Notes to Consolidated Financial Statements
June 30, 2014
(unaudited)
1.
Basis of Presentation and Nature of Operations
Basis of Presentation
The accompanying unaudited consolidated financial statements of Basic Energy Services, Inc. and subsidiaries (“Basic” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments which are of a normal recurring nature considered necessary for a fair presentation have been made in the accompanying unaudited financial statements.
Nature of Operation
s
Basic provides a wide range of well site services to oil and natural gas drilling and producing companies, including completion and remedial services, fluid services, well servicing and contract drilling. These services are primarily provided using Basic’s fleet of equipment. Basic’s operations are concentrated in the major United States onshore oil and gas producing regions in Texas, New Mexico, Oklahoma, Arkansas, Kansas, Louisiana, Wyoming, North Dakota, Colorado, Utah, Montana, West Virginia,
Kentucky,
Ohio and Pennsylvania.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Basic and its wholly owned subsidiaries. Basic has no variable interest in any other organization, entity, partnership, or contract. All intercompany transactions and balances have been eliminated.
Estimates and Uncertainties
Preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Areas where critical accounting estimates are made by management include:
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Depreciation and amortization of property and equipment and intangible assets
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·
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Impairment of property and equipment, goodwill and intangible assets
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·
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Allowance for doubtful accounts
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·
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Litigation and self-insured risk reserves
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·
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Fair value of assets acquired and liabilities assumed
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·
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Stock-based compensation
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·
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Asset retirement obligations
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·
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Environmental liabilities
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Revenue Recognition
Completion and Remedial Services —
Completion and remedial services consists primarily of pumping services focused on cementing, acidizing and fracturing, nitrogen units, coiled tubing units, snubbing units, thru-tubing and rental and fishing tools. Basic recognizes revenue when services are performed, collection of the relevant receivables is probable, persuasive evidence of an arrangement exists and the price is fixed or determinable. Basic prices completion and remedial services by the hour, day, or project depending on the type of service performed. When Basic provides multiple services to a customer, revenue is allocated to the services performed based on the fair value of the services.
Well Servicing —
Well servicing consists primarily of maintenance services, workover services, completion services, plugging and abandonment services and rig manufacturing and servicing. Basic recognizes revenue when services are performed, collection of the relevant receivables is probable, persuasive evidence of an arrangement exists and the price is fixed or determinable. Basic prices well servicing by the hour or by the day of service performed. Rig manufacturing revenue is recognized when the rig is accepted by the customer, based on the completed contract method by individual rig.
Fluid Services —
Fluid services consists primarily of the sale, transportation, treatment, storage and disposal of fluids used in the drilling, production and maintenance of oil and natural gas wells, and well site construction and maintenance services. Basic recognizes revenue when services are performed, collection of the relevant receivables is probable, persuasive evidence of an arrangement exists and the price is fixed or determinable. Basic prices fluid services by the job, by the hour or by the quantities
sold
disposed of or hauled.
Contract Drilling —
Contract drilling consists primarily of drilling wells to a specified depth using drilling rigs. Basic recognizes revenues based on either a “daywork” contract, in which an agreed upon rate per day is charged to the customer, a “footage” contract, in which an agreed upon rate is charged per the number of feet drilled, or a “turnkey” contract, in which an agreed upon single rate is charged for a drilled well.
Taxes assessed on sales transactions are presented on a net basis and are not included in revenue.
Inventories
Rental and fishing tool inventories, consisting mainly of grapples, mills and drill bits, are stated at the lower of cost or market, with cost being determined by the average cost method. Other inventories, consisting mainly of manufacturing raw materials, rig components, repair parts, drilling and completion materials and gravel, are held for use in the operations of Basic and are stated at the lower of cost or market, with cost being determined on the first-in, first-out (“FIFO”) method.
Property and Equipment
Property and equipment are stated at cost or at estimated fair value at acquisition date if acquired in a business combination. Expenditures for repairs and maintenance are charged to expense as incurred and additions and improvements that significantly extend the lives of the assets are capitalized. Upon sale or other retirement of depreciable property, the cost and accumulated depreciation and amortization are removed from the related accounts and any gain or loss is reflected in operations. All property and equipment are depreciated or amortized (to the extent of estimated salvage values) on the straight-line method. The components of a well servicing rig generally require replacement or refurbishment during the well servicing rig’s life and are depreciated over their estimated useful lives, which range from
3
to
15
years. The costs of the original components of a purchased or acquired well servicing rig are not maintained separately from the base rig.
Impairments
Long-lived assets, such as property, plant and equipment, and purchased intangibles subject to amortization, are reviewed for impairment at least annually, or whenever, in management’s judgment, 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. Expected future cash flows and carrying values are aggregated at their lowest identifiable level. If the carrying amount of such assets exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of such assets exceeds the fair value of the assets. Assets to be disposed of would be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities, if material, of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet. These assets are normally sold within a short period of time through a third party auctioneer.
Basic’s goodwill and trade name intangibles are considered to have an indefinite useful economic life and are not amortized. Basic assesses impairment of its goodwill and trade name intangibles annually as of December 31 or on an interim basis if events or circumstances indicate that the fair value of the assets has decreased below the assets’ carrying value. A qualitative assessment is allowed to determine if goodwill is potentially impaired. The qualitative assessment determines whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If it is more likely than not that the fair value of the reporting unit is less than the carrying amount, then the two-step impairment test is performed. First, the fair value of each reporting unit is compared to its carrying value to determine whether an indication of impairment exists. If impairment is indicated, then the fair value of the reporting unit’s goodwill is determined by allocating the unit’s fair value to its assets and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. The amount of impairment for goodwill is measured as the excess of its carrying value over its fair value.
Deferred Debt Costs
Basic capitalizes certain costs in connection with obtaining its borrowings, such as lender’s fees and related attorney’s fees. These costs are amortized to interest expense using the effective interest method.
Deferred debt costs were
approximately $
23.4
million net of accumulated amortization of
$
8.8
million, and
$
23.3
million net of accumulated amortization of $
7.2
million at June 30, 2014 and December 31, 2013, respectively. Amortization of deferred debt costs totaled approximately $
806,000
and $
759,000
for the three months ended June 30, 2014 and 2013, respectively
.
Amortization of deferred de
bt cost totaled approximately $
1.6
million and $
1.5
million for the six months ended June 30, 2014 and 2013, respectively.
Goodwill and Other Intangible Assets
Basic had trade names of
$1.9
million as of June 30, 2014 and December 31, 2013.
Additions to goodwill during the six months ended June 30, 2014 were primarily due to
adjustments to the preliminary
purchase price allocations for acquisitions completed
in the prior year
. The changes in the carrying amount of goodwill for the six months ended June 30, 2014 were as follows (in thousands):
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Completion
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And Remedial
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Services
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Well Servicing
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Fluid Services
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Contract Drilling
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Total
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Balance as of December 31, 2013
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$
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77,697
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$
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6,622
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$
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26,595
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$
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—
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$
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110,914
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Goodwill additions
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—
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—
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1,369
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—
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1,369
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Balance as of June 30, 2014
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$
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77,697
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$
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6,622
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$
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27,964
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$
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—
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$
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112,283
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Basic’s intangible assets subject to amortization consist of customer relationships, non-compete agreements and rig engineering plans. The gross carrying amount of customer
relationship
s subject to amortization was
$86.9
million
and
$87.1
million
at June 30, 2014 and December 31, 2013
, respectively
. The gross carrying amount of non-compete agreements subject to amortization totaled approximately
$12.9
million
and
$13.0
million
at June 30, 2014 and December 31, 2013
, respectively
. The gross carrying amount of other intangible assets subject to amortization was
$2.1
million at June 30, 2014 and December 31, 2013. Accumulated amortization related to these intangib
le assets totaled approximately
$30.9
million and $
26.6
million at June 30, 2014 and December 31, 2013, respectively. Amortization expense for the three months ended June 30, 2014 and 2013 was approximately
$2.1
million and $
2.2
million, respectively.
Amortization expense for the six months ended June 30, 20
14 and 2013 was approximately
$
4.3
million and $
4.2
million, respectively.
Other intangibles net of accumulated amortization allocated to reporting units as of June 30, 2014 were
$53.1
million,
$5.6
million,
$10.8
million and
$3.6
million for completion and remedial services, well servicing, fluid services, and contract drilling, respectively. Customer relationships are amortized over a
15
-year life, non-compete agreements are amortized over a
five
-year life, developed technology is amortized over a
15
-year life and rig engineering plans are amortized over a
15
-year life.
Stock-Based Compensation
Basic’s outstanding stock-based awards consist of stock options and restricted stock. Stock options issued are valued on the grant date using the Black-Scholes-Merton option-pricing model, and restricted stock issued is valued based on the fair value at the grant date. All stock-based awards are adjusted for an expected forfeiture rate and amortized over the vesting period.
For performance-based restricted stock awards, compensation expense is recognized in the Company's financial statements based on their grant date fair value. Basic utilizes (i) the closing stock price on the date of grant to determine the fair value of vesting restricted stock awards and (ii) a Monte Carlo simulation to determine the fair value of restricted stock awards with a combination of market and service vesting criteria.
The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award grant and calculates the fair value of the award. The expected volatility utilized in the model was estimated using our historical volatility and the historical volatilities of our peer companies. The risk-free interest rate was based on the U.S. treasury rate for a term commensurate with the expected life of the grant.
Certain Basic share-based awards also provide for potential reissuances of unvested shares otherwise forfeited at retirement, provided the recipient also enters into required non-competition and severance agreements. Notwithstanding these service conditions, for expense recognition we generally deem the vesting period after the retirement to be non-substantive, and treat the requisite service period from the grant date to the first date when the employee is eligible to retire.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using statutory tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in the period that includes the statutory enactment date. A valuation allowance for deferred tax assets is recognized when it is more likely than not that the benefit of deferred tax assets will not be realized.
Interest charges are recorded in interest expense and penalties are recorded in income tax expense.
Concentrations of Credit Risk
Financial instruments, which potentially subject Basic to concentration of credit risk, consist primarily of temporary cash investments and trade receivables. Basic restricts investment of temporary cash investments to financial institutions with high credit standing. Basic’s customer base consists primarily of multi-national and independent oil and natural gas producers. Basic performs ongoing credit evaluations of its customers but generally does not require collateral on its trade receivables. Credit risk is considered by management to be limited due to the large number of customers comprising its customer base. Basic maintains an allowance for potential credit losses on its trade receivables, and such losses have been within management’s expectations.
Basic did not have any one customer that represented
10
% or more of consolidated revenue during the six months ended June 30, 2014 or
2013
.
Asset Retirement Obligations
Basic records the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets and capitalizes an equal amount as a cost of the asset depreciating it over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation is adjusted at the end of each quarter to reflect the passage of time, changes in the estimated future cash flows underlying the obligation, acquisition or construction of assets, and settlements of obligations.
Environmental
Basic is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require Basic to remove or mitigate the adverse environmental effects of disposal or release of petroleum, chemicals and other substances at various sites. Environmental expenditures are expensed or capitalized depending on the future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a non-capital nature are recorded when environmental assessment and/or remediation is probable and the costs can be reasonably estimated.
Litigation and Self-Insured Risk Reserves
Basic estimates its reserves related to litigation and self-insured risks based on the facts and circumstances specific to the litigation and self-insured claims, its past experience with similar claims and the likelihood of the future event occurring. Basic maintains accruals on the consolidated balance sheets to cover self-insurance retentions (See note 6).
Recent Accounting Pronouncements
In April 2014, the FASB issued ASU No. 2014-08,
“Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity."
ASU 2014-08 raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. It is effective for annual periods beginning on or after December 15, 2014. Early adoption is permitted but only for disposals that have not been reported in financial statements previously issued. Basic does not believe this pronouncement wi
ll have a material impact on it
s consolidated financial statements.
In May 2014, the FASB issued ASU No
.
2014-09,
“Revenue from Contracts with Customers (Topic 606).”
ASU 2014-09 provides a framework that replaces the existing revenue recognition guidance. It is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period. Basic
will determine if
this pronouncement wi
ll have a material impact on it
s consolidated financial statements.
In June 2014, the FASB issued ASU
No. 2014-12
,
“Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an A
ward Provide That a Performance T
arget Could Be Achieved after the Requisite Service Period.”
ASU 2014-12 requires a reporting entity to treat a performance target that affects vesting and that could be achieved after the requisite service period as a performance condition. It is effective for annual periods, and interim
periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted. ASU 2014-12 may be adopted either prospectively for share-based payment awards granted or modified on or after the effective date, or retrospectively, using a modified retrospective approach. The modified retrospective approach would apply to share-based payment awards outstanding as of the beginning of the earliest annual period presented in the financial statements on adoption, and to all new or modified awards thereafter. Basic
will determine if
this pronouncement will have a material impact on
its
consolidated financial statements.
3. Acquisitions
During 2013, Basic acquired either substantially all of the assets or all of the outstanding capital stock of each of the following businesses, each of which was accounted for using the purchase method of accounting. During the
six
months ended
June 30
, 2014, Basic did not complete any acquisitions. The following table summarizes the final values for the acquisitions at the date of acquisition (in thousands):
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Total Cash Paid
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Closing Date
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(net of cash acquired)
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Atlas Environmental Consulting, Inc. and Atlas Oilfield Construction Company, LLC
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February 19, 2013
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$
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12,979
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Petroleum Water Solutions, LLC
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February 22, 2013
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3,288
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Karnes Water Management, LLC
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December 31, 2013
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5,200
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Total 2013
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$
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21,467
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The operations of each of the acquisitions listed above are included in Basic’s statement of operations as of each respective closing date.
4. Property and Equipment
Property and equipment consisted of the following (in thousands):
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June 30, 2014
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December 31, 2013
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Land
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$
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17,316
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$
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17,800
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Buildings and improvements
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66,593
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65,702
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Well service units and equipment
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467,651
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498,846
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Fluid services equipment
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257,566
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258,371
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Brine and fresh water stations
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15,007
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13,496
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Frac/test tanks
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318,633
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275,603
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Pumping equipment
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310,579
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299,300
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Construction equipment
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15,908
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15,677
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Contract drilling equipment
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106,664
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104,958
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Disposal facilities
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149,365
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143,459
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Light vehicles
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64,879
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64,942
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Rental equipment
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73,150
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70,738
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Software
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21,010
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23,360
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Other
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19,189
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16,754
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1,903,510
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1,869,006
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Less accumulated depreciation and amortization
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980,278
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940,969
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Property and equipment, net
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$
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923,232
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$
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928,037
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Basic is obligated under various capital leases for certain vehicles and equipment that expire at various dates during the next
five
years. The gross amount of property and equipment and related accumulated amortization recorded under capital leases and included above consisted of the following (in thousands):
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June 30, 2014
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December 31, 2013
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Light vehicles
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$
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42,551
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$
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39,970
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Contract drilling equipment
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4,223
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4,223
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Well service units and equipment
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985
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1,554
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Fluid services equipment
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119,870
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121,051
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Pumping equipment
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28,445
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29,080
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Construction equipment
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898
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1,005
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Software
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17,120
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17,120
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Other
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70
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70
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214,162
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214,073
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Less accumulated amortization
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87,759
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77,340
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$
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126,403
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$
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136,733
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Amortization of assets held under capital leases of approximately $
8.8
million and $
7.6
million for the three months ended June 30, 2014 and 2013, respectively,
and $
17.3
million and $
14.9
million for the six months ended June 30, 2013 and 2012, respectively,
is included in depreciation and amortization expense in the consolidated statements of operations.
5. Long-Term Debt
Long-term debt consisted of the following (in thousands):
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June 30, 2014
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December 31, 2013
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Credit Facilities:
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Revolver
|
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—
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—
|
7.75% Senior Notes due 2019
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$
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475,000
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$
|
475,000
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7.75% Senior Notes due 2022
|
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300,000
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300,000
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Unamortized premium
|
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1,341
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1,459
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Capital leases and other notes
|
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103,039
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111,626
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879,380
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888,085
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Less current portion
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40,577
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41,394
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$
|
838,803
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$
|
846,691
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7.75
% Senior Notes due 2019
On February 15, 2011, Basic issued $
275.0
million of 7.75% Senior Notes due 2019 (the “2019 Notes”). On June 13, 2011, Basic issued an additional $
200.0
million of 2019 Notes,
resulting in outstanding 2019 Notes with
an aggregate principal amount of $
475.0
million
. The 2019 Notes are jointly and severally, and unconditionally, guaranteed on a senior unsecured basis by all of Basic’s current subsidiaries, other than three immaterial subsidiaries. The 2019 Notes and the guarantees rank (i) equally in right of payment with any of Basic’s and the subsidiary guarantors’ existing and future senior indebtedness, including Basic’s existing 7.75% Senior Notes due 2022 and the related guarantees, and (ii) effectively junior to all existing or future liabilities of Basic’s subsidiaries that do not guarantee the 2019 Notes and to Basic’s and the subsidiary guarantors’ existing or future secured indebtedness to the extent of the value of the collateral therefor
e
.
The 2019 Notes
and guarantees
were offered and sold in private transactions in accordance with Rule 144A and Regulation S under the Securities Act of 1933, as amended
(the “Securities Act”).
The purchase price for the $
275.0 million of 2019 Notes issued on February 15, 2011 was
100.000
% of their principal amount, and the purc
hase price for the $
200.0 million of 2019 Notes issued on June 13, 2011 was
101.000
%, plus accrued interest from February 15, 2011. Basic received net proceeds from the issuance of the
2019 Notes of
approximately $
464.6
million after premiums and offering expenses. Basic used a portion of the net proceeds from the February 2011 offering to fund its tender offer and consent solicitation for its
11.625
% Senior Secured Notes due
2014
and to redeem any of the Senior Secured Notes not purchased in the tender offer. Basic used a portion of the net proceeds from the June 2011 offering to fund the $
186.3
million purchase price for the Maverick Companies acquisition completed in July 2011 and the remainder for general corporate purposes.
The 2019 Notes were issued pursuant to an indenture dated as of February 15, 2011 (the “2019 Notes Indenture”), by and among Basic, the guarantors party thereto and Wells Fargo Bank, National Association, as trustee. Interest on the 2019 Notes accrues at
a rate of 7.75% per year and
is payable semi-annually in arrears on February 15 and August 15 of each year. The 2019 Notes mature on
February 15, 2019
.
The 2019 Notes Indenture contains covenants that, among other things, limit Basic’s ability and the ability of certain of its subsidiaries to:
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·
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incur additional indebtedness;
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·
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pay dividends or repurchase or redeem capital stock;
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·
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make certain investments;
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·
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enter into certain types of transactions with affiliates;
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·
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limit dividends or other payments by Basic’s restricted subsidiaries to Basic; and
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·
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sell assets or consolidate or merge with or into other companies.
|
These and other covenants that are contained in the 2019 Notes Indenture are subject to important exceptions and qualifications. At
June 30, 2014
, Basic was in compliance with the restrictive covenants under the 2019 Notes Indenture.
Basic may, at its option, redeem all or part of the 2019 Notes, at any time on or after February 15, 2015, at a redemption price equal to
100
% of the principal amount thereof, plus a premium declining ratably to par and accrued and unpaid interest to the date of redemption.
At any time before February 15, 2014, Basic, at its option, may redeem up to
35
% of the aggregate principal amount of the 2019 Notes with the net cash proceeds of one or more qualified equity offerings at a redemption price of
107.750
% of the principal amount of the 2019 Notes to be redeemed, plus accrued and unpaid interest to the date of redemption, as long as:
|
·
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|
at least
65
% of the aggregate principal amount of the 2019 Notes remains outstanding immediately after the occurrence of such redemption; and
|
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·
|
|
such redemption occurs within
90
days of the date of the closing of any such qualified equity offering.
|
In addition, at any time before February 15, 2015, Basic may redeem some or all of the 2019 Notes at a redemption price equal to
100
% of the principal amount of the 2019 Notes, plus an applicable premium and accrued and unpaid interest to the date of redemption.
Following a change of control, as defined in the 2019 Notes Indenture, Basic will be required to make an offer to repurchase all or a portion of the 2019 Notes at
101
% of their principal amount, plus accrued and unpaid interest to the date of repurchase.
7.75% Senior Notes due 2022
On October 16, 2012, Basic completed the issuance and sale of $
300.0
million aggregate principal amount of
7.75
% Senior Notes due 2022 (the “2022 Notes”). The 2022 Notes are jointly and severally, and unconditionally, guaranteed on a senior unsecured basis initially by all of Basic’s current subsidiaries other than three immaterial subsidiaries. The 2022 Notes and the guarantees rank (i) equally in right of payment with any of Basic’s and the subsidiary guarantors’ existing and future senior indebtedness, including Basic’s existing 2019 Notes and the related guarantees, and (ii) effectively junior to all existing or future liabilities of Basic’s subsidiaries that do not guarantee the 2022 Notes and to Basic’s and the subsidiary guarantors’ existing or future secured indebtedness to the extent of the value of the collateral therefor
e
.
The 2022 Notes and the guarantees were offered and sold in private transactions in accordance with Rule 144A and Regulation S
under the Securities Act
. Basic received net proceeds from the issuance of th
e 2022 Notes of approximately $
293.3 million after discounts and offering expenses. Basic used a portion of the net proceeds from the offering to fund its tender offer and consent solicitation for its
7.125
% Senior Notes due
2016
(the “2016 Notes”) and to redeem any of the 2016 Notes not purchased in the tender offer. The
remainders of the net proceeds were
used for general corporate purposes.
The 2022 Notes and the guarantees were issued pursuant to an indenture dated as of October 16, 2012 (the “2022 Notes Indenture”), by and among Basic, the guarantors party thereto and Wells Fargo Bank, National Association, as trustee. Interest on the 2022 Notes accrues at a rate of 7.75% per year
and
is payable semi-annually in arrears on April 15 and October 15 of each year, commencing on April 15, 2013. The 2022 Notes mature on
October 15, 2022
.
The 2022 Notes Indenture contains covenants that, among other things, limit Basic’s ability and the ability of certain of its subsidiaries to:
|
·
|
|
incur additional indebtedness;
|
|
·
|
|
pay dividends or repurchase or redeem capital stock;
|
|
·
|
|
make certain investments;
|
|
·
|
|
enter into certain types of transactions with affiliates;
|
|
·
|
|
limit dividends or other payments by Basic’s restricted subsidiaries to Basic; and
|
|
·
|
|
sell assets or consolidate or merge with or into other companies.
|
These and other covenants that are contained in the 2022 Notes Indenture are subject to important exceptions and qualifications. At
June 30, 2014
, Basic was in compliance with the restrictive covenants under the 2022 Notes Indenture.
Basic may, at its option, redeem all or part of the 2022 Notes, at any time on or after October 15, 2017, at a redemption price equal to
100
% of the principal amount thereof, plus a premium declining ratably to par and accrued and unpaid interest to the date of redemption.
At any time before October 15, 2015, Basic, at its option, may redeem up to
35
% of the aggregate principal amount of the 2022 Notes with the net cash proceeds of one or more qualified equity offerings at a redemption price of
107.750
% of the principal amount of the 2022 Notes to be redeemed, plus accrued and unpaid interest to the date of redemption, as long as:
|
·
|
|
at least
65
% of the aggregate principal amount of the 2022 Notes remains outstanding immediately after the occurrence of such redemption; and
|
|
·
|
|
such redemption occurs within
90
days of the date of the closing of any such qualified equity offering.
|
In addition, at any time before October 15, 2017, Basic may redeem some or all of the 2022 Notes at a redemption price equal to 100% of the principal amount of the 2022 Notes, plus an applicable premium and accrued and unpaid interest to the date of redemption.
Following a change of control, as defined in the 2022 Notes Indenture, Basic will be required to make an offer to repurchase all or a portion of the 2022 Notes at
101
% of their principal amount, plus accrued and unpaid interest to the date of repurchase.
Revolving Credit Facility
On February 15, 2011, in connection with the initial offering of 2019 Notes,
Basic terminated the previous $
30.0
million secured revolving credit facility with Capital One, National Association, and entered into a credit agreement (the “Credit Ag
reement”) providing for a new $
165.0
million Revolving Credit Facility with Merrill Lynch, Pierce, Fenner & Smith Incorporated and Capital One, National Association, as joint lead arrangers and joint book managers, the lenders party thereto and Bank of America, N.A., as administrative agent. The Credit Agreement includes an accordion feature whereby the total credit available to Basic can be increased by up to $
100.0
million under certain circumstances, subject to additional lender commitments. The obligations under the Credit Agreement are guaranteed on a joint and several basis by each of Basic’s current subsidiaries, other than three immaterial subsidiaries, and are secured by substantially all of Basic’s and its subsidiary guarantors’ assets as collateral under a related Security Agreement (the “Security Agreement”). As of
June 30, 2014
and December 31, 201
3
, the non-guarantor subsidiaries held no assets and performed no operations. On July 15, 2011, Basic exercised the accordion feature and amended the Credit Agreement to increase Basic’s total credit availabl
e from $
165.0 million to $
225.0
million. On April 5, 2012, Basic amended the Credit Agreement to increase the aggregate amount of commitments thereunder to $
250.0
million. On October 1, 2012, Basic further amended the Credit Agreement to permit the transactions contemplated by the offering of 2022 Notes and the tender offer and redemption of 2016 Notes. On August 29, 2013, Basic further amended the Credit Agreement to amend the required leverage ratios.
Borrowings under the Credit Agreement mature on January 15, 2016, and Basic has the ability at any time to prepay the Credit Agreement without premium or penalty. At Basic’s option, advances under the Credit Agreement may be comprised of (i) alternate base rate loans, at a variable base interest rate plus a margin ranging from
1.50
% to
2.50
% based on Basic’s leverage ratio or (ii) Eurodollar loans, at a variable base interest rate plus a margin ranging from
2.50
% to
3.50
% based on Basic’s leverage ratio. Basic will pay a commitment fee equal to
0.50
% on the daily unused amount of the commitments under the Credit Agreement.
The Credit Agreement contains various covenants that, subject to agreed upon exceptions, limit Basic’s ability and the ability of certain of its subsidiaries to:
|
·
|
|
enter into sale and leaseback transactions;
|
|
·
|
|
make loans, capital expenditures, acquisitions and investments;
|
|
·
|
|
change the nature of business;
|
|
·
|
|
acquire or sell assets or consolidate or merge with or into other companies;
|
|
·
|
|
declare or pay dividends;
|
|
·
|
|
enter into transactions with affiliates;
|
|
·
|
|
enter into burdensome agreements;
|
|
·
|
|
prepay, redeem or modify or terminate other indebtedness;
|
|
·
|
|
change accounting policies and reporting practices; and
|
|
·
|
|
amend organizational documents.
|
The Credit Agreement also contains covenants that, among other things, limit the amount of capital contributions Basic may make and require Basic to maintain specified ratios or conditions as follows:
|
·
|
|
a minimum consolidated interest coverage ratio of not less than
2.50
to
1.00
;
|
|
·
|
|
a maximum consolidated leverage ratio as follows:
|
o
for the four fiscal quarters ending September 30, 2013 and December 31, 2013, a maximum consolidated leverage ratio not to exceed
4.50
to 1.00;
o
for the four fiscal quarters ending March 31, 2014 and June 30, 2014, a maximum consolidated leverage ratio not to exceed
4.25
to 1.00; and
o
for the four fiscal quarters ending September 30, 2014 and each fiscal quarter thereafter, a maximum consolidated leverage ratio not to exceed
4.00
to 1.00; and
|
·
|
|
a maximum consolidated senior secured leverage ratio as follows:
|
o
for the four fiscal quarters ending September 30, 2013 through June 30, 2014, a maximum consolidated senior secured leverage ratio not to exceed
1.75
to 1.00; and
o
for the four fiscal quarters ending September 30, 2014 and each fiscal quarter thereafter, a maximum consolidated senior secured leverage ratio not to exceed
2.00
to 1.00.
If an event of default occurs under the Credit Agreement, then the lenders may (i) terminate their commitments under the Credit Agreement, (ii) declare any outstanding loans under the Credit Agreement to be immediately due and payable after applicable grace periods and (iii) foreclose on the collateral secured by the Security Agreement.
Basic had no
borrowings and $37
.7
million of letters of credit outstanding under the Credit Agreement as of
June 30, 2014
, giving Basic $212.3 million
of available borrowing capacity. At
June 30, 2014
, Basic was in compliance with the covenants under the Credit Agreement.
Other Debt
Basic has a variety of other capital leases and notes payable outstanding that are generally customary in its business. None of these debt instruments are individually material. Basic’s leases with Banc of America Leasing & Capital, LLC require it to maintain a minimum debt service coverage ratio of
1.05
to 1.00. At
June 30, 2014
, Basic was in compliance with this covenant.
Basic’s interest expense consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2014
|
|
2013
|
Cash payments for interest
|
$
|
30,780
|
|
$
|
31,612
|
Commitment and other fees paid
|
|
1,156
|
|
|
893
|
Amortization of debt issuance costs and discount or premium on notes
|
|
1,487
|
|
|
1,404
|
Change in accrued interest
|
|
(5)
|
|
|
9
|
Other
|
|
7
|
|
|
(304)
|
|
$
|
33,425
|
|
$
|
33,614
|
6. Commitments and Contingencies
Environmental
Basic is subject to various federal, state and local environmental laws and regulations that establish standards and requirements for protection of the environment. Basic cannot predict the future impact of such standards and requirements, which are subject to change and can have retroactive effectiveness. Basic continues to monitor the status of these laws and regulations. Management believes that the likelihood of any of these items resulting in a material adverse impact to Basic’s financial position, liquidity, capital resources or future results of operations is remote.
Currently, Basic has not been fined, cited or notified of any environmental violations that would have a material adverse effect upon its financial position, liquidity or capital resources. However, management does recognize that by the very nature of its business, material costs could be incurred in the near term to bring Basic into total compliance. The amount of such future expenditures is not determinable due to several factors, including the unknown magnitude of possible contamination, the unknown timing and extent of the corrective actions which may be required, the determination of Basic’s liability in proportion to other responsible parties and the extent to which such expenditures are recoverable from insurance or indemnification.
Litigation
From time to time, Basic is a party to litigation or other legal proceedings that Basic considers to be a part of the ordinary course of business. Basic is not currently involved in any legal proceedings that it considers probable or reasonably possible, individually or in the aggregate, to result in a material adverse effect on its financial condition, results of operations or liquidity.
In the second quarter
of 2014, Basic was involved in the
settlement of a lawsuit related to the contractual indemnification of a customer
for $4.6 million,
including legal fees.
Self-Insured Risk Accruals
Basic is self-insured up to retention limits as it relates to workers’ compensation, general liability claims, and medical and dental coverage of its employees. Basic generally maintains no physical property damage coverage on its workover rig fleet, with the exception of certain of its 24-hour workover rigs and newly manufactured rigs. Basic has deductibles per occurrence for workers’ compensation, general liability claims, and medical and dental
coverage of $
5.0 million, $1.0 million, and $400,000, respectively. Basic has lower deductibles per occurrence for automobile liability. Basic maintains accruals in the accompanying consolidated balance sheets related to self-insurance retentions based upon third-party data and claims history.
At June 30, 2014 and December 31, 2013, self-insured risk accruals totaled approximately $
33
.0 million net of a $42,000 receivable for medical and dental coverage and $26.1 million net of a $230,000 receivable for medical and dental coverage, respectively.
7. Stockholders’ Equity
Common Stock
At June 30, 2014 and December 31, 2013, Basic had 80,000,000 shares of common stock, par value $0.01 per share, authorized.
During the year ended 2013, Basic issued 107,250 shares of common stock from treasury stock for the exercise of stock options and no shares of newly issued common stock for the exercise of stock options.
In March 2013, Basic granted various employees 432,400 restricted shares of common stock that vest over a three-year period and 262,000 shares that vest over a four-year period. The Compensation Committee of Basic’s Board of Directors approved grants of performance-based stock awards to certain members of management. In February 2014, it was determined that 283,358 shares, or approximately 106% of the target number of shares, were earned based on Basic’s achievement of total stockholder return over the performance period from January 1, 2013 through December 31, 2013, as compared to other members of a defined peer group. These restricted shares remain subject to vesting over a three-year period with the first shares vesting on March 15, 2015.
In March 2014, Basic granted various employees 414,900 restricted shares of common stock that vest over a three-year period and 294,909 shares that vest over a four-year period.
During the six months ended June 30, 2014, Basic issued 250,000 shares of common stock from treasury stock for the exercise of stock options.
Treasury Stock
Basic has acquired treasury shares through net share settlements for payment of payroll taxes upon the vesting of restricted stock. Basic acquired a total of 250,461 shares through net share settlements during the first six months of 2014 and 357,714 shares through net share settlements during the first six months of 2013.
Preferred Stock
At June 30, 2014 and December 31, 2013, Basic had 5,000,000 shares of preferred stock, par value $0.01 per share, authorized, of which none was designated, issued or outstanding.
8. Incentive Plan
In May 2003, Basic’s board of directors and stockholders approved the Basic Energy Services, Inc. 2003 Incentive Plan (as amended, the “Plan”), which provides for granting of incentive awards in the form of stock options, restricted stock, performance awards, bonus shares, phantom shares, cash awards and other stock-based awards to officers, employees, directors and consultants of Basic. The Plan assumed awards of the plans of Basic’s predecessors that were awarded and remained outstanding prior to adoption of the Plan. The Plan provides for the issuance of
10,350,000
shares. The Plan is administered by the Plan committee, and in the absence of a Plan committee, by the Board of Directors, which determines the awards and the associated terms of the awards and interprets its provisions and adopts policies for implementing the Plan. The number of shares authorized under the Plan and the number of shares subject to an award under the Plan will be adjusted for stock splits, stock dividends, recapitalizations, mergers and other changes affecting the capital stock of Basic.
During the three months ended June 30, 2014 and 2013, compensation expense related to share-based arrangements was approximately $
3.7
million and $
3.3
million, respectively.
For compensation expense recognized during the three months ended June 30, 2014 and 2013, Basic recognized a
t
ax benefit of approximately $1.8
million
and
$
593,000
, respectively. During the six months ended June 30, 2014 and 2013, compensation expense related to share-based a
rrangements was approximately $7.1 million and $6.1
million,
respectively.
For compensation expense recognized during the
six months ended June 30, 2014
and 2013, Basic recognized a
tax benefit of approximately $2.8 million
and $
2.0
million, respectively.
As of June 30, 2014, there was approximately $
32.2
million of total unrecognized compensation related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of
2.5
years. The total fair value of share-based awards vested during the six months ended June 30, 2014 and 2013 was approximately $
20.3
million and $
11.6
million, respectively. During the
three months ended June 30, 2014
and 2013 there was
no
excess tax benefit due to the net operating loss carryforwards (“NOL”). If there was no NOL, the excess tax benefit would have been
approximately
$
4.0
million
and $
810,000
at June 30, 2014 and 2013, respectively.
Stock Option Awards
The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option-pricing model. Options granted under the Plan expire
10
years from the date they are granted, and generally vest over a
three
- to
five
-year service period.
The following table reflects the summary of stock options outstanding at June 30, 2014 and the changes during the
six
months then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
Aggregate
|
|
|
Number of
|
|
Weighted
|
|
Contractual
|
|
Intrinsic
|
|
|
Options
|
|
Average
|
|
Term
|
|
Value
|
|
|
Granted
|
|
Exercise Price
|
|
(Years)
|
|
(000's)
|
Non-statutory stock options:
|
|
|
|
|
|
|
|
|
|
|
Outstanding, beginning of period
|
|
530,000
|
|
$
|
18.15
|
|
|
|
|
|
Options granted
|
|
—
|
|
|
—
|
|
|
|
|
|
Options forfeited
|
|
—
|
|
|
—
|
|
|
|
|
|
Options exercised
|
|
(250,000)
|
|
|
17.14
|
|
|
|
|
|
Options expired
|
|
—
|
|
|
—
|
|
|
|
|
|
Outstanding, end of period
|
|
280,000
|
|
$
|
19.05
|
|
1.40
|
|
$
|
2,848
|
Exercisable, end of period
|
|
280,000
|
|
$
|
19.05
|
|
1.40
|
|
$
|
2,848
|
Vested or expected to vest, end of period
|
|
280,000
|
|
$
|
19.05
|
|
1.40
|
|
$
|
2,848
|
The total intrinsic value of share options exercised during the six months ended June 30, 2014 and 2013 was approximately $
2.2 million
and $
501,000
, respectively.
Cash received from share option exercises under the Plan was approximately $
4.3
million
and $
302,000
for the six months ended June 30, 2014 and 2013, respectively. During the
six months ended June 30, 2014 and
2013
there was
no
excess tax benefit due to the NOL. If there was no NOL, the excess tax expense would
have been $
57,000
for the six months ended June 30, 2014 and exces
s tax benefit would have been $
53,000
for the six months ended June 30, 2013.
Basic has a history of issuing treasury and newly issued shares to satisfy share option exercises.
Restricted Stock Awards
On March 12, 2014, the Compensation Committee of Basic’s Board of Directors approved grants of performance-based stock awards to certain members of management. The performance-based awards are tied to Basic’s achievement of total stockholder return over the performance period from January 1, 2014 through December 31, 2014, as compared to other members of a defined peer group. The number of shares to be issued will range from
0
% to
150
% of the
286,518
target number of shares depending on the performance noted above. Any shares earned at the end of the performance period will then remain subject to vesting over a
three
-year period with the first shares vesting March 15, 2016. As of June 30, 2014, Basic estimated that
100
% of the target number of performance-based awards will be earned.
A summary of the status of Basic’s non-vested share grants at June 30, 2014 and changes during the six months ended June 30, 2014 is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Number of
|
|
Grant Date Fair
|
Nonvested Shares
|
|
Shares
|
|
Value Per Share
|
Nonvested at beginning of period
|
|
2,089,597
|
|
$
|
14.93
|
Granted during period
|
|
1,013,125
|
|
|
25.14
|
Vested during period
|
|
(843,781)
|
|
|
14.78
|
Forfeited during period
|
|
(17,515)
|
|
|
20.89
|
Nonvested at end of period
|
|
2,241,426
|
|
$
|
19.55
|
9. Related Party Transactions
Basic had receivables from employees of approximately $
47,00
0
and $
5
0
,000
as of
June 30, 2014
and December 31, 2013, respectively. During 2006, Basic entered into a lease agreement with Darle Vuelta Cattle Co., LLC, an affiliate of a director, for approximately $
69,000
per year. The term of the lease will continue on a year-to-year basis unless terminated by either party. In December 2010, Basic entered into a lease agreement with Darle Vuelta Cattle Co., LLC for the right to operate a salt water disposal well, brine well and fresh water well. The term of the lease will continue until the salt water disposal well and brine well are plugged and no fresh water is being sold. The lease payments are the greater of (i) the sum of $
0.10
per barrel of disposed oil and gas waste and $
0.05
per barrel of brine or fresh water sold or (ii) $
5,000
per month.
Basic entered into a joint venture agreement with a family member of an executive officer to form an entity in 2010. Basic held
80%
of the equity in the joint venture, and accounted for the entity as a consolidated investment. In 201
3, Basic funded approximately $
2.4
million for this joint venture. The entity had only research and development activities in 2013. This joint venture agreement was terminated in November 2013, and Basic now owns 100% of the entity.
10. Earnings Per Share
Basic’s basic earnings per common share are determined by dividing net earnings applicable to common stock by the weighted average number of common shares actually outstanding during the period. Diluted earnings per common share is based on the increased number of shares that would be outstanding assuming conversion of dilutive outstanding securities using the “as if converted” method. The following table sets forth the computation of unaudited basic and diluted earnings per share (in thousands, except share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
Numerator (both basic and diluted):
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
2,444
|
|
$
|
(12,797)
|
|
$
|
536
|
|
$
|
(21,574)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share
|
|
41,341,888
|
|
|
40,336,229
|
|
|
40,850,970
|
|
|
40,411,887
|
Stock options
|
|
101,446
|
|
|
—
|
|
|
146,354
|
|
|
—
|
Unvested restricted stock
|
|
600,113
|
|
|
—
|
|
|
351,395
|
|
|
—
|
Denominator for diluted earnings per share
|
|
42,043,447
|
|
|
40,336,229
|
|
|
41,348,719
|
|
|
40,411,887
|
Basic earnings per common share:
|
$
|
0.06
|
|
$
|
(0.32)
|
|
$
|
0.01
|
|
$
|
(0.53)
|
Diluted earnings per common share:
|
$
|
0.06
|
|
$
|
(0.32)
|
|
$
|
0.01
|
|
$
|
(0.53)
|
Stock options and unvested restricted stock shares of approximately
979,936
and
911,162
were excluded in the computation of diluted earnings per share for the
three and
six months ended June 30, 2013,
respectively
as the effect would have been anti-dilutive
.
11. Business Segment Information
Basic’s reportable business segments are Completion and Remedial Services, Well Servicing, Fluid Services, and Contract Drilling. The following is a description of the segments:
Completion and Remedial Services:
This segment utilizes a fleet of pumping units, air compressor packages specially configured for underbalanced drilling operations, coiled tubing services, nitrogen services, cased-hole wireline units, an array of specialized rental equipment and fishing tools, thru-tubing and snubbing units. The largest portion of this business consists of pumping services focused on cementing, acidizing and fracturing services in niche markets.
Well Servicing:
This business segment encompasses a full range of services performed with a mobile well servicing rig, including the installation and removal of downhole equipment and elimination of obstructions in the well bore to facilitate the flow of oil and natural gas. These services are performed to establish, maintain and improve production throughout the productive life of an oil and natural gas well and to plug and abandon a well at the end of its productive life. Well servicing equipment and capabilities such as Basic’s are essential to facilitate most other services performed on a well. This segment also includes the manufacturing, refurbishment and servicing of mobile well servicing rigs and associated equipment.
Fluid Services:
This segment utilizes a fleet of trucks and related assets, including specialized tank trucks, storage tanks, water wells, disposal facilities, construction and other related equipment. Basic employs these assets to transport, treat, recycle, store and dispose of a variety of fluids, as well as provide well site construction and maintenance services. These services are required in most drilling, workover, completion and remedial projects and are routinely used in daily producing well operations.
Contract Drilling:
This segment utilizes drilling rigs and associated equipment for drilling wells to a specified depth for customers on a contract basis.
Basic’s management evaluates the performance of its operating segments based on operating revenues and segment profits. Corporate expenses include general corporate expenses associated with managing all reportable operating segments. Corporate assets consist principally of working capital and debt financing costs.
The following table sets forth certain financial information with respect to Basic’s reportable segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
And Remedial
|
|
|
|
|
|
|
|
Contract
|
|
Corporate and
|
|
|
|
|
Services
|
|
Well Servicing
|
|
Fluid Services
|
|
Drilling
|
|
Other
|
|
Total
|
Three Months Ended June 30, 2014 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
$
|
164,366
|
|
$
|
89,629
|
|
$
|
90,314
|
|
$
|
15,353
|
|
$
|
—
|
|
$
|
359,662
|
Direct operating costs
|
|
(102,617)
|
|
|
(64,748)
|
|
|
(65,055)
|
|
|
(10,510)
|
|
|
—
|
|
|
(242,930)
|
Segment profits
|
$
|
61,749
|
|
$
|
24,881
|
|
$
|
25,259
|
|
$
|
4,843
|
|
$
|
—
|
|
$
|
116,732
|
Depreciation and amortization
|
$
|
16,040
|
|
$
|
13,939
|
|
$
|
15,926
|
|
$
|
3,214
|
|
$
|
2,666
|
|
$
|
51,785
|
Capital expenditures (excluding acquisitions)
|
$
|
49,913
|
|
$
|
14,109
|
|
$
|
5,620
|
|
$
|
2,701
|
|
$
|
1,934
|
|
$
|
74,277
|
Three Months Ended June 30, 2013 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
$
|
132,216
|
|
$
|
93,921
|
|
$
|
85,601
|
|
$
|
13,985
|
|
$
|
—
|
|
$
|
325,723
|
Direct operating costs
|
|
(85,847)
|
|
|
(67,600)
|
|
|
(59,296)
|
|
|
(9,769)
|
|
|
—
|
|
|
(222,512)
|
Segment profits
|
$
|
46,369
|
|
$
|
26,321
|
|
$
|
26,305
|
|
$
|
4,216
|
|
$
|
—
|
|
$
|
103,211
|
Depreciation and amortization
|
$
|
15,753
|
|
$
|
15,568
|
|
$
|
14,818
|
|
$
|
3,318
|
|
$
|
2,610
|
|
$
|
52,067
|
Capital expenditures (excluding acquisitions)
|
$
|
10,596
|
|
$
|
9,675
|
|
$
|
11,238
|
|
$
|
(42)
|
|
$
|
6,259
|
|
$
|
37,726
|
Six Months Ended June 30, 2014 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
$
|
301,851
|
|
$
|
182,541
|
|
$
|
183,149
|
|
$
|
28,877
|
|
$
|
—
|
|
$
|
696,418
|
Direct operating costs
|
|
(189,097)
|
|
|
(134,508)
|
|
|
(131,837)
|
|
|
(19,675)
|
|
|
—
|
|
|
(475,117)
|
Segment profits
|
$
|
112,754
|
|
$
|
48,033
|
|
$
|
51,312
|
|
$
|
9,202
|
|
$
|
—
|
|
$
|
221,301
|
Depreciation and amortization
|
$
|
32,044
|
|
$
|
27,848
|
|
$
|
31,851
|
|
$
|
6,420
|
|
$
|
5,327
|
|
$
|
103,490
|
Capital expenditures (excluding acquisitions)
|
$
|
65,308
|
|
$
|
21,804
|
|
$
|
12,859
|
|
$
|
3,609
|
|
$
|
3,804
|
|
$
|
107,384
|
Identifiable assets
|
$
|
466,636
|
|
$
|
267,909
|
|
$
|
310,185
|
|
$
|
57,617
|
|
$
|
456,509
|
|
$
|
1,558,856
|
Six Months Ended
June 30, 2013
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
$
|
250,577
|
|
$
|
181,596
|
|
$
|
169,931
|
|
$
|
27,970
|
|
$
|
—
|
|
$
|
630,074
|
Direct operating costs
|
|
(164,854)
|
|
|
(132,603)
|
|
|
(117,171)
|
|
|
(18,932)
|
|
|
—
|
|
|
(433,560)
|
Segment profits
|
$
|
85,723
|
|
$
|
48,993
|
|
$
|
52,760
|
|
$
|
9,038
|
|
$
|
—
|
|
$
|
196,514
|
Depreciation and amortization
|
$
|
30,815
|
|
$
|
30,452
|
|
$
|
28,985
|
|
$
|
6,490
|
|
$
|
5,106
|
|
$
|
101,848
|
Capital expenditures (excluding acquisitions)
|
$
|
23,583
|
|
$
|
21,700
|
|
$
|
20,356
|
|
$
|
3,051
|
|
$
|
8,909
|
|
$
|
77,599
|
Identifiable assets
|
$
|
440,904
|
|
$
|
290,653
|
|
$
|
323,709
|
|
$
|
61,936
|
|
$
|
471,793
|
|
$
|
1,588,995
|
The following table reconciles the segment profits reported above to the operating income as reported in the consolidated statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Segment profits
|
$
|
116,732
|
|
$
|
103,211
|
|
$
|
221,301
|
|
$
|
196,514
|
General and administrative expenses
|
|
(42,953)
|
|
|
(49,321)
|
|
|
(82,512)
|
|
|
(91,278)
|
Depreciation and amortization
|
|
(51,785)
|
|
|
(52,067)
|
|
|
(103,490)
|
|
|
(101,848)
|
Loss on disposal of assets
|
|
(916)
|
|
|
(790)
|
|
|
(237)
|
|
|
(1,879)
|
Operating income
|
$
|
21,078
|
|
$
|
1,033
|
|
$
|
35,062
|
|
$
|
1,509
|
12. Supplemental Schedule of Cash Flow Information
The following table reflects non-cash financing and investing activity during the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Six Months Ended June 30
|
|
2014
|
|
2013
|
|
|
|
|
|
|
|
(In thousands)
|
Capital leases issued for equipment
|
$
|
13,759
|
|
$
|
27,014
|
Asset retirement obligation additions
|
$
|
64
|
|
$
|
78
|
Basic paid no income taxes during the six months ended June 30, 2014 and 2013. Basic paid interest of approximately $
30.8
million and $
31.6
million during the six months ended June 30, 2014 and 2013, respectively.
13. Fair Value Measurements
Fair value is the price that would be received to sell an asset or the amount paid to transfer a liability in an orderly transaction between market participants (an exit price) at the measurement date. Fair value is a market based measurement considered from the perspective of a market participant. Basic uses market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation. These inputs can be readily observable, market corroborated, or unobservable. If observable prices or inputs are not available, unobservable prices or inputs are used to estimate the current fair value, often using an internal valuation model. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the item being valued. Basic primarily applies a market approach for recurring fair value measurements using the best available information while utilizing valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.
There is a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). Basic classifies fair value balances based on the observability of those inputs. The three levels of the fair value hierarchy are as follows:
Level 1—Quoted prices in active markets for identical assets or liabilities that Basic has the ability to access. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2—Inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable. These inputs are either directly observable in the marketplace or indirectly observable through corroboration with market data for substantially the full contractual term of the asset or liability being measured.
Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
In valuing certain assets and liabilities, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. For disclosure purposes, assets and liabilities are classified in their entirety in the fair value hierarchy level based on the lowest level of input that is significant to the overall fair value measurement. Basic’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement within the fair value hierarchy levels.
Basic does not have any assets or liabilities that are remeasured at fair value on a recurring basis.