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 June 30, 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
(State or other jurisdiction of
incorporation or organization)
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75-2379388
(I.R.S. Employer
Identification No.) |
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601 Poydras, Suite 2400
New Orleans, Louisiana
(Address of principal executive offices)
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70130
(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.
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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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 July 31, 2009 was 78,185,959.
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q for
the Quarterly Period Ended June 30, 2009
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
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Item 1. |
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Financial Statements |
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30, 2009 and December 31, 2008
(in thousands, except share data)
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6/30/2009 |
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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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$ |
36,590 |
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$ |
44,853 |
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Accounts receivable, net |
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332,128 |
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360,357 |
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Income taxes receivable |
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7,277 |
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Prepaid expenses |
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30,384 |
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18,041 |
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Other current assets |
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335,692 |
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223,598 |
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Total current assets |
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742,071 |
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646,849 |
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Property, plant and equipment, net |
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1,217,178 |
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1,114,941 |
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Goodwill |
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482,216 |
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477,860 |
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Equity-method investments |
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59,692 |
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122,308 |
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Intangible and other long-term assets, net |
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37,198 |
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128,187 |
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Total assets |
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$ |
2,538,355 |
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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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$ |
80,609 |
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$ |
87,207 |
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Accrued expenses |
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162,466 |
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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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67,742 |
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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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311,627 |
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298,244 |
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Deferred income taxes |
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200,116 |
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246,824 |
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Long-term debt, net |
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718,005 |
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654,199 |
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Other long-term liabilities |
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40,915 |
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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 $.001 par value. Authorized, 125,000,000 shares; issued
and outstanding, 78,174,250 shares at June 30, 2009, and 78,028,072
shares at December 31, 2008 |
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78 |
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78 |
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Additional paid in capital |
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382,572 |
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375,436 |
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Accumulated other comprehensive loss, net |
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(14,246 |
) |
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(32,641 |
) |
Retained earnings |
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899,288 |
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911,400 |
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Total stockholders equity |
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1,267,692 |
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1,254,273 |
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Total liabilities and stockholders equity |
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$ |
2,538,355 |
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$ |
2,490,145 |
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See accompanying notes to consolidated financial statements.
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* |
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As adjusted for FSP No. APB 14-1 (See note 2). |
3
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three and Six Months Ended June 30, 2009 and 2008
(in thousands, except per share data)
(unaudited)
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Three Months |
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Six Months |
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2009 |
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2008 * |
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2009 |
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2008 * |
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Oilfield service and rental revenues |
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$ |
361,161 |
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$ |
457,655 |
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$ |
798,270 |
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$ |
843,974 |
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Oil and gas revenues |
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55,072 |
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Total revenues |
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361,161 |
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457,655 |
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798,270 |
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899,046 |
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Cost of oilfield services and rentals |
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197,268 |
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222,097 |
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419,733 |
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413,229 |
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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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197,268 |
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222,097 |
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419,733 |
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426,215 |
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Depreciation, depletion, amortization and accretion |
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50,978 |
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41,954 |
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100,846 |
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83,833 |
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General and administrative expenses |
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60,283 |
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66,426 |
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125,269 |
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136,032 |
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Reduction in value of intangible assets |
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92,683 |
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92,683 |
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Gain on sale of businesses |
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3,058 |
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40,946 |
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Income (loss) from operations |
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(40,051 |
) |
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130,236 |
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59,739 |
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293,912 |
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Other income (expense): |
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Interest expense, net |
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(11,720 |
) |
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(11,023 |
) |
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(25,008 |
) |
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(23,206 |
) |
Losses from equity-method investments, net |
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(19,426 |
) |
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(7,765 |
) |
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(17,170 |
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(3,808 |
) |
Reduction in value of equity-method investment |
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(36,486 |
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(36,486 |
) |
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Income (loss) before income taxes |
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(107,683 |
) |
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111,448 |
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(18,925 |
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266,898 |
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Income taxes |
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(38,766 |
) |
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40,081 |
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(6,813 |
) |
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96,002 |
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Net income (loss) |
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$ |
(68,917 |
) |
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$ |
71,367 |
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$ |
(12,112 |
) |
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$ |
170,896 |
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Basic earnings (loss) per share |
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$ |
(0.88 |
) |
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$ |
0.88 |
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$ |
(0.16 |
) |
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$ |
2.12 |
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Diluted earnings (loss) per share |
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$ |
(0.88 |
) |
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$ |
0.86 |
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$ |
(0.16 |
) |
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$ |
2.08 |
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Weighted average common shares used
in computing earnings per share: |
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Basic |
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78,153 |
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80,749 |
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78,093 |
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80,762 |
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Incremental common shares from stock-based
compensation |
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1,409 |
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1,372 |
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Incremental common shares from senior
exchangeable notes |
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|
784 |
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Diluted |
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78,153 |
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82,942 |
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78,093 |
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82,134 |
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See accompanying notes to consolidated financial statements.
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* |
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As adjusted for FSP No. APB 14-1 (See note 2). |
4
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 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 (loss) |
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$ |
(12,112 |
) |
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$ |
170,896 |
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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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100,846 |
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83,833 |
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Deferred income taxes |
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(14,368 |
) |
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1,504 |
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Reduction in value of intangible assets |
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92,683 |
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Reduction in value of equity-method investment |
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36,486 |
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Non-cash interest expense related to 1.5% senior exchangeable notes |
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8,952 |
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8,366 |
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Tax benefit from exercise of stock options |
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(45 |
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(2,885 |
) |
Stock-based and performance share unit compensation expense, net |
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2,358 |
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6,346 |
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Retirement and deferred compensation plans expense, net |
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1,311 |
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|
1,139 |
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Losses from equity-method investments, net of cash received |
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20,551 |
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|
3,808 |
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Amortization of debt acquisition costs and note discount |
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1,756 |
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1,600 |
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Gain on sale of businesses |
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(40,946 |
) |
Changes in operating assets and liabilities, net of acquisitions
and dispositions: |
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Receivables |
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30,790 |
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(102,165 |
) |
Other current assets |
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(112,121 |
) |
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(6,907 |
) |
Accounts payable |
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(16,196 |
) |
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|
925 |
|
Accrued expenses |
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(27,260 |
) |
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(22,010 |
) |
Decommissioning liabilities |
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(6,160 |
) |
Income taxes |
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(28,424 |
) |
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28,698 |
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Other, net |
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4,187 |
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5,560 |
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Net cash provided by operating activities |
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89,394 |
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|
131,602 |
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Cash flows from investing activities: |
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Payments for capital expenditures |
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(149,289 |
) |
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(208,976 |
) |
Acquisitions of businesses, net of cash acquired |
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(4,487 |
) |
Cash proceeds from sale of businesses, net of cash sold |
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|
155,312 |
|
Other |
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(3,669 |
) |
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(3,343 |
) |
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Net cash used in investing activities |
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(152,958 |
) |
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|
(61,494 |
) |
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Cash flows from financing activities: |
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Net borrowings from revolving credit facility |
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55,000 |
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Principal payments on long-term debt |
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|
(405 |
) |
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|
(405 |
) |
Payment of debt acquisition costs |
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(2,308 |
) |
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|
Proceeds from exercise of stock options |
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|
106 |
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|
2,425 |
|
Tax benefit from exercise of stock options |
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45 |
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|
2,885 |
|
Proceeds from issuance of stock through employee benefit plans |
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|
1,175 |
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|
838 |
|
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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53,613 |
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(3,050 |
) |
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Effect of exchange rate changes on cash |
|
|
1,688 |
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|
425 |
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|
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Net increase (decrease) in cash and cash equivalents |
|
|
(8,263 |
) |
|
|
67,483 |
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|
Cash and cash equivalents at beginning of period |
|
|
44,853 |
|
|
|
51,649 |
|
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Cash and cash equivalents at end of period |
|
$ |
36,590 |
|
|
$ |
119,132 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
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|
* |
|
As adjusted for FSP No. APB 14-1 (See note 2). |
5
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Six Months Ended June 30, 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 and six months ended June 30, 2009 and 2008 has not been audited. However, in the opinion of
management, all adjustments necessary to present fairly the results of operations for the periods
presented have been included therein. The results of operations for the first six 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.
In May 2009, the Financial Accounting Standards Board issued its Statement of Financial Accounting
Standards No. 165 (FAS No. 165), Subsequent Events, which establishes general standards of
accounting for, and disclosure of, events that occur after the balance sheet date, but before
financial statements are issued or are available to be issued. In accordance with FAS No. 165, the
Company has evaluated subsequent events through August 5, 2009.
(2) Adoption of Recent Accounting Pronouncement and Debt
Effective January 1, 2009, the Company has retrospectively adopted the Financial Accounting
Standards Boards Staff Position No. APB 14-1 (FSP No. APB 14-1), Accounting for Convertible Debt
Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement). FSP
No. APB 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. The principal amount of the
liability component, its unamortized discount and its net carrying value for the periods ended
December 31, 2008 and June 30, 2009 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
Period |
|
Principal |
|
Unamortized |
|
Carrying |
Ended |
|
Amount |
|
Discount |
|
Value |
December 31, 2008
|
|
$ |
400,000 |
|
|
$ |
56,631 |
|
|
$ |
343,369 |
|
June 30, 2009
|
|
$ |
400,000 |
|
|
$ |
47,679 |
|
|
$ |
352,321 |
|
6
The provisions of FSP No. APB 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As originally |
|
Effect of |
|
As |
|
|
reported |
|
Change |
|
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 |
|
The condensed consolidated income statements were retrospectively modified compared to previously
reported amounts as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2008 |
|
Additional pre-tax non-cash interest expense,
net |
|
$ |
(4,067 |
) |
|
$ |
(8,134 |
) |
Additional deferred tax benefit |
|
|
1,505 |
|
|
|
3,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retrospective change in net income |
|
$ |
(2,562 |
) |
|
$ |
(5,124 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change to basic and diluted
earnings per share |
|
$ |
(0.03 |
) |
|
$ |
(0.06 |
) |
|
|
|
|
|
|
|
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.
In May 2009, the Company amended its revolving credit facility to increase its borrowing capacity
to $325 million from $250 million. Any amounts outstanding under the revolving credit facility are
due on June 14, 2011. Costs associated with amending the revolving credit facility were
approximately $2.3 million. These costs were capitalized and are being amortized over the
remaining term of the credit facility. At June 30, 2009, the Company had $55.0 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 June 30, 2009, the Company was in
compliance with all such covenants.
At June 30, 2009, the Company had outstanding $14.6 million 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, 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 June 3rd and December 3rd of each
year 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 June 30, 2009, the Company was in compliance with all such
covenants.
7
The Company also has outstanding $300 million of 6 7/8% unsecured senior notes due 2014. The
indenture governing the senior notes requires semi-annual interest payments on June 1st
and December 1st of each year 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 June 30, 2009, the Company was
in compliance with all such covenants.
The Company has outstanding $400 million of 1.50% unsecured senior exchangeable notes due 2026.
Effective January 1, 2009, the Company retrospectively adopted FSP No. APB 14-1 as it pertains to
these exchangeable notes (see note 2). 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.
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 common
stock or in a combination of cash and common stock, 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) Reduction in Value of Intangible Assets
In accordance with Statement of Financial Accounting Standards No. 144 (FAS No. 144), Accounting
for the Impairment or Disposal of Long-Lived Assets, long-lived assets, such as property, plant
and equipment and
purchased intangibles subject to amortization, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of
such assets to estimated undiscounted future cash flows expected to be generated by the assets.
Cash flow estimates are based upon, among other things, historical results adjusted to reflect the
best estimate of future market rates, utilization levels, and operating performance. Estimates of
cash flows may differ from actual cash flows due to, among other things, changes in
8
economic
conditions or changes in an assets operating performance. The Companys assets are grouped by
subsidiary or division for the impairment testing, except for liftboats, which are grouped together
by leg length. These groupings represent the lowest level of identifiable cash flows. If the
assets future estimated cash flows are less than the carrying amount of those items, impairment
losses are recorded by the amount by which the carrying amount of such assets exceeds the fair
value. Assets to be disposed of are reported at the lower of the carrying amount or fair value
less estimated costs to sell. The net carrying value of assets not fully recoverable is reduced to
fair value. The estimate of fair value represents the Companys best estimate based on industry
trends and reference to market transactions and is subject to variability. The oil and gas
industry is cyclical and these estimates of the period over which future cash flows will be
generated, as well as the predictability of these cash flows, can have a significant impact on the
carrying values of these assets and, in periods of prolonged down cycles, may result in impairment
charges. During the second quarter of 2009, due to continued decline in demand for services in the
domestic land markets, the Company identified impairments of certain amortizable intangible assets
of approximately $92.7 million.
In accordance with Statement of Financial Accounting Standards No. 142 (FAS No. 142), Goodwill and
Other Intangible Assets, goodwill and other intangible assets with indefinite lives will not be
amortized, but instead tested annually as of December 31 or on an interim basis if events or
circumstances indicate that the fair value of the asset has decreased below its carrying value. To
estimate the fair value of the reporting units (which is consistent with the reported business
segments), the Company used a weighting of the discounted cash flow method and the public company
guideline method of determining fair value of each reporting unit. The Company weighted the
discounted cash flow method 80% and the public guideline method 20%, due to differences between the
Companys reporting units and the peer companies size, profitability and diversity of operations.
In order to validate the reasonableness of the estimated fair values obtained for the reporting
units, a reconciliation of fair value to market capitalization was performed for each unit on a
stand-alone basis. A control premium, derived from market transaction data, was used in this
reconciliation to ensure that fair values were reasonably stated in conjunction with the Companys
capitalization. These fair value estimates are then compared to the carrying value of the
reporting units. If the fair value of the reporting unit exceeds the carrying amount, no
impairment loss is recognized. A significant amount of judgment is involved in performing these
evaluations since the results are based on estimated future events. During the second quarter of
2009, no impairment was indicated by this test.
(4) 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 during the six months
ended June 30, 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 5 and 12).
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 six months ended June 30, 2008.
The Company also sold the assets of its field management division in 2007. In conjunction with the
sale of this division, the Company received cash of $0.5 million during the six months ended June
30, 2008, which resulted in an additional pre-tax gain on the sale of the business.
9
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) applies prospectively to business combinations after January 1, 2009.
Several of the Companys prior business acquisitions require future payments if specific conditions
are met. As of June 30, 2009, the maximum additional contingent consideration payable was
approximately $27.4 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.
(5) 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 is currently scheduled to be substantially complete, barring unusual weather or unforeseen
technical challenges, in the first half of 2010. 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 $280.5 million at June 30, 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 $145.0 million as of June 30, 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.
(6) 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.
On March 14, 2008, the Company sold 75% of its original interest in SPN Resources (see note 4).
The Companys equity-method investment balance in SPN Resources was approximately $59.0 million at
June 30, 2009 and $65.2 million at December 31, 2008. The Company recorded losses from its
equity-method investment in SPN Resources of approximately $3.2 million for the six months ended
June 30, 2009 and $6.6 million from the date of sale through June 30, 2008. The Company, where
possible and at competitive rates, provides its products and services to assist SPN Resources in
producing and developing its oil and gas properties. The Company had a receivable from this
equity-method investment of approximately $2.6 million at June 30, 2009 and $2.4 million at
December 31, 2008. The Company also recorded revenue from this equity-method investment of
approximately $5.7 million for the six months ended June 30, 2009 and $6.2 million from the date of
sale through June 30, 2008. The Company also
reduces its revenue and its investment in SPN Resources for its respective ownership interest when
products and services are provided to and capitalized by SPN Resources. As these capitalized costs
are depleted by SPN Resources, the Company then increases its revenue and investment in SPN
Resources. As such, the Company recorded a net increase in revenue and its investment in SPN
Resources of approximately $0.3 for the six months ended June 30, 2009. The Company recorded a net
decrease in revenue and its investment in SPN Resources of approximately $0.3 million from the date
of sale through June 30, 2008.
10
The Company owns a 40% interest in Beryl Oil and Gas L.P. (BOG). The Companys total cash
contribution for its equity-method investment in BOG was approximately $57.8 million. In April
2009, BOG defaulted under its loan agreements due primarily to the impact of pipeline curtailments
from Hurricanes Gustav and Ike in 2008 and the decline of natural gas and oil prices. BOG has
engaged third party consultants 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. As
a result of continued negative BOG operating results, lack of viable interested buyers and
unsuccessful attempts to renegotiate the terms and conditions of its loan agreements with lenders
on terms that preserve the Companys investment, the Company wrote off the remaining carrying value
of its investment in BOG. The Companys equity-method investment balance in BOG was approximately
$56.4 million at December 31, 2008. During the six months ended June 30, 2009, the Company
recorded $14.0 million of losses, $6.1 million of accumulated other comprehensive loss (through its
equity account) related to hedging activities, a $0.2 million increase to its investment in BOG for
services provided by the Company that were capitalized by BOG and a $36.5 million charge to write
off its remaining balance in BOG. During the six months ended June 30, 2008, the Company recorded
$2.8 million of earnings and a $0.1 million increase to its investment in BOG for services provided
by the Company that were capitalized by BOG. The Company had a receivable from this equity-method
investment of approximately $0.7 million at June 30, 2009 and $1.0 million at December 31, 2008.
The Company also recorded revenue of approximately $3.0 million and $0.6 million from BOG for the
six months ended June 30, 2009 and 2008, respectively.
Also included in equity-method investments at June 30, 2009 and December 31, 2008 is an approximate
$0.7 million investment for a 50% ownership in a company that owns an airplane. The Company
recorded approximately $0.1 million in expense to lease the airplane (exclusive of operating costs)
from this company for the six months ended June 30, 2009 and 2008. Earnings for this equity-method
investment are not material.
Combined summarized financial information for all investments that are accounted for using the
equity-method of accounting is as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Current Assets |
|
$ |
170,344 |
|
|
$ |
245,416 |
|
Noncurrent assets |
|
|
609,556 |
|
|
|
645,324 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
779,900 |
|
|
$ |
890,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
360,973 |
|
|
$ |
407,718 |
|
Noncurrent liabilities |
|
|
126,931 |
|
|
|
124,139 |
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
487,904 |
|
|
$ |
531,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Revenues |
|
$ |
62,885 |
|
|
$ |
116,997 |
|
|
$ |
124,019 |
|
|
$ |
190,580 |
|
Cost of sales |
|
|
32,741 |
|
|
|
30,939 |
|
|
|
56,523 |
|
|
|
47,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
$ |
30,144 |
|
|
$ |
86,058 |
|
|
$ |
67,496 |
|
|
$ |
143,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing
operations |
|
$ |
(9,732 |
) |
|
$ |
48,337 |
|
|
$ |
(9,540 |
) |
|
$ |
73,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(50,441 |
) |
|
$ |
(18,760 |
) |
|
$ |
(49,025 |
) |
|
$ |
(5,581 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
11
(7) Fair Value Measurements
In January 2008, the Company adopted Financial Accounting Standards No. 157 (FAS No. 157), Fair
Value Measurements, for its financial assets and liabilities. 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 June 30, 2009 and December 31, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using |
|
|
June 30, |
|
|
|
|
|
|
|
|
2009 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
Non-qualified
deferred compensation
assets |
|
$ |
11,434 |
|
|
$ |
4,459 |
|
|
$ |
6,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-qualified
deferred compensation
liabilities |
|
$ |
13,738 |
|
|
|
|
|
|
$ |
13,738 |
|
|
|
|
|
|
|
|
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 (see note 8). 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 represents Level 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.
Effective January 1, 2009, the Company adopted FAS No. 157 for its non-financial assets and
non-financial liabilities that are remeasured at fair value on a non-recurring basis. In
accordance with FAS No. 144, long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets may not be recoverable.
During the second quarter of 2009, due to continued decline in demand for services in the domestic
land markets, the Company identified impairments of certain amortizable intangible assets of
approximately $92.7 million (see note 3). Additionally, the Company recorded a $36.5 million
reduction in the value of its equity-method investment in BOG. In April 2009, BOG defaulted under
its loan agreements due primarily to the impact of pipeline curtailments from Hurricanes Gustav and
Ike in 2008 and the decline of natural gas and oil prices. As a result of continued negative BOG
operating results, lack of viable interested buyers and unsuccessful attempts to renegotiate the
terms and conditions of it loan agreements with lenders on terms that would preserve the Companys
investment, the Company wrote off the remaining carrying value of its investment in BOG (see note
6).
12
The following table reflects the fair value measurements used in testing the impairment of
intangible assets and equity-method investments during the six months ended June 30, 2009 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
|
June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2009 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Losses |
Intangible and other
long-term assets, net |
|
$ |
-0- |
|
|
|
|
|
|
|
|
|
|
$ |
-0- |
|
|
$ |
(92,683 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-method investments |
|
$ |
-0- |
|
|
|
|
|
|
|
|
|
|
$ |
-0- |
|
|
$ |
(36,486 |
) |
If, among other factors, (1) the adverse impacts of economic or competitive factors are worse than
anticipated, (2) the fair value of the reporting units decline, or (3) the Companys market
capitalization falls below its equity value, the Company could conclude in future periods that
additional impairment losses are required in order to reduce the carrying value of its goodwill
and/or long-lived assets. Depending on the severity of the changes in the key factors underlying
the valuation of the Companys reporting units, such losses could be significant.
The fair value of the Companys financial instruments of cash equivalents, accounts receivable,
equity-method investments and current maturities of long-term debt approximates their carrying
amounts. The fair value of the Companys long-term debt is approximately $673.8 million and $515.5
million at June 30, 2009 and December 31, 2008, respectively. The fair value of these debt
instruments is determined by reference to the market value of the instrument as quoted in an
over-the-counter market.
(8) 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 six months ended June 30, 2009 and 2008 was approximately $1.2 million and
$1.5 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. The Companys compensation expense related to shares of
outstanding restricted stock for the six months ended June 30, 2009 and 2008 was approximately $2.9
million for each of the respective periods, which is reflected in general and administrative
expenses.
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 six months
ended June 30, 2009 and 2008 was approximately $0.4 million for each of the respective periods,
which is reflected in general and administrative expenses.
13
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 six months ended June 30,
2009 and 2008 was approximately $2.4 million and $4.3 million, respectively, which is reflected in
general and administrative expenses. The Company has recorded a current liability of approximately
$4.3 million and $5.6 million at June 30, 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 $5.1 million and $6.9 million at June 30, 2009 and December 31, 2008,
respectively, for outstanding PSUs, which is reflected in other long-term liabilities. During the
six month period ended June 30, 2009, the Company paid approximately $4.7 million in cash and
issued approximately 71,400 shares of its common stock to its employees to settle PSUs for the
performance period ended December 31, 2008. During the six month period ended June 30, 2008, the
Company paid approximately $2.9 million in cash and issued approximately 74,400 shares of its
common stock to its employees to settle PSUs for the performance period ended December 31, 2007.
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 $1.2 million and
$0.8 million related to shares issued under these plans for the six month period ended June 30,
2009 and 2008, respectively. For the six months ended June 30, 2009 and 2008, the Company recorded
compensation expense of approximately $212,000 and $148,000, respectively, which is reflected in
general and administrative expenses. Additionally, the Company issued approximately 87,500 and
22,500 shares for the six month period ended June 30, 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.
(9) 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.
Stock options and unvested restricted stock of approximately 670,000 and 532,000 were excluded in
the computation of diluted earnings per share for the three and six months ended June 30, 2009,
respectively, as the effect would have been anti-dilutive due to the net loss for the three and six
months ended June 30, 2009.
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 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
14
exchangeable notes did not have a dilutive effect for the six months ended June
30, 2009 and 2008. The average stock price for the quarter ended June 30, 2008 was $50.05,
resulting in an additional 784,000 shares included in the diluted share count for the three months
ended June 30, 2008.
(10) Stockholders Equity
On January 1, 2009, the Company retrospectively adopted the FSP No. APB 14-1. FSP No. APB 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 No. APB 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 during the six months ended June 30, 2009 pursuant to its
share repurchase program. During the six months ended June 30, 2008, the Company purchased 250,000
shares of its common stock for an aggregate amount of $8.8 million under this program.
(11) 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 six months ended June 30, 2008, the Company sold 75% of its interest
in SPN Resources (see note 4). 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.
15
Summarized financial information concerning the Companys segments for the three and six months
ended June 30, 2009 and 2008 is shown in the following tables (in thousands):
Three Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well |
|
Rental |
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
Intervention |
|
Tools |
|
Marine |
|
Unallocated |
|
Total |
|
|
|
Revenues |
|
$ |
231,121 |
|
|
$ |
102,533 |
|
|
$ |
27,507 |
|
|
$ |
|
|
|
$ |
361,161 |
|
Cost of services, rentals and sales
(exclusive of items shown
separately below) |
|
|
147,514 |
|
|
|
33,302 |
|
|
|
16,452 |
|
|
|
|
|
|
|
197,268 |
|
Depreciation and amortization |
|
|
21,608 |
|
|
|
26,276 |
|
|
|
3,094 |
|
|
|
|
|
|
|
50,978 |
|
General and administrative expenses |
|
|
34,410 |
|
|
|
22,832 |
|
|
|
3,041 |
|
|
|
|
|
|
|
60,283 |
|
Reduction in value of intangible assets |
|
|
92,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92,683 |
|
Income (loss) from operations |
|
|
(65,094 |
) |
|
|
20,123 |
|
|
|
4,920 |
|
|
|
|
|
|
|
(40,051 |
) |
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,720 |
) |
|
|
(11,720 |
) |
Loss from equity-method
investments, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,426 |
) |
|
|
(19,426 |
) |
Reduction in value of equity-method
investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,486 |
) |
|
|
(36,486 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
(65,094 |
) |
|
$ |
20,123 |
|
|
$ |
4,920 |
|
|
$ |
(67,632 |
) |
|
$ |
(107,683 |
) |
|
|
|
Three Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well |
|
Rental |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
Intervention |
|
Tools |
|
Marine |
|
Oil & Gas |
|
Unallocated |
|
Total |
|
|
|
Revenues |
|
$ |
296,891 |
|
|
$ |
134,773 |
|
|
$ |
25,991 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
457,655 |
|
Cost of services, rentals and sales
(exclusive of items shown
separately below) |
|
|
161,481 |
|
|
|
41,335 |
|
|
|
19,281 |
|
|
|
|
|
|
|
|
|
|
|
222,097 |
|
Depreciation and amortization |
|
|
17,296 |
|
|
|
22,279 |
|
|
|
2,379 |
|
|
|
|
|
|
|
|
|
|
|
41,954 |
|
General and administrative expenses |
|
|
39,912 |
|
|
|
23,628 |
|
|
|
2,886 |
|
|
|
|
|
|
|
|
|
|
|
66,426 |
|
Gain on sale of businesses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,058 |
|
|
|
|
|
|
|
3,058 |
|
Income from operations |
|
|
78,202 |
|
|
|
47,531 |
|
|
|
1,445 |
|
|
|
3,058 |
|
|
|
|
|
|
|
130,236 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,023 |
) |
|
|
(11,023 |
) |
Loss from equity-method
investments, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,765 |
) |
|
|
(7,765 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
78,202 |
|
|
$ |
47,531 |
|
|
$ |
1,445 |
|
|
$ |
3,058 |
|
|
$ |
(18,788 |
) |
|
$ |
111,448 |
|
|
|
|
16
Six Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well |
|
Rental |
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
Intervention |
|
Tools |
|
Marine |
|
Unallocated |
|
Total |
|
|
|
Revenues |
|
$ |
519,178 |
|
|
$ |
228,477 |
|
|
$ |
50,615 |
|
|
$ |
|
|
|
$ |
798,270 |
|
Cost of services, rentals and sales
(exclusive of items shown
separately below) |
|
|
313,003 |
|
|
|
75,338 |
|
|
|
31,392 |
|
|
|
|
|
|
|
419,733 |
|
Depreciation and amortization |
|
|
43,665 |
|
|
|
51,647 |
|
|
|
5,534 |
|
|
|
|
|
|
|
100,846 |
|
General and administrative expenses |
|
|
73,221 |
|
|
|
46,060 |
|
|
|
5,988 |
|
|
|
|
|
|
|
125,269 |
|
Reduction in value of intangible assets |
|
|
92,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92,683 |
|
Income (loss) from operations |
|
|
(3,394 |
) |
|
|
55,432 |
|
|
|
7,701 |
|
|
|
|
|
|
|
59,739 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,008 |
) |
|
|
(25,008 |
) |
Loss from equity-method
investments, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,170 |
) |
|
|
(17,170 |
) |
Reduction in value of equity-method
investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,486 |
) |
|
|
(36,486 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
(3,394 |
) |
|
$ |
55,432 |
|
|
$ |
7,701 |
|
|
$ |
(78,664 |
) |
|
$ |
(18,925 |
) |
|
|
|
Six Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil & Gas |
|
|
|
|
Well |
|
Rental |
|
|
|
|
|
|
|
|
|
Eliminations |
|
Consolidated |
|
|
Intervention |
|
Tools |
|
Marine |
|
Oil & Gas |
|
& Unallocated |
|
Total |
|
|
|
Revenues |
|
$ |
531,006 |
|
|
$ |
265,100 |
|
|
$ |
49,080 |
|
|
$ |
55,072 |
|
|
$ |
(1,212 |
) |
|
$ |
899,046 |
|
Cost of services, rentals and sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(exclusive of items shown separately below) |
|
|
293,880 |
|
|
|
85,435 |
|
|
|
35,126 |
|
|
|
12,986 |
|
|
|
(1,212 |
) |
|
|
426,215 |
|
Depreciation, depletion, amortization and
accretion |
|
|
33,557 |
|
|
|
43,025 |
|
|
|
4,452 |
|
|
|
2,799 |
|
|
|
|
|
|
|
83,833 |
|
General and administrative expenses |
|
|
75,089 |
|
|
|
46,684 |
|
|
|
5,479 |
|
|
|
8,780 |
|
|
|
|
|
|
|
136,032 |
|
Gain on sale of businesses |
|
|
500 |
|
|
|
3,332 |
|
|
|
|
|
|
|
37,114 |
|
|
|
|
|
|
|
40,946 |
|
Income from operations |
|
|
128,980 |
|
|
|
93,288 |
|
|
|
4,023 |
|
|
|
67,621 |
|
|
|
|
|
|
|
293,912 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,206 |
) |
|
|
(23,206 |
) |
Loss from equity-method |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investments, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,808 |
) |
|
|
(3,808 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
128,980 |
|
|
$ |
93,288 |
|
|
$ |
4,023 |
|
|
$ |
67,621 |
|
|
$ |
(27,014 |
) |
|
$ |
266,898 |
|
|
|
|
Identifiable Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well |
|
|
Rental |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
Intervention |
|
|
Tools |
|
|
Marine |
|
|
Unallocated |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
$ |
1,403,924 |
|
|
$ |
787,462 |
|
|
$ |
287,957 |
|
|
$ |
59,012 |
|
|
$ |
2,538,355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
$ |
1,343,710 |
|
|
$ |
762,848 |
|
|
$ |
239,572 |
|
|
$ |
144,015 |
|
|
$ |
2,490,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
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):
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
United States |
|
$ |
290,406 |
|
|
$ |
377,155 |
|
|
$ |
654,535 |
|
|
$ |
741,768 |
|
Other Countries |
|
|
70,755 |
|
|
|
80,500 |
|
|
|
143,735 |
|
|
|
157,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
361,161 |
|
|
$ |
457,655 |
|
|
$ |
798,270 |
|
|
$ |
899,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Lived Assets:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
United States |
|
$ |
988,053 |
|
|
$ |
938,453 |
|
Other Countries |
|
|
229,125 |
|
|
|
176,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,217,178 |
|
|
$ |
1,114,941 |
|
|
|
|
|
|
|
|
(12) 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 $116.1 million, net of the contractual
right to receive payments from third parties, which is approximately $28.9 million, as of June 30,
2009. The total maximum potential obligation will decrease over time as the underlying obligations
are fulfilled by SPN Resources.
18
(13) Other Comprehensive Income
The following tables reconcile the change in accumulated other comprehensive income (loss) for the
three and six months ended June 30, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
Accumulated other comprehensive income (loss), March 31,
2009 and 2008, respectively |
|
$ |
(32,847 |
) |
|
$ |
3,780 |
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax |
|
|
|
|
|
|
|
|
Hedging activities: |
|
|
|
|
|
|
|
|
Unrealized loss on equity-method investments hedging
activities, net of tax of ($1,502) in 2009 and ($6,944) in 2008 |
|
|
(2,558 |
) |
|
|
(11,824 |
) |
Foreign currency translation adjustment |
|
|
21,159 |
|
|
|
269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
|
18,601 |
|
|
|
(11,555 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss, June 30,
2009 and 2008, respectively |
|
$ |
(14,246 |
) |
|
$ |
(7,775 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
Accumulated other comprehensive income (loss), December 31,
2008 and 2007, respectively |
|
$ |
(32,641 |
) |
|
$ |
9,078 |
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax |
|
|
|
|
|
|
|
|
Hedging activities: |
|
|
|
|
|
|
|
|
Unrealized loss on equity-method investments hedging
activities, net of tax of ($2,279) in 2009 and ($10,796) in 2008 |
|
|
(3,880 |
) |
|
|
(18,383 |
) |
Foreign currency translation adjustment |
|
|
22,275 |
|
|
|
1,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
|
18,395 |
|
|
|
(16,853 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss, June 30,
2009 and 2008, respectively |
|
$ |
(14,246 |
) |
|
$ |
(7,775 |
) |
|
|
|
|
|
|
|
(14) 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
June 30, 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.
19
(15) 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.
(16) |
|
New Accounting Pronouncements |
In April 2008, the Financial Accounting Standards Board issued its Staff Position FAS 142-3 (FSP
FAS No. 142-3), Determination of Useful Life of Intangible Assets. FSP FAS No. 142-3 amends the
factors that should be considered in developing the renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under FAS No. 142. FSP FAS No. 142-3 is
effective for fiscal years beginning after December 15, 2008. The adoption of FSP FAS No. 142-3
did not have a material effect on the Companys results of operations and financial position.
In April 2009, the Financial Accounting Standards Board issued its Staff Position FAS 107-1 and APB
28-1 (FSP FAS No. 107-1 and APB 28-1), Interim Disclosures About Fair Value of Financial
Instruments. FSP FAS No. 107-1 and APB 28-1 requires disclosures about fair value of financial
instruments in interim reporting periods of publicly traded companies that were previously only
required to be disclosed in annual financial statements. FSP FAS No. 107-1 and APB 28-1 is
effective for interim reporting periods ending after June 15, 2009. The adoption of FSP FAS
No. 107-1 and APB 28-1 did not have a material effect on the Companys results of operations and
financial position.
In April 2009, the Financial Accounting Standards Board issued its Staff Position FAS 157-4 (FSP
FAS No. 157-4), Determining Fair Value When Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. FSP FAS
No. 157-4 provides guidance on how to determine the fair value of assets and liabilities when the
volume and level of activity for the asset or liability has significantly decreased. FSP FAS No.
157-4 also provides guidance on identifying circumstances that indicate a transaction is not
orderly. In addition, FSP FAS No. 157-4 requires disclosure in interim and annual periods of the
inputs and valuation techniques used to measure fair value and a discussion of changes in valuation
techniques. FSP FAS No. 157-4 is effective for interim and annual reporting periods ending after
June 15, 2009. The adoption of FSP FAS No. 157-4 did not have a material effect on the Companys
results of operations and financial position.
In May 2009, the Financial Accounting Standards Board issued its Statement of Financial Accounting
Standards No. 165 (FAS No. 165), Subsequent Events, which establishes general standards of
accounting for, and disclosure of, events that occur after the balance sheet date, but before
financial statements are issued or are available to be issued. FAS No. 165 is effective for
interim or annual financial periods ending after June 15, 2009. The adoption of FAS No. 165 did
not have a material effect on the Companys results of operations and financial position (see note
1).
In June 2009, the Financial Accounting Standards Board issued its Statement of Financial Accounting
Standards No. 167 (FAS No. 167), Amendments to FASB Interpretation No. 46(R). FAS No. 167 amends
FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities for determining
whether an entity is a variable interest entity (VIE) and requires an enterprise to perform an
analysis to determine whether the enterprises variable interest or interests give it a controlling
financial interest in a VIE. Under FAS No. 167, an enterprise has a controlling financial interest
when it has (i) the power to direct the activities of a VIE that most significantly impact the
entitys economic performance and (ii) the obligation to absorb losses of the entity or the right
to receive benefits from the entity that could potentially be significant to the VIE. FAS No. 167
also requires an enterprise to assess whether it has an implicit financial responsibility to ensure
that a VIE operates as designed when determining whether it has power to direct the activities of
the VIE that most significantly impact the entitys economic performance. FAS No. 167 also
requires ongoing assessments of whether an enterprise is the primary beneficiary of a VIE, requires
enhanced disclosures and eliminates the scope exclusion for qualifying special-purpose entities.
FAS No. 167 is effective for annual reporting periods beginning after November 15, 2009. The
Company is currently evaluating the impact the adoption of FAS No. 167 will have on its results of
operations and financial position.
20
In June 2009, the Financial Accounting Standards Board issued its Statement of Financial Accounting
Standards No. 168 (FAS No. 168), The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles a replacement of FASB Statement No. 162. FAS No. 168
establishes the FASB Standards Accounting Codification (Codification) as the source of
authoritative GAAP recognized by the FASB to be applied to nongovernmental entities and rules and
interpretive releases of the SEC as authoritative GAAP for SEC registrants. The Codification will
supersede all the existing non-SEC accounting and reporting standards upon its effective date and
subsequently, the FASB will not issue new standards in the form of Statements, FASB Staff Positions
or Emerging Issues Task Force Abstracts. FAS No. 168 will become effective for financial
statements issued for interim and annual periods ending after September 15, 2009. The adoption of
FAS No. 168 will not have a material impact on the Companys results of operations and financial
position.
21
|
|
|
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations |
Forward-Looking Statements
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 market and industry 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 risks 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 second quarter of 2009, revenue was $361.2 million, loss from operations was $40.1
million, net loss was $68.9 million and the net loss per share was $0.88. These results include a
non-cash, pre-tax charge of $92.7 million for the reduction in value of intangible assets and a
non-cash, pre-tax charge of $36.5 million for the reduction in value of our remaining equity-method
investment in Beryl Oil and Gas L.P. (BOG). In addition, the losses from equity-method investments
item include our share of quarterly losses of $15.7 million from BOG primarily related to
impairments of its oil and gas properties, our share of non-cash unrealized losses associated with
mark-to-market changes in the value of its outstanding hedging contracts and professional fees
associated with BOGs efforts to negotiate new terms and conditions with its lenders and pursue
other strategic alternatives. Our losses from equity-method investments also include $6.0 million
of our share of non-cash unrealized losses associated with mark-to-market changes in the value of
outstanding hedging contracts put in place by SPN Resources.
The factors driving our performance relative to the first quarter of 2009 were (1) the continued
significant decline in well intervention services and rental tools in the domestic land markets as
a result of sharp decreases in demand for drilling and production-related tools and services; (2) a
reduction in the level of work on our large platform recovery project in the Gulf of Mexico, and
(3) decreased demand for rental tools in certain international markets.
As compared with the first quarter of 2009, our domestic revenue (domestic land and Gulf of Mexico)
decreased 20% and our international revenue decreased 3%. By comparison, the average number of
rigs drilling for oil and natural gas in the domestic markets decreased approximately 31% as
compared to the first quarter of 2009, while the international drilling rig count, excluding
Canada, decreased 4% over the same period.
Well intervention segment revenue was $231.1 million, a 20% decrease from the first quarter of
2009, and the loss from operations was $65.1 million, inclusive of the $92.7 million non-cash
charge for the reduction in value of intangible assets. Our domestic revenue in this segment
decreased 23% due to a 25% decrease in domestic land revenue as a result of lower utilization and
pricing for many of our production-related services in areas such as the Rockies and Mid-Continent
region, where drilling and production activity has been significantly curtailed. In addition, Gulf
of Mexico revenue from this segment decreased 23% from the most recent quarter primarily as less
work was performed on the platform recovery project during the period. We continue to complete
work on the
22
platform removal project at a pace that is faster than originally anticipated. We believe that we
will substantially complete the project, barring unusual weather or unforeseen technical
challenges, in the first half of 2010. Partially offsetting the decline in Gulf of Mexico revenue
was an increase in our plug and abandonment and decommissioning services activity.
In our rental tools segment, revenue was $102.5 million, a 19% decrease as compared with the first
quarter of 2009, and income from operations was $20.1 million, a 43% decrease from the first
quarter of 2009. Domestic revenue declined sequentially by 19% as a result of a 31% decrease in
domestic land market areas and a 9% decrease in Gulf of Mexico revenue. Rentals incurring the
largest decreases domestically were accommodations and stabilization equipment. International
revenue decreased 19% due to decreased rentals in Colombia, Venezuela and the North Sea.
In our marine segment, revenue was $27.5 million and income from operations was $4.9 million.
These represent sequential increases of 19% in revenue and 77% in income from operations as
compared to the most recent quarter.
The increase is primarily attributable to contributions from our two new 265-foot class liftboats
that entered the fleet during the quarter coupled with seasonal increases in activity as
utilization increased to 53% from 48% in the first quarter of 2009. In addition, our 230-foot class
liftboat was back in service after spending the entire first quarter in the shipyard for inspection
and repair work.
If, among other factors, (1) the adverse impacts of economic or competitive factors are worse than
anticipated, (2) the fair value of our reporting units decline, or (3) our market capitalization
falls below our equity value, we could conclude in future periods that additional impairment losses
are required in order to reduce the carrying value of our goodwill and/or 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 June 30, 2009 and 2008
For the three months ended June 30, 2009, our revenues were $361.2 million, resulting in a net loss
of $68.9 million, or $0.88 loss per share. Included in the results for the three months ended June
30, 2009 were non-cash, pre-tax charges of $92.7 million for the reduction in value of intangible
assets and $36.5 million for the reduction in value of our remaining equity-method investment in
BOG. Unless there is a material change in the ownership of BOG, we will not record future earnings
or losses from BOG since we have written off our remaining interest in this investment. Included
in the results for the three months ended June 30, 2009, were losses of $15.7 million from our
share of BOG primarily related to impairments of its oil and gas properties as well as our share of
unrealized losses related to hedges in place at BOG. Losses from equity-method investments also
includes $6.0 million of our share of unrealized losses associated with mark-to-market changes in
the value of outstanding hedging contracts put in place by SPN Resources. For the three months
ended June 30, 2008, revenues were $457.7 million and net income was $71.4 million, or $0.86
diluted earnings per share. Included in the results for the three months ended June 30, 2008 were
$7.8 million of losses from equity method investments, which included $19.9 million of pre-tax
losses associated with our share of mark-to-market changes in the value of derivative contracts put
in place by SPN Resources, and $3.1 million of a pre-tax gain associated with post closing
adjustments on the sale of our 75% interest in SPN Resources. Revenues for the three months ended
June 30, 2009 were lower in the well intervention segment due to a decrease in work related to a
large-scale decommissioning project as well as a decrease in domestic land revenue. Revenue also
decreased in the rental tools segment primarily due to decreased rentals of accommodations and
stabilization equipment in our domestic land markets. During the three months ended June 30, 2009,
revenue in our marine segment increased due primarily to the addition of our two new 265-foot class
liftboats.
23
The following table compares our operating results for the three months ended June 30, 2009 and
2008 (in thousands). Cost of services, rentals and sales excludes depreciation and amortization
for each of our business segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
Cost of Services, Rentals and Sales |
|
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
2009 |
|
|
% |
|
|
2008 |
|
|
% |
|
|
Change |
|
Well Intervention |
|
$ |
231,121 |
|
|
$ |
296,891 |
|
|
$ |
(65,770 |
) |
|
$ |
147,514 |
|
|
|
64 |
% |
|
$ |
161,481 |
|
|
|
54 |
% |
|
$ |
(13,967 |
) |
Rental Tools |
|
|
102,533 |
|
|
|
134,773 |
|
|
|
(32,240 |
) |
|
|
33,302 |
|
|
|
32 |
% |
|
|
41,335 |
|
|
|
31 |
% |
|
|
(8,033 |
) |
Marine |
|
|
27,507 |
|
|
|
25,991 |
|
|
|
1,516 |
|
|
|
16,452 |
|
|
|
60 |
% |
|
|
19,281 |
|
|
|
74 |
% |
|
|
(2,829 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
361,161 |
|
|
$ |
457,655 |
|
|
$ |
(96,494 |
) |
|
$ |
197,268 |
|
|
|
55 |
% |
|
$ |
222,097 |
|
|
|
49 |
% |
|
$ |
(24,829 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following provides a discussion of our results on a segment basis:
Well Intervention Segment
Revenue of our well intervention segment was $231.1 million for the three months ended June 30,
2009, as compared to $296.9 million for the same period in 2008, representing a 22% decrease in
revenue. Cost of services percentage increased to 64% of segment revenue for the three months
ended June 30, 2009 from 54% for the same period in 2008. Our decrease in revenue and
profitability is primarily attributable to a decrease in revenue from the domestic land markets
related to coiled tubing and cased-hole wireline, snubbing and well control services.
Additionally, we performed less work associated with the large-scale decommissioning project in the
Gulf of Mexico. Our largest geographic revenue decrease in this segment came from our
domestic land markets, which decreased 41% to approximately $48.5 million for the quarter ended
June 30, 2009 over the same period in 2008.
Rental Tools Segment
Revenue of our rental tools segment for the three months ended June 30, 2009 was $102.5 million, a
24% decrease over the same period in 2008. Cost of rentals and sales percentage increased slightly
to 32% of segment revenue for the three months ended June 30, 2009 from 31% for the same period of
2008. The decrease in rental revenue and profitability is primarily related to a decrease in the
rentals of our on-site accommodation units and stabilization equipment, specifically in the
domestic land market. Rental revenue in our domestic land market decreased 41% to approximately
$25.9 million for the quarter ended June 30, 2009 over the same period in 2008. Additionally,
rental revenue generated from the Gulf of Mexico and our international markets decreased by 12% and
21%, respectively, for the quarter ended June 30, 2009 over the same period in 2008.
Marine Segment
Our marine segment revenue for the three months ended June 30, 2009 increased 6% as compared to the
same period in 2008 primarily due to the fact that two new 265-foot class liftboats were deployed
during the quarter. Our cost of services percentage decreased to 60% of segment revenue for the
three months ended June 30, 2009 from 74% for the same period in 2008 primarily due to decreased
liftboat maintenance costs and direct expenses. The fleets average utilization slightly decreased
to approximately 53% for the second quarter of 2009 from 57% in the same period in 2008. The
utilization decrease was offset by an increase in the fleets average dayrate, which increased 7%
to approximately $17,500 in the second quarter of 2009 from $16,300 in the second quarter of 2008.
Depreciation and Amortization
Depreciation and amortization increased to $51.0 million in the three months ended June 30, 2009
from $42.0 million in the same period in 2008. Depreciation and amortization expense related to
our well intervention and rental segments for the three months ended June 30, 2009 increased
approximately $8.3 million, or 21%, 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 June
30, 2009 increased approximately $0.7 million, or 30%, from the same period in 2008.
The increase in depreciation expense for the marine segment is primarily attributable to the
delivery of two new 265-foot class liftboats partially offset by the decrease in utilization, as
liftboats are depreciated primarily on a units of production basis.
24
General and Administrative Expenses
General and administrative expenses decreased to $60.3 million for the three months ended June 30,
2009 from $66.4 million for the same period in 2008. The decrease is primarily related to our
efforts to reduce expenses during this difficult market coupled with a decrease in bonus and
insurance expense based on decreased revenue and profitability.
Reduction in Value of Assets
During the three months ended June 30, 2009, we recorded approximately $92.7 million of impairment
expense in connection with our intangible assets within our well intervention segment. This
reduction in value of intangible assets is primarily due to the decline in demand for services in
the domestic land markets.
Additionally, we recorded a $36.5 million expense to write off our remaining investment in BOG, an
equity-method investment in which we own a 40% interest. In April 2009, BOG defaulted under its
loan agreements due primarily to the impact of pipeline curtailments from Hurricanes Gustav and Ike
in 2008 and the decline of natural gas and oil prices. As a result of continued negative BOG
operating results, lack of viable interested buyers and unsuccessful attempts to renegotiate the
terms and conditions of BOGs loan agreements, we wrote off the remaining carrying value of our
investment in BOG.
Comparison of the Results of Operations for the Six Months Ended June 30, 2009 and 2008
For the six months ended June 30, 2009, our revenues were $798.3 million, resulting in a net loss
of $12.1 million, or $0.16 loss per share. Included in the results for the six months ended June
30, 2009 were non-cash, pre-tax charges of $92.7 million for the reduction in value of intangible
assets and $36.5 million for the reduction in value of our remaining equity-method investment in
BOG. Unless there is a material change in the ownership of BOG, we will not record future earnings
or losses from BOG since we have written off our remaining interest in this investment. Included
in the results for the six months ended June 30, 2009 were losses of $14.0 million from our share
of BOG primarily related to impairments of its oil and gas properties as well as our share of
unrealized losses related to hedges in place at BOG. Losses from equity-method investments also
includes $7.4 million of our share of unrealized losses associated with mark-to-market changes in
the value of outstanding hedging contracts put in place by SPN Resources. For the six months ended
June 30, 2008, revenues were $899.0 million and net income was $170.9 million, or $2.08 diluted
earnings per share. Included in the results for the six months ended June 30, 2008 were $3.8
million of losses from equity-method investments which included $19.9 million of pre-tax losses
associated with mark-to-market changes in the value of derivative contracts put in place by SPN
Resources, and $40.9 million of pre-tax gains associated with the sale of businesses. Revenue for
the six months ended June 30, 2009 was lower in the well intervention segment due to a decrease in
domestic land revenue. Revenue also decreased in the rental tools segment primarily due to
decreased rentals of accommodations and stabilization equipment in our domestic land markets.
During the six months ended June 30, 2009, revenue in our marine segment increased primarily due to
the addition of our two new 265-foot class liftboats. No activity was recorded in our oil and gas
segment for the six months ended June 30, 2009 as we sold 75% of our interest in SPN Resources on
March 14, 2008.
25
The following table compares our operating results for the six months ended June 30, 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 |
|
$ |
519,178 |
|
|
$ |
531,006 |
|
|
$ |
(11,828 |
) |
|
$ |
313,003 |
|
|
|
60 |
% |
|
$ |
293,880 |
|
|
|
55 |
% |
|
$ |
19,123 |
|
Rental Tools |
|
|
228,477 |
|
|
|
265,100 |
|
|
|
(36,623 |
) |
|
|
75,338 |
|
|
|
33 |
% |
|
|
85,435 |
|
|
|
32 |
% |
|
|
(10,097 |
) |
Marine |
|
|
50,615 |
|
|
|
49,080 |
|
|
|
1,535 |
|
|
|
31,392 |
|
|
|
62 |
% |
|
|
35,126 |
|
|
|
72 |
% |
|
|
(3,734 |
) |
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 |
|
$ |
798,270 |
|
|
$ |
899,046 |
|
|
$ |
(100,776 |
) |
|
$ |
419,733 |
|
|
|
53 |
% |
|
$ |
426,215 |
|
|
|
47 |
% |
|
$ |
(6,482 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following provides a discussion of our results on a segment basis:
Well Intervention Segment
Revenue of our well intervention segment was $519.2 million for the six months ended June 30, 2009,
as compared to $531.0 million for the same period in 2008, representing a 2% decrease. Cost of
services percentage increased to 60% of segment revenue for the six months ended June 30, 2009 from
55% for the same period in 2008. Our decrease in revenue and profitability is primarily
attributable to a decrease in revenue from the domestic land markets related to coiled tubing and
cased-hole wireline, snubbing and well control services. Accordingly, our largest geographic
revenue decrease in this segment came from our domestic land markets, which decreased 35% to
approximately $113.5 million for the six months ended June 30, 2009 over the same period of 2008.
Offsetting this decrease was an increase in revenue generated in our Gulf of Mexico market.
Revenue in the Gulf of Mexico increased approximately $58.4 million, or 21%, for the six months
ended June 30, 2009 over the same period in 2008 primarily due to the increase in level of work
associated with our large-scale decommissioning project.
Rental Tools Segment
Revenue of our rental tools segment for the six months ended June 30, 2009 was $228.5 million, a
14% decrease over the same period in 2008. Cost of rentals and sales percentage increased slightly
to 33% of segment revenue for the six months ended June 30, 2009 from 32% 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 and stabilization equipment, specifically in the domestic land market.
Rental revenue in our domestic land markets decreased 29% to approximately $63.5 million for the
six months ended June 30, 2009 over the same period in 2008. Additionally, rental revenue
generated from the Gulf of Mexico and our international markets decreased by 3% and 9%,
respectively, for the six months ended June 30, 2009 over the same period in 2008.
Marine Segment
Our marine segment revenue for the six months ended June 30, 2009 was $50.6 million, a 3% increase
over the same period in 2008. Our cost of services percentage decreased to 62% of segment revenue
for the six months ended June 30, 2009 from 72% for the same period in 2008 primarily due to
decreased liftboat maintenance costs and direct expenses. The fleets average utilization slightly
decreased to approximately 51% for the first six months of 2009 from 53% in the same period in
2008. The utilization decrease was offset by an increase in the fleets average dayrate, which
increased 6% to approximately $17,200 in the first six months of 2009 from $16,200 in the first six
months 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.
26
Depreciation, Depletion, Amortization and Accretion
Depreciation, depletion, amortization and accretion increased to $100.8 million in the six months
ended June 30, 2009 from $83.8 million in the same period in 2008. Depreciation and amortization
expense related to our well intervention and rental segments for the six months ended June 30, 2009
increased approximately $18.7 million, or 24%, 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 six months
ended June 30, 2009 increased approximately $1.1 million, or 24%, from the same period in 2008.
The increase in depreciation expense for the marine segment is primarily attributable to the
delivery of two vessels partially offset by the decrease in utilization, as liftboats are
depreciated primarily on a units of production basis. 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 $125.3 million for the six months ended June 30,
2009 from $136.0 million for the same period in 2008. The decrease is primarily due to the sale of
75% of our interest in SPN Resources in March 2008 along with our efforts to reduce expenses during
this difficult market.
Reduction in Value of Assets
During the six months ended June 30, 2009, we recorded approximately $92.7 million of impairment
expense in connection with our intangible assets within our well intervention segment. This
reduction in value of intangible assets is primarily due to the decline in demand for services in
the domestic land markets.
Additionally, we recorded a $36.5 million expense to write off our remaining investment in BOG, an
equity-method investment in which we own a 40% interest. In April 2009, BOG defaulted under its
loan agreements due primarily to the impact of pipeline curtailments from Hurricanes Gustav and Ike
in 2008 and the decline of natural gas and oil prices. As a result of continued negative BOG
operating results, lack of viable interested buyers and unsuccessful attempts to renegotiate the
terms and conditions of BOGs loan agreements, we wrote off the remaining carrying value of our
investment in BOG.
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 six months ended June 30, 2009, we generated net cash from operating activities of $89.4
million as compared to $131.6 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 be
completed by the end of the first half of 2010, barring unusual weather or unforeseen technical
challenges. Included in other current assets is approximately $280.5 million at June 30, 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 costs and
recognize revenue in advance of completing milestones. We anticipate collecting approximately
$200.0 million of this balance prior to December 31, 2009. 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 $36.6 million at June 30, 2009 compared to $44.9
million at December 31, 2008.
We spent $149.3 million of cash on capital expenditures during the six months ended June 30, 2009.
Approximately $69.3 million was used to expand and maintain our rental tool equipment inventory,
approximately $15.0 million was spent on our marine segment and approximately $57.0 million was
used to expand and maintain the asset base of our well intervention segment.
27
In April 2008, we contracted to purchase a 50% interest in four 265-foot class liftboats. The
first two vessels were placed in service during April and May of 2009, and are currently working in
the Gulf of Mexico. At March 31, 2009, construction on the two remaining vessels was
suspended. We are currently negotiating arrangements to complete the remaining two vessels at a
different shipyard. 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. That party withdrew its election prior to March 31,
2009, and we began discussing scenarios for the joint ownership and operation of the four
liftboats. We were unable to reach a mutually satisfactory arrangement for the joint ownership and
operation of the liftboats with that party. As such, the other party again elected to exercise its
option for us to purchase its interest in these liftboats. The total amount for the purchase of
the other partys 50% interest in theses four liftboats is approximately $38.1 million, which is
included in accrued expenses at June 30, 2009.
In May 2009, we amended our revolving credit facility to increase the borrowing capacity to $325
million from $250 million. Any amounts outstanding under the revolving credit facility are due on
June 14, 2011. Costs associated with amending the revolving credit facility were approximately
$2.3 million during the six months ended June 30, 2009. These costs were capitalized and are being
amortized over the remaining term of the credit facility. At June 30, 2009, we had $55.0 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 current
amounts outstanding on the revolving credit facility are primarily due to increased working capital
needs for our large-scale decommissioning project. As of July 31, 2009, we had $56.0 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.
At June 30, 2009, we had outstanding $14.6 million 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 June 3rd
and December 3rd of each year 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 outstanding $300 million of 6 7/8% unsecured senior notes due 2014. The indenture
governing the senior notes requires semi-annual interest payments on June 1st and
December 1st of each year 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.
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.
We also have outstanding $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.
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; |
28
|
|
|
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 common stock or in a combination of cash and
common stock, 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.
As of June 30, 2009, our accounts receivable in Venezuela totaled approximately 7% of our total
accounts receivable. For the year ended December 31, 2008, Venezuela revenues were approximately
2% of our total consolidated revenues for that year. During the six months ended June 30, 2009,
we have experienced an increased delay in receiving payment on our receivables from our primary
customer in Venezuela. Subsequent to June 30, 2009, we have received payments of approximately 16%
of this outstanding receivable balance. We will continue to closely monitor the situation in
Venezuela.
The following table summarizes our contractual cash obligations and commercial commitments at June
30, 2009 (amounts in thousands) for our long-term debt (including estimated interest payments),
operating leases and other long-term liabilities. We do not have any other material obligations or
commitments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
2014 |
|
Thereafter |
|
Long-term debt, including
estimated interest
payments |
|
$ |
15,666 |
|
|
$ |
31,292 |
|
|
$ |
84,262 |
|
|
$ |
27,231 |
|
|
$ |
27,179 |
|
|
$ |
316,814 |
|
|
$ |
474,354 |
|
Operating leases |
|
|
8,042 |
|
|
|
12,801 |
|
|
|
7,150 |
|
|
|
4,401 |
|
|
|
2,642 |
|
|
|
2,153 |
|
|
|
12,508 |
|
Other long-term liabilities |
|
|
|
|
|
|
11,320 |
|
|
|
7,977 |
|
|
|
5,852 |
|
|
|
2,918 |
|
|
|
254 |
|
|
|
12,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
23,708 |
|
|
$ |
55,413 |
|
|
$ |
99,389 |
|
|
$ |
37,484 |
|
|
$ |
32,739 |
|
|
$ |
319,221 |
|
|
$ |
499,456 |
|
|
|
|
We currently believe that we will spend approximately $120 million to $130 million on capital
expenditures, excluding acquisitions, during the remaining six 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.
29
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 June 30, 2009, the maximum additional consideration payable for these
acquisitions was approximately $27.4 million. Since these acquisitions occurred before the
adoption of FAS No. 141(R), these amounts are not classified as liabilities 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 six months ended June 30, 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 June 30, 2009, we had no outstanding foreign
currency forward contracts.
New Accounting Pronouncements
In April 2008, the Financial Accounting Standards Board issued its Staff Position FAS 142-3 (FSP
FAS No. 142-3), Determination of Useful Life of Intangible Assets. FSP FAS No. 142-3 amends the
factors that should be considered in developing the renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under FAS No. 142. FSP FAS No. 142-3 is
effective for fiscal years beginning after December 15, 2008. The adoption of FSP FAS No. 142-3
did not have a material effect on our results of operations and financial position.
In April 2009, the Financial Accounting Standards Board issued its Staff Position FAS 107-1 and APB
28-1 (FSP FAS No. 107-1 and APB 28-1), Interim Disclosures About Fair Value of Financial
Instruments. FSP FAS No. 107-1 and APB 28-1 requires disclosures about fair value of financial
instruments in interim reporting periods of publicly-traded companies that were previously only
required to be disclosed in annual financial statements. FSP FAS No. 107-1 and APB 28-1 are
effective for interim reporting periods ending after June 15, 2009. The adoption of FSP FAS No.
107-1 and APB 28-1 did not have a material effect on our results of operations and financial
position.
In April 2009, the Financial Accounting Standards Board issued its Staff Position FAS 157-4 (FSP
FAS No. 157-4), Determining Fair Value When Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. FSP FAS
No. 157-4 provides guidance on how to determine the fair value of assets and liabilities when the
volume and level of activity for the asset or liability has significantly decreased. FSP FAS No.
157-4 also provides guidance on identifying circumstances that indicate a transaction is not
orderly. In addition, FSP FAS No. 157-4 requires disclosure in interim and annual periods of the
inputs and valuation techniques used to measure fair value and a discussion of changes in valuation
techniques. FSP FAS No. 157-4 is effective for interim and annual reporting periods ending after
June 15, 2009. The adoption of FSP FAS No. 157-4 did not have a material effect on our results of
operations and financial position.
In May 2009, the Financial Accounting Standards Board issued its Statement of Financial Accounting
Standards No. 165 (FAS No. 165), Subsequent Events, which establishes general standards of
accounting for, and disclosure of, events that occur after the balance sheet date, but before
financial statements are issued or are available to be issued. FAS No. 165 is effective for
interim or annual financial periods ending after June 15, 2009. The adoption of FAS No. 165 did
not have a material effect on our results of operations and financial position.
In June 2009, the Financial Accounting Standards Board issued its Statement of Financial Accounting
Standards No. 167 (FAS No. 167), Amendments to FASB Interpretation No. 46(R). FAS No. 167 amends
FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities for determining
whether an entity is a variable interest entity (VIE) and requires an enterprise to perform an
analysis to determine whether the enterprises
30
variable interest or interests give it a controlling
financial interest in a VIE. Under FAS No. 167, an enterprise has a controlling financial interest
when it has (i) the power to direct the activities of a VIE that most significantly impact the
entitys economic performance and (ii) the obligation to absorb losses of the entity or the right
to receive benefits from the entity that could potentially be significant to the VIE. FAS No. 167
also requires an enterprise to assess whether it has an implicit financial responsibility to ensure
that a VIE operates as designed when determining whether it has power to direct the activities of
the VIE that most significantly impact the entitys economic performance. FAS No. 167 also
requires ongoing assessments of whether an enterprise is the primary beneficiary of a VIE, requires
enhanced disclosures and eliminates the scope exclusion for qualifying special-purpose entities.
FAS No. 167 is effective for annual reporting periods beginning after November 15, 2009. We are
currently evaluating the impact the adoption of FAS No. 167 will
have on our results of operations and
financial position.
In June 2009, the Financial Accounting Standards Board issued its Statement of Financial Accounting
Standards No. 168 (FAS No. 168), The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles a replacement of FASB Statement No. 162. FAS No. 168
establishes the FASB Standards Accounting Codification (Codification) as the source of
authoritative GAAP recognized by the FASB to be applied to nongovernmental entities and rules and
interpretive releases of the SEC as authoritative GAAP for SEC registrants. The Codification will
supersede all the existing non-SEC accounting and reporting standards upon its effective date and
subsequently, the FASB will not issue new standards in the form of Statements, FASB Staff Positions
or Emerging Issues Task Force Abstracts. FAS No. 168 will become effective for financial statements
issued for interim and annual periods ending after September 15, 2009. The adoption of FAS No. 168
will not have a material 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 and Europe, 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 and Europe 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 June 30, 2009, we had no outstanding foreign currency
forward contracts.
Interest Rate Risk
At June 30, 2009, $55.0 million of our long-term debt outstanding had variable interest rates.
Based on the amount of this debt outstanding at June 30, 2009, a 10% increase in the variable
interest rate would increase our interest expense for the six months ended June 30, 2009 by
approximately $148,000, while a 10% decrease would decrease our interest expense by approximately
$148,000.
31
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 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.
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|
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Item 4. Controls and Procedures |
|
a. |
|
Evaluation of disclosure control and procedures. As of the end of the period
covered by this quarterly report on Form 10-Q, our Chief Executive Officer and Chief
Financial Officer have concluded, based on their evaluation, that our disclosure controls
and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) are
effective for ensuring that information required to be disclosed by us in the reports that
we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated
to management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosures and is recorded,
processed, summarized and reported within the time periods specified in the SECs rules and
forms. |
|
|
b. |
|
Changes in internal control. There has been no change in our internal control
over financial reporting that occurred during the three months ended June 30, 2009, that
has materially affected, or is reasonably likely to materially affect, our internal
controls over financial reporting. |
32
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 June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate |
|
|
|
|
|
|
|
|
|
|
Total Number |
|
Dollar Value of |
|
|
|
|
|
|
|
|
|
|
of Shares |
|
Shares that May |
|
|
Total Number |
|
|
|
|
|
Purchased as |
|
Yet be |
|
|
of Shares |
|
|
|
|
|
Part of Publicly |
|
Purchased |
|
|
Purchased |
|
Average Price |
|
Announced Plan |
|
Under the Plan |
Period |
|
(1) |
|
Paid per Share |
|
(2) |
|
(2) |
April 1 30, 2009 |
|
|
53 |
|
|
$ |
18.82 |
|
|
|
|
$ |
212,400,000 |
|
May 1 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
$ |
212,400,000 |
|
June 1 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
$ |
212,400,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1, 2009
through
June 30, 2009
|
|
|
53 |
|
|
|
|
|
|
|
|
$ |
212,400,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Through our stock incentive plans, 53 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 June 30, 2009. |
|
|
|
Item 4. Submission of Matters to a Vote of Security Holders |
|
a. |
|
The annual meeting of our stockholders was held on May 22, 2009. |
|
|
b. |
|
At the annual meeting, our stockholders: |
|
(i) |
|
Elected six directors to serve until the next annual meeting of
stockholders with the following number of votes cast for and withheld from such
nominees: |
|
|
|
|
|
|
|
|
|
Director |
|
For |
|
Withheld |
|
Harold J. Bouillion |
|
|
62,633,202 |
|
|
|
10,404,678 |
|
Enoch L. Dawkins |
|
|
59,422,603 |
|
|
|
13,615,277 |
|
James M. Funk |
|
|
62,595,374 |
|
|
|
10,442,506 |
|
Terence E. Hall |
|
|
63,138,674 |
|
|
|
9,899,206 |
|
Ernest E. Howard, III |
|
|
60,509,246 |
|
|
|
12,528,634 |
|
Justin L. Sullivan |
|
|
62,129,127 |
|
|
|
10,908,753 |
|
|
(ii) |
|
Ratified the appointment of KPMG LLP as our independent registered
public accounting firm for the fiscal year ending December 31, 2009. The number of
votes cast for and against this proposal, as well as the number of abstentions, is
as follows: |
|
|
|
|
|
For |
|
Against |
|
Abstentions |
|
71,418,064 |
|
1,538,783 |
|
81,031 |
33
|
(iii) |
|
Approved the 2009 Stock Incentive Plan. The number of votes cast for
and against this proposal, as well as the number of abstentions and non-votes, is
as follows: |
|
|
|
|
|
|
|
For |
|
Against |
|
Abstentions |
|
Non-Votes |
|
49,966,362
|
|
14,132,181
|
|
107,229
|
|
8,832,108 |
|
(a) |
|
The following exhibits are filed with this Form 10-Q: |
|
|
|
3.1*
|
|
Composite Certificate of Incorporation of the Company. |
|
|
|
3.2
|
|
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). |
|
|
|
10.1^
|
|
Superior Energy Services, Inc. 2009 Stock Incentive Plan (incorporated herein by
reference to Exhibit 10.1 to the Companys Form 8-K filed on June 1, 2009). |
|
|
|
10.2
|
|
Second Amended and Restated Credit Agreement dated May 29, 2009 among Superior Energy
Services, Inc., SESI, L.L.C., JPMorgan Chase Bank, N.A. and the lenders party thereto
(incorporated herein by reference to Exhibit 10.1 to the companys Form 8-K filed on June
1, 2009). |
|
|
|
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. |
|
|
|
* |
|
Filed herewith |
|
^ |
|
Management contract or compensatory plan or arrangement |
34
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.
|
|
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|
|
|
SUPERIOR ENERGY SERVICES, INC.
|
|
Date: August 7, 2009 |
By: |
/s/ Robert S. Taylor |
|
|
|
Robert S. Taylor |
|
|
|
Executive Vice President, Treasurer and
Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
|
35
exv3w1
Exhibit 3.1
COMPOSITE CERTIFICATE OF INCORPORATION
OF
SUPERIOR ENERGY SERVICES, INC.
The undersigned, a natural person, for the purpose of organizing a corporation for conducting
the business and promoting the purposes hereinafter stated, under the provisions and subject to the
requirements of the laws of the General Corporation Law of the State of Delaware, hereby certifies
that:
FIRST:
The name of the corporation (hereinafter called the corporation) is Superior Energy
Services, Inc.
SECOND: The address of the registered office of the corporation in the Sate of Delaware is
c/o United Corporate Services, Inc. 15 East North Street, City of Dover, County of Kent; and the
name of the registered agent of the corporation in the State of Delaware at such address is United
Corporate Services, Inc.
THIRD: The purpose of the corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of Delaware, and by
such statement all lawful acts and activities shall be within the purposes of the corporation,
except for express limitations, if any.
FOURTH: The aggregate number of shares which the Corporation shall have authority to issue is
One Hundred Thirty Million (130,000,000) shares, of which One Hundred Twenty-Five Million
(125,000,000) shares shall be designated Common Stock, par value $.001 per share, and Five Million
(5,000,000) shares shall be designated Preferred Stock, par value $.01 per share. The Board of
Directors may authorize the issuance from time to time of the Preferred Stock in one or more series
with such designations, preferences, qualifications, limitations, restrictions and optional or
other special rights (which may differ with respect to each series) as the Board may fix by
resolution. Without limiting the foregoing, the Board of Directors is authorized to fix with
respect to each series:
1. the number of shares which shall constitute the series and the name of the series;
2. the rate and times at which, and the preferences and conditions under which, dividends
shall be payable on shares of the series, and the status of such dividends as cumulative or
non-cumulative and as participating or non-participating;
3. the prices, times and terms, if any, at or upon which shares of the series shall be
subject to redemption;
4. the rights, if any, of holders of shares of the series to convert such shares into, or to
exchange such shares for, shares of any other class of stock of the corporation;
5. the terms of the sinking fund or redemption or purchase account, if any, to be
provided for shares of the series;
6. the rights and preferences, if any, of the holders of shares of the series upon any
liquidation, dissolution or winding up of the affairs of, or upon any distribution of the assets
of, the corporation;
7. the limitations, if any, applicable which such series is outstanding, on the payment of
dividends or making of distributions on, or the acquisition of, the Common Stock or any other class
of stock which does not rank senior to the shares of the series; and
8. the voting rights, if any, to be provided for shares of the series.
FIFTH: The name and the mailing address of the incorporator are as follows:
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Name |
|
Mailing Address |
|
|
|
|
|
|
|
Mark Gasarch |
|
599 Lexington Avenue - 28th Floor |
|
|
|
|
New York, NY 10022 |
SIXTH: The corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between this corporation and its
creditors or any class of them and/or between this corporation and its stockholders or any class of
them, any court of equitable jurisdiction within the State of Delaware may, on the application in a
summary way of this corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this corporation under Section 291 of Title 8 of the
Delaware Code or on the application of trustees in dissolution or of any receiver or receivers
appointed for this corporation under Section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree
to any compromise or arrangement and to any reorganization of this corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made, be binding on all
the creditors or class of creditors, and/or on all the stockholders or class of stockholders,
of this corporation, as the case may be, and also on this corporation.
EIGHTH: For the management of the business and for the conduct of the affairs of the
corporation, and in further definition, limitation, and regulation of the powers of the corporation
and of its directors and of its stockholders or any class thereof, as the case may be, it is
further provided:
1. The management of the business and the conduct of the affairs of the corporation shall be
vested in its Board of Directors. The number of directors which shall
constitute the whole Board of Directors shall be fixed by, or in the manner provided in, the
Bylaws.
2. After the original or other Bylaws of the corporation have been adopted, amended, or
repealed, as the case may be, in accordance with the provisions of Section 109 of the General
Corporation law of the State of Delaware, and, after the corporation has received any payment for
any of its stock,the power to adopt, amend, or repeal the Bylaws of the corporation may be
exercised by the Board of Directors of the corporation.
3. Whenever the corporation shall be authorized to issue only one class of stock, each
outstanding share shall entitle the holder thereof to notice of, and the right to vote at, any
meeting of the stockholders.
NINTH: The personal liability of the directors of the corporation is hereby eliminated to the
fullest extend permitted by paragraph (7) of subsection (b) of Section 102 of the General
Corporation Law of the State of Delaware, as the same may be amended and supplemented.
TENTH: The corporation shall, to the fullest extent permitted by Section 145 of the General
Corporation Law of the State of Delaware, as the same may be amended and supplemented, indemnify
any and all persons whom it shall have power to indemnify under said section from and against any
and all of the expenses, liabilities, or other matters referred to or covered by said section, and
the indemnification provided for which those indemnified may be entitled under any Bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee, or agent and shall
inure to the benefit of the heirs, executors, and administrators of such a person.
ELEVENTH: From time to time any of the provisions of this certificate of incorporation may
be amended, altered, or repealed, and other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted in the manner and at the time prescribed by
said laws, and all rights at any time conferred upon the stockholders of the corporation by this
certificate of incorporation are granted subject to the provisions of this Article ELEVENTH.
TWELFTH: A. PURPOSE. The provisions of this Article TWELFTH are intended to assure that the
Corporation remains in continuous compliance with the citizenship requirements of the Merchant
Marine Act, 1920, as amended, the Merchant Marine Act, 1936, as amended, the Shipping Act, 1916, as
amended, and the regulations promulgated thereunder, as such laws and regulations are amended from
time to time (collectively, the Maritime Laws). It is the policy of the Corporation that
Non-Citizens should not Beneficially Own, individually or in the aggregate, any shares of the
Corporations Capital Stock in excess of the Permitted Amount. If the Board of Directors of the
Corporation should conclude in its sole discretion at any time that Non-Citizens have become, or
are about to become, the Beneficial Owners, individually or in the aggregate, of shares of Capital
Stock in excess of the Permitted Amount, the Board of Directors may by resolution duly adopted
declare that any or all of the provisions of subparagraphs C, D and E of this Article TWELFTH shall
apply. Certificates representing shares of the Capital
Stock of the Corporation shall bear a legend concerning the restrictions on ownership by
Non-Citizens contained in this Article TWELFTH.
B. DEFINITIONS. For purposes of this Article TWELFTH, the following terms shall have the
meanings specified below:
1. A Person shall be deemed to be the Beneficial Owner of, or to Beneficially Own, shares
of Capital Stock to the extent such Person would be deemed to be the beneficial owner thereof
pursuant to Rule 13d-3 promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as such rule may be amended from time to time.
2. Capital Stock shall mean any class or series of capital stock of the Corporation other
than any class or series of capital stock of the Corporation that is permitted by the Maritime
Administration of the United States Department of Transportation (MARAD) to be excluded from the
determination of whether the Corporation is in compliance with the citizenship requirements of the
Maritime Laws.
3. Citizen shall mean:
(a) any individual who is a citizen of the United States, by birth, naturalization or as
otherwise authorized by law;
(b) any corporation (i) that is organized under the laws of the United States or of a state,
territory, district or possession thereof, (ii) not less than 75% of the capital stock of which is
Beneficially Owned by Persons who are Citizens, (iii) whose president or chief executive officer,
chairman of the board of directors and all officers authorized to act in the absence or disability
of such Persons are Citizens and (iv) of which more than 50% of the number of its directors
necessary to constitute a quorum are Citizens;
(c) any partnership (i) that is organized under the laws of the United States or of a state,
territory, district or possession thereof, (ii) all general partners of which are Citizens and
(iii) not less than a 75% interest in which is Beneficially Owned by Persons who are Citizens;
(d) any association or limited liability company (i) that is organized under the laws of the
United States or of a state, territory, district or possession thereof, (ii) whose president or
chief executive officer (or the Person serving in an equivalent position), chairman of the board of
directors (or equivalent position) and all Persons authorized to act in the absence or disability
of such Persons are Citizens, (iii) not less than a 75% interest in which or 75% of the voting
power of which is Beneficially Owned by Citizens and (iv) of which more than 50% of the number of
its directors (or the Persons serving in equivalent positions) necessary to constitute a quorum are
Citizens;
(e) any joint venture (if not an association, corporation or partnership) (i) that is
organized under the laws of the United States or of a state, territory, district or possession
thereof and (ii) all co-venturers of which are Citizens; and (f) any trust (i) that is domiciled in
and existing under the laws of the United States or of a state, territory, district or possession
thereof, (ii) the trustee of which is a Citizen and (iii) of which not less than a 75% of the
beneficial interests in both income and principal are held for the benefit of Citizens.
4. Non-Citizen shall mean any Person other than a Citizen.
5. Permitted Amount shall mean shares of Capital Stock that, individually or in the
aggregate (a) have Voting Power not in excess of 23% of Total Voting Power or (b) constitute not
more than 23% of the total number of the issued and outstanding shares of Capital Stock; provided
that, if the Maritime Laws are amended to change the amount of Capital Stock that a Non-Citizen may
own or have the power to vote, then the Permitted Amount shall be changed to a percentage that is
two percentage points less than the percentage that would cause the Corporation to be no longer
qualified under the Maritime Laws, after giving effect to such amendment, as a Citizen qualified to
(i) engage in coastwise trade, (ii) participate in MARADs Title XI or comparable financing
programs, or (iii) participate in operating differential subsidies or similar programs.
6. Person shall mean an individual, partnership, corporation, limited liability company,
trust, joint venture or other entity.
7. Total Voting Power shall mean the total number of votes that may be cast by all
outstanding shares of Capital Stock having Voting Power.
8. Voting Power shall mean the power to vote with respect to the election of the
Corporations directors.
C. RESTRICTIONS ON TRANSFER.
1. Any transfer, or attempted or purported transfer, of any shares of the Capital Stock of
the Corporation or any interest therein or right thereof, that would result in the Beneficial
Ownership by Non-Citizens, individually or in the aggregate, of shares of Capital Stock in excess
of the Permitted Amount will, until such excess no longer exists, be void and ineffective as
against the Corporation and the Corporation will not recognize, with respect to those shares that
caused the Permitted Amount to be exceeded, the purported transferee as a stockholder of the
Corporation for any purpose other than the transfer by the purported transferee of such excess to a
person who is not a Non-Citizen or to the extent necessary to effect any other remedy available to
the Corporation under this Article TWELFTH.
2. The Board of Directors is hereby authorized to effect any and all measures necessary or
desirable (consistent with applicable law and the provisions of this Certificate of Incorporation)
to fulfill the purpose and implement the provisions of this Article TWELFTH, including without
limitation, obtaining, as a condition to recording the transfer of shares on the stock records of
the Corporation, affidavits or other proof as to the citizenship of existing or prospective
stockholders on whose behalf shares of the Capital Stock of the Corporation or any interest therein
or right thereof are or are to be held, or establishing and maintaining a dual stock certificate
system under which different forms of stock certificates representing outstanding shares of the
Capital Stock of the Corporation are issued to Citizens or Non-Citizens.
D. SUSPENSION OF VOTING, DIVIDEND AND DISTRIBUTION RIGHTS WITH RESPECT TO EXCESS SHARES. If
any shares of Capital Stock in excess of the Permitted Amount are Beneficially Owned by Non-
Citizens, individually or in the aggregate, any such excess shares determined in accordance with
this subparagraph D (the Excess Shares), shall, until such excess no longer exists, not be
entitled to (1) receive any dividends or distributions of assets declared payable or paid to the
holders of the Capital Stock of the Corporation during such period or (2) vote with respect to any
matter submitted to a vote of the stockholders of the Corporation, and such Excess Shares shall not
be deemed to be outstanding for purposes of determining the vote required on any matter properly
submitted to a vote of the stockholders of the Corporation. At such time as the Permitted Amount is
no longer exceeded, full voting rights shall be restored to any shares previously deemed to be
Excess Shares, and any dividends or distributions with respect thereto that have been withheld
shall be due and paid to the holders of such shares. If the number of shares of Capital Stock
Beneficially Owned by Non-Citizens is in excess of the Permitted Amount, the shares deemed to be
Excess Shares for purposes of this Article TWELFTH will be those shares Beneficially Owned by
Non-Citizens that the Board of Directors determines became so Beneficially Owned most recently, and
such determination shall be conclusive.
E. REDEMPTION OF EXCESS SHARES. The Corporation shall have the power, but not the obligation,
to redeem Excess Shares subject to the following terms and conditions:
1. The per share redemption price (the Redemption Price) to be paid for the Excess Shares
to be redeemed shall be the sum of (a) the average closing sales price of the Capital Stock and (b)
any dividend or distribution declared with respect to such shares prior to the date such shares are
called for redemption hereunder but which has been withheld by the Corporation pursuant to
subparagraph D. As used herein, the term average closing sales price shall mean the average of
the closing sales prices of the Capital Stock as quoted on the Nasdaq National Market during the 10
trading days immediately prior to the date the notice of redemption is given, or if not so quoted,
on the New York Stock Exchange, or on any other national securities exchange selected by the
Corporation on which such Capital Stock is listed, or if not so quoted or listed on any national
securities exchange, the mean between the representative bid and ask prices as quoted by Nasdaq or
another generally recognized reporting system, on each of such 10 trading days, and if not so
quoted, as may be determined in good faith by the Board of Directors.
2. The Redemption Price may be paid in cash or by delivery of a promissory note of the
Corporation, at the election of the Corporation. Any such promissory note shall have a maturity of
not more than 10 years from the date of issuance and shall bear interest at the rate equal to the
then current coupon rate of a 10-year Treasury note as such rate is published in THE WALL STREET
JOURNAL or comparable publication.
3. A notice of redemption shall be given by first class mail, postage prepaid, mailed not
less than 10 days prior to the redemption date to each holder of record of the shares to be
redeemed, at such holders address as the same appears on the stock records of the Corporation.
Each such notice shall state (a) the redemption date, (b) the number of shares of Capital Stock to
be redeemed from such holder, (c) the Redemption Price, and the manner of
payment thereof, (d) the place where certificates for such shares are to be surrendered for
payment of the Redemption Price, and (e) that dividends on the shares to be redeemed will cease to
accrue on such redemption date.
4. From and after the redemption date, dividends on the shares of Capital Stock called for
redemption shall cease to accrue and such shares shall no longer be deemed to be outstanding and
all rights of the holders thereof as stockholders of the Corporation (except the right to receive
from the Corporation the Redemption Price) shall cease. Upon surrender of the certificates for any
shares so redeemed in accordance with the requirements of the notice of redemption (properly
endorsed or assigned for transfer if the notice shall so state), such shares shall be redeemed by
the Corporation at the Redemption Price. In case fewer than all shares represented by any such
certificate are redeemed, a new certificate shall be issued representing the shares not redeemed
without cost to the holder thereof.
5. Such other terms and conditions as the Board of Directors may reasonably determine.
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. |
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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) |
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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) |
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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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5. |
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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: August 7, 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
Superior Energy Services, Inc. |
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|
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 |
|
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: August 7, 2009
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/s/ Robert S. Taylor |
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Robert S. Taylor |
|
|
Executive Vice President, Treasurer and Chief
Financial Officer
Superior Energy Services, Inc. |
|
|
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. |
|
the quarterly report on Form 10-Q of the Company for the quarter ended June 30, 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 |
|
2. |
|
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: August 7, 2009
|
|
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|
|
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|
|
|
/s/ Terence E. Hall
|
|
|
Terence E. Hall |
|
|
Chairman of the Board and Chief Executive
Officer
Superior Energy Services, Inc. |
|
|
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. |
|
the quarterly report on Form 10-Q of the Company for the quarterly period ended June 30, 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 |
|
2. |
|
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: August 7, 2009
|
|
|
|
|
|
|
|
|
/s/ Robert S. Taylor
|
|
|
Robert S. Taylor |
|
|
Executive Vice President, Treasurer and Chief
Financial Officer
Superior Energy Services, Inc. |
|
|
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.