NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
NOTE 1. GENERAL
Key Energy Services, Inc., and its wholly owned subsidiaries (collectively, “Key,” the “Company,” “we,” “us,” “its,” and “our”) provide a full range of well services to major oil companies, foreign national oil companies and independent oil and natural gas production companies. Our services include rig-based and coiled tubing-based well maintenance and workover services, well completion and recompletion services, fluid management services, fishing and rental services, and other ancillary oilfield services. Additionally, certain rigs are capable of specialty drilling applications. We operate in most major oil and natural gas producing regions of the continental United States and have operations in Mexico, Colombia, Ecuador, the Middle East and Russia. In addition, we have a technology development and control systems business based in Canada.
The accompanying unaudited condensed consolidated financial statements were prepared using generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). The condensed
December 31, 2013
balance sheet was prepared from audited financial statements included in our Annual Report on Form 10-K for the year ended
December 31, 2013
(the “
2013
Form 10-K”). Certain information relating to our organization and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in this Quarterly Report on Form 10-Q. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our
2013
Form 10-K.
The unaudited condensed consolidated financial statements contained in this report include all normal and recurring material adjustments that, in the opinion of management, are necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented herein. The results of operations for the
six months ended
June 30, 2014
are not necessarily indicative of the results expected for the full year or any other interim period, due to fluctuations in demand for our services, timing of maintenance and other expenditures, and other factors.
We have evaluated events occurring after the balance sheet date included in this Quarterly Report on Form 10-Q and through the date on which the unaudited condensed consolidated financial statements were issued, for possible disclosure of a subsequent event.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
The preparation of these unaudited condensed consolidated financial statements requires us to develop estimates and to make assumptions that affect our financial position, results of operations and cash flows. These estimates may also impact the nature and extent of our disclosure, if any, of our contingent liabilities. Among other things, we use estimates to (i) analyze assets for possible impairment, (ii) determine depreciable lives for our assets, (iii) assess future tax exposure and realization of deferred tax assets, (iv) determine amounts to accrue for contingencies, (v) value tangible and intangible assets, (vi) assess workers’ compensation, vehicular liability, self-insured risk accruals and other insurance reserves, (vii) provide allowances for our uncollectible accounts receivable, (viii) value our asset retirement obligations, and (ix) value our equity-based compensation. We review all significant estimates on a recurring basis and record the effect of any necessary adjustments prior to publication of our financial statements. Adjustments made with respect to the use of estimates relate to improved information not previously available. Because of the limitations inherent in this process, our actual results may differ materially from these estimates. We believe that the estimates used in the preparation of these interim financial statements are reasonable.
There have been no material changes or developments in our evaluation of accounting estimates and underlying assumptions or methodologies that we believe to be a “Critical Accounting Policy or Estimate” as disclosed in our
2013
Form 10-K.
Accounting Standards Adopted or Not Yet Adopted in this Report
There are no new accounting standards that have been adopted in this report.
ASU 2014-09.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contract with Customers (Topic 606)
. The objective of this ASU is to establish the principles to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue from contracts with customers. The core principle is to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for interim and annual reporting periods beginning after December 15, 2016 and must be adopted using either a full retrospective method or a modified retrospective method. We are currently evaluating the standard to determine the impact of its adoption on the consolidated financial statements.
NOTE 3. ACQUISITION OF NONCONTROLLING INTERESTS
Geostream.
On October 31, 2008, we acquired a
26%
interest in OOO Geostream Services Group (“Geostream”), a limited liability company incorporated in the Russian Federation that provides a wide range of drilling, workover and reservoir engineering services for
$17.4 million
. On September 1, 2009, we acquired an additional
24%
interest for
$16.4 million
, which brought our total investment in Geostream to
50%
and provided us a controlling interest with representation on Geostream's board of directors. We accounted for the second investment as a business combination achieved in stages. The results of Geostream have been included in our consolidated financial statements since the initial acquisition date, with the portion outside of our control forming a noncontrolling interest. On April 9, 2013, we completed the acquisition of the
50%
noncontrolling interest in Geostream for
$14.6 million
. Geostream is now our wholly owned subsidiary. This acquisition of the
50%
noncontrolling interest in Geostream was accounted for as an equity transaction. Therefore, our acquisition of the non-controlling interest in Geostream in the second quarter of 2013 did not result in a gain or loss.
AlMansoori Key Energy Services, LLC.
On March 7, 2010, we entered into an agreement with AlMansoori Petroleum Services, LLC (“AlMansoori”) to form the joint venture AlMansoori Key Energy Services, LLC, a joint venture under the laws of Abu Dhabi, UAE. The purpose of the joint venture was to engage in conventional workover and drilling services, coiled tubing services, fishing and rental services, rig monitoring services, pipe handling services and fluids, waste treatment and handling services. Although AlMansoori held a
51
% interest in the joint venture and we held a
49
% interest, we held
three
of the
five
board of directors seats and a controlling financial interest. In addition, profits and losses of the joint venture were shared on equal terms and in equal amounts with AlMansoori. Because the joint venture did not have sufficient resources to carry on its activities without our financial support, we determined it to be a variable interest entity of which we were the primary beneficiary. We consolidated the entity in our financial statements. On August 5, 2013, we agreed to the dissolution of AlMansoori Key Energy Services, LLC and the acquisition of the underlying business for
$5.1 million
. The
$5.1 million
is expected to be paid in 2014 and is recorded in “Other current liabilities” in our consolidated balance sheet. The acquisition of the
51
% noncontrolling interest in AlMansoori Key Energy Services, LLC was accounted for as an equity transaction therefore did not result in a gain or loss.
NOTE 4. EQUITY
A reconciliation of the total carrying amount of our equity accounts for the
six months ended
June 30, 2014
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON STOCKHOLDERS
|
|
|
|
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Accumulated Other Comprehensive Loss
|
|
Retained Earnings
|
|
Noncontrolling Interest
|
|
Total
|
|
Number of Shares
|
|
Amount at Par
|
|
|
|
|
|
(in thousands)
|
BALANCE AT DECEMBER 31, 2013
|
152,331
|
|
|
$
|
15,233
|
|
|
$
|
953,306
|
|
|
$
|
(15,414
|
)
|
|
$
|
297,968
|
|
|
$
|
—
|
|
|
$
|
1,251,093
|
|
Foreign currency translation
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,001
|
)
|
|
—
|
|
|
—
|
|
|
(2,001
|
)
|
Common stock purchases
|
(283
|
)
|
|
(28
|
)
|
|
(2,183
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,211
|
)
|
Share-based compensation
|
1,537
|
|
|
154
|
|
|
6,947
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,101
|
|
Excess tax expense from share-based compensation
|
—
|
|
|
—
|
|
|
(1,221
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,221
|
)
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(64,095
|
)
|
|
—
|
|
|
(64,095
|
)
|
BALANCE AT JUNE 30, 2014
|
153,585
|
|
|
$
|
15,359
|
|
|
$
|
956,849
|
|
|
$
|
(17,415
|
)
|
|
$
|
233,873
|
|
|
$
|
—
|
|
|
$
|
1,188,666
|
|
A reconciliation of the total carrying amount of our equity accounts for
six months ended
June 30, 2013
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON STOCKHOLDERS
|
|
|
|
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Accumulated Other Comprehensive Loss
|
|
Retained Earnings
|
|
Noncontrolling Interest
|
|
Total
|
|
Number of Shares
|
|
Amount at Par
|
|
|
|
|
|
(in thousands)
|
BALANCE AT DECEMBER 31, 2012
|
151,070
|
|
|
$
|
15,108
|
|
|
$
|
925,132
|
|
|
$
|
(6,148
|
)
|
|
$
|
319,736
|
|
|
$
|
33,504
|
|
|
$
|
1,287,332
|
|
Foreign currency translation
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,699
|
)
|
|
—
|
|
|
(667
|
)
|
|
(5,366
|
)
|
Common stock purchases
|
(410
|
)
|
|
(42
|
)
|
|
(3,092
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,134
|
)
|
Share-based compensation
|
1,783
|
|
|
178
|
|
|
9,215
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,393
|
|
Excess tax expense from share-based compensation
|
—
|
|
|
—
|
|
|
(1,501
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,501
|
)
|
Acquisition of the 50% noncontrolling interest in Geostream (Note 3)
|
—
|
|
|
—
|
|
|
22,432
|
|
|
(4,350
|
)
|
|
—
|
|
|
(31,196
|
)
|
|
(13,114
|
)
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,402
|
)
|
|
444
|
|
|
(3,958
|
)
|
BALANCE AT JUNE 30, 2013
|
152,443
|
|
|
$
|
15,244
|
|
|
$
|
952,186
|
|
|
$
|
(15,197
|
)
|
|
$
|
315,334
|
|
|
$
|
2,085
|
|
|
$
|
1,269,652
|
|
NOTE 5. OTHER BALANCE SHEET INFORMATION
The table below presents comparative detailed information about other current assets at
June 30, 2014
and
December 31, 2013
:
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
December 31, 2013
|
|
(in thousands)
|
Other current assets:
|
|
|
|
Deferred tax assets
|
$
|
18,119
|
|
|
$
|
11,707
|
|
Prepaid current assets
|
21,474
|
|
|
28,435
|
|
Reinsurance receivable
|
9,447
|
|
|
9,113
|
|
VAT asset
|
21,596
|
|
|
21,683
|
|
Other
|
17,111
|
|
|
25,608
|
|
Total
|
$
|
87,747
|
|
|
$
|
96,546
|
|
The table below presents comparative detailed information about other non-current assets at
June 30, 2014
and
December 31, 2013
:
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
December 31, 2013
|
|
(in thousands)
|
Other non-current assets:
|
|
|
|
Deferred tax assets
|
$
|
22,606
|
|
|
$
|
22,313
|
|
Reinsurance receivable
|
9,875
|
|
|
9,397
|
|
Deposits
|
1,641
|
|
|
1,533
|
|
Equity method investments
|
1,038
|
|
|
962
|
|
Other
|
471
|
|
|
1,548
|
|
Total
|
$
|
35,631
|
|
|
$
|
35,753
|
|
The table below presents comparative detailed information about other current liabilities at
June 30, 2014
and
December 31, 2013
:
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
December 31, 2013
|
|
(in thousands)
|
Other current liabilities:
|
|
|
|
Accrued payroll, taxes and employee benefits
|
$
|
24,193
|
|
|
$
|
34,956
|
|
Accrued operating expenditures
|
41,574
|
|
|
36,573
|
|
Income, sales, use and other taxes
|
28,907
|
|
|
37,064
|
|
Self-insurance reserve
|
33,043
|
|
|
32,129
|
|
Accrued interest
|
15,241
|
|
|
15,285
|
|
Accrued insurance premiums
|
2,327
|
|
|
8,049
|
|
Share-based compensation and other liabilities
|
5,879
|
|
|
5,889
|
|
Total
|
$
|
151,164
|
|
|
$
|
169,945
|
|
The table below presents comparative detailed information about other non-current liabilities at
June 30, 2014
and
December 31, 2013
:
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
December 31, 2013
|
|
(in thousands)
|
Other non-current liabilities:
|
|
|
|
Asset retirement obligations
|
$
|
12,293
|
|
|
$
|
11,999
|
|
Environmental liabilities
|
6,080
|
|
|
6,176
|
|
Accrued rent
|
560
|
|
|
853
|
|
Accrued sales, use and other taxes
|
5,377
|
|
|
5,552
|
|
Other
|
2,142
|
|
|
1,075
|
|
Total
|
$
|
26,452
|
|
|
$
|
25,655
|
|
NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the
six months ended
June 30, 2014
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
International
|
|
Total
|
|
(in thousands)
|
December 31, 2013
|
$
|
597,456
|
|
|
$
|
27,419
|
|
|
$
|
624,875
|
|
Goodwill impairment
|
—
|
|
|
(22,437
|
)
|
|
(22,437
|
)
|
Impact of foreign currency translation
|
—
|
|
|
(599
|
)
|
|
(599
|
)
|
June 30, 2014
|
$
|
597,456
|
|
|
$
|
4,383
|
|
|
$
|
601,839
|
|
The components of our other intangible assets as of
June 30, 2014
and
December 31, 2013
are as follows:
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
December 31, 2013
|
|
(in thousands)
|
Noncompete agreements:
|
|
|
|
Gross carrying value
|
$
|
9,332
|
|
|
$
|
9,332
|
|
Accumulated amortization
|
(8,050
|
)
|
|
(7,104
|
)
|
Net carrying value
|
1,282
|
|
|
2,228
|
|
Patents, trademarks and tradenames:
|
|
|
|
Gross carrying value
|
13,808
|
|
|
14,039
|
|
Accumulated amortization and impairment
|
(6,492
|
)
|
|
(223
|
)
|
Net carrying value
|
7,316
|
|
|
13,816
|
|
Customer relationships and contracts:
|
|
|
|
Gross carrying value
|
100,385
|
|
|
100,271
|
|
Accumulated amortization
|
(82,990
|
)
|
|
(78,926
|
)
|
Net carrying value
|
17,395
|
|
|
21,345
|
|
Developed technology:
|
|
|
|
Gross carrying value
|
7,583
|
|
|
7,583
|
|
Accumulated amortization
|
(3,937
|
)
|
|
(3,826
|
)
|
Net carrying value
|
3,646
|
|
|
3,757
|
|
Customer Backlog:
|
|
|
|
Gross carrying value
|
779
|
|
|
779
|
|
Accumulated amortization
|
(779
|
)
|
|
(779
|
)
|
Net carrying value
|
—
|
|
|
—
|
|
Total:
|
|
|
|
Gross carrying value
|
131,887
|
|
|
132,004
|
|
Accumulated amortization and impairment
|
(102,248
|
)
|
|
(90,858
|
)
|
Net carrying value
|
$
|
29,639
|
|
|
$
|
41,146
|
|
Of our intangible assets at
June 30, 2014
,
$7.2 million
are indefinite-lived tradenames and patents which are not subject to amortization. The weighted average remaining amortization periods and expected amortization expense for the next five years for our definite lived intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average
remaining
amortization
period (years)
|
|
Expected Amortization Expense
|
|
Remainder
of 2014
|
|
2015
|
|
2016
|
|
2017
|
|
2018
|
|
2019
|
|
|
|
(in thousands)
|
Noncompete agreements
|
0.3
|
|
$
|
719
|
|
|
$
|
308
|
|
|
$
|
255
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Trademarks
|
3.9
|
|
20
|
|
|
40
|
|
|
40
|
|
|
40
|
|
|
17
|
|
|
—
|
|
Customer relationships and contracts
|
5.5
|
|
3,964
|
|
|
5,093
|
|
|
3,469
|
|
|
2,454
|
|
|
1,120
|
|
|
820
|
|
Developed technology
|
16.5
|
|
111
|
|
|
221
|
|
|
221
|
|
|
221
|
|
|
221
|
|
|
221
|
|
Total expected intangible asset amortization expense
|
|
|
$
|
4,814
|
|
|
$
|
5,662
|
|
|
$
|
3,985
|
|
|
$
|
2,715
|
|
|
$
|
1,358
|
|
|
$
|
1,041
|
|
Certain of our goodwill and other intangible assets are denominated in Russian Rubles and, as such, the values of these assets are subject to fluctuations associated with changes in exchange rates. Amortization expense for our intangible assets was
$2.6 million
and
$4.9 million
for the
three months ended
June 30, 2014
and
2013
, respectively, and
$5.2 million
and
$9.7 million
for the
six months ended
June 30, 2014
and
2013
, respectively.
We perform an analysis of goodwill impairment on an annual basis unless an event occurs that triggers additional interim testing. Deterioration in the capital investment climate in Russia as a result of geopolitical events occurring during the second quarter of 2014 was determined to be a triggering event. This triggering event required us to perform testing for possible goodwill impairment of our Russian business reporting unit which is included in our International reporting segment. Our analysis concluded that Russia's
$22.4 million
of goodwill is fully impaired, and that
$6.3 million
of Russia's tradename intangible assets is impaired as well. We concluded that there is no impairment to Russia's other long-lived assets.
NOTE 7. LONG-TERM DEBT
As of
June 30, 2014
and
December 31, 2013
, the components of our long-term debt were as follows:
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
December 31, 2013
|
|
(in thousands)
|
6.75% Senior Notes due 2021
|
$
|
675,000
|
|
|
$
|
675,000
|
|
8.375% Senior Notes due 2014
|
—
|
|
|
3,573
|
|
Senior Secured Credit Facility revolving loans due 2016
|
40,000
|
|
|
85,000
|
|
Net unamortized premium on debt
|
3,704
|
|
|
3,981
|
|
Total debt
|
718,704
|
|
|
767,554
|
|
Less current portion
|
—
|
|
|
(3,573
|
)
|
Long-term debt
|
$
|
718,704
|
|
|
$
|
763,981
|
|
8.375% Senior Notes due 2014
On February 25, 2014, we redeemed the
$3.6 million
aggregate principal amount and paid
$0.1 million
accrued interest of
8.375%
Senior Notes due 2014 (the “2014 Notes”) pursuant to the indenture dated as of November 29, 2007 (as supplemented, the “Indenture”). The 2014 Notes were general unsecured senior obligations and were subordinate to all of our existing and future secured indebtedness. The 2014 Notes were jointly and severally guaranteed on a senior unsecured basis by certain of our existing and future domestic subsidiaries.
Interest on the 2014 Notes was payable on June 1 and December 1 of each year.
6.75% Senior Notes due 2021
We issued
$475.0 million
aggregate principal amount of
6.75%
Senior Notes due 2021 (the “Initial 2021 Notes”) on March 4, 2011 and issued an additional
$200.0 million
aggregate principal amount of the 2021 Notes (the “Additional 2021 Notes” and together with the Initial 2021 Notes, the “2021 Notes”) in a private placement on March 8, 2012 under an indenture dated March 4, 2011 (the “Base Indenture”), as supplemented by a first supplemental indenture dated March 4, 2011 and amended by a further supplemental indenture dated March 8, 2012 (the “Supplemental Indenture” and, together with the Base Indenture, the “Indenture”). We used the net proceeds to repay senior secured indebtedness under our revolving bank credit facility. We capitalized
$4.6 million
of financing costs associated with the issuance of the 2021 Notes that will be amortized over the term of the notes.
On March 5, 2013, we completed an offer to exchange the
$200.0 million
in aggregate principal amount of unregistered Additional 2021 Notes for an equal principal amount of such notes registered under the Securities Act of 1933. All of the 2021 Notes are treated as a single class under the Indenture and as of the closing of the exchange offers bear the same CUSIP and ISIN numbers.
The 2021 Notes are general unsecured senior obligations and are effectively subordinated to all of our existing and future secured indebtedness. The 2021 Notes are or will be jointly and severally guaranteed on a senior unsecured basis by certain of our existing and future domestic subsidiaries.
Interest on the 2021 Notes is payable on March 1 and September 1 of each year.
The 2021 Notes mature on
March 1, 2021
.
On or after March 1, 2016, the 2021 Notes will be subject to redemption at any time and from time to time at our option, in whole or in part, at the redemption prices below (expressed as percentages of the principal amount redeemed), plus accrued and unpaid interest to the applicable redemption date, if redeemed during the twelve-month period beginning on March 1 of the years indicated below:
|
|
|
|
Year
|
Percentage
|
2016
|
103.375
|
%
|
2017
|
102.250
|
%
|
2018
|
101.125
|
%
|
2019 and thereafter
|
100.000
|
%
|
At any time and from time to time prior to
March 1, 2016
, we may, at our option, redeem all or a portion of the 2021 Notes at a redemption price equal to
100%
of the principal amount plus a premium with respect to the 2021 Notes plus accrued and unpaid interest to the redemption date. The premium is the excess of (i) the present value of the redemption price of
103.375%
of the principal amount, plus all remaining scheduled interest payments due through March 1, 2016 discounted at the treasury rate plus
0.5%
over (ii) the principal amount of the note. If we experience a change of control, subject to certain exceptions, we must give holders of the 2021 Notes the opportunity to sell to us their 2021 Notes, in whole or in part, at a purchase price equal to
101%
of the aggregate principal amount, plus accrued and unpaid interest to the date of purchase.
We are subject to certain negative covenants under the Indenture. The Indenture limits our ability to, among other things:
|
|
•
|
incur additional indebtedness and issue preferred equity interests;
|
|
|
•
|
pay dividends or make other distributions or repurchase or redeem equity interests;
|
|
|
•
|
make loans and investments;
|
|
|
•
|
enter into sale and leaseback transactions;
|
|
|
•
|
sell, transfer or otherwise convey assets;
|
|
|
•
|
enter into transactions with affiliates;
|
|
|
•
|
enter into agreements restricting subsidiaries’ ability to pay dividends;
|
|
|
•
|
designate future subsidiaries as unrestricted subsidiaries; and
|
|
|
•
|
consolidate, merge or sell all or substantially all of the applicable entities’ assets.
|
These covenants are subject to certain exceptions and qualifications, and contain cross-default provisions relating to the covenants of our 2011 Credit Facility discussed below. Substantially all of the covenants will terminate before the 2021 Notes mature if one of two specified ratings agencies assigns the 2021 Notes an investment grade rating in the future and no events of default exist under the Indenture. As of
June 30, 2014
, the 2021 Notes were rated below investment grade. Any covenants that cease to apply to us as a result of achieving an investment grade rating will not be restored, even if the investment rating assigned to the 2021 Notes later falls below investment grade. We were in compliance with these covenants as of
June 30, 2014
.
Senior Secured Credit Facility
We are party to a
$550.0 million
senior secured revolving bank credit facility with JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., as Syndication Agent, and Capital One, N.A., Wells Fargo Bank, N.A., Credit Agricole Corporate and Investment Bank and DnB NOR Bank ASA, as Co-Documentation Agent (as amended, the “2011 Credit Facility”), which is an important source of liquidity for us. The 2011 Credit Facility consists of a revolving credit facility, letter of credit sub-facility and swing line facility, all of which will mature no later than
March 31, 2016
.
The maximum amount that we may borrow under the facility may be subject to limitation due to the operation of the covenants contained in the facility. The 2011 Credit Facility allows us to request increases in the total commitments under the facility by up to
$100.0 million
in the aggregate in part or in full anytime during the term of the 2011 Credit Facility, with any such increases being subject to compliance with the restrictive covenants in the 2011 Credit Facility and in the Indenture governing our 2021 Senior Notes, as well as lender approval.
We capitalized
$4.9 million
of financing costs in connection with the execution of the 2011 Credit Facility and an additional
$1.4 million
related to a subsequent amendment that will be amortized over the term of the debt.
The interest rate per annum applicable to the 2011 Credit Facility is, at our option, (i) adjusted LIBOR plus the applicable margin or (ii) the higher of (x) JPMorgan’s prime rate, (y) the Federal Funds rate plus
0.5%
and (z) one-month adjusted LIBOR plus
1.0%
, plus in each case the applicable margin for all other loans. The applicable margin for LIBOR loans ranges from
225
to
300
basis points, and the applicable margin for all other loans ranges from
125
to
200
basis points,
depending upon our consolidated total leverage ratio as defined in the 2011 Credit Facility. Unused commitment fees on the facility equal
0.5%
.
The 2011 Credit Facility contains certain financial covenants, which, among other things, limit our annual capital expenditures, restrict our ability to repurchase shares and require us to maintain certain financial ratios. The financial ratios require that:
|
|
•
|
our ratio of consolidated funded indebtedness to total capitalization be no greater than
45%
;
|
|
|
•
|
our senior secured leverage ratio of senior secured funded debt to trailing four quarters of earnings before interest, taxes, depreciation and amortization (as calculated pursuant to the terms of the 2011 Credit Facility, “EBITDA”) be no greater than
2.00
to
1.00
;
|
|
|
•
|
we maintain a collateral coverage ratio, the ratio of the aggregate book value of the collateral to the amount of the total commitments, as of the last day of any fiscal quarter of at least
2:00
to 1:00;
|
|
|
•
|
we maintain a consolidated interest coverage ratio of trailing four quarters EBITDA to interest expense of at least
3.00
to
1.00
; and
|
|
|
•
|
we limit our capital expenditures and investments in foreign subsidiaries to
$250.0 million
per fiscal year, if the consolidated total leverage ratio exceeds
3.00
to
1.00
.
|
In addition, the 2011 Credit Facility contains certain affirmative and negative covenants, including, without limitation, restrictions on (i) liens; (ii) debt, guarantees and other contingent obligations; (iii) mergers and consolidations; (iv) sales, transfers and other dispositions of property or assets; (v) loans, acquisitions, joint ventures and other investments (with acquisitions permitted so long as, after giving pro forma effect thereto, no default or event of default exists under the 2011 Credit Facility, the pro forma consolidated total leverage ratio does not exceed
4.00
to
1.00
, we are in compliance with other financial covenants and we have at least
$25.0 million
of availability under the 2011 Credit Facility); (vi) dividends and other distributions to, and redemptions and repurchases from, equity holders; (vii) making investments, loans or advances; (viii) selling properties; (ix) prepaying, redeeming or repurchasing subordinated (contractually or structurally) debt; (x) engaging in transactions with affiliates; (xi) entering into hedging arrangements; (xii) entering into sale and leaseback transactions; (xiii) granting negative pledges other than to the lenders; (xiv) changes in the nature of business; (xv) amending organizational documents; and (xvi) changes in accounting policies or reporting practices; in each of the foregoing cases, with certain exceptions.
We were in compliance with covenants of the 2011 Credit Facility as of
June 30, 2014
. We may prepay the 2011 Credit Facility in whole or in part at any time without premium or penalty, subject to certain reimbursements to the lenders for breakage and redeployment costs. As of
June 30, 2014
, we had borrowings of
$40.0 million
outstanding under the revolving credit facility,
$49.1 million
of letters of credit outstanding with borrowing capacity of
$189.3 million
available considering covenant constraints under our 2011 Credit Facility. The weighted average interest rates on the outstanding borrowings under the 2011 Credit Facility were
2.88%
and
2.67%
for the three-month periods ended
June 30, 2014
and
June 30, 2013
, respectively, and the weighted average interest rates on the outstanding borrowings under the 2011 Credit Facility were
2.88
% and
2.68
% for
six months ended
June 30, 2014
and
June 30, 2013
, respectively.
Letter of Credit Facility
On November 7, 2013, we entered into an uncommitted, unsecured
$15.0 million
letter of credit facility to be used solely for the issuances of performance letters of credit. As of
June 30, 2014
,
$2.0 million
of letters of credit were outstanding under the facility.
NOTE 8. OTHER (INCOME) LOSS
The table below presents comparative detailed information about our other income and expense, shown on the condensed consolidated statements of operations as “
Other (income) loss, net
” for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
(in thousands)
|
Interest income
|
$
|
(30
|
)
|
|
$
|
(84
|
)
|
|
$
|
(48
|
)
|
|
$
|
(95
|
)
|
Foreign exchange (gain) loss
|
(1,377
|
)
|
|
1,398
|
|
|
(11
|
)
|
|
473
|
|
Other, net
|
(1,326
|
)
|
|
(884
|
)
|
|
(2,743
|
)
|
|
(1,171
|
)
|
Total
|
$
|
(2,733
|
)
|
|
$
|
430
|
|
|
$
|
(2,802
|
)
|
|
$
|
(793
|
)
|
NOTE 9. INCOME TAXES
We are subject to U.S. federal income tax as well as income taxes in multiple state and foreign jurisdictions. Our effective tax rates for the
three months ended
June 30, 2014
and
2013
were
15.4%
and
37.9%
, respectively, and
21.2%
and
42.0%
for the
six months ended
June 30, 2014
and
2013
, respectively. Excluding the impact of non-deductible goodwill and tradename impairment expense, our effective tax rates for the three month and six month periods ended June 30, 2014, were
28.9%
and
32.8%
, respectively. Our effective tax rate varies due to the mix of pre-tax profit between the U.S. and international taxing jurisdictions with varying statutory rates, the impact of permanent differences, including goodwill impairment expense, and discrete tax adjustments, such as tax expense or benefit recognized for uncertain tax positions. The variance between our effective rate and the U.S. statutory rate reflects international profits and losses subject to varying statutory rates, the impact of permanent items, mainly non-deductible expenses such as fines and penalties, and expenses subject to statutorily imposed limitations such as meals and entertainment expenses, plus the impact of state income taxes.
As of
June 30, 2014
and
December 31, 2013
, we had
$0.9 million
of unrecognized tax benefits, net of federal tax benefit, which, if recognized, would impact our effective tax rate. We recognized a tax benefit of less than
$0.1 million
for each of the three-month periods ended
June 30, 2014
and
2013
related to these items. We have substantially concluded all U.S. federal and state tax matters through the year ended December 31, 2009.
We record interest and penalties related to unrecognized tax benefits as income tax expense. We have accrued a liability of
$0.1 million
and
$0.4 million
for the payment of interest and penalties as of
June 30, 2014
and
December 31, 2013
, respectively. We believe that it is reasonably possible that
$0.4 million
of our currently remaining unrecognized tax positions, each of which is individually insignificant, may be recognized in the next twelve months as a result of a lapse of statute of limitations and settlement of ongoing audits.
No
release of our deferred tax asset valuation allowance was made during the
three
or
six
months ended
June 30, 2014
and
2013
.
NOTE 10. COMMITMENTS AND CONTINGENCIES
Litigation
Various suits and claims arising in the ordinary course of business are pending against us. We conduct business throughout the continental United States and may be subject to jury verdicts or arbitrations that result in outcomes in favor of the plaintiffs. We are also exposed to various claims abroad. We continually assess our contingent liabilities, including potential litigation liabilities, as well as the adequacy of our accruals and our need for the disclosure of these items, if any. We establish a provision for a contingent liability when it is probable that a liability has been incurred and the amount is reasonably approximated. We have
$0.4 million
of other liabilities related to litigation that is deemed probable and reasonably estimated as of
June 30, 2014
. We do not believe that the disposition of any of these matters will result in an additional loss materially in excess of amounts that have been recorded.
Between the second quarter of 2013 and the second quarter of 2014,
five
lawsuits with similar allegations of violations of California's wage and hour laws were filed in California. The lawsuits allege failure to pay wages, including overtime and minimum wages, failure to pay final wages in a timely manner, failure to reimburse reasonable and necessary business expenses, failure to provide wage statements consistent with California law, and violations of the California meal and break period laws, among other claims. We intend to vigorously investigate and defend these actions; however, because these cases are in the early stages, we cannot predict the outcome of these lawsuits at this time and, accordingly, cannot estimate any possible loss or range of loss.
In April 2014, we became aware of an allegation involving our Mexico operations that, if true, could potentially constitute a violation of certain of our policies, including our Code of Business Conduct, the U.S. Foreign Corrupt Practices Act (“FCPA”) and other applicable laws. We conducted an initial investigation of this matter and our Board of Directors formed a special committee of independent directors to oversee the investigation of this matter as well as the investigation of previously disclosed possible violations of the FCPA involving business activities of our operations in Russia, and any other resulting matters. The special committee has retained external independent legal counsel to conduct these investigations going forward. The special committee’s investigations, which also includes a review of certain aspects of the Company’s operations in Colombia, as well as our other international locations, are ongoing. On May 30, 2014, we voluntarily disclosed the allegation involving our Mexico operations and information from the Company's initial investigation to the SEC and Department of Justice (“DOJ”). We are fully cooperating with the SEC and DOJ. At this time we are unable to predict the ultimate resolution of these matters with these agencies and, accordingly, cannot estimate any possible loss or range of loss.
Self-Insurance Reserves
We maintain reserves for workers’ compensation and vehicle liability on our balance sheet based on our judgment and estimates using an actuarial method based on claims incurred. We estimate general liability claims on a case-by-case basis. We maintain insurance policies for workers’ compensation, vehicle liability and general liability claims. These insurance policies carry self-insured retention limits or deductibles on a per occurrence basis. The retention limits or deductibles are accounted for in our accrual process for all workers’ compensation, vehicular liability and general liability claims. As of
June 30, 2014
and
December 31, 2013
, we have recorded
$64.4 million
and
$62.1 million
, respectively, of self-insurance reserves related to workers’ compensation, vehicular liabilities and general liability claims. Partially offsetting these liabilities, we had
$19.3 million
and
$18.5 million
of insurance receivables as of
June 30, 2014
and
December 31, 2013
, respectively. We believe that the liabilities we have recorded are appropriate based on the known facts and circumstances and do not expect further losses materially in excess of the amounts already accrued for existing claims.
Environmental Remediation Liabilities
For environmental reserve matters, including remediation efforts for current locations and those relating to previously disposed properties, we record liabilities when our remediation efforts are probable and the costs to conduct such remediation efforts can be reasonably estimated. As of
June 30, 2014
and
December 31, 2013
, we have recorded
$6.1 million
and
$6.2 million
, respectively, for our environmental remediation liabilities. We believe that the liabilities we have recorded are appropriate based on the known facts and circumstances and do not expect further losses materially in excess of the amounts already accrued.
NOTE 11. LOSS PER SHARE
Basic loss per share is determined by dividing net loss attributable to Key by the weighted average number of common shares actually outstanding during the period. Diluted loss per common share is based on the increased number of shares that would be outstanding assuming conversion of potentially dilutive outstanding securities using the treasury stock and “as if converted” methods.
The components of our loss per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
(in thousands, except per share amounts)
|
Basic and Diluted EPS Calculation:
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
Loss attributable to Key
|
$
|
(52,196
|
)
|
|
$
|
(4,128
|
)
|
|
$
|
(64,095
|
)
|
|
$
|
(4,402
|
)
|
Denominator
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
153,496
|
|
|
152,384
|
|
|
153,157
|
|
|
152,175
|
|
Basic and diluted loss per share attributable to Key
|
$
|
(0.34
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.42
|
)
|
|
$
|
(0.03
|
)
|
Stock options, warrants and stock appreciation rights (“SARs”) are included in the computation of diluted loss per share using the treasury stock method. Restricted stock awards are legally considered issued and outstanding when granted and are included in basic weighted average shares outstanding. The diluted earnings per share calculations for the
three
months ended
June 30, 2014
exclude the potential exercise of
1.3 million
stock options and
0.3 million
SARs and the
six
months ended
June 30, 2014
exclude the potential exercise of
1.4 million
stock options and
0.3 million
SARs due to net loss attributable to Key in the first and second quarters of 2014. The diluted earnings per share calculations for the three and
six
months ended
June 30, 2013
exclude the potential exercise of
1.7 million
stock options and
0.3 million
SARs due to net loss attributable to Key in the first and second quarters of 2013.
No
events occurred after
June 30, 2014
that would materially affect the number of weighted average shares outstanding.
NOTE 12. SHARE-BASED COMPENSATION
We recognized employee share-based compensation expense of
$2.4 million
and
$2.2 million
during the
three months ended
June 30, 2014
and
2013
, respectively, and the related income tax expense recognized was
$0.7 million
and
$0.9 million
for the same periods. We recognized employee share-based compensation expense of
$7.1 million
and
$8.1 million
during the
six months ended
June 30, 2014
and
2013
, respectively, and the related income tax expense recognized was
$2.3 million
and
$3.1 million
, respectively, for the same period. We did not capitalize any share-based compensation during the
three
and
six
months ended
June 30, 2014
and
2013
.
The unrecognized compensation cost related to our unvested restricted stock as of
June 30, 2014
is estimated to be
$13.6 million
and is expected to be recognized over a weighted-average period of
1.4
years. We do not have unrecognized cost related to our unvested stock options as of
June 30, 2014
.
No
phantom stock was outstanding as of
June 30, 2014
.
During May 2014, we issued
197,865
shares of common stock to our outside directors under the Key Energy Services, Inc. 2014 Equity and Cash Incentive Plan that was approved by our stockholders on May 15, 2014. These shares vested immediately and we recognized
$1.6 million
of expense related to these awards. Additionally, during May 2013, we recognized
$1.8 million
of expense related to similar awards.
On January 30, 2014, the Compensation Committee of the Board of Directors adopted the 2014 Performance Unit Plan (the “2014 PU Plan”) and granted performance units pursuant to the Performance Award Agreement (“2012 PU Award Agreement”) under the Key Energy Services, Inc. 2012 Equity and Cash Incentive Plan (the “2012 Plan”). We believe that the 2014 PU Plan and 2012 PU Award Agreement will enable us to obtain and retain employees who will contribute to our long term success by aligning the interests of our executives with the interests of our stockholders by providing compensation that is linked directly to increases in share value.
In January
2014
, we issued
0.5 million
performance units to our executive officers under the 2012 Plan with such material terms as set forth in the 2012 PU Award Agreement. In February 2014, we issued
0.1 million
performance units to certain other employees under the 2014 PU Plan. The performance units are measured based on
two
performance periods from January 1, 2014 to December 31, 2014 and from January 1, 2015 to December 31, 2015. One half of the performance units are measured based on the first performance period, and the other half are measured based on the second performance period. The number of performance units that may be earned by a participant is determined at the end of each performance period based on the relative placement of Key’s total stockholder return for that period within the peer group, as follows:
|
|
|
|
|
|
|
|
Company Placement for the Performance Period
|
|
Percentile Ranking in
Peer Group
|
|
Performance Units Earned as
a Percentage of Target
|
First
|
|
100
|
%
|
|
200
|
%
|
Second
|
|
91
|
%
|
|
180
|
%
|
Third
|
|
82
|
%
|
|
160
|
%
|
Fourth
|
|
73
|
%
|
|
140
|
%
|
Fifth
|
|
64
|
%
|
|
120
|
%
|
Sixth
|
|
55
|
%
|
|
100
|
%
|
Seventh
|
|
45
|
%
|
|
75
|
%
|
Eighth
|
|
36
|
%
|
|
50
|
%
|
Ninth
|
|
27
|
%
|
|
25
|
%
|
Tenth
|
|
18
|
%
|
|
0
|
%
|
Eleventh
|
|
9
|
%
|
|
0
|
%
|
Twelfth
|
|
0
|
%
|
|
0
|
%
|
If any performance units vest for a given performance period, the award holder will be paid a cash amount equal to the vested percentage of the performance units multiplied by the closing stock price of our common stock on the last trading day of the performance period. We account for the performance units as a liability-type award as they are settled in cash. As of
June 30, 2014
, the fair value of outstanding performance units was
$6.0 million
, and is being accreted to compensation expense over the vesting terms of the awards. As of
June 30, 2014
, the unrecognized compensation cost related to our unvested performance units is estimated to be
$3.3 million
and is expected to be recognized over a weighted-average period of
1.1
years.
NOTE 13. TRANSACTIONS WITH RELATED PARTIES
Board of Director Relationships
A member of our board of directors is the Executive Vice President, General Counsel and Chief Administrative Officer of Anadarko Petroleum Corporation (“Anadarko”), which is one of our customers. Sales to Anadarko were approximately
$9.3 million
and
$7.6 million
for the
three-month periods ended
June 30, 2014
and
2013
, respectively, and
$18.1 million
and
$14.2 million
for the
six months ended
June 30, 2014
and
2013
, respectively. Receivables outstanding from Anadarko were approximately
$3.7 million
and
$4.9 million
as of
June 30, 2014
and
December 31, 2013
, respectively. Transactions with Anadarko for our services are made on terms consistent with other customers.
NOTE 14. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The following is a summary of the carrying amounts and estimated fair values of our financial instruments as of
June 30, 2014
and
December 31, 2013
.
Cash, cash equivalents, accounts receivable, accounts payable and accrued liabilities.
These carrying amounts approximate fair value because of the short maturity of the instruments or because the carrying value is equal to the fair value of those instruments on the balance sheet date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
December 31, 2013
|
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
|
(in thousands)
|
Financial assets:
|
|
|
|
|
|
|
|
|
Notes receivable - Argentina operations sale
|
|
$
|
10,205
|
|
|
$
|
10,205
|
|
|
$
|
12,355
|
|
|
$
|
12,355
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
6.75% Senior Notes
|
|
$
|
675,000
|
|
|
$
|
705,038
|
|
|
$
|
675,000
|
|
|
$
|
690,390
|
|
8.375% Senior Notes
|
|
—
|
|
|
—
|
|
|
3,573
|
|
|
3,627
|
|
Credit Facility revolving loans
|
|
40,000
|
|
|
40,000
|
|
|
85,000
|
|
|
85,000
|
|
Notes receivable — Argentina operations sale
. The fair value of these notes receivable are based upon the quoted market Treasury rates as of the dates indicated. The carrying values of these items approximate their fair values due to the maturity dates rapidly approaching, thus giving way to discount rates that are similar.
6.75%
Senior Notes due 2021.
The fair value of these notes are based upon the quoted market prices for those securities as of the dates indicated. The carrying value of these notes as of
June 30, 2014
was
$675.0 million
, and the fair value was
$705.0 million
(
104.5%
of carryi
ng value).
8.375%
Senior Notes due 2014
. At December 31, 2013 the fair value of our 2014 Notes was based upon the quoted market prices for those securities as of the dates indicated. These notes were redeemed in February 2014.
Credit Facility Revolving Loans
. Because of their variable interest rates, the fair values of the revolving loans borrowed under our 2011 Credit Facility approximate their carrying values. The carrying and fair values of these loans as of
June 30, 2014
were
$40.0 million
.
NOTE 15. SEGMENT INFORMATION
Our operating segments are U.S. and International. We also have a “Functional Support” segment associated with managing each of our reportable operating segments. Our domestic rig services, fluid management services, fishing and rental services, and coiled tubing services are aggregated within our U.S. reportable segment. Our international rig services business and our Canadian technology development group are aggregated within our International reportable segment. We evaluate the performance of our operating segments based on revenue and income measures. All inter-segment sales pricing is based on current market conditions. The following is a description of the segments:
U.S. Segment
Rig-Based Services
Our rig-based services include the completion of newly drilled wells, workover and recompletion of existing oil and natural gas wells, well maintenance, and the plugging and abandonment of wells at the end of their useful lives. We also provide specialty drilling services to oil and natural gas producers with certain of our larger rigs that are capable of providing conventional and horizontal drilling services. Our rigs encompass various sizes and capabilities, allowing us to service all types of wells with depths up to
20,000
feet. Many of our rigs are outfitted with our proprietary KeyView® technology, which captures and reports well site operating data and provides safety control systems. We believe that this technology allows our customers and our crews to better monitor well site operations, improves efficiency and safety, and adds value to the services that we offer.
The completion and recompletion services provided by our rigs prepare wells for production, whether newly drilled, or recently extended through a workover operation. The completion process may involve selectively perforating the well casing to access production zones, stimulating and testing these zones, and installing tubular and downhole equipment. We typically provide a well service rig and may also provide other equipment to assist in the completion process. Completion services vary by well and our work may take a few days to several weeks to perform, depending on the nature of the completion.
The workover services that we provide are designed to enhance the production of existing wells and generally are more complex and time consuming than normal maintenance services. Workover services can include deepening or extending wellbores into new formations by drilling horizontal or lateral wellbores, sealing off depleted production zones and accessing previously bypassed production zones, converting former production wells into injection wells for enhanced recovery operations and conducting major subsurface repairs due to equipment failures. Workover services may last from a few days to several weeks, depending on the complexity of the workover.
Maintenance services provided with our rig fleet are generally required throughout the life cycle of an oil or natural gas well. Examples of these maintenance services include routine mechanical repairs to the pumps, tubing and other equipment, removing debris and formation material from wellbores, and pulling rods and other downhole equipment from wellbores to identify and resolve production problems. Maintenance services are generally less complicated than completion and workover related services and require less time to perform.
Our rig fleet is also used in the process of permanently shutting-in oil or natural gas wells that are at the end of their productive lives. These plugging and abandonment services generally require auxiliary equipment in addition to a well servicing rig. The demand for plugging and abandonment services is not significantly impacted by the demand for oil and natural gas because well operators are required by state regulations to plug wells that are no longer productive.
Fluid Management Services
We provide transportation and well-site storage services for various fluids utilized in connection with drilling, completions, workover and maintenance activities. We also provide disposal services for fluids produced subsequent to well completion. These fluids are removed from the well site and transported for disposal in saltwater disposal wells owned by us or a third party. In addition, we operate a fleet of hot oilers capable of pumping heated fluids used to clear soluble restrictions in a wellbore. Demand and pricing for these services generally correspond to demand for our well service rigs.
Coiled Tubing Services
Coiled tubing services involve the use of a continuous metal pipe spooled onto a large reel which is then deployed into oil and natural gas wells to perform various applications, such as wellbore clean-outs, nitrogen jet lifts, through-tubing fishing, and formation stimulations utilizing acid and chemical treatments. Coiled tubing is also used for a number of horizontal well applications such as milling temporary isolation plugs that separate frac zones, and various other pre- and post-hydraulic fracturing well preparation services.
Fishing and Rental Services
We offer a full line of services and rental equipment designed for use in providing both onshore and offshore drilling and workover services. Fishing services involve recovering lost or stuck equipment in the wellbore utilizing a broad array of “fishing tools.” Our rental tool inventory consists of drill pipe, tubulars, handling tools (including our patented Hydra-Walk
®
pipe-handling units and services), pressure-control equipment, pumps, power swivels, reversing units, foam air units, frac stack equipment used to support hydraulic fracturing operations and the associated flowback of frac fluids, proppants, oil and natural gas. We also provide well testing services.
Demand for our fishing and rental services is closely related to capital spending by oil and natural gas producers, which is generally a function of oil and natural gas prices.
International Segment
Our International segment includes operations in Mexico, Colombia, Ecuador, the Middle East and Russia. We provide rig-based services such as the maintenance, workover, recompletion of existing oil wells, completion of newly-drilled wells and plugging and abandonment of wells at the end of their useful lives in each of our international markets. In addition, we have a technology development and control systems business based in Canada.
In addition, in Mexico we provide drilling, coiled tubing, wireline, project management and consulting services. Our work in Mexico also requires us to provide third party services that vary in scope by project.
In the Middle East, we operate in the Kingdom of Bahrain and Oman. On August 5, 2013, we agreed to the dissolution of AlMansoori Key Energy Services, LLC, a joint venture formed under the laws of Abu Dhabi, UAE, and the acquisition of the underlying business for
$5.1 million
. See
“Note 3. Acquisition of Noncontrolling Interests”
for further discussion.
Our Russian operations provide drilling, workover, and reservoir engineering services. On April 9, 2013, we completed the acquisition of the
50%
noncontrolling interest in Geostream, a limited liability company incorporated in the Russian Federation, for
$14.6 million
. We now own
100%
of Geostream. See
“Note 3. Acquisition of Noncontrolling Interests”
for further discussion.
Our technology development and control systems business based in Canada is focused on the development of hardware and software related to oilfield service equipment controls, data acquisition and digital information flow.
Functional Support Segment
Our Functional Support segment includes unallocated overhead costs associated with administrative support for our U.S. and International reporting segments.
Financial Summary
The following tables set forth our unaudited segment information as of and for the
three
and
six
months ended
June 30, 2014
and
2013
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the three months ended June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
International
|
|
Functional
Support(2)
|
|
Reconciling
Eliminations
|
|
Total
|
Revenues from external customers
|
|
$
|
324,515
|
|
|
$
|
26,080
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
350,595
|
|
Intersegment revenues
|
|
199
|
|
|
2,547
|
|
|
543
|
|
|
(3,289
|
)
|
|
—
|
|
Depreciation and amortization
|
|
40,941
|
|
|
7,795
|
|
|
3,448
|
|
|
—
|
|
|
52,184
|
|
Goodwill and tradenames impairment
|
|
—
|
|
|
28,687
|
|
|
—
|
|
|
—
|
|
|
28,687
|
|
Other operating expenses
|
|
259,434
|
|
|
26,444
|
|
|
34,886
|
|
|
—
|
|
|
320,764
|
|
Operating income (loss)
|
|
24,140
|
|
|
(36,846
|
)
|
|
(38,334
|
)
|
|
—
|
|
|
(51,040
|
)
|
Interest expense, net of amounts capitalized
|
|
(1
|
)
|
|
26
|
|
|
13,401
|
|
|
—
|
|
|
13,426
|
|
Income (loss) before income taxes
|
|
25,292
|
|
|
(35,289
|
)
|
|
(51,736
|
)
|
|
—
|
|
|
(61,733
|
)
|
Long-lived assets(1)
|
|
1,629,912
|
|
|
269,153
|
|
|
268,796
|
|
|
(162,746
|
)
|
|
2,005,115
|
|
Total assets
|
|
2,871,428
|
|
|
436,067
|
|
|
(346,182
|
)
|
|
(503,707
|
)
|
|
2,457,606
|
|
Capital expenditures, excluding acquisitions
|
|
36,346
|
|
|
1,796
|
|
|
2,762
|
|
|
—
|
|
|
40,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the three months ended June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
International
|
|
Functional
Support
(2)
|
|
Reconciling
Eliminations
|
|
Total
|
Revenues from external customers
|
|
$
|
361,698
|
|
|
$
|
49,692
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
411,390
|
|
Intersegment revenues
|
|
(139
|
)
|
|
2,676
|
|
|
23
|
|
|
(2,560
|
)
|
|
—
|
|
Depreciation and amortization
|
|
47,484
|
|
|
7,463
|
|
|
3,261
|
|
|
—
|
|
|
58,208
|
|
Other operating expenses
|
|
259,121
|
|
|
53,235
|
|
|
32,482
|
|
|
—
|
|
|
344,838
|
|
Operating income (loss)
|
|
55,093
|
|
|
(11,006
|
)
|
|
(35,743
|
)
|
|
—
|
|
|
8,344
|
|
Interest expense, net of amounts capitalized
|
|
—
|
|
|
15
|
|
|
13,969
|
|
|
—
|
|
|
13,984
|
|
Income (loss) before income taxes
|
|
55,210
|
|
|
(11,762
|
)
|
|
(49,518
|
)
|
|
—
|
|
|
(6,070
|
)
|
Long-lived assets(1)
|
|
1,671,666
|
|
|
333,096
|
|
|
292,818
|
|
|
(185,010
|
)
|
|
2,112,570
|
|
Total assets
|
|
2,654,754
|
|
|
556,325
|
|
|
23,035
|
|
|
(501,677
|
)
|
|
2,732,437
|
|
Capital expenditures, excluding acquisitions
|
|
26,659
|
|
|
2,196
|
|
|
6,578
|
|
|
—
|
|
|
35,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the six months ended June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
International
|
|
Functional
Support(2)
|
|
Reconciling
Eliminations
|
|
Total
|
Revenues from external customers
|
|
$
|
648,559
|
|
|
$
|
58,177
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
706,736
|
|
Intersegment revenues
|
|
434
|
|
|
4,768
|
|
|
1,085
|
|
|
(6,287
|
)
|
|
—
|
|
Depreciation and amortization
|
|
81,644
|
|
|
15,699
|
|
|
5,936
|
|
|
—
|
|
|
103,279
|
|
Goodwill and tradenames impairment
|
|
—
|
|
|
28,687
|
|
|
—
|
|
|
—
|
|
|
28,687
|
|
Other operating expenses
|
|
507,118
|
|
|
61,128
|
|
|
63,686
|
|
|
—
|
|
|
631,932
|
|
Operating income (loss)
|
|
59,797
|
|
|
(47,337
|
)
|
|
(69,622
|
)
|
|
—
|
|
|
(57,162
|
)
|
Interest expense, net of amounts capitalized
|
|
(1
|
)
|
|
28
|
|
|
26,953
|
|
|
—
|
|
|
26,980
|
|
Income (loss) before income taxes
|
|
61,714
|
|
|
(47,237
|
)
|
|
(95,817
|
)
|
|
—
|
|
|
(81,340
|
)
|
Long-lived assets(1)
|
|
1,629,912
|
|
|
269,153
|
|
|
268,796
|
|
|
(162,746
|
)
|
|
2,005,115
|
|
Total assets
|
|
2,871,428
|
|
|
436,067
|
|
|
(346,182
|
)
|
|
(503,707
|
)
|
|
2,457,606
|
|
Capital expenditures, excluding acquisitions
|
|
60,306
|
|
|
3,670
|
|
|
5,453
|
|
|
—
|
|
|
69,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the six months ended June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
International
|
|
Functional
Support(2)
|
|
Reconciling
Eliminations
|
|
Total
|
Revenues from external customers
|
|
$
|
707,770
|
|
|
$
|
132,069
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
839,839
|
|
Intersegment revenues
|
|
8,462
|
|
|
4,195
|
|
|
147
|
|
|
(12,804
|
)
|
|
—
|
|
Depreciation and amortization
|
|
92,274
|
|
|
13,963
|
|
|
6,164
|
|
|
—
|
|
|
112,401
|
|
Other operating expenses
|
|
522,128
|
|
|
117,238
|
|
|
67,899
|
|
|
—
|
|
|
707,265
|
|
Operating income (loss)
|
|
93,368
|
|
|
868
|
|
|
(74,063
|
)
|
|
—
|
|
|
20,173
|
|
Interest expense, net of amounts capitalized
|
|
1
|
|
|
64
|
|
|
27,723
|
|
|
—
|
|
|
27,788
|
|
Income (loss) before income taxes
|
|
93,419
|
|
|
1,294
|
|
|
(101,535
|
)
|
|
—
|
|
|
(6,822
|
)
|
Long-lived assets(1)
|
|
1,671,666
|
|
|
333,096
|
|
|
292,818
|
|
|
(185,010
|
)
|
|
2,112,570
|
|
Total assets
|
|
2,654,754
|
|
|
556,325
|
|
|
23,035
|
|
|
(501,677
|
)
|
|
2,732,437
|
|
Capital expenditures, excluding acquisitions
|
|
49,969
|
|
|
13,163
|
|
|
9,445
|
|
|
—
|
|
|
72,577
|
|
|
|
(1)
|
Long lived assets include fixed assets, goodwill, intangibles and other assets.
|
|
|
(2)
|
Functional Support is geographically located in the United States.
|
NOTE 16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Our 2021 Notes are guaranteed by virtually all our domestic subsidiaries, all of which are wholly owned. The guarantees are joint and several, full, complete and unconditional. There are no restrictions on the ability of subsidiary guarantors to transfer funds to the parent company.
As a result of these guarantee arrangements, we are required to present the following condensed consolidating financial information pursuant to SEC Regulation S-X Rule 3-10, “
Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING UNAUDITED BALANCE SHEETS
|
|
|
June 30, 2014
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
(in thousands)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
30,170
|
|
|
$
|
359,392
|
|
|
$
|
62,929
|
|
|
$
|
—
|
|
|
$
|
452,491
|
|
Property and equipment, net
|
|
—
|
|
|
1,211,710
|
|
|
113,798
|
|
|
—
|
|
|
1,325,508
|
|
Goodwill
|
|
—
|
|
|
597,458
|
|
|
4,381
|
|
|
—
|
|
|
601,839
|
|
Deferred financing costs, net
|
|
12,498
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,498
|
|
Intercompany notes and accounts receivable and investment in subsidiaries
|
|
3,323,502
|
|
|
1,435,544
|
|
|
35,271
|
|
|
(4,794,317
|
)
|
|
—
|
|
Other assets
|
|
—
|
|
|
52,951
|
|
|
12,319
|
|
|
—
|
|
|
65,270
|
|
TOTAL ASSETS
|
|
$
|
3,366,170
|
|
|
$
|
3,657,055
|
|
|
$
|
228,698
|
|
|
$
|
(4,794,317
|
)
|
|
$
|
2,457,606
|
|
Liabilities and equity:
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
22,447
|
|
|
$
|
167,332
|
|
|
$
|
27,064
|
|
|
$
|
—
|
|
|
$
|
216,843
|
|
Long-term debt and capital leases, less current portion
|
|
718,704
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
718,704
|
|
Intercompany notes and accounts payable
|
|
1,162,648
|
|
|
2,684,469
|
|
|
117,273
|
|
|
(3,964,390
|
)
|
|
—
|
|
Deferred tax liabilities
|
|
272,540
|
|
|
4,643
|
|
|
(1,626
|
)
|
|
—
|
|
|
275,557
|
|
Other long-term liabilities
|
|
1,183
|
|
|
56,393
|
|
|
260
|
|
|
—
|
|
|
57,836
|
|
Equity
|
|
1,188,648
|
|
|
744,218
|
|
|
85,727
|
|
|
(829,927
|
)
|
|
1,188,666
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
3,366,170
|
|
|
$
|
3,657,055
|
|
|
$
|
228,698
|
|
|
$
|
(4,794,317
|
)
|
|
$
|
2,457,606
|
|
CONDENSED CONSOLIDATING BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
(in thousands)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
50,321
|
|
|
$
|
398,188
|
|
|
$
|
57,644
|
|
|
$
|
—
|
|
|
$
|
506,153
|
|
Property and equipment, net
|
|
—
|
|
|
1,244,216
|
|
|
121,430
|
|
|
—
|
|
|
1,365,646
|
|
Goodwill
|
|
—
|
|
|
597,457
|
|
|
27,418
|
|
|
—
|
|
|
624,875
|
|
Deferred financing costs, net
|
|
13,897
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,897
|
|
Intercompany notes and accounts receivable and investment in subsidiaries
|
|
3,421,607
|
|
|
1,364,174
|
|
|
12,939
|
|
|
(4,798,720
|
)
|
|
—
|
|
Other assets
|
|
—
|
|
|
34,278
|
|
|
42,621
|
|
|
—
|
|
|
76,899
|
|
TOTAL ASSETS
|
|
$
|
3,485,825
|
|
|
$
|
3,638,313
|
|
|
$
|
262,052
|
|
|
$
|
(4,798,720
|
)
|
|
$
|
2,587,470
|
|
Liabilities and equity:
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
26,097
|
|
|
$
|
182,497
|
|
|
$
|
23,750
|
|
|
$
|
—
|
|
|
$
|
232,344
|
|
Long-term debt and capital leases, less current portion
|
|
763,981
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
763,981
|
|
Intercompany notes and accounts payable
|
|
1,162,648
|
|
|
2,667,943
|
|
|
97,050
|
|
|
(3,927,641
|
)
|
|
—
|
|
Deferred tax liabilities
|
|
280,828
|
|
|
4,643
|
|
|
(1,819
|
)
|
|
801
|
|
|
284,453
|
|
Other long-term liabilities
|
|
1,195
|
|
|
54,486
|
|
|
(82
|
)
|
|
—
|
|
|
55,599
|
|
Equity
|
|
1,251,076
|
|
|
728,744
|
|
|
143,153
|
|
|
(871,880
|
)
|
|
1,251,093
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
3,485,825
|
|
|
$
|
3,638,313
|
|
|
$
|
262,052
|
|
|
$
|
(4,798,720
|
)
|
|
$
|
2,587,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING UNAUDITED STATEMENTS OF OPERATIONS
|
|
|
Three Months Ended June 30, 2014
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
(in thousands)
|
Revenues
|
|
$
|
—
|
|
|
$
|
326,835
|
|
|
$
|
30,272
|
|
|
$
|
(6,512
|
)
|
|
$
|
350,595
|
|
Direct operating expense
|
|
—
|
|
|
245,267
|
|
|
20,632
|
|
|
(3,016
|
)
|
|
262,883
|
|
Depreciation and amortization expense
|
|
—
|
|
|
48,702
|
|
|
3,482
|
|
|
—
|
|
|
52,184
|
|
General and administrative expense
|
|
242
|
|
|
55,459
|
|
|
5,623
|
|
|
(3,443
|
)
|
|
57,881
|
|
Goodwill and tradenames impairment
|
|
—
|
|
|
—
|
|
|
28,687
|
|
|
—
|
|
|
28,687
|
|
Operating loss
|
|
(242
|
)
|
|
(22,593
|
)
|
|
(28,152
|
)
|
|
(53
|
)
|
|
(51,040
|
)
|
Interest expense, net of amounts capitalized
|
|
13,402
|
|
|
(1
|
)
|
|
25
|
|
|
—
|
|
|
13,426
|
|
Other income, net
|
|
(618
|
)
|
|
(572
|
)
|
|
(1,564
|
)
|
|
21
|
|
|
(2,733
|
)
|
Loss before income taxes
|
|
(13,026
|
)
|
|
(22,020
|
)
|
|
(26,613
|
)
|
|
(74
|
)
|
|
(61,733
|
)
|
Income tax (expense) benefit
|
|
7,977
|
|
|
2,094
|
|
|
(534
|
)
|
|
—
|
|
|
9,537
|
|
Net loss
|
|
(5,049
|
)
|
|
(19,926
|
)
|
|
(27,147
|
)
|
|
(74
|
)
|
|
(52,196
|
)
|
Income attributable to noncontrolling interest
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
LOSS ATTRIBUTABLE TO KEY
|
|
$
|
(5,049
|
)
|
|
$
|
(19,926
|
)
|
|
$
|
(27,147
|
)
|
|
$
|
(74
|
)
|
|
$
|
(52,196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING UNAUDITED STATEMENTS OF OPERATIONS
|
|
|
Three Months Ended June 30, 2013
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
(in thousands)
|
Revenues
|
|
$
|
—
|
|
|
$
|
389,847
|
|
|
$
|
44,807
|
|
|
$
|
(23,264
|
)
|
|
$
|
411,390
|
|
Direct operating expense
|
|
—
|
|
|
273,188
|
|
|
32,637
|
|
|
(18,723
|
)
|
|
287,102
|
|
Depreciation and amortization expense
|
|
—
|
|
|
55,533
|
|
|
2,675
|
|
|
—
|
|
|
58,208
|
|
General and administrative expense
|
|
262
|
|
|
52,543
|
|
|
9,449
|
|
|
(4,518
|
)
|
|
57,736
|
|
Operating income (loss)
|
|
(262
|
)
|
|
8,583
|
|
|
46
|
|
|
(23
|
)
|
|
8,344
|
|
Interest expense, net of amounts capitalized
|
|
14,124
|
|
|
(155
|
)
|
|
15
|
|
|
—
|
|
|
13,984
|
|
Other (income) loss, net
|
|
(911
|
)
|
|
(77
|
)
|
|
701
|
|
|
717
|
|
|
430
|
|
Income (loss) before income taxes
|
|
(13,475
|
)
|
|
8,815
|
|
|
(670
|
)
|
|
(740
|
)
|
|
(6,070
|
)
|
Income tax (expense) benefit
|
|
(3,631
|
)
|
|
6,154
|
|
|
(225
|
)
|
|
—
|
|
|
2,298
|
|
Net income (loss)
|
|
(17,106
|
)
|
|
14,969
|
|
|
(895
|
)
|
|
(740
|
)
|
|
(3,772
|
)
|
Income attributable to noncontrolling interest
|
|
—
|
|
|
—
|
|
|
356
|
|
|
—
|
|
|
356
|
|
INCOME (LOSS) ATTRIBUTABLE TO KEY
|
|
$
|
(17,106
|
)
|
|
$
|
14,969
|
|
|
$
|
(1,251
|
)
|
|
$
|
(740
|
)
|
|
$
|
(4,128
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING UNAUDITED STATEMENTS OF OPERATIONS
|
|
|
Six Months Ended June 30, 2014
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
(in thousands)
|
Revenues
|
|
$
|
—
|
|
|
$
|
657,310
|
|
|
$
|
63,553
|
|
|
$
|
(14,127
|
)
|
|
$
|
706,736
|
|
Direct operating expense
|
|
—
|
|
|
481,925
|
|
|
45,684
|
|
|
(6,424
|
)
|
|
521,185
|
|
Depreciation and amortization expense
|
|
—
|
|
|
96,465
|
|
|
6,814
|
|
|
—
|
|
|
103,279
|
|
General and administrative expense
|
|
478
|
|
|
105,007
|
|
|
12,957
|
|
|
(7,695
|
)
|
|
110,747
|
|
Goodwill and tradenames impairment
|
|
—
|
|
|
—
|
|
|
28,687
|
|
|
—
|
|
|
28,687
|
|
Operating loss
|
|
(478
|
)
|
|
(26,087
|
)
|
|
(30,589
|
)
|
|
(8
|
)
|
|
(57,162
|
)
|
Interest expense, net of amounts capitalized
|
|
26,954
|
|
|
(1
|
)
|
|
27
|
|
|
—
|
|
|
26,980
|
|
Other income, net
|
|
(1,289
|
)
|
|
(1,296
|
)
|
|
(248
|
)
|
|
31
|
|
|
(2,802
|
)
|
Income (loss) before income taxes
|
|
(26,143
|
)
|
|
(24,790
|
)
|
|
(30,368
|
)
|
|
(39
|
)
|
|
(81,340
|
)
|
Income tax benefit
|
|
10,983
|
|
|
5,843
|
|
|
419
|
|
|
—
|
|
|
17,245
|
|
Net loss
|
|
(15,160
|
)
|
|
(18,947
|
)
|
|
(29,949
|
)
|
|
(39
|
)
|
|
(64,095
|
)
|
Income attributable to noncontrolling interest
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
LOSS ATTRIBUTABLE TO KEY
|
|
$
|
(15,160
|
)
|
|
$
|
(18,947
|
)
|
|
$
|
(29,949
|
)
|
|
$
|
(39
|
)
|
|
$
|
(64,095
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING UNAUDITED STATEMENTS OF OPERATIONS
|
|
|
Six Months Ended June 30, 2013
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
(in thousands)
|
Revenues
|
|
$
|
—
|
|
|
$
|
795,231
|
|
|
$
|
88,297
|
|
|
$
|
(43,689
|
)
|
|
$
|
839,839
|
|
Direct operating expense
|
|
—
|
|
|
559,230
|
|
|
63,120
|
|
|
(36,066
|
)
|
|
586,284
|
|
Depreciation and amortization expense
|
|
—
|
|
|
107,590
|
|
|
4,811
|
|
|
—
|
|
|
112,401
|
|
General and administrative expense
|
|
516
|
|
|
110,364
|
|
|
18,301
|
|
|
(8,200
|
)
|
|
120,981
|
|
Operating income (loss)
|
|
(516
|
)
|
|
18,047
|
|
|
2,065
|
|
|
577
|
|
|
20,173
|
|
Interest expense, net of amounts capitalized
|
|
28,015
|
|
|
(291
|
)
|
|
64
|
|
|
—
|
|
|
27,788
|
|
Other (income) loss, net
|
|
(1,809
|
)
|
|
(1,246
|
)
|
|
738
|
|
|
1,524
|
|
|
(793
|
)
|
Income (loss) before income taxes
|
|
(26,722
|
)
|
|
19,584
|
|
|
1,263
|
|
|
(947
|
)
|
|
(6,822
|
)
|
Income tax (expense) benefit
|
|
(2,383
|
)
|
|
5,271
|
|
|
(24
|
)
|
|
—
|
|
|
2,864
|
|
Net income (loss)
|
|
(29,105
|
)
|
|
24,855
|
|
|
1,239
|
|
|
(947
|
)
|
|
(3,958
|
)
|
Income attributable to noncontrolling interest
|
|
—
|
|
|
—
|
|
|
444
|
|
|
—
|
|
|
444
|
|
INCOME (LOSS) ATTRIBUTABLE TO KEY
|
|
$
|
(29,105
|
)
|
|
$
|
24,855
|
|
|
$
|
795
|
|
|
$
|
(947
|
)
|
|
$
|
(4,402
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING UNAUDITED STATEMENTS OF CASH FLOWS
|
|
|
Six Months Ended June 30, 2014
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
(in thousands)
|
Net cash provided by operating activities
|
|
$
|
—
|
|
|
$
|
100,170
|
|
|
$
|
7,098
|
|
|
$
|
—
|
|
|
$
|
107,268
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
—
|
|
|
(66,280
|
)
|
|
(3,149
|
)
|
|
—
|
|
|
(69,429
|
)
|
Intercompany notes and accounts
|
|
—
|
|
|
(41,350
|
)
|
|
—
|
|
|
41,350
|
|
|
—
|
|
Other investing activities, net
|
|
—
|
|
|
9,389
|
|
|
—
|
|
|
—
|
|
|
9,389
|
|
Net cash used in investing activities
|
|
—
|
|
|
(98,241
|
)
|
|
(3,149
|
)
|
|
41,350
|
|
|
(60,040
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt
|
|
(3,573
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,573
|
)
|
Proceeds from borrowings on revolving credit facility
|
|
115,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
115,000
|
|
Repayments on revolving credit facility
|
|
(160,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(160,000
|
)
|
Repurchases of common stock
|
|
(2,211
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,211
|
)
|
Intercompany notes and accounts
|
|
41,350
|
|
|
—
|
|
|
—
|
|
|
(41,350
|
)
|
|
—
|
|
Other financing activities, net
|
|
(1,221
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,221
|
)
|
Net cash used in financing activities
|
|
(10,655
|
)
|
|
—
|
|
|
—
|
|
|
(41,350
|
)
|
|
(52,005
|
)
|
Effect of changes in exchange rates on cash
|
|
—
|
|
|
—
|
|
|
(81
|
)
|
|
—
|
|
|
(81
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
(10,655
|
)
|
|
1,929
|
|
|
3,868
|
|
|
—
|
|
|
(4,858
|
)
|
Cash and cash equivalents at beginning of period
|
|
23,115
|
|
|
788
|
|
|
4,403
|
|
|
—
|
|
|
28,306
|
|
Cash and cash equivalents at end of period
|
|
$
|
12,460
|
|
|
$
|
2,717
|
|
|
$
|
8,271
|
|
|
$
|
—
|
|
|
$
|
23,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING UNAUDITED STATEMENTS OF CASH FLOWS
|
|
|
Six Months Ended June 30, 2013
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
(in thousands)
|
Net cash provided by operating activities
|
|
$
|
—
|
|
|
$
|
45,284
|
|
|
$
|
1,397
|
|
|
$
|
—
|
|
|
$
|
46,681
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
—
|
|
|
(69,413
|
)
|
|
(3,164
|
)
|
|
—
|
|
|
(72,577
|
)
|
Acquisition of the 50% noncontrolling interest in Geostream
|
|
—
|
|
|
(14,600
|
)
|
|
—
|
|
|
—
|
|
|
(14,600
|
)
|
Intercompany notes and accounts
|
|
—
|
|
|
36,539
|
|
|
—
|
|
|
(36,539
|
)
|
|
—
|
|
Other investing activities, net
|
|
—
|
|
|
3,881
|
|
|
—
|
|
|
—
|
|
|
3,881
|
|
Net cash used in investing activities
|
|
—
|
|
|
(43,593
|
)
|
|
(3,164
|
)
|
|
(36,539
|
)
|
|
(83,296
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Repayment of capital lease obligations
|
|
—
|
|
|
(379
|
)
|
|
—
|
|
|
—
|
|
|
(379
|
)
|
Proceeds from borrowings on revolving credit facility
|
|
155,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
155,000
|
|
Repayments on revolving credit facility
|
|
(135,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(135,000
|
)
|
Payment of deferred financing costs
|
|
(69
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(69
|
)
|
Repurchases of common stock
|
|
(3,134
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,134
|
)
|
Intercompany notes and accounts
|
|
(36,539
|
)
|
|
—
|
|
|
—
|
|
|
36,539
|
|
|
—
|
|
Other financing activities, net
|
|
(1,501
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,501
|
)
|
Net cash provided by (used in) financing activities
|
|
(21,243
|
)
|
|
(379
|
)
|
|
—
|
|
|
36,539
|
|
|
14,917
|
|
Effect of changes in exchange rates on cash
|
|
—
|
|
|
—
|
|
|
484
|
|
|
—
|
|
|
484
|
|
Net increase (decrease) in cash and cash equivalents
|
|
(21,243
|
)
|
|
1,312
|
|
|
(1,283
|
)
|
|
—
|
|
|
(21,214
|
)
|
Cash and cash equivalents at beginning of period
|
|
39,617
|
|
|
1,601
|
|
|
4,731
|
|
|
—
|
|
|
45,949
|
|
Cash and cash equivalents at end of period
|
|
$
|
18,374
|
|
|
$
|
2,913
|
|
|
$
|
3,448
|
|
|
$
|
—
|
|
|
$
|
24,735
|
|