October 21, 2005
Via U.S. mail
Mr. Kenneth V. Huseman
President
Basic Energy Services, Inc.
400 W. Illinois, Suite 800
Midland, Texas 79701
Re: Basic Energy Services, Inc.
Amendment No. 1 to Registration Statement on Form S-1
Filed September 28, 2005
File No. 333-127517
Dear Mr. Huseman:
We have reviewed your filing and response letter dated
September
28, 2005 with attachments and have the following comments. Where
indicated, we think you should revise your document in response to
these comments. If you disagree, we will consider your
explanation as
to why our comment is inapplicable or a revision is unnecessary.
Please be as detailed as necessary in your explanation. In some
of
our comments, we may ask you to provide us with supplemental
information so we may better understand your disclosure. After
reviewing this information, we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We
look forward to working with you in these respects. We welcome
any
questions you may have about our comments or on any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Form S-1
General
1. We remind you of prior comment 2. We may have additional
comments
once we have the opportunity to review any omitted exhibits,
including
the opinion of counsel that has not yet been filed.
Prospectus Summary, page 1
2. We note your responses to prior comments 6, 7 and 8, and we
have
the following additional comments. Please revise your disclosure
accordingly.
* An example of disclosure that is not sufficiently concise is the
section captioned "Our Competitive Strengths," which appears to
repeat
in its entirety the disclosure that appears at page 51. See prior
comment 6.
* We remind you that prior comment 6 asked for revisions to
provide
more balanced disclosure.
* Based on your responses to our comments, it appears
inappropriate to
continue to refer to your company as enjoying a "Market Leadership
Position." Instead it appears that your reference to your
"significant" market share is more apt. In that regard, we note
that
your larger competitors are substantially larger and have a
combined
market share almost five times greater than yours.
* Lastly, your reference to "leadership" in your core operating
areas
does not appear to be supported in those areas in which you rank
behind the actual leaders. We note that you rank third and fourth
in
various areas, for example.
Risk Factors, page 10
3. We reissue that part of prior comment 12 which is the subject
of
the third paragraph of your response. You may include this
additional
factual detail later in the prospectus if appropriate, but the
Risk
Factors section should not retain disclosure that serves to
mitigate
the risks you present.
Selected Historical Financial Data, page 27
4. Please provide an analysis that supports your conclusion that
it is
appropriate to disclose in your filing a measure that excludes
recurring charges such as gains and losses on extinguishment of
debt
given the requirements of Item 10(e)1.ii(B) of Regulation S-K. In
this regard we reissue prior comment 18.
Management`s Discussion and Analysis, page 30
5. We note your disclosure revisions in response to prior comment
20,
however, we were unable to locate your expanded disclosure
reconciling
your direct margin to the most directly comparable GAAP measure
and
how you have present such GAAP measures with equal or greater
prominence to your non-GAAP measures. In this regard we reissue
comment 30.
Management, page 68
6. Revise Mr. Webster`s sketch to disclose when he became Co-
Managing
Partner of Avista Capital. Revise Mr. Krenek`s sketch to describe
his
business experience from November 2001 through March 2002. Revise
Mr.
Fulton`s sketch to clarify when in 2002 he became President and
CEO of
Frontier Drilling, and if this was later than January, describe
his
business experience in the interim period after leaving Merlin
Offshore in November 2001. We are available if you wish to
discuss
further your response to prior comment 24.
Employment Agreements, page 77
7. We note your response to our prior comment 25. Please disclose
the
reasons for the portion of Mr. Huseman`s bonus that is above the
amount stated in his employment agreement. Similarly, disclose
the
information you provided in the third paragraph of your response
to
prior comment 27.
Underwriting, page 98
8. We note your response to prior comment 33 and the language that
the
representatives propose to include. If accurate, generic
references
to members of the staff in the Division as a whole may be
appropriate,
but it appears incorrect to suggest that particular matters were
reviewed by or with the Commission. Please revise or advise.
9. With regard to the materials that were the subject of prior
comment
34(h), it appears inappropriate to require the reader to
acknowledge
that it has "read" or "understood" particular text or documents.
For
example, refer to the language to which the potential investor
must
agree and certify on the Indication of Interest form. We may have
additional comments upon our review of any revisions.
Basic Energy Services, Inc. Financial Statements, F1-2
General
10. We note your submission of Exhibit B quantifying dollar and
percentage relationships of acquired companies to your historical
financial statements provided in response to prior comment 36.
Please
submit the balance of your response describing the qualitative and
quantitative parameters and thresholds of your materiality
assessment
and whether you have concluded disclosures required by paragraphs
51-
54 of SFAS 141 are immaterial, if that is your view. Your response
should clearly explain the basis for and how you arrived at your
conclusion. In this regard we reissue prior comment 36.
Principles of Consolidation, page F1-6
11. We note your response to prior comment 41 indicating that you
do
not have any subsidiaries that are less than wholly owned,
therefore
you believe the disclosure of the specific voting percentage and
control criteria management uses to determine whether to
consolidate a
less than wholly owned subsidiary is not applicable. Please
confirm,
if true, that you have no interest in any other organization,
entity,
partnership, or contract that could require any evaluation under
FIN
46R or ARB No. 51. Expand your consolidation policy to state this
fact, if true.
Note 8, Manadatorily Redeemable Preferred Stock and Stockholders`
Equity, F1-27
12. We note your response to our prior comment 43 indicating that
you
had accreted $914,000 of the original discount related to your
Series
A Preferred Stock. Please expand your disclosures to respond to
our
request indicating whether the entire discount associated with the
warrants issued with your Series A Preferred Stock was accreted on
or
before October 3, 2003. Also quantify the original discount.
Note 11, EBITDA Contingent Warrants, page F1-31
13. We note your response to prior comment 44 in which you have
revised your statement of stockholder`s equity to reflect
dividends
associated with your contingent warrants in fiscal year 2003, the
period in which the contingency was resolved. As previously
requested, please describe under which model you valued the
warrants
and the assumptions used in your valuation.
14. We note your response to our prior comments 45 and 46 and
remain
unclear regarding your application of GAAP to your EBITDA
contingent
warrants. You indicate that you have applied variable accounting.
Please explain in greater detail why you believe it is appropriate
to
apply variable accounting to these equity instruments, with an
analysis of all of the terms and conditions of the equity
instrument.
Please address the following:
o Clarify whether the warrant agreement required that the
performance
criteria be fulfilled in order for the warrant to be exercisable.
o Identify the "other subjective matters" which ultimately
determined
the number of warrants exercisable and whether these matters were
specified in the original warrant agreement or subsequent thereto.
o Cite the specific paragraphs of the authoritative literature you
believe apply in accounting for the warrants and provide us a copy
of
the warrant agreement. We note that compensation would only be
measured when both the number and price of the warrants are known.
Refer to paragraph 10(b) of APB 25.
o Tell us how you considered the application of SFAS 133 in
connection
with your warrants issued as dividends.
o Describe to us how you determined in 2001 that 50% of the
warrants
would be awarded.
Note 11 Commitments and Contingencies, page F1-25
15. We note your response to prior comment 47 and were unable to
locate your disclosure modifications, as indicated in your
response.
We reissue comment 47.
FESCO Holdings Inc. and Subsidiaries
Unaudited Consolidated Financial Statements
16. We note your response to prior comment 35. Please provide
audited
financial statements for the nine-month period ended September 30,
2003. Refer to Rules 3-05 and 3-06 of Regulation S-X.
Closing Comments
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with a
marked
copy of the amendment to expedite our review. Please furnish a
cover
letter with your amendment that keys your responses to our
comments
and provides any requested information. Detailed cover letters
greatly facilitate our review. Please understand that we may have
additional comments after reviewing your amendment and responses
to
our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing
includes all information required under the Securities Act of 1933
and
that they have provided all information investors require for an
informed investment decision. Since the company and its
management
are in possession of all facts relating to a company`s disclosure,
they are responsible for the accuracy and adequacy of the
disclosures
they have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert staff comments and the declaration of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division
of Corporation Finance in connection with our review of your
filing or
in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering of
the securities specified in the above registration statement. We
will
act on the request and, pursuant to delegated authority, grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Jonathan Duersh at (202) 551-3719 or Jill
Davis,
Branch Chief, at (202) 551-3683 if you have questions regarding
comments on the financial statements and related matters. Please
contact Jason Wynn at (202) 551-3756 or Timothy Levenberg, Special
Counsel, at (202) 551-3707 with any other questions. Direct all
correspondence to the following ZIP code: 20549-7010.
Sincerely,
H. Roger Schwall
Assistant Director
cc: J. Duersh
J. Davis
J. Wynn
T. Levenberg
D. Buck
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Mr. Kenneth V. Huseman
Basic Energy Services, Inc.
October 21, 2005
page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DIVISION OF
CORPORATION FINANCE
MAIL STOP 7010