e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2009
or
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o |
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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)
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Delaware
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75-2379388 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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601 Poydras, Suite 2400 |
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New Orleans, Louisiana
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70130 |
(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code: (504) 587-7374
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 þ No o
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 (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes o
No o
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. (Check one):
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Large accelerated filer þ |
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Accelerated filer o |
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The number of shares of the registrants common stock outstanding on April 30, 2009 was 78,147,041.
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q for
the Quarterly Period Ended March 31, 2009
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, 2009 and December 31, 2008
(in thousands, except share data)
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3/31/09 |
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12/31/2008 * |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
110,374 |
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$ |
44,853 |
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Accounts receivable, net |
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353,429 |
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360,357 |
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Income taxes receivable |
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3,092 |
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Prepaid expenses |
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30,912 |
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18,041 |
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Other current assets |
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293,286 |
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223,598 |
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Total current assets |
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791,093 |
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646,849 |
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Property, plant and equipment, net |
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1,144,486 |
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1,114,941 |
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Goodwill |
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477,189 |
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477,860 |
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Equity-method investments |
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119,400 |
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122,308 |
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Intangible and other long-term assets, net |
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127,150 |
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128,187 |
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Total assets |
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$ |
2,659,318 |
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$ |
2,490,145 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
59,586 |
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$ |
87,207 |
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Accrued expenses |
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146,437 |
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152,536 |
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Income taxes payable |
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20,861 |
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Deferred income taxes |
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67,815 |
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36,830 |
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Current maturities of long-term debt |
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810 |
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810 |
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Total current liabilities |
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274,648 |
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298,244 |
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Deferred income taxes |
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241,969 |
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246,824 |
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Long-term debt, net |
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792,204 |
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654,199 |
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Other long-term liabilities |
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36,968 |
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36,605 |
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Stockholders equity: |
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Preferred stock of $.01 par value. Authorized, 5,000,000
shares; none issued |
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Common stock of $.001 par value. Authorized, 125,000,000 shares; issued
and outstanding, 78,076,137 shares at March 31, 2009, and 78,028,072
shares at December 31, 2008 |
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78 |
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78 |
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Additional paid in capital |
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378,093 |
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375,436 |
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Accumulated other comprehensive loss, net |
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(32,847 |
) |
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(32,641 |
) |
Retained earnings |
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968,205 |
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911,400 |
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Total stockholders equity |
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1,313,529 |
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1,254,273 |
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Total liabilities and stockholders equity |
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$ |
2,659,318 |
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$ |
2,490,145 |
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See accompanying notes to consolidated financial statements.
* As adjusted for FSP APB No. 14-1 (See note 2)
3
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2009 and 2008
(in thousands, except per share data)
(unaudited)
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2009 |
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2008 * |
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Oilfield service and rental revenues |
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$ |
437,109 |
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$ |
386,319 |
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Oil and gas revenues |
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55,072 |
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Total revenues |
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437,109 |
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441,391 |
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Cost of oilfield services and rentals |
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222,465 |
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191,132 |
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Cost of oil and gas sales |
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12,986 |
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Total cost of services, rentals and sales
(exclusive of items shown separately below) |
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222,465 |
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204,118 |
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Depreciation, depletion, amortization and accretion |
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49,868 |
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41,879 |
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General and administrative expenses |
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64,986 |
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69,606 |
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Gain on sale of businesses |
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37,888 |
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Income from operations |
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99,790 |
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163,676 |
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Other income (expense): |
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Interest expense, net |
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(13,288 |
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(12,183 |
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Earnings from equity-method investments, net |
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2,256 |
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3,957 |
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Income before income taxes |
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88,758 |
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155,450 |
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Income taxes |
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31,953 |
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55,921 |
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Net income |
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$ |
56,805 |
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$ |
99,529 |
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Basic earnings per share |
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$ |
0.73 |
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$ |
1.23 |
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Diluted earnings per share |
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$ |
0.72 |
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$ |
1.21 |
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Weighted average common shares used
in computing earnings per share: |
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Basic |
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78,032 |
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80,776 |
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Incremental common shares from stock-based
compensation |
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396 |
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1,310 |
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Diluted |
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78,428 |
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82,086 |
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See accompanying notes to consolidated financial statements.
* As adjusted for FSP APB No. 14-1 (See note 2)
4
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2009 and 2008
(in thousands)
(unaudited)
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2009 |
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2008 * |
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Cash flows from operating activities: |
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Net income |
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$ |
56,805 |
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$ |
99,529 |
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Adjustments to reconcile net income to net cash provided
by operating activities: |
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Depreciation, depletion, amortization and accretion |
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49,868 |
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41,879 |
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Deferred income taxes |
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27,151 |
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(6,813 |
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Non-cash interest expense related to 1.5% senior exchangeable notes |
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4,476 |
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4,183 |
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Tax benefit from exercise of stock options |
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(2,347 |
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Stock-based and performance share unit compensation expense |
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3,277 |
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4,818 |
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Retirement and deferred compensation plans expense, net |
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1,445 |
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950 |
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(Earnings) losses from equity-method investments, net of cash received |
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1,099 |
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(3,957 |
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Amortization of debt acquisition costs and note discount |
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829 |
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798 |
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Gain on sale of businesses |
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(37,888 |
) |
Changes in operating assets and liabilities, net of acquisitions
and dispositions: |
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Receivables |
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6,211 |
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(36,641 |
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Other current assets |
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(69,846 |
) |
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3,973 |
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Accounts payable |
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(27,517 |
) |
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(1,528 |
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Accrued expenses |
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(9,813 |
) |
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8,315 |
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Decommissioning liabilities |
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(6,160 |
) |
Income taxes |
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(23,769 |
) |
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52,536 |
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Other, net |
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(3,872 |
) |
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2,674 |
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Net cash provided by operating activities |
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16,344 |
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124,321 |
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Cash flows from investing activities: |
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Payments for capital expenditures |
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(82,270 |
) |
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(88,883 |
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Cash proceeds from sale of businesses, net of cash sold |
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151,753 |
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Other |
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(2,440 |
) |
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(3,414 |
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Net cash provided by (used in) investing activities |
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(84,710 |
) |
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59,456 |
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Cash flows from financing activities: |
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Net borrowings from revolving credit facility |
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133,400 |
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Proceeds from exercise of stock options |
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9 |
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2,010 |
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Tax benefit from exercise of stock options |
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2,347 |
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Proceeds from issuance of stock through employee benefit plans |
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677 |
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479 |
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Purchase and retirement of stock |
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(8,793 |
) |
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Net cash provided by (used in) financing activities |
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134,086 |
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(3,957 |
) |
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Effect of exchange rate changes on cash |
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(199 |
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372 |
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Net increase in cash and cash equivalents |
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65,521 |
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180,192 |
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Cash and cash equivalents at beginning of period |
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44,853 |
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51,649 |
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Cash and cash equivalents at end of period |
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$ |
110,374 |
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$ |
231,841 |
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See accompanying notes to consolidated financial statements.
* As adjusted for FSP APB No. 14-1 (See note 2)
5
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Three Months Ended March 31, 2009 and 2008
(1) Basis of Presentation
Certain information and footnote disclosures normally in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or omitted pursuant to
the rules and regulations of the Securities and Exchange Commission; however, management believes
the disclosures which are made are adequate to make the information presented not misleading.
These financial statements and footnotes 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, 2008 and Managements Discussion and Analysis of
Financial Condition and Results of Operations.
The financial information of Superior Energy Services, Inc. and subsidiaries (the Company) for the
three months ended March 31, 2009 and 2008 has not been audited. However, in the opinion of
management, all adjustments (which include only normal recurring adjustments) necessary to present
fairly the results of operations for the periods presented have been included therein. The results
of operations for the first three months of the year are not necessarily indicative of the results
of operations that might be expected for the entire year. Certain previously reported amounts have
been reclassified to conform to the 2009 presentation.
(2) Adoption of Recent Accounting Pronouncement and Debt
Effective January 1, 2009, the Company has retrospectively adopted the Financial Accounting
Standards Boards Staff Position APB No. 14-1 (FSP APB No. 14-1), Accounting for Convertible Debt
Instruments That May Be Settled Upon Conversion (Including Partial Cash Settlement). FSP APB No.
14-1 requires the proceeds from the issuance of our 1.50% senior exchangeable notes (described below) to be allocated
between a liability component (issued at a discount) and an equity component. The resulting debt discount is amortized over the period the
exchangeable debt is expected to be outstanding as additional non-cash interest expense. The
Company used an effective interest rate of 6.89% and will amortize this initial debt discount
through December 12, 2011. The carrying amount of the equity component was $55.1 million at
December 31, 2008 and March 31, 2009. The principal amount of the liability component, its
unamortized discount and its net carrying value for the periods ended December 31, 2008 and March
31, 2009 are as follows (in thousands):
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Net |
Period |
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Principal |
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Unamortized |
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Carrying |
Ended |
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Amount |
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Discount |
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Value |
December 31, 2008 |
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$ |
400,000 |
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$ |
56,631 |
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$ |
343,369 |
|
March 31, 2009 |
|
$ |
400,000 |
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|
$ |
52,155 |
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|
$ |
347,845 |
|
The provisions of FSP APB No. 14-1 are effective for fiscal years beginning after December 15, 2008
and require retrospective application. The Companys comparative balance sheet as of December 31,
2008 has been adjusted as follows (in thousands):
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As originally |
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Effect of |
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As |
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reported |
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Change |
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Adjusted |
Intangible assets and other
long-term assets, net |
|
$ |
129,675 |
|
|
$ |
(1,488 |
) |
|
$ |
128,187 |
|
Long-term debt, net |
|
$ |
710,830 |
|
|
$ |
(56,631 |
) |
|
$ |
654,199 |
|
Deferred income taxes |
|
$ |
226,421 |
|
|
$ |
20,403 |
|
|
$ |
246,824 |
|
Additional paid in capital |
|
$ |
320,309 |
|
|
$ |
55,127 |
|
|
$ |
375,436 |
|
Retained earnings |
|
$ |
931,787 |
|
|
$ |
(20,387 |
) |
|
$ |
911,400 |
|
6
The condensed consolidated income statements were retrospectively modified compared to previously
reported amounts as follows (in thousands, except per share amounts):
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Three Months |
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Ended |
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Twelve Months Ended |
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March 31, |
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December 31, |
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2008 |
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2008 |
|
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2007 |
|
|
2006 |
|
Additional pre-tax non-cash interest expense, net |
|
$ |
(4,067 |
) |
|
$ |
(16,266 |
) |
|
$ |
(15,178 |
) |
|
$ |
(917 |
) |
Additional deferred tax benefit |
|
|
1,505 |
|
|
|
6,018 |
|
|
|
5,616 |
|
|
|
340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retrospective change in net income and retained
earnings |
|
$ |
(2,562 |
) |
|
$ |
(10,248 |
) |
|
$ |
(9,562 |
) |
|
$ |
(577 |
) |
|
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|
|
|
|
|
|
|
|
|
Change to basic and diluted
earnings per share |
|
$ |
(0.03 |
) |
|
$ |
(0.13 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The non-cash increase to interest expense, exclusive of amounts to be capitalized, will be
approximately $17.9 million, $19.2 million and $20.5 million for the years ended December 31, 2009,
2010 and 2011, respectively.
The Company has a $250 million bank revolving credit facility. Any amounts outstanding under the
revolving credit facility are due on June 14, 2011. At March 31, 2009, the Company had $133.4
million outstanding under the revolving credit facility. The Company also had approximately $11.3
million of letters of credit outstanding, which reduce the Companys borrowing availability under
this credit facility. Amounts borrowed under the credit facility bear interest at a LIBOR rate
plus margins that depend on the Companys leverage ratio. Indebtedness under the credit facility
is secured by substantially all of the Companys assets, including the pledge of the stock of the
Companys principal subsidiaries. The credit facility contains customary events of default and
requires that the Company satisfy various financial covenants. It also limits the Companys
ability to pay dividends or make other distributions, make acquisitions, make changes to the
Companys capital structure, create liens or incur additional indebtedness. At March 31, 2009, the
Company was in compliance with all such covenants.
The Company has $15.0 million outstanding at March 31, 2009, in U.S. Government guaranteed
long-term financing under Title XI of the Merchant Marine Act of 1936, which is administered by the
Maritime Administration (MARAD), for two 245-foot class liftboats. The debt bears interest at
6.45% per annum and is payable in equal semi-annual installments of $405,000, on every June
3rd and December 3rd through the maturity date of June 3, 2027. The
Companys obligations are secured by mortgages on the two liftboats. In accordance with the
agreement, the Company is required to comply with certain covenants and restrictions, including the
maintenance of minimum net worth, working capital and debt-to-equity requirements. At March 31,
2009, the Company was in compliance with all such covenants.
The Company also has $300 million of 6 7/8% unsecured senior notes due 2014. The indenture
governing the senior notes requires semi-annual interest payments on every June 1st and
December 1st through the maturity date of June 1, 2014. The indenture contains certain
covenants that, among other things, limit the Company from incurring additional debt, repurchasing
capital stock, paying dividends or making other distributions, incurring liens, selling assets or
entering into certain mergers or acquisitions. At March 31, 2009, the Company was in compliance
with all such covenants.
The Company has $400 million of 1.50% unsecured senior exchangeable notes due 2026. Effective
January 1, 2009, the Company retrospectively adopted FSP APB No. 14-1 as it pertains to these
exchangeable notes. The exchangeable notes bear interest at a rate of 1.50% per annum and decrease
to 1.25% per annum on December 15, 2011. Interest on the exchangeable notes is payable
semi-annually on December 15th and June 15th of each year through the
maturity date of December 15, 2026. The exchangeable notes do not contain any restrictive
financial covenants.
7
Under certain circumstances, holders may exchange the notes for shares of the Companys common
stock. The initial exchange rate is 21.9414 shares of common stock per $1,000 principal amount of
notes. This is equal to an initial exchange price of $45.58 per share. The exchange price
represents a 35% premium over the closing share price at date of issuance. The notes may be
exchanged under the following circumstances:
|
|
|
during any fiscal quarter (and only during such fiscal quarter), if the last reported
sale price of the Companys common stock is greater than or equal to 135% of the applicable
exchange price of the notes for at least 20 trading days in the period of 30 consecutive
trading days ending on the last trading day of the preceding fiscal quarter; |
|
|
|
|
prior to December 15, 2011, during the five business-day period after any ten
consecutive trading-day period (the measurement period) in which the trading price of
$1,000 principal amount of notes for each trading day in the measurement period was less
than 95% of the product of the last reported sale price of the Companys common stock and
the exchange rate on such trading day; |
|
|
|
|
if the notes have been called for redemption; |
|
|
|
|
upon the occurrence of specified corporate transactions; or |
|
|
|
|
at any time beginning on September 15, 2026, and ending at the close of business on the
second business day immediately preceding the maturity date. |
In connection with the exchangeable note transaction, the Company simultaneously entered into
agreements with affiliates of the initial purchasers to purchase call options and sell warrants on
its common stock. The Company may exercise the call options it purchased at any time to acquire
approximately 8.8 million shares of its common stock at a strike price of $45.58 per share. The
owners of the warrants may exercise the warrants to purchase from the Company approximately 8.8
million shares of the Companys common stock at a price of $59.42 per share, subject to certain
anti-dilution and other customary adjustments. The warrants may be settled in cash, in shares or
in a combination of cash and shares, at the Companys option. Lehman Brothers OTC Derivatives,
Inc. (LBOTC) is the counterparty to 50% of the Companys call option and warrant transactions. In
October 2008, LBOTC filed for bankruptcy protection, which is an event of default under the
contracts relating to the call option and warrant transactions. The Company has not terminated
these contracts and continues to carefully monitor the developments affecting LBOTC. Although the
Company may not retain the benefit of the call option due to LBOTCs bankruptcy, the Company does
not expect that there will be a material impact, if any, on the financial statements or results of
operations. The call option and warrant transactions described above do not affect the terms of
the outstanding exchangeable notes.
(3) Acquisitions and Dispositions
On March 14, 2008, the Company completed the sale of 75% of its interest in SPN Resources, LLC (SPN
Resources). As part of this transaction, SPN Resources contributed an undivided 25% of its working
interest in each of its oil and gas properties to a newly formed subsidiary and then sold all of
its equity interest in the subsidiary. SPN Resources then effectively sold 66 2/3% of its
outstanding membership interests. These two transactions generated cash proceeds of approximately
$167.2 million and resulted in a pre-tax gain of approximately $37.1 million, of which $34.1
million was recognized in the three months ended March 31, 2008. SPN Resources operations
constituted substantially all of the Companys oil and gas segment. Subsequent to March 14, 2008,
the Company accounts for its remaining 33 1/3% interest in SPN Resources using the equity-method.
The results of SPN Resources operations through March 14, 2008 were consolidated.
Additionally, the Company retained preferential rights on certain service work, entered into a
turnkey contract to perform well abandonment and decommissioning work and guaranteed SPN Resources
performance of its decommissioning liabilities (see notes 4 and 10).
The Company made business acquisitions, which were not material on an individual or cumulative
basis, for cash consideration of $7.0 million in the year ended December 31, 2008.
In connection with the 2007 sale of a non-core rental tool business, the Company received cash of
approximately $6.0 million, which resulted in an additional pre-tax gain on the sale of the
business of approximately $3.3 million in the three months ended March 31, 2008.
8
The Company also sold the assets of its field management division in 2007. In conjunction with the
sale of this division, the Company recorded a receivable of $0.5 million at March 31, 2008, which
resulted in an additional pre-tax gain on the sale of the business.
Several of the Companys prior business acquisitions require future payments if specific conditions
are met. As of March 31, 2009, the maximum additional contingent consideration payable was
approximately $26.6 million and will be determined and payable through 2012. Since these
acquisitions occurred before the adoption of FAS No. 141(R), these amounts are not classified as
liabilities and are not reflected in the Companys financial statements until the amounts are fixed
and determinable.
(4) Long-Term Contracts
In December 2007, the Companys wholly-owned subsidiary, Wild Well Control, Inc. (Wild Well),
entered into contractual arrangements pursuant to which it is decommissioning seven downed oil and
gas platforms and related well facilities located offshore in the Gulf of Mexico for a fixed sum of
$750 million, which is payable in installments upon the completion of specified portions of work.
The contract contains certain covenants primarily related to Wild Wells performance of the work.
The work could take up to three years to complete and began in the first quarter of 2008. The
revenue related to the contract for decommissioning these downed platforms and well facilities is
recorded on the percentage-of-completion method utilizing costs incurred as a percentage of total
estimated costs. Included in other current assets is approximately $238.7 million at March 31,
2009 and $164.3 million at December 31, 2008 of costs and estimated earnings in excess of billings
related to this contract.
In connection with the sale of 75% of its interest in SPN Resources, the Company retained
preferential rights on certain service work and entered into a turnkey contract to perform well
abandonment and decommissioning work associated with oil and gas properties owned and operated by
SPN Resources. This contract covers only routine end of life well abandonment, pipeline and
platform decommissioning for properties owned and operated by SPN Resources at the date of closing
and has a remaining fixed price of approximately $147.4 million as of March 31, 2009. The turnkey
contract will consist of numerous, separate billable jobs estimated to be performed through 2022.
Each job is short-term in duration and will be individually recorded on the
percentage-of-completion method utilizing costs incurred as a percentage of total estimated costs.
(5) Stock-Based and Deferred Compensation
The Company maintains various stock incentive plans that provide long-term incentives to the
Companys key employees, including officers and directors, consultants and advisors (Eligible
Participants). Under the incentive plans, the Company may grant incentive stock options,
non-qualified stock options, restricted stock, restricted stock units, stock appreciation rights,
other stock-based awards or any combination thereof to Eligible Participants.
Stock Options
The Company has issued non-qualified stock options under its stock incentive plans. The options
generally vest in equal installments over three years and expire in ten years. Non-vested options
are generally forfeited upon termination of employment. The Companys compensation expense related
to stock options for the three months ended March 31, 2009 and 2008 was approximately $0.7 million
and $1.0 million, respectively, which is reflected in general and administrative expenses.
Restricted Stock
The Company has issued shares of restricted stock under its stock incentive plans. Shares of
restricted stock generally vest in equal annual installments over three years. Non-vested shares
are generally forfeited upon the termination of employment. Holders of shares of restricted stock
are entitled to all rights of a stockholder of the Company with respect to the restricted stock,
including the right to vote the shares and receive any dividends or other distributions declared
thereon. The Companys compensation expense related to shares of restricted stock outstanding for
the three months ended March 31, 2009 and 2008 was approximately $1.5 million for each of the
respective periods, which is reflected in general and administrative expenses.
9
Restricted Stock Units
The Company has issued restricted stock units (RSUs) to its non-employee directors under its stock
incentive plans. Annually, each non-employee director is issued a number of RSUs having an
aggregate dollar value determined by the Companys Board of Directors. An RSU represents the right
to receive from the Company, within 30 days of the date the director ceases to serve on the Board,
one share of the Companys common stock. The Companys expense related to RSUs for the three
months ended March 31, 2009 and 2008 was approximately $0.2 million and $0.3 million, respectively,
which is reflected in general and administrative expenses.
Performance Share Units
The Company has issued performance share units (PSUs) to its employees as part of the Companys
long-term incentive program. There is a three year performance period associated with each PSU
grant date. The two performance measures applicable to all participants are the Companys return
on invested capital and total stockholder return relative to those of the Companys pre-defined
peer group. The PSUs provide for settlement in cash or up to 50% in equivalent value in the
Companys common stock, if the participant has met specified continued service requirements. The
Companys compensation expense related to all outstanding PSUs for the three months ended March 31,
2009 and 2008 was approximately $0.9 million and $2.0 million, respectively, which is reflected in
general and administrative expenses. The Company has recorded a current liability of approximately
$9.5 million and $5.6 million at March 31, 2009 and December 31, 2008, respectively, for
outstanding PSUs, which is reflected in accrued expenses. Additionally, the Company has recorded a
long-term liability of approximately $4.0 million and $6.9 million at March 31, 2009 and December
31, 2008, respectively, for outstanding PSUs, which is reflected in other long-term liabilities.
Employee Stock Purchase Plan
The Company has employee stock purchase plans under which an aggregate of 1,250,000 shares of
common stock were reserved for issuance. Under these stock purchase plans, eligible employees can
purchase shares of the Companys common stock at a discount. The Company received $0.7 million and
$0.5 million related to shares issued under these plans for the three month period ended March 31,
2009 and 2008, respectively. For the three months ended March 31, 2009 and 2008, the Company
recorded compensation expense of approximately $120,000 and $85,000, respectively, which is
reflected in general and administrative expenses. Additionally, the Company issued approximately
58,000 and 14,000 shares for the three month period ended March 31, 2009 and 2008, respectively,
related to these stock purchase plans.
Deferred Compensation Plan
The Company has a non-qualified deferred compensation plan which allows certain highly-compensated
employees the option to defer up to 75% of their base salary, up to 100% of their bonus, and up to
100% of the cash portion of their performance share unit compensation to the plan. Payments are
made to participants based on their annual enrollment elections and plan balance. Participants
earn a return on their deferred compensation that is based on hypothetical investments in certain
mutual funds. Changes in market value of these hypothetical participant investments are reflected
as an adjustment to the deferred compensation liability of the Company with an offset to
compensation expense.
(6) 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 that would have a dilutive effect on earnings per share
using the treasury stock method and the conversion of restricted stock units into common stock.
In connection with the Companys outstanding 1.50% senior exchangeable notes, there could be a
dilutive effect on earnings per share if the average price of the Companys stock exceeds the
initial exchange price of $45.58 per
10
s
share for the reporting period. In the event the Companys
common stock exceeds the initial exchange price of $45.58 per share, for the first $1.00 the price
exceeds $45.58, the dilutive effect can be as much as 188,400 shares. The senior exchangeable
notes did not have a dilutive effect for the three months ended March 31, 2009 and 2008.
(7) Stockholders Equity
On January 1, 2009, the Company retrospectively adopted the FSP APB No. 14-1, Accounting for
Convertible Debt Instruments That May Be Settled Upon Conversion (Including Partial Cash
Settlement). FSP APB No. 14-1 requires the proceeds from the issuance of exchangeable debt
instruments to be allocated between a liability component (issued at a discount) and an equity
component. As a result of the retrospective adoption of FSP APB No. 14-1, the stockholders equity
previously stated as of December 31, 2008 increased by approximately $34.7 million (see note 2).
In September 2007, the Companys Board of Directors authorized a $350 million share repurchase
program that expires on December 31, 2009. Under this program, the Company can purchase shares
through open market transactions at prices deemed appropriate by management. The Company did not
purchase any shares of its common stock for the three months ended March 31, 2009 pursuant to its
share repurchase program. During the three months ended March 31, 2008, the Company purchased
250,000 shares of its common stock for an aggregate amount of $8.8 million under this program.
(8) Segment Information
Business Segments
The Company currently has three reportable segments: well intervention, rental tools and marine.
The well intervention segment provides production-related services used to enhance, extend and
maintain oil and gas production, which include mechanical wireline, hydraulic workover and
snubbing, well control, coiled tubing, electric line, pumping and stimulation, well bore evaluation
services, well plug and abandonment services, and other oilfield services used to support drilling
and production operations. The rental tools segment rents and sells stabilizers, 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
bolting and machining services. The marine segment operates liftboats for production service
activities, as well as oil and gas production facility maintenance, construction operations and
platform removals. During the three months ended March 31, 2008, the Company sold 75% of its
interest in SPN Resources (see note 3). SPN Resources operations constituted substantially all
the oil and gas segment. Oil and gas eliminations represent products and services provided to the
oil and gas segment by the Companys three other segments. Certain previously reported amounts
have been reclassified to conform to the presentation in the current period.
Summarized financial information concerning the Companys segments for the three months ended March
31, 2009 and 2008 is shown in the following tables (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well |
|
Rental |
|
|
|
|
|
|
|
|
|
Consolidated |
Three Months Ended March 31, 2009 |
|
Intervention |
|
Tools |
|
Marine |
|
Unallocated |
|
Total |
|
|
|
Revenues |
|
$ |
288,057 |
|
|
$ |
125,944 |
|
|
$ |
23,108 |
|
|
$ |
|
|
|
$ |
437,109 |
|
Cost of services, rentals and sales
(exclusive of items shown separately below) |
|
|
165,489 |
|
|
|
42,036 |
|
|
|
14,940 |
|
|
|
|
|
|
|
222,465 |
|
Depreciation and amortization |
|
|
22,057 |
|
|
|
25,371 |
|
|
|
2,440 |
|
|
|
|
|
|
|
49,868 |
|
General and administrative expenses |
|
|
38,811 |
|
|
|
23,228 |
|
|
|
2,947 |
|
|
|
|
|
|
|
64,986 |
|
Income from operations |
|
|
61,700 |
|
|
|
35,309 |
|
|
|
2,781 |
|
|
|
|
|
|
|
99,790 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,288 |
) |
|
|
(13,288 |
) |
Earnings from equity-method
investments, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,256 |
|
|
|
2,256 |
|
|
|
|
Income (loss) before income taxes |
|
$ |
61,700 |
|
|
$ |
35,309 |
|
|
$ |
2,781 |
|
|
$ |
(11,032 |
) |
|
$ |
88,758 |
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil & Gas |
|
|
|
|
Well |
|
Rental |
|
|
|
|
|
|
|
|
|
Eliminations |
|
Consolidated |
Three Months Ended March 31, 2008 |
|
Intervention |
|
Tools |
|
Marine |
|
Oil & Gas |
|
& Unallocated |
|
Total |
|
|
|
Revenues |
|
$ |
234,115 |
|
|
$ |
130,327 |
|
|
$ |
23,089 |
|
|
$ |
55,072 |
|
|
$ |
(1,212 |
) |
|
$ |
441,391 |
|
Cost of services, rentals and sales
(exclusive of items shown separately below) |
|
|
132,399 |
|
|
|
44,100 |
|
|
|
15,845 |
|
|
|
12,986 |
|
|
|
(1,212 |
) |
|
|
204,118 |
|
Depreciation, depletion, amortization and accretion |
|
|
16,261 |
|
|
|
20,746 |
|
|
|
2,073 |
|
|
|
2,799 |
|
|
|
|
|
|
|
41,879 |
|
General and administrative expenses |
|
|
35,177 |
|
|
|
23,056 |
|
|
|
2,593 |
|
|
|
8,780 |
|
|
|
|
|
|
|
69,606 |
|
Gain on sale of businesses |
|
|
500 |
|
|
|
3,332 |
|
|
|
|
|
|
|
34,056 |
|
|
|
|
|
|
|
37,888 |
|
Income from operations |
|
|
50,778 |
|
|
|
45,757 |
|
|
|
2,578 |
|
|
|
64,563 |
|
|
|
|
|
|
|
163,676 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,183 |
) |
|
|
(12,183 |
) |
Earnings from equity-method
investments, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,957 |
|
|
|
3,957 |
|
|
|
|
Income (loss) before income taxes |
|
$ |
50,778 |
|
|
$ |
45,757 |
|
|
$ |
2,578 |
|
|
$ |
64,563 |
|
|
$ |
(8,226 |
) |
|
$ |
155,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well |
|
|
Rental |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
Identifiable Assets |
|
Intervention |
|
|
Tools |
|
|
Marine |
|
|
Unallocated |
|
|
Total |
|
March 31, 2009 |
|
$ |
1,431,780 |
|
|
$ |
837,689 |
|
|
$ |
247,521 |
|
|
$ |
142,328 |
|
|
$ |
2,659,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
$ |
1,343,710 |
|
|
$ |
762,848 |
|
|
$ |
239,572 |
|
|
$ |
144,015 |
|
|
$ |
2,490,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Segments
The Company attributes revenue to countries based on the location where services are performed or
the destination of the sale of products. Long-lived assets consist primarily of property, plant
and equipment and are attributed to the United States or other countries based on the physical
location of the asset at the end of a period. The Companys information by geographic area is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2009 |
|
|
2008 |
|
Revenues: |
|
|
|
|
|
|
|
|
United States |
|
$ |
364,129 |
|
|
$ |
364,613 |
|
Other Countries |
|
|
72,980 |
|
|
|
76,778 |
|
|
|
|
|
|
|
|
Total |
|
$ |
437,109 |
|
|
$ |
441,391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Long-Lived Assets: |
|
|
|
|
|
|
|
|
United States |
|
$ |
934,032 |
|
|
$ |
932,340 |
|
Other Countries |
|
|
210,454 |
|
|
|
182,601 |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,144,486 |
|
|
$ |
1,114,941 |
|
|
|
|
|
|
|
|
12
(9) Equity-Method Investments
Investments in entities that are not controlled by the Company, but where the Company has the
ability to exercise influence over the operations, are accounted for using the equity-method. The
Companys share of the income or losses of these entities is reflected as earnings or losses from
equity-method investments on its Condensed Consolidated Statements of Operations.
The Company has two investments, SPN Resources and Beryl Oil and Gas L.P. (BOG), that are accounted
for using the equity-method. The Company, where possible and at competitive rates, provides its
products and services to assist SPN Resources and BOG in producing and developing their oil and gas
properties. The Company also reduces its revenue and its investment in SPN Resources and BOG for
its respective ownership interest when products and services are provided to and capitalized by SPN
Resources and BOG. The Company records these amounts in revenue as SPN Resources and BOG record
the related depreciation and depletion expenses. Prior to the sale of 75% of its interest in SPN
Resources, the Company provided operating and administrative support services to BOG and received
reimbursement for general and administrative and direct expenses incurred on behalf of BOG.
On March 14, 2008, the Company sold 75% of its original interest in SPN Resources (see note 3).
The Companys equity-method investment balance in SPN Resources was approximately $62.6 million at
March 31, 2009 and $65.2 million at December 31, 2008. The Company recorded earnings from its
equity-method investment in SPN Resources of approximately $0.6 million for the three months ended
March 31, 2009 and $2.1 million from the date of sale through March 31, 2008. The Company had a
receivable from this equity-method investment of approximately $0.9 million at March 31, 2009 and
$2.4 million at December 31, 2008. The Company also recorded revenue from this equity-method
investment of approximately $1.5 million for the three months ended March 31, 2009 and $0.6 million
from the date of sale through March 31, 2008. The Company recorded a net increase in revenue and
its investment in SPN Resources of approximately $0.2 million for the three months ended March 31,
2009.
The Company owns a 40% interest in BOG. The Companys total cash contribution for its
equity-method investment in BOG was approximately $57.8 million. The Company has not made
additional contributions since its initial investment. The Companys equity-method investment
balance in BOG was approximately $56.1 million at March 31, 2009 and $56.4 million at December 31,
2008. The Company recorded earnings from its equity-method investment in BOG of approximately $1.7
million and $1.8 million for the three months ended March 31, 2009 and 2008, respectively. The
Company had a receivable from this equity-method investment of approximately $1.1 million at March
31, 2009 and $1.0 million at December 31, 2008. The Company also recorded revenue of approximately
$1.0 million and $0.2 million from BOG for the three months ended March 31, 2009 and 2008,
respectively. The Company recorded a net increase in revenue and its investment in BOG of
approximately $0.1 million for each of the three months ended March 31, 2009 and 2008.
BOG has outstanding approximately $300 million of secured debt. The loan agreements contain
customary events of default and require that BOG satisfy various financial covenants. In April
2009, BOG defaulted under one of the financial covenants in its loan agreements due primarily to
the impact of production interruption and curtailments due to Hurricanes Gustav and Ike in 2008 and
the decline of oil and gas prices. BOG is attempting to negotiate the terms and conditions of a
forbearance agreement under which the lenders would agree to not exercise rights under the credit
agreements to accelerate the maturity of the debt while BOG pursues other financing and strategic
alternatives.
In January 2009, BOG engaged third party advisors to advise and assist with various alternatives
including, but not limited to, restructuring indebtedness and the sale of all or substantially all
of its assets. BOG, with its financial advisors, undertook to seek indications of intent from a
number of parties potentially interested in acquiring its oil and gas properties.
The Company supports BOG in its efforts and continues to monitor the recoverability of its
investment. The results of the ongoing efforts by BOG will not be known until these efforts are
completed, and the Company believes this will be in the second quarter of 2009. Should BOG be
unable to execute a restructuring that is agreeable to all parties, it may be required to take
steps not currently anticipated such as seeking voluntary bankruptcy protection.
13
Such steps could
result in an impairment of the Companys $56.1 million investment, the extent of which would be
determined when known.
Also included in equity-method investments at March 31, 2009 and December 31, 2008 is approximately
a $0.7 million investment for a 50% ownership in a company that owns an airplane. The Company
recorded approximately $52,000 in expense to lease the airplane (exclusive of operating costs) from
this company for the three months ended March 31, 2009 and 2008.
(10) Guarantee
As part of SPN Resources acquisition of its oil and gas properties, the Company guaranteed SPN
Resources performance of its decommissioning liabilities. In accordance with FASB Interpretation
No. 45 (FIN 45), Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others (as amended), the Company has assigned an estimated
value of $2.9 million related to decommissioning performance guarantees, which is reflected in
other long-term liabilities. The Company believes that the likelihood of being required to
perform these guarantees is remote. In the unlikely event that SPN Resources defaults on the
decommissioning liabilities existing at the closing date, the total maximum potential obligation
under these guarantees is estimated to be approximately $117.1 million, net of the contractual
right to receive payments from third parties, which is approximately $30.3 million, as of March 31,
2009. The total maximum potential obligation will decrease over time as the underlying obligations
are fulfilled by SPN Resources.
(11) Other Comprehensive Income
The following tables reconcile the change in accumulated other comprehensive income (loss) for the
three months ended March 31, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
Accumulated other comprehensive income (loss), December 31,
2008 and 2007, respectively |
|
$ |
(32,641 |
) |
|
$ |
9,078 |
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss: |
|
|
|
|
|
|
|
|
Other comprehensive loss, net of tax |
|
|
|
|
|
|
|
|
Hedging activities: |
|
|
|
|
|
|
|
|
Unrealized loss on equity-method investments hedging
activities, net of tax of ($777) in 2009 and ($3,852) in 2008 |
|
|
(1,323 |
) |
|
|
(6,559 |
) |
Foreign currency translation adjustment |
|
|
1,117 |
|
|
|
1,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive loss |
|
|
(206 |
) |
|
|
(5,298 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss), March 31,
2009 and 2008, respectively |
|
$ |
(32,847 |
) |
|
$ |
3,780 |
|
|
|
|
|
|
|
|
(12) Income Taxes
The Company has adopted the provisions of FASB Interpretation No. 48 (FIN 48). It is the Companys
policy to recognize interest and applicable penalties, if any, related to uncertain tax positions
in income tax expense. The Company had approximately $9.7 million of unrecorded tax benefits at
March 31, 2009 and December 31, 2008, all of which would impact the Companys effective tax rate if
recognized. The unrecorded tax benefits are not considered material to the Companys financial
position.
In addition to its Federal tax return, the Company files income tax returns in various state and
foreign jurisdictions. The number of years that are open under applicable statutes of limitations
and subject to audit varies depending on the tax jurisdiction. The Company remains subject to U.S.
federal tax examinations for years after 2004.
14
(13) Commitments and Contingencies
From time to time, the Company is involved in litigation and other disputes arising out of
operations in the normal course of business. In managements opinion, the Company is not involved
in any litigation or disputes, the outcome of which would have a material effect on the financial
position, results of operations or liquidity of the Company.
(14) Fair Value Measurements
Effective, January 1, 2009, the Company has adopted Statement of Financial Accounting Standards No.
157 (FAS No. 157), Fair Value Measurements, for its non-financial assets and non-financial
liabilities measured on a non-recurring basis. The Company adopted FAS No. 157 for its financial
assets and liabilities in January 2008. The adoption of FAS No. 157 did not have a material impact
on its fair value measurements.
FAS No. 157 establishes a fair value framework requiring the categorization of assets and
liabilities into three levels based upon the assumptions (inputs) used to price the assets and
liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally
requires significant management judgment. The three levels are defined 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 managements own assumptions about the
inputs used in pricing the asset or liability. |
The following table provides a summary of the financial assets and liabilities measured at fair
value on a recurring basis at March 31, 2009 and December 31, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
Fair Value Measurements at Reporting Date Using |
|
|
2009 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
Non-qualified deferred
compensation assets |
|
$ |
9,545 |
|
|
$ |
3,223 |
|
|
$ |
6,322 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-qualified deferred
compensation liabilities |
|
$ |
11,267 |
|
|
$ |
|
|
|
$ |
11,267 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
|
2008 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
Non-qualified deferred
compensation assets |
|
$ |
7,212 |
|
|
$ |
|
|
|
$ |
7,212 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-qualified deferred
compensation
liabilities |
|
$ |
8,254 |
|
|
$ |
|
|
|
$ |
8,254 |
|
|
$ |
|
|
The Companys non-qualified deferred compensation plan allows officers and highly compensated
employees to defer receipt of a portion of their compensation and contribute such amounts to one or
more investment funds. The Company entered into a separate trust agreement, subject to general
creditors, to segregate the assets of the plan and reports the accounts of the trust in its
condensed consolidated financial statements. These investments are reported at fair value based on
observable inputs for similar assets and liabilities, which represent Levels 1 and 2 in the FAS No.
157 fair value hierarchy. The realized and unrealized holding gains and losses related to
non-qualified deferred compensation assets are recorded in interest expense, net. The realized and
unrealized holding gains and losses related to non-qualified deferred compensation liabilities are
recorded in general and administrative expenses.
The adoption of FAS No. 157 for non-financial assets and liabilities that are remeasured at fair
value on a non-recurring basis did not impact the Companys financial position or results of
operations; however, it could have an impact in future periods. In addition, the Company may have
additional disclosure requirements in the event of an
15
acquisition or if an impairment of assets is
incurred in future periods. Based on business conditions and market values that existed at March
31, 2009, the Company has concluded that no impairment loss was required. However, the market value
of the Companys common stock continues to be depressed and difficult economic environments exist
in most market areas. If, among other factors, (1) the Companys market capitalization falls below
its equity value, (2) the fair value of the reporting units decline, or (3) the adverse impacts of
economic or competitive factors are worse than anticipated, the Company could conclude in future
periods that impairment losses are required in order to reduce the carrying value of its goodwill,
equity-method investments and possibly long-lived assets. Depending on the severity of the changes
in the key factors underlying the valuation of our reporting units, such losses could be
significant.
(15) New Accounting Pronouncements
On January 1, 2009, the Company adopted Statement of Financial Accounting Standards No. 141
(R) (FAS No. 141 (R)), Business Combinations (as amended). FAS No. 141(R) requires an acquiring
entity in a business combination to recognize all assets acquired and liabilities assumed in the
transaction and any noncontrolling interest in the acquiree at the acquisition date fair value.
Additionally, contingent consideration and contractual contingencies shall be measured at
acquisition date fair value. FAS No. 141(R) also requires an acquirer to disclose all of the
information users may need to evaluate and understand the nature and financial effect of the
business combination. FAS No. 141(R) applies prospectively to business combinations after January
1, 2009. The adoption of FAS No. 141 (R) did not have an impact on the Companys results of
operations and financial position.
On January 1, 2009, the Company adopted Statement of Financial Accounting Standards No. 160 (FAS
No. 160), Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No.
51. FAS No. 160 amends ARB No. 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies
that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity
that should be reported as equity in the consolidated financial statements. Additionally, this
statement requires that consolidated net income include the amounts attributable to both the parent
and the noncontrolling interest. The adoption of FAS No. 160 did not have an impact on the
Companys results of operations and financial position.
On January 1, 2009, the Company adopted EITF Issue No. 08-06, Equity-Method Investment
Considerations, which clarifies the accounting for certain transactions involving equity-method
investments. The adoption of EITF Issue No. 08-06 did not have an impact on the Companys results
of operations and financial position.
16
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
Forward-Looking Statements
The following managements discussion and analysis of financial condition and results of operations
contains forward-looking statements which involve risks and uncertainties. All statements other
than statements of historical fact included in this section regarding our financial position and
liquidity, strategic alternatives, future capital needs, 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 its perception of historical trends, current conditions, expected future
developments and other factors it believes are appropriate under the circumstances. Such
forward-looking statements are subject to uncertainties that could cause our actual results to
differ materially from such statements. Such uncertainties include but are not limited to: risks
associated with the uncertainty of macroeconomic and business conditions worldwide, as well as the
global credit markets; the cyclical nature and volatility of the oil and gas industry, including
the level of offshore exploration, production and development activity and the volatility of oil
and gas prices; changes in competitive factors affecting the Companys operations; political,
economic and other risks and uncertainties associated with international operations; the
seasonality of the offshore industry in the Gulf of Mexico; the potential shortage of skilled
workers; the Companys dependence on certain customers; the risks inherent in long-term fixed-price
contracts; operating hazards, including the significant possibility of accidents resulting in
personal injury, property damage or environmental damage; risks inherent in acquiring businesses;
and the effect of the Companys performance of regulatory programs and environmental matters.
These and other uncertainties related to our business are described in detail in our Annual Report
on Form 10-K for the year ended December 31, 2008. 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. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. We undertake no obligation to
update any of our forward-looking statements for any reason.
Executive Summary
During the first quarter of 2009, revenue was $437.1 million, income from operations was $99.8
million, net income was $56.8 million and diluted earnings per share was $0.72. The results
include pre-tax earnings of $3.2 million, which is the Companys share of non-cash unrealized
earnings associated with mark-to-market changes in the value of outstanding hedging contracts put
in place by the Companys equity-method investments, and is included in the income statement on the
earnings from equity-method investments, net, line item.
The period was marked by a rapid and significant decline in demand across all segments and in all
geographic markets as compared with the fourth quarter of 2008 due to falling industry activity in
the wake of the global economic recession. The largest declines were in our domestic markets
(domestic land and Gulf of Mexico), where the combined revenue in these regions declined 11% from
the fourth quarter of 2008. In comparison, the average number of rigs drilling for oil and natural
gas in the domestic markets decreased approximately 30% as compared with the most recent quarter.
Our international revenue decreased 9% as compared with the fourth quarter of 2008 and the drilling
rig count decreased 6% as compared with the most recent quarter.
Well intervention segment revenue was $288.1 million, a 5% decrease from the fourth quarter of
2008, and income from operations was $61.7 million, a 9% decrease from the fourth quarter of 2008.
Our domestic revenue decreased 4% due to a 28% decrease in domestic land revenue as a result of
less demand for production-related services such as coiled tubing, cased hole wireline and
hydraulic workover and snubbing services. This decrease was partially offset by a 9% increase in
Gulf of Mexico revenue due to increased engineering and project management work on a large-scale
decommissioning project. International revenue decreased 15% from the most recent quarter due to
decreases in well control, hydraulic workover and snubbing activity. Income from operations as a
percentage of revenue decreased to 21% from 22% in the most recent quarter.
In our rental tools segment, revenue was $125.9 million, a 16% decrease as compared with the fourth
quarter of 2008, and income from operations was $35.3 million, a 30% decrease from the fourth
quarter of 2008. Domestic revenue declined sequentially by 20% as a result of a 26% decrease in
domestic land market areas and a 15% decrease in Gulf of Mexico revenue. Rentals incurring the
largest decreases were accommodations and stabilization
17
equipment. Income from operations as a
percentage of revenue was 28% during the first quarter of 2009 as compared with 34% in the fourth
quarter of 2008.
In our marine segment, revenue was $23.1 million and income from operations was $2.8 million.
These represent sequential decreases of 39% in revenue and 78% in income from operations as
compared to the most recent quarter. The decrease is primarily attributable to reduced demand as
our fleet utilization in the first quarter was 48% as compared with 76% in the fourth quarter of
2008. Idle days increased significantly in the first quarter primarily due to less demand, poor
weather in the Gulf of Mexico and an increase in vessel inspections.
Based on business conditions and market values that existed at March 31, 2009, we concluded that no
impairment loss was required. However, the market value of our common stock continues to be
depressed and we continue to experience difficult economic environments in most of our markets.
If, among other factors, (1) our market capitalization falls below our equity value, (2) the fair
value of our reporting units decline, or (3) the adverse impacts of economic or competitive factors
are worse than anticipated, we could conclude in future periods that impairment losses are required
in order to reduce the carrying value of our goodwill, equity-method investments and possibly
long-lived assets. Depending on the severity of the changes in the key factors underlying the
valuation of our reporting units, such losses could be significant.
Comparison of the Results of Operations for the Three Months Ended March 31, 2009 and 2008
For the three months ended March 31, 2009, our revenues were $437.1 million, resulting in net
income of $56.8 million, or $0.72 diluted earnings per share. Included in the results for the
three months ended March 31, 2009 was a $3.2 million pre-tax net gain related to hedges in place
for our equity-method investments. For the three months ended March 31, 2008, revenues were $441.4
million and net income was $99.5 million, or $1.21 diluted earnings per share. Included in the
results for the three months ended March 31, 2008, were revenues of $55.1 million and income from
operations of $64.6 million attributable to the operations of SPN Resources and the gain associated
with the sale of 75% of our interest in that entity in March 2008. Revenue for the three months ended
March 31, 2009 was higher in the well intervention segment primarily due to work related to a
large-scale decommissioning project, which we expect to complete in the first half of 2010.
Revenue decreased slightly in the rental tools segment due to decreased rentals of accommodations
and stabilization equipment. During the three months ended March 31, 2009, revenue in our marine
segment remained unchanged. No activity was recorded in our oil and gas segment for the three
months ended March 31, 2009 as we sold 75% of our interest in SPN Resources on March 14, 2008.
The following table compares our operating results for the three months ended March 31, 2009 and
2008 (in thousands). Cost of services, rentals and sales excludes depreciation, depletion,
amortization and accretion for each of our business segments. Oil and gas eliminations represent
products and services provided to the oil and gas segment by our other segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
Cost of Services, Rentals and Sales |
|
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
2009 |
|
|
% |
|
2008 |
|
|
% |
|
Change |
|
|
|
|
|
|
Well Intervention |
|
$ |
288,057 |
|
|
$ |
234,115 |
|
|
$ |
53,942 |
|
|
$ |
165,489 |
|
|
57% |
|
$ |
132,399 |
|
|
57% |
|
$ |
33,090 |
|
Rental Tools |
|
|
125,944 |
|
|
|
130,327 |
|
|
|
(4,383 |
) |
|
|
42,036 |
|
|
33% |
|
|
44,100 |
|
|
34% |
|
|
(2,064 |
) |
Marine |
|
|
23,108 |
|
|
|
23,089 |
|
|
|
19 |
|
|
|
14,940 |
|
|
65% |
|
|
15,845 |
|
|
69% |
|
|
(905 |
) |
Oil and Gas |
|
|
|
|
|
|
55,072 |
|
|
|
(55,072 |
) |
|
|
|
|
|
|
|
|
12,986 |
|
|
24% |
|
|
(12,986 |
) |
Less: Oil and Gas Elim. |
|
|
|
|
|
|
(1,212 |
) |
|
|
1,212 |
|
|
|
|
|
|
|
|
|
(1,212 |
) |
|
|
|
|
1,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
437,109 |
|
|
$ |
441,391 |
|
|
$ |
(4,282 |
) |
|
$ |
222,465 |
|
|
51% |
|
$ |
204,118 |
|
|
46% |
|
$ |
18,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following provides a discussion of our results on a segment basis:
Well Intervention Segment
Revenue for our well intervention segment was $288.1 million for the three months ended March 31,
2009, as compared to $234.1 million for the same period in 2008, representing a 23% increase in
revenue. Cost of services remained relatively constant at 57% of segment revenue for the three
months ended March 31, 2009 and 2008. Our increase in revenue and profitability is primarily
attributable to an increase in engineering and project management
18
services associated with a
large-scale decommissioning project, which we expect to complete in the first half of
2010. The revenue increase is also attributable to work that began in January 2009 on a two-year
contract to perform inspection, repair and maintenance work for a major international exploration
and production company off the coast of Angola. These increases were partially offset by decreases
in the land market related to coiled tubing and cased-hole wireline, snubbing and well control
services. Accordingly, our largest geographic revenue growth in this segment came from the Gulf of
Mexico, which increased 83% to approximately $191.2 million for the quarter ended March 31, 2009
over the same period of 2008.
Rental Tools Segment
Revenue for our rental tools segment for the three months ended March 31, 2009 was $125.9 million,
a 3% decrease over the same period in 2008. Cost of rentals and sales percentage decreased
slightly to 33% of segment revenue for the three months ended March 31, 2009 from 34% for the same
period of 2008. The decrease in rental revenue is primarily related to a decrease in the rentals
of our on-site accommodation units, specifically in the domestic land market. Rental revenue
generated from the Gulf of Mexico and our international markets increased by 6% and 4%,
respectively, for the quarter ended March 31, 2009 over the same period in of 2008.
Marine Segment
Our marine segment revenue for the three months ended March 31, 2009 remained constant at $23.1
million as compared to the same period in 2008. Our cost of services percentage decreased to 65%
of segment revenue for the three months ended March 31, 2009 from 69% for the same period in 2008
primarily due to decreased liftboat maintenance costs and direct expenses. The fleets average
utilization slightly decreased to approximately 48% for the first quarter of 2009 from 49% in the
same period in 2008. The utilization decrease was offset by an increase in the fleets average
dayrate, which increased 6% to approximately $17,000 in the first quarter of 2009 from $16,000 in
the first quarter of 2008.
Oil and Gas Segment
On March 14, 2008, we sold 75% of our interest in SPN Resources for approximately $167.2 million.
SPN Resources represented substantially all of our operating oil and gas segment. Subsequent to
March 14, 2008, we have accounted for our remaining interest in SPN Resources using the
equity-method.
Depreciation and Amortization
Depreciation and amortization increased to $49.9 million in the three months ended March 31, 2009
from $41.9 million in the same period in 2008. Depreciation and amortization expense related to
our well intervention and rental segments for the three months ended March 31, 2009 increased
approximately $10.4 million, or 28%, from the same period in 2008. The increase in depreciation
and amortization expense for these segments is primarily attributable to our 2009 and 2008 capital
expenditures. Depreciation expense related to the marine segment for the three months ended March
31, 2009 increased approximately $0.4 million, or 18%, from the same period in 2008. The increase
in depreciation expense for the marine segment is primarily attributable to the delivery of one new
vessel partially offset by the decrease in utilization. These increases were offset by the $2.8
million decrease in the oil and gas segment as we sold 75% of our interest in SPN Resources in
March 2008.
General and Administrative Expenses
General and administrative expenses decreased to $65.0 million for the three months ended March 31,
2009 from $69.6 million for the same period in 2008 primarily
due to the sale of 75% of our interest
in SPN Resources in March 2008. General and administrative expenses decreased slightly to 15% of
revenue for the three months ended March 31, 2009, as compared to 16% of revenue for the same
period in 2008.
19
Liquidity and Capital Resources
The recent and unprecedented disruption in the current credit markets has had a significant adverse
impact on a number of financial institutions. At this point in time, our liquidity has not been
impacted by the current credit
environment. We will continue to closely monitor our liquidity and the overall health of the
credit markets. However, we cannot predict with any certainty the impact of any further disruption
in the credit environment.
In the three months ended March 31, 2009, we generated net cash from operating activities of $16.3
million as compared to $124.3 million in the same period of 2008. This decrease is primarily
attributable to the increase in costs and estimated earnings in excess of billings related to the
large-scale decommissioning contract in the Gulf of Mexico, which is currently scheduled to end in
the first half of 2010. Included in other current assets is approximately $238.7 million at March
31, 2009 and $164.3 million at December 31, 2008 of costs and estimated earnings in excess of
billings related to this project. Billings and subsequent receipts are based on the completion of
milestones. We are working on several aspects of this project at the same time, so we continue to
incur cost and recognize revenue in advance of completing milestones. Our primary liquidity needs
are for working capital, capital expenditures, debt service and acquisitions. Our primary sources
of liquidity are cash flows from operations and available borrowings under our revolving credit
facility. We had cash and cash equivalents of $110.4 million at March 31, 2009 compared to $44.9
million at December 31, 2008.
We made $82.3 million of capital expenditures during the three months ended March 31, 2009.
Approximately $42.5 million was used to expand and maintain our rental tool equipment inventory,
approximately $12.2 million was spent on our marine segment and approximately $24.9 million was
used to expand and maintain the asset base of our well intervention segment.
In April 2008, we contracted to purchase a 50% interest in four 265-foot class liftboats. The
first two vessels have been delivered. At March 31, 2009, construction on the two remaining
vessels has been suspended. We are currently negotiating arrangements to complete construction on
these remaining vessels. In January 2009, the party owning the other 50% interest in the four
liftboats notified us of its intention to exercise an option to require us to purchase its
undivided 50% interest in the liftboats. The other party subsequently rescinded its option
exercise and we are currently discussing potential scenarios regarding the joint ownership and
operation of the four liftboats.
We have a $250 million bank revolving credit facility. Any amounts outstanding under the revolving
credit facility are due on June 14, 2011. At March 31, 2009, we had $133.4 million outstanding
under the bank credit facility. We also had approximately $11.3 million of letters of credit
outstanding, which reduces our borrowing capacity under this credit facility. The increase in the
amount outstanding on the revolving credit facility is primarily due to increased working capital
needs for our large-scale decommissioning project and tax payments. As of April 30, 2009, we had
$69.3 million outstanding under the bank credit facility. Borrowings under the credit facility bear
interest at a LIBOR rate plus margins that depend on our leverage ratio. Indebtedness under the
credit facility is secured by substantially all of our assets, including the pledge of the stock of
our principal subsidiaries. The credit facility contains customary events of default and requires
that we satisfy various financial covenants. It also limits our ability to pay dividends or make
other distributions, make acquisitions, create liens or incur additional indebtedness.
We have $15.0 million outstanding at March 31, 2009 in U.S. Government guaranteed long-term
financing under Title XI of the Merchant Marine Act of 1936, which is administered by the Maritime
Administration (MARAD), for two 245-foot class liftboats. This debt bears an interest rate of
6.45% per annum and is payable in equal semi-annual installments of $405,000 on every June
3rd and December 3rd through the maturity date of June 3, 2027. Our
obligations are secured by mortgages on the two liftboats. This MARAD financing also requires that
we comply with certain covenants and restrictions, including the maintenance of minimum net worth,
working capital and debt-to-equity requirements.
We have $300 million of 6 7/8% unsecured senior notes due 2014. The indenture governing the senior
notes requires semi-annual interest payments on every June 1st and December
1st through the maturity date of June 1, 2014. The indenture contains certain covenants
that, among other things, limit us from incurring additional debt, repurchasing capital stock,
paying dividends or making other distributions, incurring liens, selling assets or entering into
certain mergers or acquisitions.
20
We also have $400 million of 1.50% senior exchangeable notes due 2026. The exchangeable notes bear
interest at a rate of 1.50% per annum and decrease to 1.25% per annum on December 15, 2011.
Interest on the exchangeable notes is payable semi-annually in arrears on December 15th
and June 15th of each year, beginning June 15, 2007. The exchangeable notes do not
contain any restrictive financial covenants.
The Companys current long-term issuer credit rating is BB+ by Standard and Poors and Ba3 by
Moodys. Our credit rating may be impacted by the rating agencies view of the cyclical nature of
our industry sector.
Under certain circumstances, holders may exchange the notes for shares of our common stock. The
initial exchange rate is 21.9414 shares of common stock per $1,000 principal amount of notes. This
is equal to an initial exchange price of $45.58 per share. The exchange price represents a 35%
premium over the closing share price at the date of issuance. The notes may be exchanged under the
following circumstances:
|
|
|
during any fiscal quarter (and only during such fiscal quarter), if the last reported
sale price of our common stock is greater than or equal to 135% of the applicable exchange
price of the notes for at least 20 trading days in the period of 30 consecutive trading
days ending on the last trading day of the preceding fiscal quarter; |
|
|
|
|
prior to December 15, 2011, during the five business-day period after any ten
consecutive trading-day period (the measurement period) in which the trading price of
$1,000 principal amount of notes for each trading day in the measurement period was less
than 95% of the product of the last reported sale price of our common stock and the
exchange rate on such trading day; |
|
|
|
|
if the notes have been called for redemption; |
|
|
|
|
upon the occurrence of specified corporate transactions; or |
|
|
|
|
at any time beginning on September 15, 2026, and ending at the close of business on the
second business day immediately preceding the maturity date of December 15, 2026. |
In connection with the issuance of the exchangeable notes, we entered into agreements with
affiliates of the initial purchasers to purchase call options and sell warrants on our common
stock. We may exercise the call options we purchased at any time to acquire approximately 8.8
million shares of our common stock at a strike price of $45.58 per share. The owners of the
warrants may exercise the warrants to purchase from us approximately 8.8 million shares of our
common stock at a price of $59.42 per share, subject to certain anti-dilution and other customary
adjustments. The warrants may be settled in cash, in shares or in a combination of cash and
shares, at our option. These transactions may potentially reduce the dilution of our common stock
from the exchange of the notes by increasing the effective exchange price to $59.42 per share.
Lehman Brothers OTC Derivatives, Inc. (LBOTC) is the counterparty to 50% of our call option and
warrant transactions. In October 2008, LBOTC filed for bankruptcy protection, which is an event of
default under the contracts relating to the call option and warrant transactions. We have not
terminated these contracts and continue to carefully monitor the developments affecting LBOTC.
Although we may not retain the benefit of the call option due to LBOTCs bankruptcy, we do not
expect that there will be a material impact, if any, on the financial statements or results of
operations. The call option and warrant transactions described above do not affect the terms of
the outstanding exchangeable notes.
21
The following table summarizes our contractual cash obligations and commercial commitments at March
31, 2009 (amounts in thousands) for our long-term debt (including estimated interest payments),
operating leases, contractual obligations and other long-term liabilities. We do not have any
other material obligations or commitments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Months |
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
2014 |
|
Thereafter |
|
Long-term debt, including
estimated interest payments |
|
$ |
31,640 |
|
|
$ |
32,671 |
|
|
$ |
163,351 |
|
|
$ |
27,231 |
|
|
$ |
27,179 |
|
|
$ |
316,814 |
|
|
$ |
474,354 |
|
Operating leases |
|
|
12,163 |
|
|
|
12,790 |
|
|
|
7,095 |
|
|
|
4,329 |
|
|
|
2,657 |
|
|
|
2,128 |
|
|
|
9,405 |
|
Other long-term liabilities |
|
|
|
|
|
|
10,553 |
|
|
|
7,071 |
|
|
|
5,654 |
|
|
|
2,863 |
|
|
|
235 |
|
|
|
10,592 |
|
|
|
|
Total |
|
$ |
43,803 |
|
|
$ |
56,014 |
|
|
$ |
177,517 |
|
|
$ |
37,214 |
|
|
$ |
32,699 |
|
|
$ |
319,177 |
|
|
$ |
494,351 |
|
|
|
|
We currently believe that we will spend approximately $185 to $195 million on capital expenditures,
excluding acquisitions, during the remaining nine months of 2009. We believe that our current
working capital, cash generated from our operations and availability under our revolving credit
facility will provide sufficient funds for our identified capital projects.
We intend to continue implementing our growth strategy of increasing our scope of services through
both internal growth and strategic acquisitions. We expect to continue to make the capital
expenditures required to implement our growth strategy in amounts consistent with the amount of
cash generated from operating activities, the availability of additional financing and our credit
facility. Depending on the size of any future acquisitions, we may require additional equity or
debt financing in excess of our current working capital and amounts available under our revolving
credit facility.
Off-Balance Sheet Financing Arrangements
We have no off-balance sheet financing arrangements other than the potential additional
consideration that may be payable as a result of the future operating performances of our
acquisitions. At March 31, 2009, the maximum additional consideration payable for these
acquisitions was approximately $26.6 million. These amounts are not classified as liabilities
under current generally accepted accounting principles and are not reflected in our financial
statements until the amounts are fixed and determinable. When amounts are determined, they are
capitalized as part of the purchase price of the related acquisition. We do not have any other
financing arrangements that are not required under generally accepted accounting principles to be
reflected in our financial statements.
Hedging Activities
During 2008, we entered into forward foreign exchange contracts to mitigate the impact of foreign
currency fluctuations. The forward foreign exchange contracts we enter into generally have
maturities ranging from one to eighteen months. We do not enter into forward foreign exchange
contracts for trading purposes. During the quarter ended March 31, 2009, we held outstanding
foreign currency forward contracts in order to hedge exposure to currency fluctuations between the
British Pound Sterling and the Euro. These contracts were not accounted for as hedges and were
marked to fair market value each period. As of March 31, 2009, we had no outstanding foreign
currency forward contracts.
New Accounting Pronouncements
On January 1, 2009, we adopted the Financial Accounting Standards Boards Staff Position APB No.
14-1 (FSP APB No. 14-1), Accounting for Convertible Debt Instruments That May Be Settled Upon
Conversion (Including Partial Cash Settlement). FSP APB No. 14-1 requires the proceeds from the
issuance of exchangeable debt instruments to be allocated between a liability component (issued at
a discount) and an equity component. The resulting debt discount will be amortized over the period
the convertible debt is expected to be outstanding as additional non-cash interest expense (see
note 2 of financial statements).
22
On January 1, 2009, we adopted Statement of Financial Accounting Standards No. 141 (R) (FAS
No. 141 (R)), Business Combinations (as amended). FAS No. 141(R) requires an acquiring entity in
a business combination to recognize all assets acquired and liabilities assumed in the transaction
and any noncontrolling interest in the acquiree at the acquisition date fair value. Additionally,
contingent consideration and contractual contingencies shall be measured at acquisition date fair
value. FAS No. 141(R) also requires an acquirer to disclose all of the information users may need
to evaluate and understand the nature and financial effect of the business combination. FAS No.
141(R) applies prospectively to business combinations after January 1, 2009. The adoption of FAS
No. 141 (R) did not have an impact on our results of operations and financial position.
On January 1, 2009, we adopted Statement of Financial Accounting Standards No. 160 (FAS No. 160),
Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51. FAS
No. 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that
should be reported as equity in the consolidated financial statements. Additionally, this
statement requires that consolidated net income include the amounts attributable to both the parent
and the noncontrolling interest. The adoption of FAS No. 160 did not have an impact on our results
of operations and financial position.
On January 1, 2009, we adopted the EITF Issue No. 08-06, Equity-Method Investment Considerations,
which clarifies the accounting for certain transactions involving equity-method investments. The
adoption of EITF Issue No. 08-06 did not have an impact on our results of operations and financial
position.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Exchange Rates
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 our operations in the United Kingdom, Germany and the Netherlands, is the
U.S. dollar, but a portion of the revenues from our foreign operations is paid in foreign
currencies. The effects of foreign currency fluctuations are partly mitigated because local
expenses of such foreign 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. Any gains or losses associated with such fluctuations have not been material.
We do not hold derivatives for trading purposes or use derivatives with complex features. Assets
and liabilities of our subsidiaries in the United Kingdom, Germany and the Netherlands are
translated at current exchange rates, while income and expense are translated at average rates for
the period. Translation gains and losses are reported as the foreign currency translation
component of accumulated other comprehensive income (loss) in stockholders equity.
When we believe prudent, we enter into forward foreign exchange contracts to hedge the impact of
foreign currency fluctuations. The forward foreign exchange contracts we enter into generally have
maturities ranging from one to eighteen months. We do not enter into forward foreign exchange
contracts for trading purposes. As of March 31, 2009, we had no outstanding foreign currency
forward contracts.
Interest Rate Risk
At March 31, 2009, $133.4 million of our long-term debt outstanding had variable interest rates.
Based on debt outstanding at March 31, 2009, a 10% increase in the variable interest rate would
increase our interest expense for the three months ended March 31, 2009 by approximately $108,000,
while a 10% decrease would decrease our interest expense by approximately $108,000.
Equity Price Risk
We have $400 million of 1.50% senior exchangeable notes due 2026. The notes are, subject to the
occurrence of specified conditions, exchangeable for our common stock initially at an exchange
price of $45.58 per share, which
23
would result in an aggregate of approximately 8.8 million shares
of common stock being issued upon exchange. We may redeem for cash all or any part of the notes on
or after December 15, 2011 for 100% of the principal amount
redeemed. The holders may require us to repurchase for cash all or any portion of the notes on
December 15, 2011, December 15, 2016 and December 15, 2021 for 100% of the principal amount of
notes to be purchased plus any accrued and unpaid interest. The notes do not contain any
restrictive financial covenants.
Each $1,000 of principal amount of the notes is initially exchangeable into 21.9414 shares of our
common stock, subject to adjustment upon the occurrence of specified events. Holders of the notes
may exchange their notes prior to maturity only if (1) the price of our common stock reaches 135%
of the applicable exchange rate during certain periods of time specified in the notes; (2)
specified corporate transactions occur; (3) the notes have been called for redemption; or (4) the
trading price of the notes falls below a certain threshold. In addition, in the event of a
fundamental change in our corporate ownership or structure, the holders may require us to
repurchase all or any portion of the notes for 100% of the principal amount.
We also have agreements with affiliates of the initial purchasers to purchase call options and sell
warrants of our common stock. We may exercise the call options at any time to acquire
approximately 8.8 million shares of our common stock at a strike price of $45.58 per share. The
owners of the warrants may exercise their warrants to purchase from us approximately 8.8 million
shares of our common stock at a price of $59.42 per share, subject to certain anti-dilution and
other customary adjustments. The warrants may be settled in cash, in shares or in a combination of
cash and shares, at our option. Lehman Brothers OTC Derivatives, Inc. (LBOTC) is the counterparty
to 50% of our call option and warrant transactions. On or about October 3, 2008, LBOTC filed for
bankruptcy protection, which is an event of default under the contracts relating to the call option
and warrant transactions. We have not terminated these contracts and continue to carefully monitor
the developments affecting LBOTC. Although we may not retain the benefit of the call option due
to LBOTCs bankruptcy, we do not expect that there will be a material impact, if any, on the
financial statements or results of operations. The call option and warrant transactions described
above do not affect the terms of the outstanding exchangeable notes.
For additional discussion of the notes, see Managements Discussion and Analysis of Financial
Condition and Results of OperationsLiquidity and Capital Resources in Part I, Item 2 above.
Commodity Price Risk
Our revenues, profitability and future rate of growth significantly depend upon the market prices
of oil and natural gas. Lower prices may also reduce the amount of oil and gas that can
economically be produced.
Item 4. 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) promulgated under the Securities Exchange Act
of 1934, as amended) 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 SECs rules and forms.
There has been no change in our internal control over financial reporting that occurred during the
three months ended March 31, 2009, that has materially affected, or is reasonably likely to
materially affect, our internal controls over financial reporting.
24
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information about our common stock repurchased and retired during each
month for the three months ended March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate |
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Dollar Value of |
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
Shares that May |
|
|
|
Total Number of |
|
|
|
|
|
|
Purchased as |
|
|
Yet be |
|
|
|
Shares |
|
|
|
|
|
|
Part of Publicly |
|
|
Purchased |
|
|
|
Purchased |
|
|
Average Price |
|
|
Announced Plan |
|
|
Under the Plan |
|
Period |
|
(1) |
|
|
Paid per Share |
|
|
(2) |
|
|
(2) |
|
January 1 - 31, 2009 |
|
|
13,402 |
|
|
$ |
15.93 |
|
|
|
|
|
|
$ |
212,400,000 |
|
February 1 - 28, 2009 |
|
|
3,838 |
|
|
$ |
12.30 |
|
|
|
|
|
|
$ |
212,400,000 |
|
March 1 - 31, 2009 |
|
|
80 |
|
|
$ |
15.21 |
|
|
|
|
|
|
$ |
212,400,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2009 through
March 31, 2009 |
|
|
17,320 |
|
|
$ |
15.12 |
|
|
|
|
|
|
$ |
212,400,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Through our stock incentive plans, 17,320 shares were delivered to us by our employees
to satisfy their tax withholding requirements upon vesting of restricted stock. |
|
(2) |
|
In September 2007, our Board of Directors approved a $350 million share repurchase
program that expires on December 31, 2009. Under this program, we can repurchase shares
through open market transactions at prices deemed appropriate by management. No shares
were purchased under this program during the three months ended March 31, 2009. |
Item 6. Exhibits
(a) The following exhibits are filed with this Form 10-Q:
|
3.1 |
|
Certificate of Incorporation of the Company (incorporated herein by reference to the
Companys Quarterly Report on Form 10-QSB for the quarter ended March 31, 1996). |
|
|
3.2 |
|
Certificate of Amendment to the Companys Certificate of Incorporation (incorporated
herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999). |
|
|
3.3 |
|
Amended and Restated Bylaws of the Company (incorporated herein by reference to
Exhibit 3.1 to the Companys Form 8-K filed on September 12, 2007). |
|
|
31.1 |
|
Officers certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
31.2 |
|
Officers certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
32.1 |
|
Officers certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
32.2 |
|
Officers certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
25
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.
|
|
Date: May 4, 2009 |
By: |
/s/ Robert S. Taylor
|
|
|
|
Robert S. Taylor |
|
|
|
Executive Vice President, Treasurer and
Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
|
26
exv31w1
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Terence E. Hall, Chairman of the Board and Chief Executive Officer of Superior Energy
Services, Inc., certify that:
1. |
|
I have reviewed this quarterly report on Form 10-Q of Superior Energy Services, Inc.; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
|
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
|
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in
which this report is being prepared; |
|
|
b) |
|
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles; |
|
|
c) |
|
Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and |
|
|
d) |
|
Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and |
5. |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of registrants board of directors (or persons performing the equivalent
functions): |
|
a) |
|
All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process, summarize and report financial
information; and |
|
|
b) |
|
Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal control over financial
reporting. |
Date: May 4, 2009
|
|
|
|
|
|
|
/s/ Terence E. Hall
|
|
|
|
|
|
|
|
|
|
Terence E. Hall |
|
|
|
|
Chairman of the Board and Chief Executive Officer |
|
|
|
|
Superior Energy Services, Inc. |
|
|
exv31w2
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Robert S. Taylor, Executive Vice President, Treasurer and Chief Financial Officer of
Superior Energy Services, Inc., certify that:
1. |
|
I have reviewed this quarterly report on Form 10-Q of Superior Energy Services, Inc.; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
|
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
|
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in
which this report is being prepared; |
|
|
b) |
|
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles; |
|
|
c) |
|
Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and |
|
|
d) |
|
Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and |
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The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of registrants board of directors (or persons performing the equivalent
functions): |
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a) |
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All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process, summarize and report financial
information; and |
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b) |
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Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal control over financial
reporting. |
Date: May 4, 2009
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/s/ Robert S. Taylor
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Robert S. Taylor |
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Executive Vice President, Treasurer and Chief |
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Financial Officer |
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Superior Energy Services, Inc. |
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exv32w1
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
SECTION 1350 OF TITLE 18 OF THE U.S. CODE
I, Terence E. Hall, Chairman of the Board and Chief Executive Officer of Superior Energy Services,
Inc. (the Company), certify, pursuant to Section 1350 of Title 18 of the U.S. Code, adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 906), that:
1. |
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the quarterly report on Form 10-Q of the Company for the quarter ended March 31, 2009 (the
Report), as filed with the Securities and Exchange Commission on the date hereof, fully
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and |
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2. |
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the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
This certificate is being furnished solely for purposes of Section 906 and is not being filed as
part of the Report or as a separate disclosure document.
Date: May 4, 2009
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/s/ Terence E. Hall
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Terence E. Hall |
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Chairman of the Board and Chief Executive Officer |
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Superior Energy Services, Inc. |
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A signed original of this written statement required by Section 906 has been provided to the
Company and will be retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.
exv32w2
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
SECTION 1350 OF TITLE 18 OF THE U.S. CODE
I, Robert S. Taylor, Executive Vice President, Treasurer and Chief Financial Officer of Superior
Energy Services, Inc. (the Company), certify, pursuant to Section 1350 of Title 18 of the U.S.
Code, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 906), that:
1. |
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the quarterly report on Form 10-Q of the Company for the quarterly period ended March 31,
2009 (the Report), as filed with the Securities and Exchange Commission on the date hereof,
fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934; and |
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2. |
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the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
This certificate is being furnished solely for purposes of Section 906 and is not being filed as
part of the Report or as a separate disclosure document.
Date: May 4, 2009
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/s/ Robert S. Taylor
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Robert S. Taylor |
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Executive Vice President, Treasurer and Chief |
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Financial Officer |
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Superior Energy Services, Inc. |
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A signed original of this written statement required by Section 906 has been provided to the
Company and will be retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.