |
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Cost of services (exclusive of depreciation, depletion, amortization and accretion) |
| 340,401 |
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| 223,766 |
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| 959,630 |
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| 703,061 |
Cost of rentals (exclusive of depreciation, depletion, amortization and accretion) |
| 27,878 |
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| 34,402 |
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| 82,437 |
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| 99,081 |
Depreciation, depletion, amortization and accretion - services |
| 92,814 |
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| 100,579 |
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| 281,097 |
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| 312,713 |
Depreciation, depletion, amortization and accretion - rentals |
| 15,937 |
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| 22,729 |
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| 50,054 |
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| 79,304 |
General and administrative expenses |
| 74,372 |
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| 86,743 |
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| 226,573 |
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| 270,467 |
Reduction in value of assets |
| 9,953 |
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| - |
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| 9,953 |
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| 462,461 |
Loss from operations |
| (55,326) |
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| (141,994) |
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| (232,711) |
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| (831,458) |
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Other income (expense): |
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Interest expense, net |
| (29,096) |
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| (21,771) |
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| (76,679) |
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| (68,325) |
Other income (expense) |
| (970) |
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| 3,667 |
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| (2,477) |
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| 22,103 |
Loss from continuing operations before income taxes |
| (85,392) |
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| (160,098) |
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| (311,867) |
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| (877,680) |
Income taxes |
| (28,203) |
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| (46,185) |
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| (102,978) |
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| (210,599) |
Net loss from continuing operations |
| (57,189) |
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| (113,913) |
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| (208,889) |
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| (667,081) |
Loss from discontinued operations, net of income tax |
| (1,860) |
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| (4,085) |
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| (5,625) |
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| (8,577) |
Net loss | $ | (59,049) |
| $ | (117,998) |
| $ | (214,514) |
| $ | (675,658) |
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Loss per share information: |
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Basic and diluted: |
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Net loss from continuing operations | $ | (0.37) |
| $ | (0.75) |
| $ | (1.37) |
| $ | (4.40) |
Loss from discontinued operations |
| (0.02) |
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| (0.03) |
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| (0.04) |
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| (0.06) |
Net loss | $ | (0.39) |
| $ | (0.78) |
| $ | (1.41) |
| $ | (4.46) |
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Cash dividends declared per share | $ | - |
| $ | - |
| $ | - |
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| 0.08 |
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Weighted average common shares used in computing loss per share: |
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Basic and diluted |
| 153,082 |
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| 151,707 |
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| 152,624 |
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| 151,337 |
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SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | |||||||||||
Consolidated Statements of Comprehensive Loss | |||||||||||
Three and Nine Months Ended September 30, 2017 and 2016 | |||||||||||
(in thousands) | |||||||||||
| Three Months |
| Nine Months | ||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Net loss | $ | (59,049) |
| $ | (117,998) |
| $ | (214,514) |
| $ | (675,658) |
Change in cumulative translation adjustment, net of tax |
| 3,629 |
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| (4,693) |
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| 11,375 |
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| (26,616) |
Comprehensive loss | $ | (55,420) |
| $ | (122,691) |
| $ | (203,139) |
| $ | (702,274) |
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See accompanying notes to condensed consolidated financial statements. |
4
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | ||||||
Condensed Consolidated Statements of Cash Flows | ||||||
(in thousands) | ||||||
(unaudited) | ||||||
Nine Months Ended September 30, | ||||||
2019 | 2018 | |||||
Cash flows from operating activities: | ||||||
Net loss | $ | (157,196) | $ | (107,930) | ||
Adjustments to reconcile net loss to net cash provided by operating | ||||||
Depreciation, depletion, amortization and accretion | 225,044 | 303,584 | ||||
Deferred income taxes | - | (25,475) | ||||
Reduction in value of assets | 40,952 | - | ||||
Right-of-use assets amortization | 16,341 | - | ||||
Stock based compensation expense | 14,155 | 23,303 | ||||
Other reconciling items, net | (9,340) | (8,255) | ||||
Changes in operating assets and liabilities: | ||||||
Accounts receivable | 68,239 | (95,806) | ||||
Prepaid expenses | (20,012) | 1,742 | ||||
Inventory and other current assets | (19,966) | (16,879) | ||||
Accounts payable | (8,221) | 18,367 | ||||
Accrued expenses | (25,054) | (9,543) | ||||
Other, net | (8,438) | 248 | ||||
Net cash provided by operating activities | 116,504 | 83,356 | ||||
Cash flows from investing activities: | ||||||
Payments for capital expenditures | (105,393) | (186,283) | ||||
Proceeds from sales of assets | 90,696 | 29,595 | ||||
Net cash used in investing activities | (14,697) | (156,688) | ||||
Cash flows from financing activities: | ||||||
Tax withholding for vested restricted stock units | (1,677) | (5,189) | ||||
Other | 621 | 1,239 | ||||
Net cash used in financing activities | (1,056) | (3,950) | ||||
Effect of exchange rate changes on cash | (1,857) | (1,834) | ||||
Net change in cash, cash equivalents, and restricted cash | 98,894 | (79,116) | ||||
Cash, cash equivalents, and restricted cash at beginning of period | 163,748 | 192,483 | ||||
Cash, cash equivalents, and restricted cash at end of period | $ | 262,642 | $ | 113,367 | ||
See accompanying notes to condensed consolidated financial statements. |
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SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | ||||||
Consolidated Statements of Cash Flows | ||||||
Nine Months Ended September 30, 2017 and 2016 | ||||||
(in thousands) | ||||||
(unaudited) | ||||||
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| 2017 |
| 2016 | ||
Cash flows from operating activities: |
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Net loss |
| $ | (214,514) |
| $ | (675,658) |
Adjustments to reconcile net loss to net cash provided by operating |
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Depreciation, depletion, amortization and accretion |
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| 331,151 |
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| 392,017 |
Deferred income taxes |
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| (92,999) |
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| (186,232) |
Reduction in value of assets |
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| 9,953 |
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| 462,461 |
Stock based compensation expense |
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| 29,780 |
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| 34,167 |
Other reconciling items, net |
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| (2,408) |
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| (10,392) |
Changes in operating assets and liabilities: |
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Accounts receivable |
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| (116,989) |
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| 155,717 |
Inventory and other current assets |
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| (8,510) |
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| (5,028) |
Accounts payable |
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| 24,821 |
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| (8,692) |
Accrued expenses |
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| 7,182 |
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| (41,617) |
Income taxes |
|
| 100,969 |
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| (4,515) |
Other, net |
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| (13,028) |
|
| 34,447 |
Net cash provided by operating activities |
|
| 55,408 |
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| 146,675 |
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Cash flows from investing activities: |
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Payments for capital expenditures |
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| (109,635) |
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| (74,071) |
Decrease in cash held in escrow |
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| 30,600 |
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| - |
Other |
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| 15,647 |
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| 6,238 |
Net cash used in investing activities |
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| (63,388) |
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| (67,833) |
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Cash flows from financing activities: |
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Proceeds from issuance of long-term debt |
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| 500,000 |
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| - |
Principal payments on long-term debt |
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| (500,000) |
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| (337,576) |
Payment of debt issuance costs |
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| (9,091) |
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| (2,675) |
Proceeds from revolving line of credit |
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| - |
|
| 325,123 |
Payments on revolving line of credit |
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| - |
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| (325,123) |
Cash dividends |
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| - |
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| (12,111) |
Other |
|
| (6,789) |
|
| (5,410) |
Net cash used in financing activities |
|
| (15,880) |
|
| (357,772) |
Effect of exchange rate changes on cash |
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| 3,294 |
|
| (6,932) |
Net decrease in cash and cash equivalents |
|
| (20,566) |
|
| (285,862) |
Cash and cash equivalents at beginning of period |
|
| 187,591 |
|
| 564,017 |
Cash and cash equivalents at end of period |
| $ | 167,025 |
| $ | 278,155 |
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See accompanying notes to condensed consolidated financial statements. |
5
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | |||||||||||||||||
Consolidated Statements of Changes in Stockholders’ Equity | |||||||||||||||||
Nine Months Ended September 30, 2019 | |||||||||||||||||
(in thousands, except share data) | |||||||||||||||||
(unaudited) | |||||||||||||||||
Accumulated | |||||||||||||||||
Common | Additional | other | |||||||||||||||
stock | Common | paid-in | comprehensive | Retained | |||||||||||||
shares | stock | capital | loss, net | deficit | Total | ||||||||||||
Balances, December 31, 2018 | 154,885,418 | $ | 155 | $ | 2,735,125 | $ | (73,177) | $ | (2,371,364) | $ | 290,739 | ||||||
Net loss | - | - | - | - | (47,705) | (47,705) | |||||||||||
Foreign currency translation adjustment | - | - | - | 1,073 | - | 1,073 | |||||||||||
Stock-based compensation expense, | |||||||||||||||||
net of forfeitures | - | - | 5,625 | - | - | 5,625 | |||||||||||
Transactions under stock plans | 1,071,182 | 1 | (1,667) | - | - | (1,666) | |||||||||||
Balances, March 31, 2019 | 155,956,600 | $ | 156 | $ | 2,739,083 | $ | (72,104) | $ | (2,419,069) | $ | 248,066 | ||||||
Net loss | - | - | - | - | (71,050) | (71,050) | |||||||||||
Foreign currency translation adjustment | - | - | - | (1,916) | - | (1,916) | |||||||||||
Stock-based compensation expense, | |||||||||||||||||
net of forfeitures | - | - | 4,650 | - | - | 4,650 | |||||||||||
Transactions under stock plans | 116,374 | - | (10) | - | - | (10) | |||||||||||
Shares issued under Employee Stock Purchase Plan | 500,186 | 1 | 650 | - | - | 651 | |||||||||||
Balances, June 30, 2019 | 156,573,160 | $ | 157 | $ | 2,744,373 | $ | (74,020) | $ | (2,490,119) | $ | 180,391 | ||||||
Net loss | - | - | - | - | (38,441) | (38,441) | |||||||||||
Foreign currency translation adjustment | - | - | - | (2,967) | - | (2,967) | |||||||||||
Stock-based compensation expense, | |||||||||||||||||
net of forfeitures | - | - | 4,104 | - | - | 4,104 | |||||||||||
Transactions under stock plans | 405 | - | - | - | - | ||||||||||||
Balances, September 30, 2019 | 156,573,565 | $ | 157 | $ | 2,748,477 | $ | (76,987) | $ | (2,528,560) | $ | 143,087 | ||||||
See accompanying notes to condensed consolidated financial statements. | |||||||||||||||||
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | |||||||||||||||||
Consolidated Statements of Changes in Stockholders’ Equity | |||||||||||||||||
Nine Months Ended September 30, 2018 | |||||||||||||||||
(in thousands, except share data) | |||||||||||||||||
(unaudited) | |||||||||||||||||
Accumulated | |||||||||||||||||
Common | Additional | other | |||||||||||||||
stock | Common | paid-in | comprehensive | Retained | |||||||||||||
shares | stock | capital | loss, net | deficit | Total | ||||||||||||
Balances, December 31, 2017 | 153,263,097 | $ | 153 | $ | 2,713,161 | $ | (67,427) | $ | (1,513,458) | $ | 1,132,429 | ||||||
Net loss | - | - | - | - | (59,724) | (59,724) | |||||||||||
Foreign currency translation adjustment | - | - | - | 4,388 | - | 4,388 | |||||||||||
Stock-based compensation expense, | |||||||||||||||||
net of forfeitures | - | - | 6,229 | - | - | 6,229 | |||||||||||
Transactions under stock plans | 974,165 | 1 | (5,154) | - | - | (5,153) | |||||||||||
Balances, March 31, 2018 | 154,237,262 | $ | 154 | $ | 2,714,236 | $ | (63,039) | $ | (1,573,182) | $ | 1,078,169 | ||||||
Net loss | - | - | - | - | (26,390) | (26,390) | |||||||||||
Foreign currency translation adjustment | - | - | - | (7,053) | - | (7,053) | |||||||||||
Stock-based compensation expense, | |||||||||||||||||
net of forfeitures | - | - | 6,113 | - | - | 6,113 | |||||||||||
Transactions under stock plans | 90,535 | - | (30) | - | - | (30) | |||||||||||
Shares issued under Employee Stock Purchase Plan | 197,830 | 1 | 1,905 | - | - | 1,906 | |||||||||||
Balances, June 30, 2018 | 154,525,627 | $ | 155 | $ | 2,722,224 | $ | (70,092) | $ | (1,599,572) | $ | 1,052,715 | ||||||
Net loss | - | - | - | - | (21,816) | (21,816) | |||||||||||
Foreign currency translation adjustment | - | - | - | (826) | - | (826) | |||||||||||
Stock-based compensation expense, | |||||||||||||||||
net of forfeitures | - | - | 5,948 | - | - | 5,948 | |||||||||||
Transactions under stock plans | 4,487 | - | (5) | - | - | (5) | |||||||||||
Balances, September 30, 2018 | 154,530,114 | $ | 155 | $ | 2,728,167 | $ | (70,918) | $ | (1,621,388) | $ | 1,036,016 | ||||||
See accompanying notes to condensed consolidated financial statements. |
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Nine Months Ended September 30, 20172019
(1)Basis of Presentation
Certain information and footnote disclosures normally in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC); however, management believes the disclosures that are made are adequate to make the information presented not misleading. These financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in Superior Energy Services, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2016,2018, and Management’s Discussion and Analysis of Financial Condition and Results of Operations herein.
The financial information of Superior Energy Services, Inc. and its subsidiaries (the Company) for the three and nine months ended September 30, 20172019 and 20162018 has not been audited. However, in the opinion of management, all adjustments necessary to present fairly the results of operations for the periods presented have been included therein. Certain previously reported amounts have been reclassified to conform to the 2017 presentation. The results of operations for the first nine months of the year are not necessarily indicative of the results of operations that might be expected for the entire year.
Due to the nature of the Company’s business, the Company is involved, from time to time, in routine litigation or subject to disputes or claims regarding its business activities. Legal costs related to these matters are expensed as incurred. In management’s opinion, none of the pending litigation, disputes or claims is expected to have a material adverse effect on the Company’s financial condition, results of operations or liquidity.
The Company evaluates events that occur after the balance sheet date but before the financial statements are issued for potential recognition or disclosure. Based on the evaluation, the Company determined that there were no material subsequent events for recognition or disclosuredisclosure.
(2)Revenue
Revenue Recognition
Revenues are recognized when performance obligations are satisfied in accordance with contractual terms, in an amount that reflects the consideration the Company expects to be entitled to in exchange for services rendered or rentals provided. Taxes collected from customers and remitted to governmental authorities and revenues are reported on a net basis in the Company’s financial statements.
Performance Obligations
A performance obligation arises under contracts with customers to render services or provide rentals, and is the unit of account under Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606). The Company accounts for services rendered and rentals provided separately if they are distinct and the service or rental is separately identifiable from other items provided to a customer and if a customer can benefit from the services rendered or rentals provided on its own or with other resources that are readily available to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. A contract’s standalone selling prices are determined based on the prices that the Company charges for its services rendered and rentals provided. The majority of the Company’s performance obligations are satisfied over time, which is generally represented by a period of 30 days or less. The Company’s payment terms vary by the type of products or services offered. The term between invoicing and when the payment is due is typically 30 days.
Services revenue primarily represents amounts charged to customers for the completion of services rendered, including labor, products and supplies necessary to perform the service. Rates for these services vary depending on the type of services provided and can be based on a per job, per hour or per day basis.
Rentals revenue is, primarily priced on a per day, per man hour or similar basis and consists of fees charged to customers for use of the Company’s rental equipment over the term of the rental period, which is generally less than those disclosed herein.twelve months.
(2)InventoryThe Company expenses sales commissions when incurred because the amortization period would have been one year or less.
Disaggregation of revenue
The following table presents the Company’s revenues by segment disaggregated by geography (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||
U.S. land | |||||||||||
Drilling Products and Services | $ | 46,590 | $ | 45,605 | $ | 142,073 | $ | 129,716 | |||
Onshore Completion and Workover Services | 145,105 | 294,869 | 513,638 | 802,600 | |||||||
Production Services | 32,620 | 47,858 | 112,095 | 148,259 | |||||||
Technical Solutions | 7,283 | 8,453 | 32,589 | 23,144 | |||||||
Total U.S. land | $ | 231,598 | $ | 396,785 | $ | 800,395 | $ | 1,103,719 | |||
U.S. offshore | |||||||||||
Drilling Products and Services | $ | 33,895 | $ | 26,065 | $ | 91,048 | $ | 70,315 | |||
Onshore Completion and Workover Services | - | - | - | - | |||||||
Production Services | 18,295 | 16,776 | 58,977 | 47,910 | |||||||
Technical Solutions | 40,771 | 47,286 | 95,195 | 120,181 | |||||||
Total U.S. offshore | $ | 92,961 | $ | 90,127 | $ | 245,220 | $ | 238,406 | |||
International | |||||||||||
Drilling Products and Services | $ | 30,700 | $ | 27,514 | $ | 79,825 | $ | 78,388 | |||
Onshore Completion and Workover Services | - | - | - | - | |||||||
Production Services | 47,872 | 41,236 | 134,167 | 112,422 | |||||||
Technical Solutions | 22,586 | 17,406 | 69,601 | 57,999 | |||||||
Total International | $ | 101,158 | $ | 86,156 | $ | 283,593 | $ | 248,809 | |||
Total Revenues | $ | 425,717 | $ | 573,068 | $ | 1,329,208 | $ | 1,590,934 | |||
The following table presents the Company’s revenues by segment disaggregated by type (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||
Services | |||||||||||
Drilling Products and Services | $ | 32,471 | $ | 24,083 | $ | 91,640 | $ | 75,549 | |||
Onshore Completion and Workover Services | 136,154 | 284,187 | 484,965 | 771,605 | |||||||
Production Services | 89,571 | 97,551 | 280,171 | 285,843 | |||||||
Technical Solutions | 67,750 | 65,397 | 189,612 | 184,801 | |||||||
Total services | $ | 325,946 | $ | 471,218 | $ | 1,046,388 | $ | 1,317,798 | |||
Rentals | |||||||||||
Drilling Products and Services | $ | 78,714 | $ | 75,101 | $ | 221,306 | $ | 202,870 | |||
Onshore Completion and Workover Services | 8,951 | 10,682 | 28,673 | 30,995 | |||||||
Production Services | 9,216 | 8,319 | 25,068 | 22,748 | |||||||
Technical Solutions | 2,890 | 7,748 | 7,773 | 16,523 | |||||||
Total rentals | $ | 99,771 | $ | 101,850 | $ | 282,820 | $ | 273,136 | |||
Total Revenues | $ | 425,717 | $ | 573,068 | $ | 1,329,208 | $ | 1,590,934 | |||
Impact of adoption of ASU 2016-02, Leases (Topic 842)
Services revenue:
In connection with its adoption of Topic 842, the Company determined that certain of its services revenue contracts contain a lease component. The Company elected to adopt a practical expedient option available to lessors, which allows the Company to combine the lease and non-lease components and account for the combined component in accordance with the accounting treatment for the predominant component. Therefore, the Company combined the lease and service components for certain of the Company’s service
contracts and continues to account for the combined component under ASU 2014-09, Revenue from Contracts with Customers (Topic 606).
Rentals revenue:
The Company determined that its rentals revenue contracts represent short-term operating leases. Therefore, the adoption of the ASU 2016-02 did not result in any changes in the timing or method of revenue recognition for the Company’s rental revenues.
(3)Inventory
Inventories are stated at the lower of cost or net realizable value. The Company applies net realizable value and obsolescence to the gross value of the inventory. Cost is determined using the first-in, first-out or weighted-average cost methods for finished goods and work-in-process. Supplies and consumables primarily consist of products used in our services provided to customers. The components of the inventory balances are as follows (in thousands):
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| |||||||
|
| September 30, 2017 |
| December 31, 2016 | September 30, 2019 | December 31, 2018 | ||||||
Finished goods |
| $ | 59,263 |
| $ | 49,888 | $ | 62,301 | $ | 54,144 | ||
Raw materials |
|
| 13,360 |
| 17,948 | 16,758 | 16,795 | |||||
Work-in-process |
|
| 5,289 |
| 5,214 | 9,504 | 5,544 | |||||
Supplies and consumables |
|
| 29,748 |
|
| 30,029 | 34,957 | 30,822 | ||||
Total |
| $ | 107,660 |
| $ | 103,079 | $ | 123,520 | $ | 107,305 | ||
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(3)
(4)Notes Receivable
Notes receivable consist of a commitment from the seller of an oil and gas property acquired by the Company related to costs associated with the abandonment of the acquired property. Pursuant to an agreement with the seller, the Company will invoice the seller an agreed upon amount at the completion of certain decommissioning activities. The gross amount of this obligation totals $115.0 million and is recorded at present value using an effective interest rate of 6.58%. The related discount is amortized to interest income based on the expected timing of completion of the decommissioning activities. The Company recorded interest income related to notes receivable of $2.6$3.1 million and $2.7$2.9 million for the nine months ended September 30, 20172019 and 2016,2018, respectively.
(4)Decommissioning Liabilities(5)Debt
The Company’s decommissioning liabilities associated with an oil and gas property and its related assets consist of costs related to the plugging of wells, the removal of the related platform and equipment, and site restoration. The Company reviews the adequacy of its decommissioning liabilities whenever indicators suggest that the estimated cash flows needed to satisfy the liabilities have changed materially. The Company had decommissioning liabilities of $128.8 million and $123.7 million at September 30, 2017 and December 31, 2016, respectively.
6
(5)Debt
The Company’s outstanding debt is as follows (in thousands):
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| September 30, 2017 |
|
| December 31, 2016 | September 30, 2019 | December 31, 2018 | |||||||
|
| Long-term |
| Long-term | Stated Interest Rate (%) | Long-term | ||||||||
Senior Notes due September 2024 |
| $ | 500,000 |
| $ | - | ||||||||
Senior Notes due December 2021 |
|
| 800,000 |
|
| 800,000 | ||||||||
Senior Notes due May 2019 |
|
| - |
|
| 500,000 | ||||||||
Senior unsecured notes due September 2024 | 7.750 | $ | 500,000 | $ | 500,000 | |||||||||
Senior unsecured notes due December 2021 | 7.125 | 800,000 | 800,000 | |||||||||||
Total debt, gross |
|
| 1,300,000 |
|
| 1,300,000 | 1,300,000 | 1,300,000 | ||||||
Unamortized debt issuance costs |
|
| (18,286) |
|
| (15,400) | (14,245) | (17,079) | ||||||
Total debt, net |
| $ | 1,281,714 |
| $ | 1,284,600 | $ | 1,285,755 | $ | 1,282,921 |
Credit Facility
In February 2017, theThe Company amended its credit facility to, among other things, reduce the size of the credit facility from $400.0 million to $300.0 million (with a $100.0 million accordion feature) and amend the financial covenants, in part to suspend the interest coverage ratio until the third quarter of 2017. Borrowings under the credit facility bear interest at LIBOR plus margins that depend on the Company’s credit rating. Indebtedness under the credit facility is secured by substantially all of the Company’s assets, including the pledge of the stock of its principal domestic subsidiaries. The credit facility contains customary events of default and requires that the Company satisfy various financial covenants. The credit facility also limits the Company’s ability to pay dividends or make distributions, make acquisitions, create liens or incur additional indebtedness.
Subsequent to the quarter end, the Company extended itshas an asset-based revolving credit facility maturity towhich matures in October 2022 with a $300 million asset-based revolving credit facility.2022. The borrowing base under the credit facility will beis calculated asbased on a formula referencing the Company’sborrower’s and the subsidiary guarantors’ eligible accounts receivable, eligible inventory and eligible premium rental drill pipe less reserves. Availability under the credit facility will beis the lesser of (i) the commitments, (ii) the borrowing base and (iii) the highest principal amount permitted to be secured under the indenture governing 7 1/8%the 7.125% senior unsecured notes due 2021. On September 20, 2019, the Company amended its credit facility to increase the letter of credit capacity from $100.0 million to $150.0 million. At October 20, 2017, availabilitySeptember 30, 2019, the borrowing base was $285.6$229.6 million and may increase or decrease as a resultthe Company had $83.1 million of among other things, changes toletters of credit outstanding that reduced its borrowing availability under the Company’s consolidated tangible assets.revolving credit facility. The credit agreement contains various covenants, including, but not limited to, limitations on the incurrence of indebtedness, permitted investments, liens on assets, making distributions, transactions with affiliates, merger, consolidations, dispositions of assets and other provisions customary in similar types of agreements.
Senior Unsecured Notes
In August 2017, theThe Company issuedhas outstanding $500 million of 7 3/4% senior unsecured notes due September 2024 in a private placement conducted pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended (the “Securities Act”). Costs associated with the issuance of these notes were $8.9 million which will be amortized over the term of the notes. The Company used the net proceeds of the notes offering and cash on hand to redeem all of the outstanding $500 million 6 3/8% senior unsecured notes due 2019. In connection with the redemption of the senior unsecured notes due 2019, the Company recorded $2.6 million for the write-off of unamortized debt issuance costs. 2024. The indenture governing the 7 3/4%7.75% senior unsecured notes due 2024 requires semi-annual interest payments beginning on March 15 2018, untiland September 15 of each year through the maturity date of September 15, 2024.
The Company also has outstanding $800 million of 7 1/8% senior unsecured notes due December 2021. The indenture governing the 7 1/8%7.125% senior unsecured notes due 2021 requires semi-annual interest payments on June 15 and December 15of each year through the maturity date of December 15, 2021.
(6) Derivative Financial Instruments
(6)Decommissioning Liabilities
The Company’s decommissioning liabilities associated with an oil and gas property and its related assets include liabilities related to the plugging of wells, removal of the related platform and equipment, and site restoration. The Company reviews the adequacy of its decommissioning liabilities whenever indicators suggest that the estimated cash flows and/or relating timing needed to satisfy the liability have changed materially. The Company had three interest rate swapsdecommissioning liabilities of $134.9 million and $130.1 million at September 30, 2019 and December 31, 2018, respectively.
(7) Leases
Adoption of ASU 2016-02, Leases
The Company adopted the new standard on January 1, 2019 and used the effective date as the date of initial application. Therefore, prior period financial information has not been adjusted and continues to be reflected in accordance with the Company’s historical accounting policy. The standard establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for notional amountsall leases with a term longer than 12 months.
The standard provides a number of $100 million each, related to its 7 1/8% senior notes maturingoptional practical expedients in December 2021. In January 2017,transition. The Company elected the “package of practical expedients,” which, among other things, allows the Company sold these interest rate swaps to carry forward its historical lease classification.
The adoption of this standard resulted in the counterparties for a net amountrecording of $0.8 million. The remaining balanceoperating lease assets and operating lease liabilities of the derivative asset is being amortized to interest expense over the remaining termapproximately $100.0 million as of theJanuary 1, 2019, with 0 related notes. For the nine months ended September 30, 2017, $1.5 million of expense related to the amortization of the remaining derivative asset was recorded.
7
The location and effect of the derivative assetimpact on the Company’s condensed consolidated statement of operations, presentedequity or condensed consolidated statement of operations. Short-term leases have not been recorded on the balance sheet.
Accounting Policy for Leases
The Company determines if an arrangement is a pre-tax basis,lease at inception. All of the Company’s leases are operating leases and are included in ROU assets, accounts payable and operating lease liabilities in the condensed consolidated balance sheet.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligations to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the respective lease term. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company’s lease terms may include options to extend or terminate the lease.
Overview
The Company’s operating leases are primarily for real estate, machinery and equipment, and vehicles. The terms and conditions for these leases vary by the type of underlying asset. Total operating lease expense was as follows (in(in thousands):
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Effect of derivative asset |
| Location of (gain) loss recognized |
| Three Months Ended September 30, 2016 |
| Nine Months Ended September 30, 2016 | ||
Interest rate swap |
| Interest expense, net |
| $ | 1,791 |
| $ | (4,329) |
Hedged item - debt |
| Interest expense, net |
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| (1,805) |
|
| 365 |
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|
| $ | (14) |
| $ | (3,964) |
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Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | ||||
Long-term fixed lease expense | $ | 10,105 | $ | 29,433 | |
Long-term variable lease expense | 400 | 1,640 | |||
Short-term lease expense | 3,355 | 13,356 | |||
Total operating lease expense | $ | 13,860 | $ | 44,429 | |
For the three and nine months ended September 30, 2016, $02018, total operating lease expense was $13.5 million and $4.0$40.4 million, respectively.
Supplemental Balance Sheet Information
Operating leases were as follows (in thousands):
September 30, 2019 | ||
Operating lease ROU assets | $ | 96,190 |
Accrued expenses | $ | 26,368 |
Operating lease liabilities | 76,255 | |
Total operating lease liabilities | $ | 102,623 |
Cash paid for operating leases | $ | 26,242 |
ROU assets obtained in exchange for lease obligations | $ | 21,045 |
Weighted average remaining lease term | 9 years | |
Weighted average discount rate | 6.75% | |
Maturities of interest income, respectively, was related tooperating lease liabilities at September 30, 2019 are as follows (in thousands):
Remainder of 2019 | $ 8,976 |
2020 | 30,144 |
2021 | 22,142 |
2022 | 13,955 |
2023 | 10,258 |
Thereafter | 54,745 |
Total lease payments | 140,220 |
Less imputed interest | (37,597) |
Total | $ 102,623 |
At December 31, 2018, future minimum lease payments under long-term leases for the ineffectiveness associated with this derivative asset. five years ending December 31, 2019 through 2023 and thereafter are as follows: $30.8 million, $24.3 million, $16.6 million, $9.8 million and $6.9 million and $37.8 million, respectively.
(7)
(8) Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or the price paid to transfer a liability in an orderly transaction between market participants at the measurement date. Inputs used in determining fair value are characterized according to a hierarchy that prioritizes those inputs based on the degree to which they are observable. The three input levels of the fair value hierarchy are as follows.
Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.
Level 2: Observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical assets or liabilities in inactive markets; or model-derived valuations or other inputs that can be corroborated by observable market data.
Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.
The following tables provide a summary of the financial assets and liabilities measured at fair value on a recurring basis (in thousands):
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| Fair Value at September 30, 2017 | ||||||||||
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| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Intangible and other long-term assets, net |
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Non-qualified deferred compensation assets |
| $ | 369 |
| $ | 13,341 |
| $ | - |
| $ | 13,710 |
Accounts payable |
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Non-qualified deferred compensation liabilities |
| $ | - |
| $ | 1,157 |
| $ | - |
| $ | 1,157 |
Other long-term liabilities |
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Non-qualified deferred compensation liabilities |
| $ | - |
| $ | 20,250 |
| $ | - |
| $ | 20,250 |
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| Fair Value at December 31, 2016 | ||||||||||
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| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Intangible and other long-term assets, net |
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Non-qualified deferred compensation assets |
| $ | 368 |
| $ | 11,992 |
| $ | - |
| $ | 12,360 |
Interest rate swaps |
| $ | - |
| $ | 8,579 |
| $ | - |
| $ | 8,579 |
Accounts payable |
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Non-qualified deferred compensation liabilities |
| $ | - |
| $ | 1,115 |
| $ | - |
| $ | 1,115 |
Other long-term liabilities |
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Non-qualified deferred compensation liabilities |
| $ | - |
| $ | 18,489 |
| $ | - |
| $ | 18,489 |
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Fair Value at September 30, 2019 | ||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||
Intangible and other long-term assets, net: | ||||||||||||
Non-qualified deferred compensation assets | $ | - | $ | 14,741 | $ | - | $ | 14,741 | ||||
Accounts payable: | ||||||||||||
Non-qualified deferred compensation liabilities | $ | - | $ | 1,243 | $ | - | $ | 1,243 | ||||
Other long-term liabilities: | ||||||||||||
Non-qualified deferred compensation liabilities | $ | - | $ | 22,224 | $ | - | $ | 22,224 | ||||
Total debt | $ | 857,750 | $ | - | $ | - | $ | 857,750 | ||||
Fair Value at December 31, 2018 | ||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||
Intangible and other long-term assets, net: | ||||||||||||
Non-qualified deferred compensation assets | $ | 376 | $ | 12,930 | $ | - | $ | 13,306 | ||||
Accounts payable: | ||||||||||||
Non-qualified deferred compensation liabilities | $ | - | $ | 1,138 | $ | - | $ | 1,138 | ||||
Other long-term liabilities: | ||||||||||||
Non-qualified deferred compensation liabilities | $ | - | $ | 19,766 | $ | - | $ | 19,766 | ||||
Total debt | $ | 1,084,711 | $ | - | $ | - | $ | 1,084,711 |
The Company’s non-qualified deferred compensation plans allow officers, certain highly compensated employees and non-employee directors to defer receipt of a portion of their compensation and contribute such amounts to one or more hypothetical investment funds. The Company entered into separate trust agreements, subject to general creditors, to segregate the assets of each plan and reports the accounts of the trusts in its condensed consolidated financial statements. These investments are reported at fair value based on unadjusted quoted prices in active markets for identifiable assets and observable inputs for similar assets and liabilities, which represent Levels 1 and 2, respectively, in the fair value hierarchy.
8
The carrying amount of cash equivalents, accounts receivable, accounts payable and accrued expenses, as reflected in the condensed consolidated balance sheets, approximates fair value due to the short maturities. The fair value of the Company’s cash equivalents, accounts receivable and current maturities of long-term debt approximates their carrying amounts. The fair value of the Company’s long-term debt was approximately $1,351.6 million and $1,307.6 million at September 30, 2017 and December 31, 2016, respectively. The fair value of these debt instruments is determined by reference to the market value of thesuch instruments as quoted in an over-the-counter markets,market, which arerepresents Level 1 inputs.in the fair value hierarchy.
(8) The following table reflects the fair value measurements used in testing the impairment of long-lived assets (in thousands):
Nine Months Ended September 30, 2019 | ||||||
Impairment | Fair Value | |||||
Long-lived assets | $ | 40,952 | $ | 292,277 | ||
Fair value is measured as of impairment date using Level 3 inputs. See Note 10 for a discussion of the reduction in value of assets recorded during the nine months ended September 30, 2019.
(9) Segment Information
Business Segments
The Drilling Products and Services segment rents and sells premium drill pipe, bottom hole assemblies, tubulars and specialized equipment for use with onshore and offshore oil and gas well drilling, completion, production and workover activities. It also provides on-site accommodations and machining services. The Onshore Completion and Workover Services segment provides pressure pumping services used to complete and stimulate production in new oil and gas wells, fluid handling services and well servicing rigs that provide a variety of well completion, workover and maintenance services. The Production Services segment provides intervention services such as coiled tubing, cased hole and mechanical wireline, hydraulic workover and snubbing, production testing and optimization, and remedial pumping services. The Technical Solutions segment provides services typically requiring specialized engineering, manufacturing or project planning, including well containment systems, stimulation and sand control services, and well plug and abandonment services. It also includesservices and the production and sale of oil and gas.
The Company evaluates the performance of its reportable segments based on income or loss from operations.operations excluding corporate expenses. The segment measure is calculated as follows: segment revenues less segment operating expenses, depreciation, depletion, amortization and accretion expense and reduction in value of assets and allocated corporate general and administrative expenses. Corporate general and administrative expenses are allocated to the segments based primarily on specific identification and, to the extent that such identification is not practical, other methods that the Company believes to be a reasonable reflection of the utilization of services provided.assets. The Company believesuses this segment measure is useful in evaluating the performance ofto evaluate its reportable segments because it highlights operating trendsis the measure that is most consistent with how the Company organizes and aids analytical comparisons.manages its business operations. Corporate and other costs primarily include expenses related to support functions, salaries and benefits for corporate employees and stock-based compensation expense.
Summarized financial information for the Company’s segments is as follows (in thousands):
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Three Months Ended September 30, 2017 |
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Three Months Ended September 30, 2019 | Three Months Ended September 30, 2019 | |||||||||||||||||||||||||||||||||||
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| Onshore |
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| Onshore | |||||||||||||||||||||
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| Drilling |
| Completion |
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| Drilling | Completion | ||||||||||||||||||||
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| Products and |
| and Workover |
| Production |
| Technical |
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| Consolidated | Products and | and Workover | Production | Technical | Corporate and | Consolidated | |||||||||||||||||
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| Services |
| Services |
| Services |
| Solutions |
| Unallocated |
| Total | Services | Services | Services | Solutions | Other | Total | ||||||||||||||||||
Revenues |
| $ | 77,206 |
| $ | 248,405 |
| $ | 97,333 |
| $ | 83,085 |
| $ | - |
| $ | 506,029 | $ | 111,185 | $ | 145,105 | $ | 98,787 | $ | 70,640 | $ | - | $ | 425,717 | ||||||
Cost of services and rentals (exclusive of |
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depreciation, depletion, amortization and accretion) |
| 31,715 |
| 210,103 |
| 78,074 |
| 48,387 |
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| - |
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| 368,279 | 38,663 | 123,617 | 82,556 | 49,370 | - | 294,206 | ||||||||||||||||
Depreciation, depletion, amortization |
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and accretion |
| 32,055 |
| 48,828 |
| 19,606 |
| 8,262 |
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| - |
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| 108,751 | 20,168 | 29,080 | 12,063 | 4,909 | 1,169 | 67,389 | ||||||||||||||||
General and administrative expenses |
| 16,491 |
| 22,931 |
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| 17,441 |
|
| 17,509 |
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| - |
|
| 74,372 | 14,363 | 10,046 | 2,905 | 14,935 | 20,519 | 62,768 | ||||||||||||||
Reduction in value of assets |
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| - |
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| 1,838 |
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| - |
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| 8,115 |
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| - |
|
| 9,953 | - | 566 | 1,997 | 7,008 | - | 9,571 | ||||||||||||
Income (loss) from operations |
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| (3,055) |
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| (35,295) |
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| (17,788) |
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| 812 |
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| - |
|
| (55,326) | 37,991 | (18,204) | (734) | (5,582) | (21,688) | (8,217) | ||||||||||||
Interest income (expense), net |
| - |
| - |
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| - |
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| 926 |
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| (30,022) |
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| (29,096) | - | - | - | 1,051 | (25,556) | (24,505) | ||||||||||||||
Other expense |
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| - |
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| - |
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| - |
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| - |
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| (970) |
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| (970) | ||||||||||||||||||
Other income | - | - | - | - | (3,353) | (3,353) | ||||||||||||||||||||||||||||||
Income (loss) from continuing operations |
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before income taxes |
| $ | (3,055) |
| $ | (35,295) |
| $ | (17,788) |
| $ | 1,738 |
| $ | (30,992) |
| $ | (85,392) | $ | 37,991 | $ | (18,204) | $ | (734) | $ | (4,531) | $ | (50,597) | $ | (36,075) |
Three Months Ended September 30, 2018 | ||||||||||||||||||
Onshore | ||||||||||||||||||
Drilling | Completion | |||||||||||||||||
Products and | and Workover | Production | Technical | Corporate and | Consolidated | |||||||||||||
Services | Services | Services | Solutions | Other | Total | |||||||||||||
Revenues | $ | 99,184 | $ | 294,869 | $ | 105,870 | $ | 73,145 | $ | - | $ | 573,068 | ||||||
Cost of services and rentals (exclusive of | ||||||||||||||||||
depreciation, depletion, amortization and accretion) | 37,328 | 239,348 | 84,312 | 43,401 | - | 404,389 | ||||||||||||
Depreciation, depletion, amortization | ||||||||||||||||||
and accretion | 27,830 | 47,299 | 17,085 | 6,329 | 1,349 | 99,892 | ||||||||||||
General and administrative expenses | 13,771 | 5,455 | 10,471 | 14,453 | 24,745 | 68,895 | ||||||||||||
Income (loss) from operations | 20,255 | 2,767 | (5,998) | 8,962 | (26,094) | (108) | ||||||||||||
Interest income (expense), net | - | - | - | 986 | (25,938) | (24,952) | ||||||||||||
Other expense | - | - | - | - | (277) | (277) | ||||||||||||
Income (loss) from continuing operations | ||||||||||||||||||
before income taxes | $ | 20,255 | $ | 2,767 | $ | (5,998) | $ | 9,948 | $ | (52,309) | $ | (25,337) | ||||||
9
Nine Months Ended September 30, 2019 | ||||||||||||||||||
Onshore | ||||||||||||||||||
Drilling | Completion | |||||||||||||||||
Products and | and Workover | Production | Technical | Corporate and | Consolidated | |||||||||||||
Services | Services | Services | Solutions | Other | Total | |||||||||||||
Revenues | $ | 312,946 | $ | 513,638 | $ | 305,239 | $ | 197,385 | $ | - | $ | 1,329,208 | ||||||
Cost of services and rentals (exclusive of | ||||||||||||||||||
depreciation, depletion, amortization and accretion) | 118,732 | 436,400 | 240,855 | 124,810 | - | 920,797 | ||||||||||||
Depreciation, depletion, amortization | ||||||||||||||||||
and accretion | 64,684 | 100,210 | 39,375 | 17,198 | 3,579 | 225,046 | ||||||||||||
General and administrative expenses | 44,173 | 29,626 | 18,687 | 46,394 | 69,717 | 208,597 | ||||||||||||
Reduction in value of assets | - | 31,947 | 1,997 | 7,008 | - | 40,952 | ||||||||||||
Income/(loss) from operations | 85,357 | (84,545) | 4,325 | 1,975 | (73,296) | (66,184) | ||||||||||||
Interest income (expense), net | - | - | - | 3,104 | (77,379) | (74,275) | ||||||||||||
Other expense | - | - | - | - | (4,476) | (4,476) | ||||||||||||
Income/(loss) from continuing operations | ||||||||||||||||||
before income taxes | $ | 85,357 | $ | (84,545) | $ | 4,325 | $ | 5,079 | $ | (155,151) | $ | (144,935) | ||||||
Nine Months Ended September 30, 2018 | ||||||||||||||||||
Onshore | ||||||||||||||||||
Drilling | Completion | |||||||||||||||||
Products and | and Workover | Production | Technical | Corporate and | Consolidated | |||||||||||||
Services | Services | Services | Solutions | Other | Total | |||||||||||||
Revenues | $ | 278,419 | $ | 802,600 | $ | 308,591 | $ | 201,324 | $ | - | $ | 1,590,934 | ||||||
Cost of services and rentals (exclusive of | ||||||||||||||||||
depreciation, depletion, amortization and accretion) | 108,997 | 630,205 | 255,377 | 123,080 | - | 1,117,659 | ||||||||||||
Depreciation, depletion, amortization | ||||||||||||||||||
and accretion | 86,061 | 142,377 | 50,668 | 20,332 | 4,146 | 303,584 | ||||||||||||
General and administrative expenses | 40,138 | 29,783 | 29,760 | 41,836 | 73,094 | 214,611 | ||||||||||||
Income (loss) from operations | 43,223 | 235 | (27,214) | 16,076 | (77,240) | (44,920) | ||||||||||||
Interest income (expense), net | - | - | - | 2,913 | (77,646) | (74,733) | ||||||||||||
Other expense | - | - | - | - | (4,394) | (4,394) | ||||||||||||
Income (loss) from continuing operations | ||||||||||||||||||
before income taxes | $ | 43,223 | $ | 235 | $ | (27,214) | $ | 18,989 | $ | (159,280) | $ | (124,047) |
Identifiable Assets | ||||||||||||||||||
Onshore | ||||||||||||||||||
Drilling | Completion | |||||||||||||||||
Products and | and Workover | Production | Technical | Corporate and | Consolidated | |||||||||||||
Services | Services | Services | Solutions | Other | Total | |||||||||||||
September 30, 2019 | $ | 663,515 | $ | 607,947 | $ | 420,208 | $ | 361,434 | $ | 70,647 | $ | 2,123,751 | ||||||
December 31, 2018 | $ | 587,264 | $ | 808,037 | $ | 434,430 | $ | 340,161 | $ | 46,070 | $ | 2,215,962 |
During the nine months ended September 30, 2019, the Company sold its drilling rig service line, which was previously included in the Onshore Completion and Workover Services segment. This service line included 12 active U.S. land based drilling rigs and associated equipment with a carrying value of $66.2 million. The Company received $78.0 million in cash proceeds and recognized a $0.2 million loss on sale of assets. In addition, the Company recorded a $7.5 million impairment of the intangibles associated with the disposed assets.
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Three Months Ended September 30, 2016 |
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| Onshore |
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| Drilling |
| Completion |
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| Products and |
| and Workover |
| Production |
| Technical |
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| Consolidated | |||||
|
| Services |
| Services |
| Services |
| Solutions |
| Unallocated |
| Total | ||||||
Revenues |
| $ | 59,587 |
| $ | 125,022 |
| $ | 77,523 |
| $ | 64,093 |
| $ | - |
| $ | 326,225 |
Cost of services and rentals (exclusive of |
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depreciation, depletion, amortization and accretion) |
|
| 26,955 |
|
| 124,747 |
|
| 66,000 |
|
| 40,466 |
|
| - |
|
| 258,168 |
Depreciation, depletion, amortization and accretion |
|
| 37,950 |
|
| 51,346 |
|
| 23,131 |
|
| 10,881 |
|
| - |
|
| 123,308 |
General and administrative expenses |
|
| 20,431 |
|
| 23,124 |
|
| 19,712 |
|
| 23,476 |
|
| - |
|
| 86,743 |
Loss from operations |
|
| (25,749) |
|
| (74,195) |
|
| (31,320) |
|
| (10,730) |
|
| - |
|
| (141,994) |
Interest income (expense), net |
|
| - |
|
| - |
|
| (17) |
|
| 870 |
|
| (22,624) |
|
| (21,771) |
Other income |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 3,667 |
|
| 3,667 |
Loss from continuing operations |
| $ | (25,749) |
| $ | (74,195) |
| $ | (31,337) |
| $ | (9,860) |
| $ | (18,957) |
| $ | (160,098) |
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Identifiable Assets |
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| Onshore |
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| |
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| Drilling |
| Completion |
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| |||
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| Products and |
| and Workover |
| Production |
| Technical |
| Consolidated | |||||
|
| Services |
| Services |
| Services |
| Solutions |
| Total | |||||
September 30, 2017 |
| $ | 686,609 |
| $ | 1,564,596 |
| $ | 531,809 |
| $ | 428,117 |
| $ | 3,211,131 |
December 31, 2016 |
| $ | 849,046 |
| $ | 1,573,801 |
| $ | 598,909 |
| $ | 448,499 |
| $ | 3,470,255 |
Geographic Segments
The Company attributes revenue to various countries based on the location of where services are performed or the destination of the drilling products or equipment sold or rented. Long-lived assets consist primarily of property, plant and equipment and are attributed to various countries based on the physical location of the asset at the end of a period. The Company’s revenue attributed to the U.S. and to other countries and the value of its long-lived assets by those locations are as follows (in thousands):
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Revenues |
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| Three Months Ended September 30, |
| Nine Months Ended September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||
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| 2017 |
| 2016 |
| 2017 |
| 2016 | 2019 | 2018 | 2019 | 2018 | ||||||||||||
United States |
| $ | 423,137 |
| $ | 243,586 |
|
| 1,158,810 |
| $ | 808,546 | $ | 324,559 | $ | 486,912 | $ | 1,045,615 | $ | 1,342,125 | ||||
Other countries |
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| 82,892 |
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| 82,639 |
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| 218,223 |
|
| 287,083 | 101,158 | 86,156 | 283,593 | 248,809 | ||||||||
Total |
| $ | 506,029 |
| $ | 326,225 |
| $ | 1,377,033 |
| $ | 1,095,629 | $ | 425,717 | $ | 573,068 | $ | 1,329,208 | $ | 1,590,934 | ||||
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Long-Lived Assets |
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| September 30, 2017 |
| December 31, 2016 |
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September 30, 2019 | December 31, 2018 | |||||||||||||||||||||||
United States |
| $ | 1,095,568 |
| $ | 1,288,077 |
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| $ | 712,661 | $ | 903,520 | ||||||||||
Other countries |
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| 283,992 |
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| 317,288 |
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| 178,879 | 205,606 | ||||||||||||
Total |
| $ | 1,379,560 |
| $ | 1,605,365 |
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| $ | 891,540 | $ | 1,109,126 |
(9)Stock-Based Compensation Plans
The Company maintains various stock incentive plans that provide long-term incentives to the Company’s key employees, including officers, directors, consultants and advisors (Eligible Participants). Under the stock incentive plans, the Company may grant incentive stock options, restricted stock, restricted stock units, stock appreciation rights, other stock-based awards or any combination thereof to Eligible Participants. The Company’s total compensation expense related to these plans was approximately $29.2 million and $32.4 million for the nine months ended September 30, 2017 and 2016, respectively, which is reflected in general and administrative expenses.
(10)Income Taxes
The Company had $29.9 million of unrecorded tax benefits as of September 30, 2017 and December 31, 2016, all of which would impact the Company’s effective tax rate if recognized. It is the Company’s policy to recognize interest and applicable penalties, if any, related to uncertain tax positions in income tax expense.
(11)Earnings per Share
Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed in the same manner as basic earnings per share except that the denominator is increased to include the number of additional common shares that could have been outstanding assuming the exercise of stock options and the conversion of restricted stock units.
11
For the three and nine months ended September 30, 2017 and 2016, the Company incurred a loss from continuing operations; therefore the impact of any incremental shares would be anti-dilutive.
(12) Reduction in Value of Assets
For the nine months ended September 30, 2017, the Company recorded $9.9 million in expense related to the reduction in value of assets of property, plant and equipment, primarily in the Technical Solutions segment.
For the three and nine months ended September 30, 2016, the Company recorded $0 and $462.5 million in expense related to the reduction in value of assets, respectively. The components of the reduction in value of assets are as follows (in thousands):
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Reduction in Value of Goodwill
Goodwill is tested for impairment annually as of October 1st or on an interim basis if events or circumstances indicate that the fair value of the asset has decreased below its carrying value. The Company’s goodwill impairment evaluation as of June 30, 2016, indicated that the carrying values of the Onshore Completion and Workover Services and Production Services segments exceeded their fair values so that goodwill was potentially impaired. The Company then performed the second step of the goodwill impairment test, which involved calculating the implied fair value of the segments’ goodwill by allocating the fair values of the Onshore Completion and Workover Services and Production Services segments to all of their assets and liabilities (other than goodwill) and comparing them to the carrying amounts of the goodwill. To estimate the fair value of the reporting unit (which is consistent with the reported business segment), the Company used a weighting of the discounted cash flow method and the public company guideline method of determining fair value of the reporting unit. The Company weighted the discounted cash flow method 80% and the public company guideline method 20% due to differences between the Company’s reporting unit and peer companies’ size, profitability and diversity of operations.
During the nine months ended September 30, 2016, the Company recorded a $330.5 million reduction in value of goodwill relating to its Onshore Completion and Workover Services and Production Services segments. The Company determined that the implied fair value of its goodwill for the Onshore Completion and Workover Services segment was less than its carrying value and recorded a $140.0 million impairment of the Onshore Completion and Workover Services segment’s goodwill. In addition, the Company determined that the implied fair value of its goodwill for the Production Services segment was less than its carrying value and recorded a $190.5 million impairment of the Production Services segment’s goodwill.
At September 30, 2017 and December 31, 2016, the Company’s accumulated reduction in value of goodwill was $1,748.2 million.
Reduction in Value of Long-Lived Assets
Long-lived assets, such as property, plant and equipment and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is assessed by a comparison of the carrying amount of such assets to their fair value calculated, in part, by the estimated undiscounted future cash flows expected to be generated by the assets. Cash flow estimates are based upon, among other things, historical results adjusted to reflect the best estimate of future market rates, utilization levels, and operating performance. Estimates of cash flows may differ from actual cash flows due to, among other things, changes in economic conditions or changes in an asset’s operating performance. The Company’s assets are grouped by line of business or division for the impairment testing, which represent the lowest level of identifiable cash flows. If the asset grouping’s fair value is less than the carrying amount of those items,the asset grouping, impairment losses are recorded in the amount by which the carrying amount of such assetsasset grouping exceeds the fair value. The estimate of fair value represents the Company’s best estimate based on industry trends and reference to market transactions and is subject to variability.
During the three and nine months ended September 30, 2016,2019, the Company recorded $105.9an estimated $9.6 million and $41.0 million, respectively, in connection with the reduction in value of its long-lived assets. The reduction in value of assets was comprised of $2.9 millionprimarily related to equipment and $45.9 million related toreduction in value of certain intangibles in the fluid management business in the Onshore Completion and Workover Services segment and $12.4 millionlong-lived assets in the Technical Solutions segment.
(11)Stock-Based Compensation Plans
The Company maintains various stock incentive plans that provide long-term incentives to the Company’s key employees, including officers, directors, consultants and advisors (Eligible Participants). Under the stock incentive plans, the Company may grant incentive stock options, restricted stock, restricted stock units, stock appreciation rights, other stock-based awards or any combination thereof to Eligible Participants. The Company’s total compensation expense related to equipmentthese plans was approximately $13.9 million and $21.0$22.8 million related to intangibles, primarily relating to the cementing business in the Production Services segment. In addition, the Company recorded $23.7 million related to the reduction in carrying values of certain accommodation units included in the Drilling Products and Services segment.
12
Retirements of Long-Lived Assets
Duringfor the nine months ended September 30, 2016,2019 and 2018, respectively, which is reflected in general and administrative expenses.
(12) Income Taxes
The Company had $30.6 million of unrecorded tax benefits as of September 30, 2019 and December 31, 2018, all of which would impact the Company recorded $23.9 millionCompany’s effective tax rate if recognized. It is the Company’s policy to recognize interest and applicable penalties, if any, related to uncertain tax positions in income tax expense.
(13) Earnings per Share
Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed in the Drilling Products and Services segment for retirement and abandonmentsame manner as basic earnings per share except that
the denominator is increased to include the number of excess and inoperable and/or functionally obsolete long-lived assetsadditional common shares that would require a significant cost to refurbish.
(13)Discontinued Operations
At September 30, 2017,could have been outstanding assuming the assetsexercise of the Company’s former subsea construction business were being actively marketedstock options and the Company’s management is committed to selling the remaining assets, which were classified as held for sale. conversion of restricted stock units.
The following summarizes the assets and liabilities related to the businesses reported as discontinued operations (in thousands):
|
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|
| September 30, 2017 |
| December 31, 2016 | ||
Current assets |
| $ | 330 |
| $ | 158 |
Property, plant and equipment, net |
|
| 27,000 |
|
| 27,000 |
Total assets |
| $ | 27,330 |
| $ | 27,158 |
Current liabilities |
| $ | 8,755 |
| $ | 8,653 |
LossCompany incurred a loss from discontinuedcontinuing operations for the three and nine months ended September 30, 2017 was $1.9 million2019 and $5.6 million, respectively. Loss from discontinued operations for2018; therefore the three and nine months ended September 30, 2016 was $4.1 million and $8.6 million, respectively. impact of any incremental shares would be anti-dilutive.
(14)New Accounting Pronouncements Contingencies
Standards adopted
In January 2017,Due to the Financial Accounting Standards Board (FASB) issued accounting standards update (ASU) 2017-04, Intangibles- Goodwill and Other (Topic 350): Simplifyingnature of the Test for Goodwill Impairment. The amendments eliminate Step 2 from the goodwill impairment test. The annual or interim goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The amendments should be applied on a prospective basis. The new standard is effective forCompany’s business, the Company on January 1, 2020. Early adoption is permitted for interiminvolved, from time to time, in routine litigation or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company adopted the accounting guidancesubject to disputes or claims regarding its business activities. Legal costs related to these matters are expensed as of January 1, 2017. The newly adopted accounting principle is preferable because it reduces the cost and complexity of evaluating goodwill for impairment. The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements.
incurred. In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which relates to the accounting for employee share-based payments. The guidance in this update addresses several aspectsmanagement’s opinion, none of the accounting for share-based payments, including income tax consequences, classification of awards as either equitypending litigation, disputes or liabilities and classification on the statement of cash flows. The Company adopted the accounting guidance as of January 1, 2017. The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements.
In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330) – Simplifying the Measurement of Inventory, which applies to inventory measured using first-in, first-out or average cost. The guidance in this update states that inventory within its scope shall be measured at the lower of cost or net realizable value, and when the net realizable value of inventoryclaims is lower than its cost, the difference shall be recognized as a loss in earnings. The Company adopted the accounting guidance as of January 1, 2017. The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements.
Standards not yet adopted
In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. The guidance in this ASU applies to all entities that change the terms or conditions of a share-based payment award. The amendments provide clarity and reduce diversity in practice as well as cost and complexity when applying the guidance in Topic 718, Compensation – Stock Compensation, to the modification of the terms and conditions of a share-based payment award. The amendments in ASU 2017-09 include guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The new standard is effective for the Company beginning on January 1, 2018 and should be applied prospectively to awards modified on or after the adoption date. The Company does not expect the adoption of this ASUexpected to have a material impact on its condensed consolidated financial statements.
13
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The amendments affect all companies and other reporting organizations that must determine whether they have acquired or sold a business. The amendments are intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments provide a more robust framework to use in determining when a set of assets and activities is a business. The new standard is effective for the Company beginning on January 1, 2018. The Company does not expect the adoption of this ASU to have a material impact on its condensed consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statements of Cash Flows (Topic 230): Restricted Cash. The guidance in this ASU requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shownadverse effect on the statementCompany’s financial condition, results of cash flows. The new standard is effective for the Company beginning on January 1, 2018 and should be applied on a retrospective basis. The Company does not expect the adoptionoperations or liquidity.
A subsidiary of this ASU to have a material impact on its condensed consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. The guidance in this ASU requires entities to recognize at the transaction date the income tax consequences of intercompany asset transfers other than inventory. The new standard is effective for the Company beginning on January 1, 2018. The Company is evaluating the effect that ASU 2016-16 will have on its condensed consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize the assets and liabilities arising from leases on the balance sheet. This new ASU will require the lessee to recognize a lease liability equal to the present value of the lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term for all leases longer than 12 months. For leases with a term of 12 month or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and liabilities and recognize the lease expense for such leases generally on a straight-line basis over the lease term. Under the new guidance, the Company will revise its leasing policies to require most of the leases, where the Company is involved in legal proceedings with 2 employees regarding the lessee, to be recognized onpayment of royalties for a patentable product developed by them. On April 2, 2018, the balance sheet asemployees filed a lease and lease liability. Further,lawsuit in the Company will separate leases from other contracts whereHarris County District Court alleging that the Company is eitherroyalty payments they had received since 2010 should have been higher. In May 2019, the lessor or lessee whenjury issued a verdict in favor of the rights conveyed underplaintiffs. On October 25, 2019, the contracts indicate there iscourt issued a lease.final judgment against the Company. The Company is evaluatingstrongly disagrees with the effect ASU 2016-02 will have on its condensed consolidated financial statements. The Company anticipatesverdict and believes the district court committed several legal errors that its assets and liabilities will increase byshould result in a significant amount. The new standard is effective for the Company beginning on January 1, 2019.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which will replace most existing revenue recognition guidance in GAAP. The guidance in this ASU requires an entity to recognize the amount of revenue that it expects to be entitled for the transfer of promised goodsreversal or services to customers. The new standard is effective for the Company beginning on January 1, 2018. The Company is in the process of determining the impacts the new standard will have on its various revenue streams. The Company’s approach includes performing a detailed review of key contracts representativeremand of the different businesses and comparing historical accounting policies and practices tocase by the new accounting guidance.Court of Appeals. The Company’s services and rental contracts are primarily short-term in nature, and therefore, based on the initial assessment, the Company does not expect the adoptionultimate resolution of this ASUmatter could result in a loss of up to have$11.0 million in excess of amounts accrued.
(15) Supplemental Guarantor Information
SESI, L.L.C. (the Issuer), a material impact on100% owned subsidiary of Superior Energy Services, Inc. (Parent), has $500 million of 7.75% senior unsecured notes due 2024. The Parent, along with certain of its condensed consolidated financial statements, other than the additional disclosure requirements. Remaining implementation matters include establishing new policies, procedures, controls,100% owned domestic subsidiaries, fully and quantifying any adoption date adjustments. The Company will adopt this standard on January 1, 2018 utilizing the modified retrospective method.unconditionally guaranteed such senior unsecured notes, and such guarantees are joint and several.
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||
Condensed Consolidating Balance Sheets | ||||||||||||||||||
September 30, 2019 | ||||||||||||||||||
(in thousands) | ||||||||||||||||||
(unaudited) | ||||||||||||||||||
Parent | Issuer | Guarantor | Non- | Eliminations | Consolidated | |||||||||||||
Assets | ||||||||||||||||||
Current assets: | ||||||||||||||||||
Cash and cash equivalents | $ | - | $ | 187,979 | $ | 1,341 | $ | 70,569 | $ | - | $ | 259,889 | ||||||
Accounts receivable, net | - | 30 | 280,704 | 87,796 | - | 368,530 | ||||||||||||
Other current assets | - | 8,592 | 133,669 | 62,339 | - | 204,600 | ||||||||||||
Total current assets | - | 196,601 | 415,714 | 220,704 | - | 833,019 | ||||||||||||
Property, plant and equipment, net | - | 11,372 | 722,830 | 157,338 | - | 891,540 | ||||||||||||
Operating lease right-of-use assets | - | 22,530 | 57,334 | 16,326 | - | 96,190 | ||||||||||||
Goodwill | - | - | 80,544 | 55,378 | - | 135,922 | ||||||||||||
Notes receivable | - | - | 67,042 | - | - | 67,042 | ||||||||||||
Long-term intercompany accounts receivable | 2,256,701 | 1,111,335 | 3,491,267 | 218,291 | (7,077,594) | - | ||||||||||||
Intercompany notes receivable | - | 1,200 | - | 6,000 | (7,200) | - | ||||||||||||
Equity investments of consolidated subsidiaries | (2,113,614) | 3,701,545 | 7,764 | - | (1,595,695) | - | ||||||||||||
Restricted cash | - | - | 2,708 | 45 | - | 2,753 | ||||||||||||
Intangible and other long-term assets, net | - | 19,203 | 71,239 | 6,843 | - | 97,285 | ||||||||||||
Total assets | $ | 143,087 | $ | 5,063,786 | $ | 4,916,442 | $ | 680,925 | $ | (8,680,489) | $ | 2,123,751 | ||||||
Liabilities and Stockholders' Equity | ||||||||||||||||||
Current liabilities: | ||||||||||||||||||
Accounts payable | $ | - | $ | 8,986 | $ | 67,127 | $ | 34,285 | $ | - | $ | 110,398 | ||||||
Accrued expenses | - | 80,810 | 104,122 | 35,691 | - | 220,623 | ||||||||||||
Income taxes payable | - | (717) | - | 4,559 | - | 3,842 | ||||||||||||
Current portion of decommissioning liabilities | - | - | - | 3,621 | - | 3,621 | ||||||||||||
Total current liabilities | - | 89,079 | 171,249 | 78,156 | - | 338,484 | ||||||||||||
Long-term debt, net | - | 1,285,755 | - | - | - | 1,285,755 | ||||||||||||
Deferred income taxes | - | (149,512) | 145,416 | 4,096 | - | - | ||||||||||||
Decommissioning liabilities | - | - | 131,263 | - | - | 131,263 | ||||||||||||
Operating lease liabilities | - | 23,093 | 42,009 | 11,153 | - | 76,255 | ||||||||||||
Long-term intercompany accounts payable | - | 5,876,786 | 1,082,435 | 118,373 | (7,077,594) | - | ||||||||||||
Intercompany notes payable | - | 6,000 | - | 1,200 | (7,200) | - | ||||||||||||
Other long-term liabilities | - | 46,199 | 76,510 | 26,198 | - | 148,907 | ||||||||||||
Total stockholders' equity (deficit) | 143,087 | (2,113,614) | 3,267,560 | 441,749 | (1,595,695) | 143,087 | ||||||||||||
Total liabilities and stockholders' equity | $ | 143,087 | $ | 5,063,786 | $ | 4,916,442 | $ | 680,925 | $ | (8,680,489) | $ | 2,123,751 | ||||||
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||
Condensed Consolidating Balance Sheets | ||||||||||||||||||
December 31, 2018 | ||||||||||||||||||
(in thousands) | ||||||||||||||||||
(unaudited) | ||||||||||||||||||
Parent | Issuer | Guarantor | Non- | Eliminations | Consolidated | |||||||||||||
Assets | ||||||||||||||||||
Current assets: | ||||||||||||||||||
Cash and cash equivalents | $ | - | $ | 102,224 | $ | 707 | $ | 55,119 | $ | - | $ | 158,050 | ||||||
Accounts receivable, net | - | 160 | 367,497 | 79,696 | - | 447,353 | ||||||||||||
Intercompany accounts receivable | - | 12,279 | 74,906 | 3,489 | (90,674) | - | ||||||||||||
Other current assets | - | 12,805 | 111,560 | 43,137 | - | 167,502 | ||||||||||||
Total current assets | - | 127,468 | 554,670 | 181,441 | (90,674) | 772,905 | ||||||||||||
Property, plant and equipment, net | - | 10,129 | 920,978 | 178,019 | - | 1,109,126 | ||||||||||||
Goodwill | - | - | 80,544 | 56,244 | - | 136,788 | ||||||||||||
Notes receivable | - | - | 63,993 | - | - | 63,993 | ||||||||||||
Long-term intercompany accounts receivable | 2,243,431 | - | 1,991,912 | 182,284 | (4,417,627) | - | ||||||||||||
Equity investments of consolidated subsidiaries | (1,952,647) | 3,754,887 | 5,992 | - | (1,808,232) | - | ||||||||||||
Restricted cash | - | - | 5,653 | 45 | - | 5,698 | ||||||||||||
Intangible and other long-term assets, net | - | 19,255 | 100,847 | 7,350 | - | 127,452 | ||||||||||||
Total assets | $ | 290,784 | $ | 3,911,739 | $ | 3,724,589 | $ | 605,383 | $ | (6,316,533) | $ | 2,215,962 | ||||||
Liabilities and Stockholders' Equity | ||||||||||||||||||
Current liabilities: | ||||||||||||||||||
Accounts payable | $ | - | $ | 8,807 | $ | 109,903 | $ | 20,615 | $ | - | $ | 139,325 | ||||||
Accrued expenses | 45 | 102,845 | 86,926 | 29,364 | - | 219,180 | ||||||||||||
Income taxes payable | - | 1,237 | - | (503) | - | 734 | ||||||||||||
Intercompany accounts payable | - | 724 | 6,869 | 83,081 | (90,674) | - | ||||||||||||
Current portion of decommissioning liabilities | - | - | - | 3,538 | - | 3,538 | ||||||||||||
Total current liabilities | 45 | 113,613 | 203,698 | 136,095 | (90,674) | 362,777 | ||||||||||||
Long-term debt, net | - | 1,282,921 | - | - | - | 1,282,921 | ||||||||||||
Decommissioning liabilities | - | - | 126,558 | - | - | 126,558 | ||||||||||||
Long-term intercompany accounts payable | - | 4,417,627 | - | - | (4,417,627) | - | ||||||||||||
Other long-term liabilities | - | 50,225 | 76,543 | 26,199 | - | 152,967 | ||||||||||||
Total stockholders' equity (deficit) | 290,739 | (1,952,647) | 3,317,790 | 443,089 | (1,808,232) | 290,739 | ||||||||||||
Total liabilities and stockholders' equity | $ | 290,784 | $ | 3,911,739 | $ | 3,724,589 | $ | 605,383 | $ | (6,316,533) | $ | 2,215,962 | ||||||
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||
Condensed Consolidating Statements of Operations | ||||||||||||||||||
Three Months Ended September 30, 2019 | ||||||||||||||||||
(in thousands) | ||||||||||||||||||
(unaudited) | ||||||||||||||||||
Parent | Issuer | Guarantor | Non- | Eliminations | Consolidated | |||||||||||||
Revenues | $ | - | $ | - | $ | 352,158 | 80,018 | (6,459) | $ | 425,717 | ||||||||
Cost of services and rentals (exclusive of depreciation, | ||||||||||||||||||
depletion, amortization and accretion) | - | (1,373) | 245,743 | 56,295 | (6,459) | 294,206 | ||||||||||||
Depreciation, depletion, amortization and | ||||||||||||||||||
accretion | - | 907 | 57,143 | 9,339 | - | 67,389 | ||||||||||||
General and administrative expenses | - | 16,581 | 35,320 | 10,867 | - | 62,768 | ||||||||||||
Reduction in value of assets | - | - | 9,571 | - | - | 9,571 | ||||||||||||
Income (loss) from operations | - | (16,115) | 4,381 | 3,517 | - | (8,217) | ||||||||||||
Other income (expense): | ||||||||||||||||||
Interest income (expense), net | - | (25,911) | 1,364 | 42 | - | (24,505) | ||||||||||||
Intercompany interest income (expense) | - | (42) | - | 42 | - | - | ||||||||||||
Other income (expense) | - | (132) | 411 | (3,632) | - | (3,353) | ||||||||||||
Equity in losses of consolidated subsidiaries | (38,441) | (5,124) | (2,544) | - | 46,109 | - | ||||||||||||
Income (loss) from operations before income taxes | (38,441) | (47,324) | 3,612 | (31) | 46,109 | (36,075) | ||||||||||||
Income taxes | - | (8,883) | 9,729 | 1,520 | - | 2,366 | ||||||||||||
Net income (loss) | (38,441) | (38,441) | (6,117) | (1,551) | 46,109 | (38,441) | ||||||||||||
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||
Consolidating Statements of Comprehensive Income (Loss) | ||||||||||||||||||
Three Months Ended September 30, 2019 | ||||||||||||||||||
(in thousands) | ||||||||||||||||||
(unaudited) | ||||||||||||||||||
Parent | Issuer | Guarantor | Non- | Eliminations | Consolidated | |||||||||||||
Net income (loss) | $ | (38,441) | $ | (38,441) | $ | (6,117) | $ | (1,551) | $ | 46,109 | $ | (38,441) | ||||||
Change in cumulative translation adjustment, net of tax | (2,967) | (2,967) | - | (2,967) | 5,934 | (2,967) | ||||||||||||
Comprehensive loss | $ | (41,408) | $ | (41,408) | $ | (6,117) | $ | (4,518) | $ | 52,043 | $ | (41,408) | ||||||
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||
Condensed Consolidating Statements of Operations | ||||||||||||||||||
Three Months Ended September 30, 2018 | ||||||||||||||||||
(in thousands) | ||||||||||||||||||
(unaudited) | ||||||||||||||||||
Parent | Issuer | Guarantor | Non- | Eliminations | Consolidated | |||||||||||||
Revenues | $ | - | $ | - | $ | 511,510 | $ | 66,428 | $ | (4,870) | $ | 573,068 | ||||||
Cost of services and rentals (exclusive of depreciation, | ||||||||||||||||||
depletion, amortization and accretion) | - | (793) | 366,568 | 43,484 | (4,870) | 404,389 | ||||||||||||
Depreciation, depletion, amortization and | ||||||||||||||||||
accretion | - | 965 | 87,973 | 10,954 | - | 99,892 | ||||||||||||
General and administrative expenses | - | 23,959 | 34,726 | 10,210 | - | 68,895 | ||||||||||||
Income (loss) from operations | - | (24,131) | 22,243 | 1,780 | - | (108) | ||||||||||||
Other income (expense): | ||||||||||||||||||
Interest income (expense), net | - | (26,024) | 993 | 79 | - | (24,952) | ||||||||||||
Other income (expense) | - | (356) | 264 | (185) | - | (277) | ||||||||||||
Equity in earnings (losses) of consolidated subsidiaries | (21,816) | 19,182 | (53) | - | 2,687 | - | ||||||||||||
Income (loss) from continuing operations before income taxes | (21,816) | (31,329) | 23,447 | 1,674 | 2,687 | (25,337) | ||||||||||||
Income taxes | - | (9,513) | 5,260 | 732 | - | (3,521) | ||||||||||||
Net income (loss) | $ | (21,816) | $ | (21,816) | $ | 18,187 | $ | 942 | $ | 2,687 | $ | (21,816) | ||||||
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||
Consolidating Statements of Comprehensive Income (Loss) | ||||||||||||||||||
Three Months Ended September 30, 2018 | ||||||||||||||||||
(in thousands) | ||||||||||||||||||
(unaudited) | ||||||||||||||||||
Parent | Issuer | Guarantor | Non- | Eliminations | Consolidated | |||||||||||||
Net income (loss) | $ | (21,816) | $ | (21,816) | $ | 18,187 | $ | 942 | $ | 2,687 | $ | (21,816) | ||||||
Change in cumulative translation adjustment, net of tax | (826) | (826) | - | (826) | 1,652 | (826) | ||||||||||||
Comprehensive income (loss) | $ | (22,642) | $ | (22,642) | $ | 18,187 | $ | 116 | $ | 4,339 | $ | (22,642) | ||||||
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||
Condensed Consolidating Statements of Operations | ||||||||||||||||||
Nine Months Ended September 30, 2019 | ||||||||||||||||||
(in thousands) | ||||||||||||||||||
(unaudited) | ||||||||||||||||||
Parent | Issuer | Guarantor | Non- | Eliminations | Consolidated | |||||||||||||
Revenues | $ | - | $ | - | $ | 1,108,641 | $ | 238,154 | $ | (17,587) | $ | 1,329,208 | ||||||
Cost of services and rentals (exclusive of depreciation, | ||||||||||||||||||
depletion, amortization and accretion) | - | (8,244) | 784,396 | 162,232 | (17,587) | 920,797 | ||||||||||||
Depreciation, depletion, amortization and | ||||||||||||||||||
accretion | - | 2,780 | 193,503 | 28,763 | - | 225,046 | ||||||||||||
General and administrative expenses | - | 64,319 | 109,983 | 34,295 | - | 208,597 | ||||||||||||
Reduction in value of assets | - | - | 40,952 | - | - | 40,952 | ||||||||||||
Income (loss) from operations | - | (58,855) | (20,193) | 12,864 | - | (66,184) | ||||||||||||
Other income (expense): | ||||||||||||||||||
Interest income (expense), net | - | (78,195) | 3,836 | 84 | - | (74,275) | ||||||||||||
Intercompany interest income (expense) | (67) | - | 67 | |||||||||||||||
Other income (expense) | - | (1,207) | (799) | (2,470) | - | (4,476) | ||||||||||||
Equity in earnings (losses) of consolidated subsidiaries | (157,196) | (49,523) | (1,820) | - | 208,539 | - | ||||||||||||
Income (loss) from continuing operations before income taxes | (157,196) | (187,847) | (18,976) | 10,545 | 208,539 | (144,935) | ||||||||||||
Income taxes | - | (30,651) | 34,891 | 8,021 | - | 12,261 | ||||||||||||
Net income (loss) | $ | (157,196) | $ | (157,196) | $ | (53,867) | $ | 2,524 | $ | 208,539 | $ | (157,196) | ||||||
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||
Consolidating Statements of Comprehensive Income (Loss) | ||||||||||||||||||
Nine Months Ended September 30, 2019 | ||||||||||||||||||
(in thousands) | ||||||||||||||||||
(unaudited) | ||||||||||||||||||
Parent | Issuer | Guarantor | Non- | Eliminations | Consolidated | |||||||||||||
Net income (loss) | $ | (157,196) | $ | (157,196) | $ | (53,867) | $ | 2,524 | $ | 208,539 | $ | (157,196) | ||||||
Change in cumulative translation adjustment, net of tax | (3,810) | (3,810) | - | (3,810) | 7,620 | (3,810) | ||||||||||||
Comprehensive income (loss) | $ | (161,006) | $ | (161,006) | $ | (53,867) | $ | (1,286) | $ | 216,159 | $ | (161,006) | ||||||
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||
Condensed Consolidating Statements of Operations | ||||||||||||||||||
Nine Months Ended September 30, 2018 | ||||||||||||||||||
(in thousands) | ||||||||||||||||||
(unaudited) | ||||||||||||||||||
Parent | Issuer | Guarantor | Non- | Eliminations | Consolidated | |||||||||||||
Revenues | $ | - | $ | - | $ | 1,420,368 | $ | 192,976 | $ | (22,410) | $ | 1,590,934 | ||||||
Cost of services and rentals (exclusive of depreciation, | ||||||||||||||||||
depletion, amortization and accretion) | - | (6,382) | 1,011,801 | 134,650 | (22,410) | 1,117,659 | ||||||||||||
Depreciation, depletion, amortization and | ||||||||||||||||||
accretion | - | 2,974 | 266,188 | 34,422 | - | 303,584 | ||||||||||||
General and administrative expenses | - | 70,721 | 109,083 | 34,807 | - | 214,611 | ||||||||||||
Loss from operations | - | (67,313) | 33,296 | (10,903) | - | (44,920) | ||||||||||||
Other income (expense): | ||||||||||||||||||
Interest expense, net | - | (77,778) | 2,940 | 105 | - | (74,733) | ||||||||||||
Other income (expense) | - | (608) | 802 | (4,588) | - | (4,394) | ||||||||||||
Equity in losses of consolidated subsidiaries | (107,930) | 13,073 | (421) | - | 95,278 | - | ||||||||||||
Loss from continuing operations before income taxes | (107,930) | (132,626) | 36,617 | (15,386) | 95,278 | (124,047) | ||||||||||||
Income taxes | - | (24,696) | 7,185 | 665 | - | (16,846) | ||||||||||||
Net loss from continuing operations | (107,930) | (107,930) | 29,432 | (16,051) | 95,278 | (107,201) | ||||||||||||
Loss from discontinued operations, net of income taxes | - | - | - | (729) | - | (729) | ||||||||||||
Net loss | $ | (107,930) | $ | (107,930) | $ | 29,432 | $ | (16,780) | $ | 95,278 | $ | (107,930) | ||||||
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||
Consolidating Statements of Comprehensive Income (Loss) | ||||||||||||||||||
Nine Months Ended September 30, 2018 | ||||||||||||||||||
(in thousands) | ||||||||||||||||||
(unaudited) | ||||||||||||||||||
Parent | Issuer | Guarantor | Non- | Eliminations | Consolidated | |||||||||||||
Net income (loss) | $ | (107,930) | $ | (107,930) | $ | 29,432 | $ | (16,780) | $ | 95,278 | $ | (107,930) | ||||||
Change in cumulative translation adjustment, net of tax | (3,491) | (3,491) | - | (3,491) | 6,982 | (3,491) | ||||||||||||
Comprehensive income (loss) | $ | (111,421) | $ | (111,421) | $ | 29,432 | $ | (20,271) | $ | 102,260 | $ | (111,421) | ||||||
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | |||||||||||||||
Condensed Consolidating Statements of Cash Flows | |||||||||||||||
Nine Months Ended September 30, 2019 | |||||||||||||||
(in thousands) | |||||||||||||||
(unaudited) | |||||||||||||||
Parent | Issuer | Guarantor | Non- | Consolidated | |||||||||||
Cash flows from operating activities: | |||||||||||||||
Net cash provided by (used in) operating activities | $ | 14,295 | $ | (272,879) | $ | 350,633 | $ | 24,455 | $ | 116,504 | |||||
Cash flows from investing activities: | |||||||||||||||
Payments for capital expenditures | - | (5,514) | (94,757) | (5,122) | (105,393) | ||||||||||
Proceeds from sales of assets | - | - | 90,696 | - | 90,696 | ||||||||||
Net cash provided by (used in) investing activities | - | (5,514) | (4,061) | (5,122) | (14,697) | ||||||||||
Cash flows from financing activities: | |||||||||||||||
Changes in notes with affiliated companies, net | (13,270) | 364,179 | (348,883) | (2,026) | - | ||||||||||
Other | (1,025) | (31) | - | - | (1,056) | ||||||||||
Net cash provided by (used in) financing activities | (14,295) | 364,148 | (348,883) | (2,026) | (1,056) | ||||||||||
Effect of exchange rate changes on cash | - | - | - | (1,857) | (1,857) | ||||||||||
Net change in cash, cash equivalents, and restricted cash | - | 85,755 | (2,311) | 15,450 | 98,894 | ||||||||||
Cash, cash equivalents, and restricted cash at beginning of period | - | 102,224 | 6,360 | 55,164 | 163,748 | ||||||||||
Cash, cash equivalents, and restricted cash at end of period | $ | - | $ | 187,979 | $ | 4,049 | $ | 70,614 | $ | 262,642 | |||||
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | |||||||||||||||||
Condensed Consolidating Statements of Cash Flows | |||||||||||||||||
Nine Months Ended September 30, 2018 | |||||||||||||||||
(in thousands) | |||||||||||||||||
(unaudited) | |||||||||||||||||
Parent | Issuer | Guarantor | Non- | Eliminations | Consolidated | ||||||||||||
Cash flows from operating activities: | |||||||||||||||||
Net cash provided by (used in) operating activities | $ | 18,290 | $ | (118,313) | $ | 174,198 | $ | 23,450 | $ | (14,269) | $ | 83,356 | |||||
Cash flows from investing activities: | |||||||||||||||||
Payments for capital expenditures | - | (1,509) | (175,524) | (9,250) | - | (186,283) | |||||||||||
Proceeds from sales of assets | - | - | 16,226 | 13,369 | - | 29,595 | |||||||||||
Net cash provided by (used in) investing activities | - | (1,509) | (159,298) | 4,119 | - | (156,688) | |||||||||||
Cash flows from financing activities: | |||||||||||||||||
Intercompany dividends | - | - | - | (14,269) | 14,269 | - | |||||||||||
Changes in notes with affiliated companies, net | (14,775) | 31,469 | (26,644) | 9,950 | - | - | |||||||||||
Other | (3,515) | (435) | - | - | - | (3,950) | |||||||||||
Net cash provided by (used in) financing activities | (18,290) | 31,034 | (26,644) | (4,319) | 14,269 | (3,950) | |||||||||||
Effect of exchange rate changes on cash | - | - | - | (1,834) | - | (1,834) | |||||||||||
Net change in cash, cash equivalents, and restricted cash | - | (88,788) | (11,744) | 21,416 | - | (79,116) | |||||||||||
Cash, cash equivalents, and restricted cash at beginning of period | - | 126,533 | 20,923 | 45,027 | - | 192,483 | |||||||||||
Cash, cash equivalents, and restricted cash at end of period | $ | - | $ | 37,745 | $ | 9,179 | $ | 66,443 | $ | - | $ | 113,367 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q and other documents filed by us with the SEC contain, and future oral or written statements or press releases by us and our management may contain, forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Generally, the words “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks” and “estimates,” variations of such words and similar expressions identify forward-looking statements, although not all forward-looking statements contain these identifying words. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q or such other materials regarding our financial position, financial performance, liquidity, strategic alternatives, market outlook, future capital needs, capital allocation plans, business strategies and other plans and objectives of our management for future operations and activities are forward-looking statements. These statements are based on certain assumptions and analyses made by our management in light of its experience and prevailing circumstances on the date such statements are made. Such forward-looking statements, and the assumptions on which they are based, are inherently speculative and are subject to a number of risks and uncertainties that could cause our actual results to differ materially from such statements. Such risks and uncertainties include, but are not limited to: the cyclicality and volatility ofconditions in the oil and gas industry, including changes in prevailingespecially oil and natural gas prices and capital expenditures by oil and gas pricescompanies; our outstanding debt obligations and the potential effect of limiting our ability to fund future growth and operations and increasing our exposure to risk during adverse economic conditions; necessary capital financing may not be available at economic rates or expectations about future prices;at all; volatility of our common stock; operating hazards, including the significant possibility of accidents resulting in personal injury or death, property damage or environmental damage for which we may have limited or no insurance coverage or indemnification rights; we may not be fully indemnified against losses incurred due to catastrophic events; claims, litigation or other proceedings that require cash payments or could impair financial condition; credit risk associated with our customer base; the effect of regulatory programs (including regarding worker health and safety laws) and environmental matters on our operations or prospects, including the risk that future changes in the regulation of hydraulic fracturing could reduce or eliminate demand for our pressure pumping and fluid management services, or that future changes in climate change legislation could result in increased operating costs or reduced commodity demand globally; counterparty risks associated with reliancethe impact that unfavorable or unusual weather conditions could have on key suppliers; risks associated with the uncertainty of macroeconomic and business conditions worldwide; changes in competitive and technological factors affecting our operations; credit risk associated with our customer base; the potential inability to retain key employees and skilled workers; challenges with estimating our oil and natural gas reserves and potential liabilities related to our oil and natural gas property; risks associated with potential changes of Bureau of Ocean Energy management security and bonding requirements for offshore platforms; risks inherent in acquiring businesses; risks associated with cyber-attacks; risks associated with business growth during an industry recovery outpacing the capabilities of our infrastructure and workforce; political, legal, economic and other risks and uncertainties associated with our international operations; laws, regulations or practices in foreign countries could materially restrict our operations or expose us to additional risks; potential changes in tax laws, adverse positions taken by tax authorities or tax audits impacting our operating results; changes in competitive and technological factors affecting our operations; risks associated with the uncertainty of macroeconomic and business conditions worldwide; not realizing the benefits of acquisitions or divestitures; our outstanding debt obligations and the potential effect of limiting our future growth and operations; our continued accessoperations may be subject to credit markets on favorable terms; and the impactcyber-attacks that unfavorable or unusual weather conditions could have an adverse effect on our operations.business operations; counterparty risks associated with reliance on key suppliers; challenges with estimating our potential liabilities related to our oil and natural gas property; and risks associated with potential changes of Bureau of Ocean Energy Management security and bonding requirements for offshore platforms. These risks and other uncertainties related to our business are described in detail in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016.2018. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Investors are cautioned that many of the assumptions on which our forward-looking statements are based are likely to change after such statements are made, including for example the market prices of oil and gas and regulations affecting oil and gas operations, which we cannot control or anticipate. Further, we may make changes to our business strategies and plans (including our capital spending and capital allocation plans) at any time and without notice, based on any changes in the above-listed factors, our assumptions or otherwise, any of which could or will affect our results. For all these reasons, actual events and results may differ materially from those anticipated, estimated, projected or implied by us in our forward-looking statements. We undertake no obligation to update any of our forward-looking statements for any reason and, notwithstanding any changes in our assumptions, changes in our business plans, our actual experience, or other changes. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.
Executive Summary
General
We provide a wide variety of services and products to the energy industry. We serve major, national and independent oil and natural gas exploration and production companies around the world and offer products and services with respect to the various phases of a well’s economic life cycle. We report our operating results in four business segments: Drilling Products and Services; Onshore Completion and Workover Services; Production Services; and Technical Solutions.
Industry Trends
The oil and gas industry is both cyclical and seasonal. The level of spending by oil and gas companies is highly influenced by current and expected demand and future prices of oil and natural gas. Changes in spending result in an increased or decreased demand for our services and products. Rig count is an indicator of the level of spending by oil and gas companies. Our financial performance is significantly affected by the rig count in the U.S. land and offshore market areas as well as oil and natural gas prices and worldwide rig activity, which are summarized in the tables below.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
2019 | 2018 | % Change | 2019 | 2018 | % Change | ||||||||||||
Worldwide Rig Count (1) | |||||||||||||||||
U.S.: | |||||||||||||||||
Land | 894 | 1,032 | -13% | 961 | 1,001 | -4% | |||||||||||
Offshore | 26 | 19 | 37% | 23 | 18 | 28% | |||||||||||
Total | 920 | 1,051 | -12% | 984 | 1,019 | -3% | |||||||||||
International (2) | 1,144 | 1,003 | 14% | 1,094 | 980 | 12% | |||||||||||
Worldwide Total | 2,064 | 2,054 | 0% | 2,078 | 1,999 | 4% | |||||||||||
Commodity Prices (average) | |||||||||||||||||
Crude Oil (West Texas Intermediate) | $ | 56.34 | $ | 69.69 | -19% | $ | 57.04 | $ | 66.93 | -15% | |||||||
Natural Gas (Henry Hub) | $ | 2.38 | $ | 2.93 | -19% | $ | 2.61 | $ | 2.95 | -12% | |||||||
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| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||||||
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| 2017 |
| 2016 |
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| 2017 |
| 2016 |
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Worldwide Rig Count (1) |
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U.S.: |
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Land |
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| 927 |
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| 461 |
| 101% |
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| 841 |
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| 459 |
| 83% |
Offshore |
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| 19 |
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| 18 |
| 6% |
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| 20 |
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| 23 |
| -13% |
Total |
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| 946 |
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| 479 |
| 97% |
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| 861 |
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| 482 |
| 79% |
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International (2) |
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| 947 |
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| 936 |
| 1% |
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| 948 |
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| 965 |
| -2% |
Worldwide Total |
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| 1,893 |
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| 1,415 |
| 34% |
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| 1,809 |
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| 1,447 |
| 25% |
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Commodity Prices (average) |
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Crude Oil (West Texas Intermediate) |
| $ | 48.18 |
| $ | 44.85 |
| 7% |
| $ | 49.30 |
| $ | 41.35 |
| 19% |
Natural Gas (Henry Hub) |
| $ | 2.95 |
| $ | 2.88 |
| 2% |
| $ | 3.01 |
| $ | 2.34 |
| 29% |
(1) Estimate of drilling activity as measured by the average active drilling rigs based on Baker Hughes a GE company,Co. rig count information.
(2) Excludes Canadian Rig Count.
Appeal of New York Stock Exchange Determination to Delist our Common Stock
Shares of our common stock are registered on the New York Stock Exchange (NYSE) and were previously traded on the NYSE under the symbol “SPN.” On September 26, 2019, the NYSE suspended trading in our common stock as a result of our “abnormally low” stock price levels pursuant to Section 802.01D of the NYSE Listed Company Manual, and commenced procedures to delist our common stock. Following the NYSE’s suspension of trading of our common stock, on September 27, 2019, our common stock commenced trading on the OTC Markets under the symbol “SPNV.” On October 4, 2019, our common stock also commenced trading on the OTCQX Best Market, operated by OTC Markets Group Inc., under the same trading symbol “SPNV.” We have appealed the determination by the staff of the NYSE to delist our common stock in accordance with the NYSE rules. We also intend to conduct a reverse stock split to increase the market price of our common stock to enable our common stock to be listed on the NASDAQ National Market if the NYSE appeal is ultimately unsuccessful.
Comparison of the Results of Operations for the Three Months Ended September 30, 20172019 and June 30, 20172019
For the third quarter of 2019, our revenue was $425.7 million and the net loss was $38.4 million, or a $0.25 loss per share. Included in the results for the three months ended September 30, 2017, revenue2019 was $506.0a pre-tax charge of $9.6 million primarily related to the reduction in value of long-lived assets and a gain from a legal settlement of $5.8 million. This compares to net loss from continuing operations was $57.2of $71.1 million, or a $0.37$0.46 loss per share. Net loss was $59.0 million, or $0.39 loss per share. This compares to a net loss from continuing operationsshare, for the second quarter of $62.0 million, or a $0.41 loss per share2019, on revenue of $436.3 million. Included in the results for the three months ended June 30, 2017, on revenue2019 was a pre-tax charge of $470.1 million. Net loss for the three months ended June 30, 2017 was $63.8$31.4 million or $0.42 loss per share. Worldwide rig count increased by 2% for the three months ended September 30, 2017 from 1,853 rigs for the three months ended June 30, 2017. U.S. land rig count increased by 6% for the three months ended September 30, 2017 from 874 rigs for the three months ended June 30, 2017. The increase in U.S land market drilling activity largely contributedprimarily related to the overall increasereduction in our total revenues for the three months ended September 30, 2017. value of intangible assets.
Third quarter 20172019 revenue in our Onshore Completion and Workover Services segment remained flat at $248.4 million. Alldecreased 11% sequentially to $145.1 million, as compared to $163.5 million for the second quarter of this segment’s2019. The decrease in revenue is derived from the U.S. land market area. On a sequential basis, revenue increases relatedprimarily attributable to the 6% increase in U.S. landdisposition of our drilling rig count were partially offset by adverse weather conditions experiencedservice line during the second quarter due to Hurricane Harvey. of 2019.
Third quarter 20172019 revenue in our Production Services segment increased 10%decreased 4% sequentially to $97.3$98.7 million, as compared to $88.6$103.0 million for the second quarter of 2019. U.S. offshore revenue decreased 14% to $18.3 million primarily due to a decrease in hydraulic workover and snubbing activities. U.S. land revenue decreased 16% sequentially to $32.6 million primarily due to a decrease in coiled tubing and hydraulic workover and snubbing activities. These decreases were partially offset by an increase in international revenue which increased 12% to $47.8 million, primarily due to an increase in electric line, pressure control and hydraulic workover and snubbing activities.
Third quarter 2019 revenue in our Technical Solutions segment increased 2% sequentially to $70.7 million, as compared to $69.1 million in the second quarter of 2017.2019. U.S. landoffshore revenue increased 22% sequentially to $40.1$40.8 million due to an increase in demand for
completion tools and products. International revenue increased 2% sequentially to $22.6 million primarily due to an increase in well testingcontrol services and coiled tubing activities. Internationalcompletion tools and products. U.S. land revenue increased 14%decreased 46% sequentially to $40.7$7.3 million, primarily due to an increase in hydraulic workover and snubbing activities. Gulf of Mexico revenue decreased 18% sequentially to $16.5 million, primarily as a result of decreased demand for specialty rentals.
Third quarter 2017 revenue in our Technical Solutions segment increased 31% sequentially to $83.1 million, as compared to $63.6 million in the second quarter of 2017. Gulf of Mexico revenue increased 24% sequentially to $52.0 million due to the increased completion tools and products revenue. U.S. land revenue increased 14% sequentially to $9.1 million and international revenue increased 62% sequentially to $22.0 million primarily due to an increasedecrease in demand for well control services.
For the three months ended September 30, 2017,2019, our revenue was $506.0$425.7 million, an increasea decrease of $179.8$147.4 million or 55%26%, as compared to the same period in 2016. The increase is largely attributable to a 34% increase in the worldwide rig count. The net2018. Net loss from continuing operations was $57.2$38.4 million, or a $0.37$0.25 loss per share. Net loss was $59.0 million, or a $0.39 loss per share. This compares to a net loss from continuing operationsIncluded in the results for the three months ended September 30, 20162019 was a pre-tax charge of $113.9$9.6 million related to the reduction in value of assets. This compares to a net loss for the three months ended September 30, 2018 of $21.8 million, or a $0.75$0.14 loss per share. Net loss was $118.0 million, or a $0.78 loss per share.
16
The following table compares our operating results for the three months ended September 30, 20172019 and 20162018 (in thousands, except percentages). Cost of services and rentals excludes depreciation, depletion, amortization and accretion for each of our business segments.
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| Revenue |
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| Cost of Services and Rentals | Revenue | Cost of Services and Rentals | |||||||||||||||||||||||||||||||||||||||
| 2017 |
| 2016 |
| Change |
| % |
| 2017 |
| % |
| 2016 |
| % |
| Change | 2019 | 2018 | Change | % | 2019 | % | 2018 | % | Change | ||||||||||||||||||||
Drilling Products and |
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Services | $ | 77,206 |
| $ | 59,587 |
| $ | 17,619 |
| 30% |
| $ | 31,715 |
| 41% |
| $ | 26,955 |
| 45% |
| $ | 4,760 | $ | 111,185 | $ | 99,184 | $ | 12,001 | 12% | $ | 38,663 | 35% | $ | 37,328 | 38% | $ | 1,335 | ||||||||
Onshore Completion and |
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Workover Services |
| 248,405 |
| 125,022 |
| 123,383 |
| 99% |
| 210,103 |
| 85% |
| 124,747 |
| 100% |
| 85,356 | 145,105 | 294,869 | (149,764) | -51% | 123,617 | 85% | 239,348 | 81% | (115,731) | |||||||||||||||||||
Production Services |
| 97,333 |
| 77,523 |
| 19,810 |
| 26% |
| 78,074 |
| 80% |
| 66,000 |
| 85% |
| 12,074 | 98,787 | 105,870 | (7,083) | -7% | 82,556 | 84% | 84,312 | 80% | (1,756) | |||||||||||||||||||
Technical Solutions |
| 83,085 |
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| 64,093 |
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| 18,992 |
| 30% |
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| 48,387 |
| 58% |
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| 40,466 |
| 63% |
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| 7,921 | 70,640 | 73,145 | (2,505) | -3% | 49,370 | 70% | 43,401 | 59% | 5,969 | ||||||||||||||
Total | $ | 506,029 |
| $ | 326,225 |
| $ | 179,804 |
| 55% |
| $ | 368,279 |
| 73% |
| $ | 258,168 |
| 79% |
| $ | 110,111 | $ | 425,717 | $ | 573,068 | $ | (147,351) | -26% | $ | 294,206 | 69% | $ | 404,389 | 71% | $ | (110,183) | ||||||||
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The following provides a discussion of our results on a segment basis:Operating Segments:
Drilling Products and Services Segment
Revenue from our Drilling Products and Services segment increased 30%12% to $77.2$111.2 million for the three months ended September 30, 2017,2019, as compared to $59.6$99.2 million for the same period in 2016.2018. Cost of services and rentals as a percentage of revenue decreased to 41%35% of segment revenue for the three months ended September 30, 2017,2019, as compared to 45%38% for the same period in 2016.2018. Revenue from the GulfU.S. land market areas increased 2% as a result of Mexicoincreases in revenue from rentals of premium drill pipe. Revenue from the U.S. offshore market area increased 3%30% primarily due to increasesan increase in revenuesrevenue from rentals of premium drill pipe and accommodation units. The revenue from the international market areas decreased 7% primarily due to decreases in revenues from rentals of premium drill pipe and accommodation units. Revenue in the U.S. land market increased 122% as a result of increases in revenues from rentals of premium drill pipe, bottom hole assemblies, and accommodation units, as demand for these rental products increased along with the increase in U.S. landoffshore rig count. Revenue from the international market areas increased 12%, primarily due to an increase in demand for rentals of premium drill pipe and bottom hole assemblies.
Onshore Completion and Workover Services Segment
Revenue from our Onshore Completion and Workover Services segment increased 99%decreased 51% to $248.4$145.1 million for the three months ended September 30, 2017,2019, as compared to $125.0$294.9 million for the same period in 2016.2018. All of this segment’s revenue is derived from the U.S. land market area, in which rig count increased by 101%.area. Cost of services and rentals as a percentage of revenue decreasedincreased to 85% of segment revenue for the three months ended September 30, 2017,2019, as compared to100%to 81% for the same period in 2016, primarily due to improved pricing and efficiencies due to higher activity levels, partially offset by periodic delays caused by supply chain tightness and general oilfield inefficiencies.2018. The increasedecrease in revenue is primarily attributable to an increase indecreased activity in our pressure pumping business.and well services businesses. During the three months ended September 30, 2017,first half of 2019, the overcapacity of the available pressure pumping horsepower in the market contributed to the downward pressure on pricing and utilization for our services. In response to the unfavorable market conditions, we recorded $1.8 millionhave reduced the number of pressure pumping fleets deployed in reductionthe field and curtailed our operations. The decrease in valuerevenue is also attributable to the disposition of assets.our drilling rig service line during the second quarter of 2019.
Production Services Segment
Revenue from our Production Services segment for the three months ended September 30, 2017 increased2019 decreased by 26%7% to $97.3$98.8 million, as compared to $77.6$105.9 million for the same period in 2016.2018. Cost of services and rentals as a percentage of revenue decreasedincreased to 80%84% of segment revenue for the three months ended September 30, 2017,2019, as compared to 85%80% for the same period in 2016.2018. Revenue from the U.S. land market area increased 108%decreased 32%, primarily due to increased activitya decrease in coiled tubing and well testing services. The revenueactivities. Revenue from the international market
areas increased 2%16%, primarily due to an increase in hydraulic workover and snubbing offset by decreased activity in coiled tubing and well testing services.activities. Revenue derived from the Gulf of MexicoU.S. offshore market area decreasedincreased 9%, as compared to the same period in 2016, primarily due to a decreasean increase in slickline serviceshydraulic workover and specialty rentals. snubbing activities.
Technical Solutions Segment
Revenue from our Technical Solutions segment increased 30%decreased 3% to $83.1$70.6 million for the three months ended September 30, 2017,2019, as compared to $64.0$73.1 million for the same period in 2016.2018. Cost of services and rentals as a percentage of revenue decreasedincreased to 58%70% of segment revenue for the three months ended September 30, 2017,2019, as compared to 63%59% for the same period in 2016. Revenue derived from the Gulf of Mexico market area increased 59%, primarily due to an increase in completion tools and products revenue, offset by a decrease in subsea intervention activities.2018. Revenue from the U.S. land market area decreased 15%14%, primarily due to a decrease in demand for completion tools and products.well control services. Revenue from the international market areas increased 6%30%, primarily due to an increase in demand for well control services. Revenue derived from the U.S. offshore market area decreased 14%, primarily due to a decrease in demand for subsea intervention services. During the three months ended September 30, 2017,2019, we recorded $8.1$7.0 million in reduction in value of assets.
17
Depreciation, Depletion, Amortization and Accretion
Depreciation, depletion, amortization and accretion decreased to $108.8$67.4 million during the three months ended September 30, 20172019 from $123.3$99.9 million during the same period in 2016.2018. Depreciation and amortization expense decreased for our Drilling Products and Services segment by $5.9$7.7 million, or 16%27.5%; for our Onshore Completion and Workover Services segment by $2.5$18.2 million, or 5%38.5%; for our Production Services segment by $3.5$5.0 million, or 15%29.3%; and for our Technical Solutions segment by $2.6$1.4 million, or 24%22%. Depreciation expense for Corporate and Other remained flat. The decrease in depreciation, depletion, amortization and accretion is primarily due to assets becoming fully depreciated and reduced levels of capital expenditures.depreciated.
General and Administrative Expenses
General and administrative expenses decreased 14% to $74.4 million for the three months ended September 30, 2017 as compared to $86.7 million for the same period in 2016. The decrease is primarily attributable to significant cost reduction initiatives implemented during 2016. These cost reduction initiatives resulted in significantly lower expenses for salaries and wages, other employee-related expenses and infrastructure-related expenses.
Reduction in Value of Assets
The reduction in value of assets recorded during the three months ended September 30, 2017 included $9.92019 was $9.6 million primarily related to the reduction in value of long-lived assets within the Onshore Completion and Workover Services and Technical Solutions segments.segment.
Income Taxes
Our effective income tax rate for the three months ended September 30, 20172019 was 33%a 7% expense compared to a 29% effective income tax rate13% benefit for the same period in 2016.2018. The differencechange in the effective income tax rate fromwas primarily impacted by a deferred tax assets valuation allowance recorded during the statutory rate is primarily due to the reduction in value of goodwill in 2016, which is non-deductible for income tax purposes.three months ended September 30, 2019.
For the nine months ended September 30, 2017,2019, our revenue was $1,377.0$1,329.2 million, an increasea decrease of $281.4$261.7 million or 26%16%, as compared to the same period in 2016. The increase is largely attributable to a 25% increase in the worldwide rig count. The net2018. Net loss from continuing operations was $208.9$157.2 million, or a $1.37 loss per share. Net loss was $214.5 million, or a $1.41$1.01 loss per share. This compares to a net loss from continuing operations for the nine months ended September 30, 20162018 of $667.1$107.9 million, or a $4.40$0.70 loss per share. Net loss was $675.7 million, or a $4.46 loss per shareIncluded in the results for the nine months ended September 30, 2016.2019 was a pre-tax charge of $41.0 million related to the reduction in value of assets.
The following table compares our operating results for the nine months ended September 30, 20172019 and 2016September 30, 2018 (in thousands, except percentages). Cost of services and rentals excludes depreciation, depletion, amortization and accretion for each of our business segments.
Revenue | Cost of Services and Rentals | ||||||||||||||||||||||
2019 | 2018 | Change | % | 2019 | % | 2018 | % | Change | |||||||||||||||
Drilling Products and | |||||||||||||||||||||||
Services | $ | 312,946 | $ | 278,419 | $ | 34,527 | 12% | $ | 118,732 | 38% | $ | 108,997 | 39% | $ | 9,735 | ||||||||
Onshore Completion and | |||||||||||||||||||||||
Workover Services | 513,638 | 802,600 | (288,962) | -36% | 436,400 | 85% | 630,205 | 79% | (193,805) | ||||||||||||||
Production Services | 305,239 | 308,591 | (3,352) | -1% | 240,855 | 79% | 255,377 | 83% | (14,522) | ||||||||||||||
Technical Solutions | 197,385 | 201,324 | (3,939) | -2% | 124,810 | 63% | 123,080 | 61% | 1,730 | ||||||||||||||
Total | $ | 1,329,208 | $ | 1,590,934 | $ | (261,726) | -16% | $ | 920,797 | 69% | $ | 1,117,659 | 70% | $ | (196,862) | ||||||||
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Drilling Products and |
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Services | $ | 214,464 |
| $ | 224,213 |
| $ | (9,749) |
| -4% |
| $ | 94,191 |
| 44% |
| $ | 92,487 |
| 41% |
| $ | 1,704 |
Onshore Completion and |
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Workover Services |
| 702,463 |
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| 373,387 |
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| 329,076 |
| 88% |
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| 610,154 |
| 87% |
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| 363,447 |
| 97% |
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| 246,707 |
Production Services |
| 254,544 |
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| 267,389 |
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| (12,845) |
| -5% |
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| 210,778 |
| 83% |
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| 210,823 |
| 79% |
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| (45) |
Technical Solutions |
| 205,562 |
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| 230,640 |
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| (25,078) |
| -11% |
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| 126,944 |
| 62% |
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| 135,385 |
| 59% |
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| (8,441) |
Total | $ | 1,377,033 |
| $ | 1,095,629 |
| $ | 281,404 |
| 26% |
| $ | 1,042,067 |
| 76% |
| $ | 802,142 |
| 73% |
| $ | 239,925 |
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The following provides a discussion of our results on a segment basis:
Operating Segments:
Drilling Products and Services Segment
Revenue from our Drilling Products and Services segment decreased 4%increased 12% to $214.5$312.9 million for the nine months ended September 30, 2017,2019, as compared to $224.2$278.4 million for the same period in 2016.2018. Cost of services and rentals as a percentage of revenue increaseddecreased to 44%38% of segment revenue for the nine months ended September 30, 2017,2019, as compared to 41%39% for the same period in 2016, primarily due to a decrease in revenue.2018. Revenue from the Gulf of Mexico market area decreased 27% and revenue from the international market areas decreased 25%. The decline in revenue in these market areas is primarily attributable to decreases in revenues from rentals of
18
premium drill pipe, bottom hole assemblies and accommodation units, primarily driven by a decrease in offshore and international rig counts. These decreases were partially offset by a 78% increase in revenue generated in the U.S. land market area. The revenue in the U.S. land market areaareas increased primarily10% as a result of increases in revenuesrevenue from rentals of premium drill pipe and bottom hole assemblies. Revenue from the U.S. offshore market area increased 30% primarily due to an increase in revenue from rentals of premium drill pipe and bottom hole assemblies, and accommodation units, as demand for these rental products increased along with the increase in U.S. landoffshore rig count. DuringRevenue from the nine months ended September 30, 2016, we recorded $47.7 millioninternational market areas increased 2% due to an increase in reduction in valuerentals of assets. premium drill pipe and bottom hole assemblies.
Onshore Completion and Workover Services Segment
Revenue from our Onshore Completion and Workover Services segment increased 88%decreased 36% to $702.4$513.6 million for the nine months ended September 30, 2017,2019 months, as compared to $373.4$802.6 million for the same period in 2016.2018. All of this segment’s revenue is derived from the U.S. land market area, in which rig count was up 83%.area. Cost of services and rentals as a percentage of revenues decreasedrevenue increased to 87%85% of segment revenue for the nine months ended September 30, 2017,2019, as compared to 97%79% for the same period in 2016, primarily due to improved pricing and efficiencies due to higher activity levels, partially offset by periodic delays caused by supply chain tightness and general oilfield inefficiencies.2018. The increasedecrease in revenue is primarily attributable to an increase indecreased activity in our pressure pumping business.and well services businesses. During the first half of 2019, the overcapacity of the available pressure pumping horsepower in the market contributed to the downward pressure on pricing and utilization for our services. In response to the unfavorable market conditions, we have reduced the number of pressure pumping fleets deployed in the field and curtailed our operations. The decrease in revenue is also attributable to the disposition of our drilling rig service line during the second quarter of 2019. During the nine months ended September 30, 2017,2019, we recorded $1.8$31.9 million in reduction in value of assets, as compared to $188.7 million recorded for the same period in 2016. assets.
Production Services Segment
Revenue from our Production Services segment for the nine months ended September 30, 20172019 decreased by 5%1% to $254.5$305.2 million, as compared to $267.4$308.6 million for the same period in 2016.2018. Cost of services and rentals as a percentage of revenue decreased to 79% of segment revenue for the nine months ended September 30, 2019, as compared to 83% for the same period in 2018. Revenue from the U.S. land market area decreased 24%, primarily due to a decrease in coiled tubing activities. Revenue from the international market areas increased 19%, primarily due to an increase in hydraulic workover and snubbing activities. Revenue from the U.S. offshore market area increased 23%, primarily due to an increase in hydraulic workover and snubbing and pressure control activities.
Technical Solutions Segment
Revenue from our Technical Solutions segment decreased 2% to $197.4 million for the nine months ended September 30, 2019, as compared to $201.3 million for the same period in 2018. Cost of services and rentals as a percentage of revenue increased to 83%63% of segment revenue for the nine months ended September 30, 2017,2019, as compared to 79%61% for the same period in 2016, primarily due to a decrease in revenue. Revenue derived from the Gulf of Mexico market area decreased 13%, primarily due to decreased demand for specialty rentals. Revenue from the international market areas decreased 25%, primarily due to decreased activity from hydraulic workover and snubbing in the Latin America and Asia Pacific regions and well testing and coiled tubing services in the Latin America region. These decreases were partially offset by a 43% increase in revenue generated from the U.S. land market area. The increase in revenue in the U.S. land market area is primarily due to an increase in coiled tubing and well testing services driven primarily by the increase in U.S. land rig count. During the nine months ended September 30, 2016, we recorded $226.1 million in reduction in value of assets.
Technical Solutions Segment
Revenue from our Technical Solutions segment decreased 11% to $205.6 million for the nine months ended September 30, 2017, as compared to $230.6 million for the same period in 2016. Cost of services and rentals as a percentage of revenue increased to 62% of segment revenue for the nine months ended September 30, 2017, as compared to 59% for the same period in 2016. Revenue derived from the Gulf of Mexico market area decreased 5%, primarily due to a decrease in demand for subsea intervention services, partially offset by an increase in demand for completion tools and products.2018. Revenue from the U.S. land market area decreased 13% and revenueincreased 41%, primarily due to an increase in well control services. Revenue from the international market areas increased 20%, primarily due to an increase in demand for subsea intervention services and completion tools and products. Revenue derived from the U.S. offshore market area decreased 22%21%, primarily due to a decrease in demand for completion tools and products and well controlsubsea intervention services. During the nine months ended September 30, 2017,2019, we recorded $8.1$7.0 million in reduction in value of assets.
Depreciation, Depletion, Amortization and Accretion
Depreciation, depletion, amortization and accretion decreased to $331.2$225.0 million during the nine months ended September 30, 20172019 from $392.0$303.6 million during the same period in 2016.2018. Depreciation and amortization expense decreased for our Drilling Products and Services segment by $25.0$21.4 million, or 20%25%; for our Onshore Completion and Workover Services segment by $14.8$42.2 million, or 9%30%; for our Production Services segment by $12.0$11.3 million, or 17%,22%; and for our Technical Solutions segment by $9.0$3.1 million, or 26%15%. Depreciation expense for Corporate and Other remained flat. The decrease in depreciation, depletion, amortization and accretion is primarily due to assets becoming fully depreciated and reduced levelsimpairments of capital expenditures.long-lived assets recorded during 2018.
General and Administrative Expenses
General and administrative expenses decreased 16% to $226.6 million for the nine months ended September 30, 2017 as compared to $270.5 million for the same period in 2016. The decrease is primarily attributable to significant cost reduction initiatives implemented during 2016. These cost reduction initiatives resulted in significantly lower expenses for salaries and wages, other employee-related expenses and infrastructure-related expenses.
Reduction in Value of Assets
The reduction in value of assets recorded during the threenine months ended September 30, 20172019 included $9.9$41.0 million related to the reduction in value of long-lived assets within the Onshore Completion and Workover Services and Technical Solutions segments. Reduction in value of assets for the nine months ended September 30, 2016 was $462.5 million, which included $190.5 million related to the Production Services segment goodwill impairment and $140.0 million related to the Onshore Completion and Workover Services
segment goodwill impairment. In addition, the reduction in value of assets included $132.0 million related to reduction in value of long-lived assets within the Drilling Products and Services, Onshore Completion and Workover Services and Production Services segments.
Other Income/Expense
Other income/expense for the nine months ended September 30, 2017 was $2.5 million loss as compared to $22.1 million income for the same period in 2016. The decrease in other income is primarily attributable to foreign currency fluctuations.
Income Taxes
Our effective income tax rate for the nine months ended September 30, 20172019 was 33%a 8% expense compared to 24% effective income tax ratea 13% benefit for the same period in 2016.2018. The differencechange in the effective income tax rate fromwas primarily impacted by a deferred tax assets valuation allowance recorded during the statutory rate is primarily due to the reduction in value of goodwill in 2016, which is non-deductible for income tax purposes.nine months ended September 30, 2019.
Liquidity and Capital Resources
For the nine months ended September 30, 2017,2019, we generated net cash from operating activities of $55.4$116.5 million, as compared to $146.7$83.4 million of cash generated by operating activities in the same period of 2016.2018. Our primary liquidity needs during the next twelve months are for working capital and capital expenditures. Our primary sources of liquidity are cash flows from operations and available borrowings under our credit facility. We had cash and cash equivalents of $167.0$259.9 million at September 30, 2017,2019, compared to $187.6$158.1 million at December 31, 2016. At September 30, 2017, approximately $39.9 million of our cash balance was held outside the United States. Cash balances held in foreign jurisdictions could be repatriated to the United States, however, they would be subject to federal income taxes, less applicable foreign tax credits. We have not provided U.S. income tax expense on earnings of our foreign subsidiaries because we expect to reinvest the undistributed earnings indefinitely. 2018.
We spent $109.6$105.4 million of cash on capital expenditures during the nine months ended September 30, 2017. Approximately $15.92019. Capital expenditures of $48.2 million was usedprimarily related to expandthe expansion and maintainmaintenance of our equipment inventory at our Drilling Products and Services segment’s equipment inventory,segment and approximately $74.9million, $8.3million and $10.5million was spentthe remaining capital expenditures related to expand and maintain the asset basesongoing maintenance of our Onshore Completionequipment across all other segments. During the remainder of 2019, we intend to limit capital spending within our operational cash flow levels to generate free cash flow and Workover Services, Production Services and Technical Solutions segments, respectively. allocate capital to businesses with higher returns on invested capital.
We expect to spend approximately $150 million on capital expenditures during 2017.
Subsequent to the quarter end, the Company extended itshave an asset-based revolving credit facility maturity towhich matures in October 2022 with a $300 million asset-based revolving credit facility.2022. The borrowing base under the credit facility will beis calculated asbased on a formula referencing the Company’sborrower’s and the subsidiary guarantors’ eligible accounts receivable, eligible inventory and eligible premium rental drill pipe less reserves. Availability under the credit facility will beis the lesser of (i) the commitments, (ii) the borrowing base and (iii) the highest principal amount permitted to be secured under the indenture governing 7 1/8%the 7.125% senior unsecured notes due 2021. On September 20, 2019, we amended its credit facility to increase the letter of credit capacity from $100.0 million to $150.0 million. At October 20, 2017, availabilitySeptember 30, 2019, the borrowing base was $285.6$229.6 million and may increase or decrease as a resultwe had $83.1 million of among other things, changes toletters of credit outstanding that reduced our borrowing availability under the Company’s consolidated tangible assets.revolving credit facility. The credit agreement contains various covenants, including, but not limited to, limitations on the incurrence of indebtedness, permitted investments, liens on assets, making distributions, transactions with affiliates, merger, consolidations, dispositions of assets and other provisions customary in similar types of agreements. At September 30, 2017,2019, we were in compliance with all such covenants.
In August 2017, the Company issuedWe have outstanding $500 million of 7 3/4% unsecured senior notes due September 2024 in a private placement conducted pursuant to Rule 144A and Regulation S under the Securities Act. Costs associated with the issuance of these notes were $8.9 million which will be amortized over the term of the notes. The Company used the net proceeds of the notes offering and cash on hand to redeem all of the outstanding $500 million 6 3/8% 7.75% senior unsecured notes due 2019. In connection withSeptember 2024. The indenture governing the redemption of the7.75% senior unsecured notes due May 2019, the Company recorded $2.6 million for the write-off of unamortized debt issuance costs. The indenture governing the 7 3/4% senior notes2024 requires semi-annual interest payments beginning on March 15 2018, untiland September 15 of each year through the maturity date of September 15, 2024. The indenture contains customary events of default and requires that we satisfy various covenants. At September 30, 2017,2019, we were in compliance with all such covenants.
We also have outstanding $800 million of 7 1/8%7.125% senior unsecured senior notes due December 2021. The indenture governing the 7 1/8%7.125% senior notes due 2021 requires semi-annual interest payments on June 15 and December 15of each year through the maturity date of December 15, 2021. The indenture contains customary events of default and requires that we satisfy various covenants. At September 30, 2017,2019, we were in compliance with all such covenants.
Other Matters
Off-Balance Sheet Arrangements and Hedging Activities
At September 30, 2017,2019, we had no off-balance sheet arrangements and no hedging contracts.
20
Recently IssuedAdopted Accounting Guidance
See Part I, Item 1, “Financial Statements – Note 147 – New Accounting Pronouncements.Leases.”
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks associated with foreign currency fluctuations and changes in interest rates. A discussion of our market risk exposure in financial instruments follows.
Foreign Currency Exchange Rates Risk
Because we operate in a number of countries throughout the world, we conduct a portion of our business in currencies other than the U.S. dollar. The functional currency for our international operations, other than certain operations in the United Kingdom and Europe, is the U.S. dollar, but a portion of the revenues from our international operations is paid in foreign currencies. The effects of foreign currency fluctuations are partly mitigated because local expenses of such international operations are also generally denominated in the same currency. We continually monitor the currency exchange risks associated with all contracts not denominated in the U.S. dollar.
Assets and liabilities of certain subsidiaries in the United Kingdom and Europe are translated at end of period exchange rates, while income and expenses are translated at average rates for the period. Translation gains and losses are reported as the foreign currency translation component of accumulated other comprehensive loss in stockholders’ equity.
We do not hold derivatives for trading purposes or use derivatives with complex features. When we believe prudent, we enter into forward foreign exchange contracts to hedge the impact of foreign currency fluctuations. We do not enter into forward foreign exchange contracts for trading or speculative purposes. At September 30, 2017,2019, we had no outstanding foreign currency forward contracts.
Interest Rate Risk
At September 30, 2017,2019, we had no variable rate debt outstanding.
Commodity Price Risk
Our revenues profitability and future rate of growthprofitability significantly depend upon the market prices of oil and natural gas. Lower prices may also reduce the amount of oil and natural gas that can economically be produced.
For additional discussion, see Part 1, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
Item 4. Controls and Procedures
(a) | Evaluation of disclosure controls and procedures. As of the end of the period covered by this quarterly report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation, that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) are effective for ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures and is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. |
(b) | Changes in internal control. Effective January 1, 2019, we adopted Topic 842, Leases. The adoption of this standard resulted in recording of operating lease assets and operating lease liabilities, with no related impact on our condensed consolidated statement of equity or condensed consolidated statement of operations for the nine months ended September 30, 2019. In connection with the adoption of the new standard, we implemented internal controls to ensure we adequately evaluated our contracts and properly assessed the impact of the new accounting standard. There |
PART II. OTHER INFORMATION
From time to time, we are involved in various legal actions incidental to our business. The outcome of these proceedings is not predictable. However, based on current circumstances, we do not believe that the ultimate resolution of these proceedings, after considering available defenses and any insurance coverage or indemnification rights, will have a material adverse effect on our financial position, results of operations or cash flows. See Part I, Item 1, “Financial Statements – Note 14 – Contingencies.”
Item 1A. Risk Factors
For information regarding certain risks relating to our operations, any of which could negatively affect our business, financial condition, operating results or prospects, see Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2016.2018. There have been no material changes to the risk factors previously disclosed under the caption “Risk Factors” in our Annual Report, except as set forth below.
We have received notice of the NYSE’s intention to delist our common stock, which could materially impair the liquidity and value of our common stock.
On September 26, 2019, we were notified by the NYSE that due to “abnormally low” trading price levels, pursuant to Section 802.01D of the NYSE Listed Company Manual, the NYSE had suspended trading in the Company’s common stock effective immediately and has determined to commence delisting proceedings to delist our common stock. While we have appealed the determination by the staff of the NYSE to delist the Company’s common stock and intend to conduct a reverse stock split to increase the market price of our common stock to enable our common stock to be listed on the NASDAQ National Market if the NYSE appeal is ultimately unsuccessful, we can provide no assurance that these efforts will be successful.
On September 27, 2019, our common stock commenced trading on the OTC Markets under the symbol “SPNV.” In addition, as of October 4, 2019, our common stock commenced trading on the OTCQX Best Market, operated by the OTC Markets Group Inc., (together with the OTC Markets, the OTC) under the same trading symbol “SPNV.” The OTC is a significantly more limited market than the NYSE, and quotation on the OTC may result in a less liquid market available for existing and potential stockholders to trade the common stock and could further depress the trading price of our common stock. We can provide no assurance that our common stock will continue to trade on this market, whether broker-dealers will continue to provide public quotes of our common stock on this market or whether the trading volume of our common stock will be sufficient to provide for an efficient trading market.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
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Period |
| (a) |
| (b) |
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July 1 - 31, 2017 |
| 2,644 |
| $ | 9.92 |
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August 1 - 31, 2017 |
| 197 |
| $ | 10.51 |
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September 1 - 30, 2017 |
| - |
| $ | - |
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Total |
| 2,841 |
| $ | 9.96 |
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None.
(1) Through our stock incentive plans, 2,841 shares were delivered to us by our employees to satisfy their tax withholding requirements upon vesting of restricted stock units.
(a) The following exhibits are filed with this Form 10-Q:
101.INS* | XBRL Instance Document |
101.SCH* | XBRL Taxonomy Extension Schema Document |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document |
101.LAB* | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document |
*Filed hereinherewith
Table Of ContentsSIGNATURE
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SUPERIOR ENERGY SERVICES, INC.
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By: |
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Westervelt T. Ballard, Jr. Executive Vice President, Chief Financial Officer and Treasurer | |||
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By: | /s/ James W. Spexarth | ||
James W. Spexarth | |||
Chief Accounting Officer | |||
Date: | November 6, 2019 |