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SUPERIOR ENERGY SERVICES INC filed this Form 10-Q on 10/26/2016
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 UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549







FORM 10-Q





(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended September 30, 2016



or



TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the Transition Period from          to



Commission File No. 001-34037







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)

 

 



Registrant’s telephone number, including area code: (713)  654-2200



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    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 No



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.





 

 

Large accelerated filer  

 

Accelerated filer                           

Non-accelerated filer    

(do not check if smaller reporting company)

Smaller reporting company          



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No  



The number of shares of the registrant’s common stock outstanding on October 24, 2016 was 151,741,328.



 

 

 


 

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Quarterly Report on Form 10-Q for

the Quarterly Period Ended September 30, 2016



TABLE OF CONTENTS





 

 



 

 



 

Page

PART I.

FINANCIAL INFORMATION

 



 

 

Item 1.

Condensed Consolidated Financial Statements and Notes

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations 

17 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

23 

Item 4.

Controls and Procedures

24 



 

 

PART II.

OTHER INFORMATION

 



 

 

Item 1A.

Risk Factors

25 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

25 

Item 6.

Exhibits

26 





2

 


 



PART I.  FINANCIAL INFORMATION



Item 1. Financial Statements



 

 

 

 

 

 



 

 

 

 

 

 

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

September 30, 2016 and December 31, 2015

(in thousands, except share data)

(unaudited)



 

9/30/2016

 

12/31/2015

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

278,155 

 

$

564,017 

Accounts receivable, net of allowance for doubtful accounts of $30,592 and

 

 

 

 

 

 

$28,242 at September 30, 2016 and December 31, 2015, respectively

 

 

271,323 

 

 

428,514 

Prepaid expenses

 

 

37,477 

 

 

42,298 

Inventory and other current assets

 

 

151,084 

 

 

165,062 

Assets held for sale

 

 

62,247 

 

 

95,234 

Total current assets

 

 

800,286 

 

 

1,295,125 

Property, plant and equipment, net of accumulated depreciation and depletion of
$2,395,301 and $2,278,856 at September 30, 2016 and December 31, 2015, respectively

 

 

1,753,713 

 

 

2,123,291 

Goodwill

 

 

806,087 

 

 

1,140,101 

Notes receivable

 

 

55,782 

 

 

52,382 

Intangible and other long-term assets, net of accumulated amortization of $67,036
and $83,520 at September 30, 2016 and December 31, 2015, respectively

 

 

227,952 

 

 

303,345 

Total assets

 

$

3,643,820 

 

$

4,914,244 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

81,641 

 

$

114,475 

Accrued expenses

 

 

242,376 

 

 

271,246 

Income taxes payable

 

 

2,919 

 

 

9,185 

Current maturities of long-term debt

 

 

 -

 

 

29,957 

Current portion of decommissioning liabilities

 

 

22,770 

 

 

19,052 

Liabilities held for sale

 

 

3,080 

 

 

4,661 

Total current liabilities

 

 

352,786 

 

 

448,576 

Deferred income taxes

 

 

200,664 

 

 

383,069 

Decommissioning liabilities

 

 

99,485 

 

 

98,890 

Long-term debt, net

 

 

1,283,581 

 

 

1,588,263 

Other long-term liabilities

 

 

193,571 

 

 

184,634 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock of $0.01 par value.  Authorized - 5,000,000 shares; none issued

 

 

 -

 

 

 -

Common stock of $0.001 par value

 

 

 

 

 

 

Authorized-250,000,000, Issued and Outstanding-151,719,236 at September 30, 2016
Authorized-250,000,000, Issued and Outstanding-150,861,500 at December 31, 2015

 

 

152 

 

 

151 

Additional paid in capital

 

 

2,682,188 

 

 

2,664,517 

Accumulated other comprehensive loss, net

 

 

(72,310)

 

 

(45,694)

Retained deficit

 

 

(1,096,297)

 

 

(408,162)

Total stockholders’ equity

 

 

1,513,733 

 

 

2,210,812 

Total liabilities and stockholders’ equity

 

$

3,643,820 

 

$

4,914,244 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.



 

 

 

 

 

 

3

 


 













 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

Three and Nine Months Ended September 30, 2016 and 2015

(in thousands, except per share data)

(unaudited)



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months

 

Nine Months



 

2016

 

2015

 

2016

 

2015

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Services

 

$

266,093 

 

$

464,545 

 

$

873,985 

 

$

1,684,968 

Rentals

 

 

60,132 

 

 

136,851 

 

 

221,644 

 

 

544,447 

Total revenues

 

 

326,225 

 

 

601,396 

 

 

1,095,629 

 

 

2,229,415 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services (exclusive of depreciation, depletion, amortization and accretion)

 

 

223,766 

 

 

355,373 

 

 

703,061 

 

 

1,224,931 

Cost of rentals (exclusive of depreciation, depletion, amortization and accretion )

 

 

34,402 

 

 

65,112 

 

 

99,081 

 

 

243,333 

Depreciation, depletion, amortization and accretion - services

 

 

100,579 

 

 

113,362 

 

 

312,713 

 

 

353,202 

Depreciation, depletion, amortization and accretion - rentals

 

 

22,729 

 

 

33,395 

 

 

79,304 

 

 

114,127 

General and administrative expenses

 

 

86,743 

 

 

123,189 

 

 

270,467 

 

 

403,812 

Reduction in value of assets

 

 

 -

 

 

755,632 

 

 

462,461 

 

 

1,563,269 

Loss from operations

 

 

(141,994)

 

 

(844,667)

 

 

(831,458)

 

 

(1,673,259)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(21,771)

 

 

(22,622)

 

 

(68,325)

 

 

(71,213)

Other income (expense):

 

 

3,667 

 

 

(3,123)

 

 

22,103 

 

 

(10,620)

Loss from continuing operations before income taxes

 

 

(160,098)

 

 

(870,412)

 

 

(877,680)

 

 

(1,755,092)

Income taxes

 

 

(46,185)

 

 

(53,825)

 

 

(210,599)

 

 

(161,876)

Net loss from continuing operations

 

 

(113,913)

 

 

(816,587)

 

 

(667,081)

 

 

(1,593,216)

Loss from discontinued operations, net of income tax

 

 

(4,085)

 

 

(4,610)

 

 

(8,577)

 

 

(24,107)

Net loss

 

$

(117,998)

 

$

(821,197)

 

$

(675,658)

 

$

(1,617,323)

Loss per share information:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted:

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.75)

 

$

(5.42)

 

$

(4.40)

 

$

(10.60)

Discontinued operations

 

 

(0.03)

 

 

(0.03)

 

 

(0.06)

 

 

(0.16)

Basic and diluted loss per share

 

$

(0.78)

 

$

(5.45)

 

$

(4.46)

 

$

(10.76)

Cash dividends declared per share

 

$

 -

 

$

0.08 

 

$

0.08 

 

$

0.24 

Weighted average common shares used in computing
loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

151,707 

 

 

150,742 

 

 

151,337 

 

 

150,372 



 

 

 

 

 

 

 

 

 

 

 

 















































 

 

 

 

 

 

 

 

 

 

 

 

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Loss

Three and Nine Months Ended September 30, 2016 and 2015

(in thousands)

(unaudited)



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months

 

Nine Months



 

2016

 

2015

 

2016

 

2015

Net loss

 

$

(117,998)

 

$

(821,197)

 

$

(675,658)

 

$

(1,617,323)

Change in cumulative translation adjustment, net of tax

 

 

(4,693)

 

 

(7,483)

 

 

(26,616)

 

 

(7,928)

Comprehensive loss

 

$

(122,691)

 

$

(828,680)

 

$

(702,274)

 

$

(1,625,251)



 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

























4

 


 





 

 

 

 

 

 



 

 

 

 

 

 

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2016 and 2015

(in thousands)

(unaudited)



 

2016

 

2015

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(675,658)

 

$

(1,617,323)

Adjustments to reconcile net loss to net cash provided by operating
  activities:

 

 

 

 

 

 

Depreciation, depletion, amortization and accretion

 

 

392,017 

 

 

467,329 

Deferred income taxes

 

 

(186,232)

 

 

(195,308)

Reduction in value of assets

 

 

462,461 

 

 

1,563,269 

Stock based compensation expense

 

 

34,167 

 

 

34,721 

Other reconciling items, net

 

 

(10,392)

 

 

18,348 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

Accounts receivable

 

 

155,717 

 

 

438,698 

Inventory and other current assets

 

 

(5,028)

 

 

10,924 

Accounts payable

 

 

(8,692)

 

 

(105,683)

Accrued expenses

 

 

(41,617)

 

 

(74,741)

Income taxes

 

 

(4,515)

 

 

(30,254)

Other, net

 

 

34,447 

 

 

55,507 

Net cash provided by operating activities

 

 

146,675 

 

 

565,487 

Cash flows from investing activities:

 

 

 

 

 

 

Payments for capital expenditures

 

 

(74,071)

 

 

(318,908)

Purchase of leased vessels

 

 

 -

 

 

(46,442)

Other

 

 

6,238 

 

 

(1,425)

         Net cash used in investing activities

 

 

(67,833)

 

 

(366,775)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from revolving line of credit

 

 

325,123 

 

 

7,475 

Payments on revolving line of credit

 

 

(325,123)

 

 

(7,475)

Principal payments on long-term debt

 

 

(337,576)

 

 

(15,775)

Proceeds from issuance of long-term debt

 

 

 -

 

 

10,357 

Payment of debt issuance costs

 

 

(2,675)

 

 

 -

Cash dividends

 

 

(12,111)

 

 

(36,081)

Payment to extinguish capital lease obligation

 

 

 -

 

 

(20,933)

Proceeds from exercise of stock options

 

 

 -

 

 

8,800 

Other

 

 

(5,410)

 

 

(3,760)

         Net cash used in financing activities

 

 

(357,772)

 

 

(57,392)

         Effect of exchange rate changes on cash

 

 

(6,932)

 

 

(692)

         Net increase (decrease) in cash and cash equivalents

 

 

(285,862)

 

 

140,628 

Cash and cash equivalents at beginning of period

 

 

564,017 

 

 

393,046 

Cash and cash equivalents at end of period

 

$

278,155 

 

$

533,674 



 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

































5

 


 

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

Nine Months Ended September 30, 2016

(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, 2015, and Management’s Discussion and Analysis of Financial Condition and Results of Operations herein.



The financial information of Superior Energy Services, Inc. and subsidiaries (the Company) for the three and nine months ended September 30, 2016 and 2015 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 2016 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 disclosure other than those disclosed herein.





(2)  Reduction in Value of Assets and Other Charges



For the three and nine months ended September 30, 2016 and 2015, the Company recorded $0, $462.5 million, $755.6 million and $1,563.3 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):





 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended September 30,



 

2016

 

2015

 Reduction in value of goodwill

 

$

 -

 

$

740,000 

 Reduction in value of long-lived assets

 

 

 -

 

 

15,632 

   Total reduction in value of assets

 

$

 -

 

$

755,632 







 

 

 

 

 

 



 

Nine Months Ended September 30,



 

2016

 

2015

 Reduction in value of goodwill

 

$

330,500 

 

$

1,315,389 

 Reduction in value of long-lived assets

 

 

105,859 

 

 

165,888 

 Retirements of long-lived assets

 

 

26,102 

 

 

42,545 

 Reduction in value of assets related to sale of a business

 

 

 -

 

 

39,447 

   Total reduction in value of assets

 

$

462,461 

 

$

1,563,269 



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.  Due to the prolonged downturn in the oil and gas industry and the impact it has had on the Company’s activity levels, 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. 

6

 


 



During the second quarter of 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.  The reduction in values of goodwill in the Onshore Completion and Workover Services and Production Services segments was primarily driven by further deterioration of market conditions during the period and the Company’s forecast did not indicate a timely recovery sufficient to support the carrying values of the goodwill.



During the three and nine months ended September 30, 2015, the Company recorded $740.0 million and $1,315.4 million in expense related to the reduction in value of goodwill, respectively.  During the three months ended June 30, 2015, the Company recorded a $575.4 million reduction in the value of goodwill relating to its Production Services segment.  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 $575.4 million impairment of the Production Services segment’s goodwill.  The reduction in the value of goodwill in the Production Services segment was primarily driven by the decline in demand for coiled tubing services and the Company’s forecast did not indicate a timely recovery sufficient to support the carrying value of the goodwill.



During the three months ended September 30, 2015, the Company recorded a $740.0 million reduction in the value of goodwill relating to its Onshore Completion and Workover Services segment.  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 $740.0 million impairment of the segment’s goodwill.  The reduction in the value of goodwill in the Onshore Completion and Workover Services segment was primarily driven by deterioration of market conditions during the period and the Company’s forecast did not indicate a timely recovery sufficient to support the carrying value of the goodwill.



At September 30, 2016 and December 31, 2015, the Company’s accumulated reduction in value of goodwill was $1,748.2 million and $1,417.7 million, respectively.



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, impairment losses are recorded in the amount by which the carrying amount of such assets 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, the Company recorded $0 and $105.9 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 million related to equipment and $45.9 million related to intangibles in the fluid management business in the Onshore Completion and Workover Services segment and $12.4 million related to equipment and $21.0 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.  The reduction in value of assets recorded during the second quarter of 2016 was primarily driven by the decline in demand for these services.



During the three and nine months ended September 30, 2015, the Company recorded $15.6 million and $166.0 million in connection with the reduction in value of its long-lived assets.  The reduction in value of assets was comprised of $78.5 million related to equipment and $58.8 million related to intangibles in the coiled tubing and pressure control tools businesses in the Production Services segment and $12.9 million related to mechanical drilling rigs included in the Onshore Completion and Workover Services segment.  In addition, the Company recorded $15.8 million related to reduction in carrying values of certain international accommodation units included in the Drilling Products and Services segment.



7

 


 

Retirements of Long-Lived Assets



During the second quarter of 2016, the Company recorded $23.9 million in the Drilling Products and Services segment for retirement and abandonment of excess and inoperable and/or functionally obsolete long-lived assets that would require a significant cost to refurbish. 



During the second quarter of 2015, the Company recorded $42.5 million for retirement and abandonment of inoperable and/or functionally obsolete long-lived assets that would require a significant cost to refurbish.  The total amount recorded includes $27.3 million for the Onshore Completion and Workover Services segment and $15.2 million for the Production Services segment.   



Reduction in Value of Assets Related to Sale of Coiled Tubing Business in Mexico



During the second quarter of 2015, the Company sold its Mexico based coiled tubing business and related assets.  The Company received proceeds in the form of cash and a note receivable.  The Company recorded a full valuation allowance on the note receivable in the amount of $16.8 million because its collectability was not reasonably assured.  In connection with the sale, the Company recorded a $39.4 million reduction in value of assets, primarily related to property, plant and equipment and intangible assets.



Other Charges



During the three and nine months ended September 30, 2016, the Company recorded a $2.3 million and $22.8 million expense, respectively, primarily for severance and facility closures. At September 30, 2016, the accrued lease termination liability balances were $6.0 million and $9.0 million, included in accrued expenses and other long-term liabilities, respectively, on the consolidated balance sheet. At December 31, 2015, the accrued lease termination liability balances were $7.2 million and $11.1 million, included in accrued expenses and other long-term liabilities, respectively, on the consolidated balance sheet.     



(3)Inventory



Inventories are stated at the lower of cost or market.  Cost is determined using the first-in, first-out or weighted-average cost methods for finished goods and work-in-process.  Supplies and consumables consist principally of products used in our services provided to customers. The components of the inventory balances are as follows (in thousands):





 

 

 

 

 

 



 

 

 

 

 

 



 

September 30, 2016

 

December 31, 2015

Finished goods

 

$

67,749 

 

$

71,951 

Raw materials

 

 

16,745 

 

 

23,418 

Work-in-process

 

 

4,194 

 

 

18,203 

Supplies and consumables

 

 

35,224 

 

 

35,189 

Total

 

$

123,912 

 

$

148,761 



 

 

 

 

 

 













(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 $2.7 million and $1.3 million for the nine months ended September 30, 2016 and 2015, respectively.  





(5)Decommissioning Liabilities



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 $122.3 million and $117.9 million at September  30, 2016 and December 31, 2015, respectively.



8

 


 

(6)Debt



The Company’s outstanding debt is as follows (in thousands):





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

September 30, 2016

 

December 31, 2015



 

Long-term

 

Current

 

Long-term

 

Current

Senior Notes due May 2019

 

$

500,000 

 

$

 -

 

$

500,000 

 

$

 -

Senior Notes due December 2021

 

 

800,000 

 

 

 -

 

 

800,000 

 

 

 -

Term loan

 

 

 -

 

 

 -

 

 

305,000 

 

 

20,000 

Other

 

 

 -

 

 

 -

 

 

3,089 

 

 

9,957 

Total debt, gross

 

 

1,300,000 

 

 

 -

 

 

1,608,089 

 

 

29,957 

Unamortized debt issuance costs

 

 

(16,419)

 

 

 -

 

 

(19,826)

 

 

 -

Total debt, net

 

$

1,283,581 

 

$

 -

 

$

1,588,263 

 

$

29,957 



Credit Facility



At December 31, 2015, the Company had a bank credit facility, comprised of a $600.0 million revolving credit facility and a $325.0 million term loan.  In February 2016, the Company amended and extended its credit facility, resulting in a $470.3 million revolving credit facility that matures in 2019 and no longer has a term loan component.  In July 2016, the Company amended the credit facility and repaid the outstanding balance of $250.0 million.  The amended agreement, among other things, reduces the size of the facility to $400.0 million, suspends the maximum leverage ratio covenant until the fourth quarter of 2017 and replaces it with a senior secured debt to earnings before interest, taxes, depreciation and amortization ratio covenant during this period and modifies the restricted payment covenant to eliminate our ability to pay dividends and make equity repurchases until September 2017.



Senior Unsecured Notes



The Company has outstanding $500 million of 6 3/8% unsecured senior notes due 2019.  The indenture governing the 6 3/8% senior notes requires semi-annual interest payments on May 1 and November 1 of each year through the maturity date of May 1, 2019. 



The Company also has outstanding $800 million of 7 1/8% unsecured senior notes due 2021.  The indenture governing the 7 1/8% senior notes requires semi-annual interest payments on June 15 and December 15 of each year through the maturity date of December 15, 2021. 



(7Derivative Financial Instruments



From time to time, the Company may employ interest rate swaps in an attempt to achieve a more balanced debt portfolio between fixed and variable interest.  The Company does not use derivative financial instruments for trading or speculative purposes.



The Company has three interest rate swap agreements related to its fixed rate debt maturing in 2021 for notional amounts of $100 million each, whereby the Company is entitled to receive semi-annual interest payments at a fixed rate of 7 1/8% per annum and is obligated to make semi-annual interest payments at floating rates, which are adjusted every 90 days, based on LIBOR plus a fixed margin. The swap agreements, scheduled to terminate on December 15, 2021, are designated as fair value hedges of a portion of the Company’s 7 1/8% senior notes, as the derivatives have been tested to be highly effective in offsetting changes in the fair value of the underlying notes.  As these derivatives are classified as fair value hedges, the changes in the fair value of the derivatives are offset against the changes in the fair value of the underlying note in interest expense, net.  The Company recorded a derivative asset relating to these swaps of $10.9 million and $6.9 million within intangible and other long term assets in the consolidated balance sheets at September 30, 2016 and December 31, 2015, respectively



9

 


 

The location and effect of the derivative instruments on the condensed consolidated statement of operations, presented on a pre-tax basis, are as follows (in thousands):





 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

 

 

Three Months Ended September 30,

Effect of derivative instrument

 

Location of (gain) loss recognized

 

 

2016

 

 

2015

Interest rate swap

 

Interest expense, net

 

 

$

1,791 

 

 

$

(5,452)

Hedged item - debt

 

Interest expense, net

 

 

 

(1,805)

 

 

 

3,134 



 

 

 

 

$

(14)

 

 

$

(2,318)



 

 

 

 

 

 

 

 

 

 









 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 



 

 

 

 

Nine Months Ended September 30,

Effect of derivative instrument

 

Location of (gain) loss  recognized

 

 

2016

 

 

2015

Interest rate swap

 

Interest expense, net

 

 

$

(4,329)

 

 

$

(5,643)

Hedged item - debt

 

Interest expense, net

 

 

 

365 

 

 

 

2,648 



 

 

 

 

$

(3,964)

 

 

$

(2,995)



 

 

 

 

 

 

 

 

 

 





For the nine months ended September 30, 2016 and 2015,  approximately $4.0 million and $3.0 million of interest income, respectively, was related to the ineffectiveness associated with these fair value hedges.  Hedge ineffectiveness represents the difference between the changes in fair value of the derivative instruments and the changes in fair value of the fixed rate debt attributable to changes in the benchmark interest rate. 



(8Fair 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.



10

 


 

The following tables provide a summary of the financial assets and liabilities measured at fair value on a recurring basis (in thousands):



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Fair Value Measurements at Reporting Date Using



 

September 30, 2016

 

Level 1

 

Level 2

 

Level 3

Intangible and other long-term assets, net

 

 

 

 

 

 

 

 

 

 

 

 

Non-qualified deferred compensation assets

 

$

12,370 

 

$

367 

 

$

12,003 

 

 

 -

Interest rate swaps

 

$

10,869 

 

 

 -

 

$

10,869 

 

 

 -

Accounts payable

 

 

 

 

 

 

 

 

 

 

 

 

Non-qualified deferred compensation liabilities

 

$

1,589 

 

 

 -

 

$

1,589 

 

 

 -

Other long-term liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Non-qualified deferred compensation liabilities

 

$

18,591 

 

 

 -

 

$

18,591 

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 



 

December 31, 2015

 

Level 1

 

Level 2

 

Level 3

Intangible and other long-term assets, net

 

 

 

 

 

 

 

 

 

 

 

 

Non-qualified deferred compensation assets

 

$

11,548 

 

$

368 

 

$

11,180 

 

 

 -

Interest rate swaps

 

$

6,905 

 

 

 -

 

$

6,905 

 

 

 -

Accounts payable

 

 

 

 

 

 

 

 

 

 

 

 

Non-qualified deferred compensation liabilities

 

$

721 

 

 

 -

 

$

721 

 

 

 -

Other long-term liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Non-qualified deferred compensation liabilities

 

$

17,367 

 

 

 -

 

$

17,367 

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

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 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. 



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 $1,282.0 million and $1,508.0 million as of September 30, 2016 and December 31, 2015, respectively.  The fair value of these debt instruments is determined by reference to the market value of the instruments as quoted in over-the-counter markets, which are Level 1 inputs.



The following table reflects the fair value measurements used in testing the impairments of long-lived assets and goodwill (in thousands):





 

 

 

 

 

 



 

 

 

 

 

 



 

Nine Months Ended September 30, 2016



 

Impairment

 

Fair Value

Goodwill

 

$

330,500 

 

$

668,864 

Property, plant and equipment, net

 

$

38,977 

 

$

284,457 

Intangible assets

 

$

66,882 

 

$

 -



Fair value is measured as of the impairment date using Level 3 inputs.  See note 2 for discussion of reduction in value of assets and other charges.



(9)  Segment Information



Business Segments



The Drilling Products and Services segment rents and sells bottom hole assemblies, premium drill pipe, 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 includes production handling arrangements and the production and sale of oil and gas. 

11

 


 

 

The Company evaluates the performance of its reportable segments based on income or loss from operations.  The segment measure is calculated as follows: segment revenues less segment operating expenses, depreciation, depletion, amortization and accretion expense, reduction in value of assets and allocated general and administrative expenses.  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.  The Company believes this segment measure is useful in evaluating the performance of its reportable segments because it highlights operating trends and aids analytical comparisons.



Summarized financial information for the Company’s segments is as follows (in thousands): 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Onshore

 

 

 

 

 

 

 

 

 

 

 

 



 

Drilling

 

Completion

 

 

 

 

 

 

 

 

 

 

 



 

Products and

 

and Workover

 

Production

 

Technical

 

 

 

 

Consolidated



 

Services

 

Services

 

Services

 

Solutions

 

Unallocated

 

Total

Revenues

 

$

63,570 

 

$

125,022 

 

$

73,540 

 

$

64,093 

 

$

 -

 

$

326,225 

Cost of services and rentals (exclusive of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

depreciation, depletion, amortization and accretion)

 

 

30,137 

 

 

124,747 

 

 

62,818 

 

 

40,466 

 

 

 -

 

 

258,168 

Depreciation, depletion, amortization and accretion

 

 

39,612 

 

 

51,346 

 

 

21,469 

 

 

10,881 

 

 

 -

 

 

123,308 

General and administrative expenses

 

 

23,168 

 

 

23,124 

 

 

16,975 

 

 

23,476 

 

 

 -

 

 

86,743 

Loss from operations

 

 

(29,347)

 

 

(74,195)

 

 

(27,722)

 

 

(10,730)

 

 

 -

 

 

(141,994)

Interest income (expense), net

 

 

 -

 

 

 -

 

 

(17)

 

 

870 

 

 

(22,624)

 

 

(21,771)

Other income

 

 

 -

 

 

 -

 

 

 

 

 

 

 

 

3,667 

 

 

3,667 

Loss from continuing operations before income taxes

 

$

(29,347)

 

$

(74,195)

 

$

(27,739)

 

$

(9,860)

 

$

(18,957)

 

$

(160,098)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Onshore

 

 

 

 

 

 

 

 

 

 

 

 



 

Drilling

 

Completion

 

 

 

 

 

 

 

 

 

 

 

 



 

Products and

 

and Workover

 

Production

 

Technical

 

 

 

 

Consolidated



 

Services

 

Services

 

Services

 

Solutions

 

Unallocated

 

Total

Revenues

 

$

128,489 

 

$

202,912 

 

$

163,937 

 

$

106,058 

 

$

 -

 

$

601,396 

Cost of services and rentals (exclusive of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

depreciation, depletion, amortization and accretion)

 

 

43,827 

 

 

174,429 

 

 

130,021 

 

 

72,208 

 

 

 -

 

 

420,485 

Depreciation, depletion, amortization and accretion

 

 

48,366 

 

 

53,836 

 

 

29,954 

 

 

14,601 

 

 

 -

 

 

146,757 

General and administrative expenses

 

 

29,299 

 

 

30,044 

 

 

34,395 

 

 

29,451 

 

 

 -

 

 

123,189 

Reduction in value of assets

 

 

 -

 

 

740,000 

 

 

15,632 

 

 

 -

 

 

 -

 

 

755,632 

Income (loss) from operations

 

 

6,997 

 

 

(795,397)

 

 

(46,065)

 

 

(10,202)

 

 

 -

 

 

(844,667)

Interest income (expense), net

 

 

 -

 

 

 -

 

 

(845)

 

 

430 

 

 

(22,207)

 

 

(22,622)

Other expense

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(3,123)

 

 

(3,123)

Income (loss) from continuing operations
   before income taxes

 

$

6,997 

 

$

(795,397)

 

$

(46,910)

 

$

(9,772)

 

$

(25,330)

 

$

(870,412)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 





12

 


 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Onshore