NOTES TO
UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1.
Organization and Summary of Significant Accounting Policies
Business
Pioneer Energy Services Corp. (formerly called “Pioneer Drilling Company”) provides land-based drilling services and production services to a diverse group of independent and large oil and gas exploration and production companies in the United States and internationally in Colombia. We also provide two of our services (coiled tubing and wireline services) offshore in the Gulf of Mexico.
Our Drilling Services Segment provides contract land drilling services through our
four
domestic divisions which are located in the Marcellus/Utica, Eagle Ford, Permian Basin and Bakken regions, and internationally in Colombia.
In addition to our drilling rigs, we provide the drilling crews and most of the ancillary equipment needed to operate our drilling rigs.
Our drilling rig fleet is
100%
pad-capable
and consists of the following:
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|
|
|
|
|
|
|
Multi-well, Pad-capable
|
|
AC rigs
|
SCR rigs
|
Total
|
U.S. rigs
|
16
|
|
—
|
|
16
|
Colombia rigs
|
—
|
|
8
|
|
8
|
|
|
|
24
|
Our Production Services Segment provides a range of services
to a diverse group of exploration and production companies, with our operations concentrated in the major United States onshore oil and gas producing regions in the Mid-Continent and Rocky Mountain states and in the Gulf Coast, both onshore and offshore.
As of
June 30, 2017
, our production services fleets are as follows:
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|
|
|
|
|
|
|
|
550 HP
|
600 HP
|
Total
|
Well servicing rigs, by horsepower (HP) rating
|
113
|
|
12
|
|
125
|
|
|
Onshore
|
Offshore
|
Total
|
Wireline units
|
109
|
6
|
|
115
|
|
Coiled tubing units
|
10
|
|
4
|
|
14
|
|
Revenues and Cost Recognition
Drilling Contracts
—
Our drilling contracts generally provide for compensation on a daywork basis.
Spot market contracts generally provide for the drilling of a single well and typically permit the client to terminate on short notice.
We typically enter into longer-term drilling contracts for our newly constructed rigs and/or during periods of high rig demand.
We recognize revenues on daywork contracts for the days completed based on the dayrate specified in each contract.
With most drilling contracts, we receive payments contractually designated for the mobilization of rigs and other equipment. Payments received, and costs incurred for the mobilization services are deferred and recognized on a straight line basis over the related contract term. Costs incurred to relocate rigs and other drilling equipment to areas in which a contract has not been secured are expensed as incurred. Reimbursements that we receive for out-of-pocket expenses are recorded as revenues and the out-of-pocket expenses for which they relate are recorded as operating costs.
Amortization of deferred revenues and costs during the
three and six months
ended
June 30, 2017
and
2016
(amounts in thousands) were as follows:
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|
|
|
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|
|
|
|
|
|
Three months ended June 30,
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|
Six months ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Deferred revenues
|
$
|
521
|
|
|
$
|
278
|
|
|
$
|
1,297
|
|
|
$
|
580
|
|
Deferred costs
|
1,219
|
|
|
508
|
|
|
2,686
|
|
|
1,152
|
|
Our current and long-term deferred revenues and costs as of
June 30, 2017
and
December 31, 2016
were as follows
(amounts in thousands):
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|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Current:
|
|
|
|
Deferred revenues
|
$
|
1,009
|
|
|
$
|
1,449
|
|
Deferred costs
|
2,099
|
|
|
2,290
|
|
Long-term:
|
|
|
|
Deferred revenues
|
$
|
26
|
|
|
$
|
202
|
|
Deferred costs
|
208
|
|
|
212
|
|
As of August 1, 2017
, all
16
of our
domestic drilling rigs are earning revenues,
13
of which are under term contracts
.
Of the
eight
rigs in Colombia,
two
are earning revenues under term contracts, and
one
additional rig is under term contract, but has been put on standby by one of our clients and is not currently earning revenues.
The term contracts in Colombia are cancelable by our clients without penalty.
We are actively marketing our
idle drilling rigs in Colombia to various operators and we are evaluating other options, including the possibility of the sale of some or all of our assets in Colombia.
Unbilled Accounts Receivable
The asset “unbilled receivables” represents revenues we have recognized in excess of amounts billed on drilling contracts and production services completed but not yet invoiced. We typically invoice our clients at
15
-day intervals during the performance of daywork drilling contracts and upon completion of the daywork contract. Our unbilled receivables as of
June 30, 2017
and
December 31, 2016
were as follows
(amounts in thousands):
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|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Daywork drilling contracts in progress
|
$
|
11,569
|
|
|
$
|
7,042
|
|
Production services
|
461
|
|
|
375
|
|
|
$
|
12,030
|
|
|
$
|
7,417
|
|
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets include items such as insurance, rent deposits and fees. We routinely expense these items in the normal course of business over the periods these expenses benefit. Prepaid expenses and other current assets also include the current portion of deferred mobilization costs for certain drilling contracts that are recognized on a straight-line basis over the contract term.
Other Long-Term Assets
Other long-term assets consist of cash deposits related to the deductibles on our workers’ compensation insurance policies, deferred compensation plan investments, the long-term portion of deferred mobilization costs, and intangible assets.
Other Current Liabilities
Our other accrued expenses include accruals for items such as property tax, sales tax, and professional and other fees. We routinely expense these items in the normal course of business over the periods these expenses benefit.
Other Long-Term Liabilities
Our other long-term liabilities consist of the noncurrent portion of liabilities associated with our long-term compensation plans, deferred lease liabilities, and the long-term portion of deferred mobilization revenues.
Related-Party Transactions
During the
six months
ended
June 30, 2017
and
2016
, the Company paid approximately
$68,000
and
$84,000
, respectively, for trucking and equipment rental services, which represented arms-length transactions, to Gulf Coast Lease Service. Joe Freeman, our Senior Vice President of Well Servicing, serves as the President of Gulf Coast Lease Service, which is owned
and operated by Mr. Freeman’s two sons. Mr. Freeman does not receive compensation from Gulf Coast Lease Service, and he serves primarily in an advisory role to his sons.
Comprehensive Income
We have not reported comprehensive income due to the absence of items of other comprehensive income in the periods presented.
Recently Issued Accounting Standards
Changes to accounting principles generally accepted in the United States of America (“U.S. GAAP”) are established by the Financial Accounting Standards Board (FASB) in the form of Accounting Standards Updates (ASUs) to the FASB Accounting Standards Codification (ASC). We consider the applicability and impact of all ASUs; any ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position and results of operations.
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•
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Revenue Recognition.
In May 2014, the FASB issued ASU No. 2014-09, a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance. The standard outlines a single comprehensive model for revenue recognition based on the core principle that a company will recognize revenue when promised goods or services are transferred to clients, in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services.
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We have performed a scoping and preliminary assessment of the impact of this new standard. We continue to evaluate the impact of this guidance, but currently expect the adoption of this new standard to primarily affect the timing for the recognition of certain types of revenues derived from drilling contracts, and to require expanded disclosure. We are required to apply this new standard beginning January 1, 2018. Two methods of transition are permitted under this standard: the full retrospective method, in which the standard would be applied retrospectively to each prior reporting period presented, subject to certain allowable exceptions; or the modified retrospective method, in which the standard would be applied to all contracts existing as of the date of initial application, with the cumulative effect of applying the standard recognized in retained earnings. We anticipate adopting this standard using the modified retrospective method.
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•
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Leases.
In February 2016, the FASB issued ASU No. 2016-02,
Leases
, which among other things, requires lessees to recognize substantially all leases on the balance sheet, with expense recognition that is similar to the current lease standard, and aligns the principles of lessor accounting with the principles of the FASB’s new revenue guidance (referenced above). This ASU is effective for us beginning January 1, 2019.
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We have performed a scoping and preliminary assessment of the impact of this new standard. As a lessor, we expect the adoption of this new standard will apply to our drilling contracts and as a result, we expect to have a lease component and a service component of our revenues derived from drilling contracts. We have not yet determined the impact this standard may have on our production services businesses. As a lessee, this standard will impact us in situations where we lease real estate and office equipment, for which we will recognize a right-of-use asset and a corresponding lease liability on our consolidated balance sheet.
We continue to evaluate the impact of this guidance and have not yet determined its impact on our financial position and results of operations. Although, the future minimum lease payments disclosed in the
Liquidity and Capital Resources
section included in
Part I, Item 2
, of this
Quarterly
Report on
Form 10-Q
provides some insight to the estimated impact of adoption for us as a lessee.
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•
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Stock-Based Compensation.
In March 2016, the FASB issued ASU No. 2016-09,
Stock Compensation: Improvements to Employee Share-Based Payment Accounting
, to reduce complexity in accounting standards involving several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.
|
We adopted this ASU as of January 1, 2017 and we recognized a
$3.1 million
deferred tax asset for previously unrecognized tax benefits, which was then fully reserved by a valuation allowance (see Note
3
,
Valuation Allowances on Deferred Tax Assets
). Additionally, we elected to prospectively account for forfeitures as they occur, rather than estimating future forfeitures. The total cumulative-effect impact of adoption, net of valuation allowances, was
approximately
$55,000
relating to our change in accounting for forfeitures, and was recognized as a reduction to retained earnings. The adoption of this ASU also results in the presentation of any excess tax benefits resulting from the exercise of stock options as operating cash flows in the statement of cash flows, which we apply retrospectively for any comparative periods affected.
Reclassifications
Certain amounts in the
unaudited condensed consolidated
financial statements for the prior years have been reclassified to conform to the current year’s presentation.
Basis of Presentation
The accompanying
unaudited condensed consolidated
financial statements include the accounts of Pioneer Energy Services Corp. and our wholly owned subsidiaries.
All intercompany balances and transactions have been eliminated in consolidation.
The accompanying
unaudited condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of our management, all adjustments (consisting of normal, recurring accruals) necessary for a fair presentation have been included. We suggest that you read these
unaudited condensed consolidated
financial statements together with the consolidated financial statements and the related notes included in our annual report on Form 10-K for the year ended
December 31, 2016
.
In preparing the accompanying
unaudited condensed consolidated
financial statements, we make various estimates and assumptions that affect the amounts of assets and liabilities we report as of the dates of the balance sheets and income and expenses we report for the periods shown in the income statements and statements of cash flows.
Our actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant changes in the near term relate to our estimate of the allowance for doubtful accounts, our determination of depreciation and amortization expenses, our estimates of projected cash flows and fair values for impairment evaluations, our estimate of the valuation allowance for deferred tax assets, our estimate of the liability relating to the self-insurance portion of our health and workers’ compensation insurance, our estimate of compensation related accruals and our estimate of sales tax audit liability.
In preparing the accompanying
unaudited condensed consolidated
financial statements, we have reviewed events that have occurred after
June 30, 2017
, through the filing of this
Form 10-Q
, for inclusion as necessary.
2
.
Property and Equipment
Capital Expenditures
—Our capital expenditures were
$42.0 million
and
$14.0 million
, during the
six months
ended
June 30, 2017
and
2016
, respectively, which includes
$0.3 million
and
$0.2 million
, respectively, of capitalized interest costs incurred. Capital expenditures during
2017
primarily related to the acquisition of
20
well servicing rigs, expansion of our wireline fleet, upgrades to drilling rigs and other new drilling equipment. Capital expenditures during
2016
consisted primarily of routine expenditures to maintain our drilling and production services fleets.
At
June 30, 2017
, capital expenditures incurred for property and equipment not yet placed in service was
$26.3 million
, primarily related to
13
well servicing rigs, installments on the purchase of
five
wireline units, and upgrades to drilling rigs not yet completed. At
December 31, 2016
, property and equipment not yet placed in service was
$9.0 million
, primarily related to new drilling equipment that was ordered in 2014 and required a long lead-time for delivery, which will either be used to construct new drilling rigs or as spare equipment for our AC rig fleet, as well as deposits for the 20 well servicing rigs and
four
new wireline units that were on order for delivery in 2017.
During the
six months
ended
June 30, 2017
, we recognized a net
gain
of
$1.1 million
on the disposition of property and equipment which
was primarily related to the loss of drill pipe in operation, for which we were reimbursed by the client, gains on sales of vehicles which were used in our Production Services Segment operations, and a gain on the disposal of
two
cranes that were damaged, for which we expect to receive insurance proceeds of
$0.4 million
.
Assets Held for Sale
—
As of
June 30, 2017
, our
condensed consolidated
balance sheet reflects assets held for sale of
$11.1 million
, which primarily represents the fair value of
three
domestic mechanical drilling rigs,
three
domestic SCR drilling
rigs, certain drilling equipment,
13
wireline units,
and
three
coiled tubing units
. During the three months ended
June 30, 2017
, we recognized impairment charges of
$0.8 million
to adjust the carrying values of certain of these assets to their estimated fair values, based on expected sales prices.
Two
of the mechanical drilling rigs and five of the wireline units were subsequently sold in July 2017, and we did not recognize any additional gain or loss upon the sale of these assets.
Impairments
—
We evaluate for potential impairment of long-lived assets when indicators of impairment are present, which may include, among other things, significant adverse changes in industry trends (including revenue rates, utilization rates, oil and natural gas market prices, and industry rig counts).
Beginning in late 2014, oil prices declined significantly resulting in a downturn in our industry that persisted through 2016, affecting both drilling and production services.
Despite the recent modest recovery in commodity prices that began in late 2016, we continue to monitor all indicators of potential impairments in accordance with ASC Topic 360,
Property, Plant and Equipment
.
In performing an impairment evaluation, we estimate the future undiscounted net cash flows from the use and eventual disposition of the assets grouped at the lowest level that cash flows can be identified. For our Production Services Segment, we perform an impairment evaluation and estimate future undiscounted cash flows for the individual reporting units (well servicing, wireline and coiled tubing).
For our Drilling Services Segment, we perform an impairment evaluation and estimate future undiscounted cash flows for individual domestic drilling rig assets and for our Colombian drilling rig assets as a group.
If the sum of the estimated future undiscounted net cash flows is less than the carrying amount of the asset group, then we determine the fair value of the asset group. The amount of an impairment charge is measured as the difference between the carrying amount and the fair value of the assets.
Due to continued performance at levels lower than anticipated and a decline in our projected cash flows for the coiled tubing reporting unit, we performed an impairment evaluation of our coiled tubing business as of June 30, 2017 and concluded that no impairment is present.
If the demand for our services remains at current levels or declines further and any of our assets become or remain idle for an extended amount of time, then our estimated cash flows may further decrease, and therefore the probability of a near term sale may increase. If any of the foregoing were to occur, we may incur additional impairment charges.
The assumptions used in the impairment evaluation are inherently uncertain and require management judgment.
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3
.
|
Valuation Allowances on Deferred Tax Assets
|
As of
June 30, 2017
, we had
$153.3 million
of deferred tax assets related to domestic and foreign net operating losses that are available to reduce future taxable income.
In assessing the realizability of our deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
In performing this analysis as of
June 30, 2017
in accordance with ASC Topic 740,
Income Taxes
, we assessed the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of deferred tax assets.
A significant piece of negative evidence evaluated is the cumulative loss incurred during previous years
.
Such negative evidence limits the ability to consider other positive evidence that is subjective, such as projections for taxable income in future years.
As a result, we may recognize
a benefit only to the extent that reversals of deferred income tax liabilities are expected to generate taxable income in each relevant jurisdiction in future periods which would offset our deferred tax assets.
Our domestic net operating losses have a 20 year carryforward period and can be used to offset future domestic taxable income until their expiration, beginning in
2030
,
with the latest expiration in
2037
.
The majority of our foreign net operating losses have an indefinite carryforward period.
However,
we have a valuation allowance that fully offsets our foreign deferred tax assets and mostly offsets our domestic deferred tax assets as of
June 30, 2017
.
During the
three and six months
ended
June 30, 2017
, the impact of valuation allowance adjustments on deferred tax assets was
$3.5 million
and
$13.2 million
, respectively. During the
three and six months
ended
June 30, 2016
, the impact of valuation allowance adjustments on deferred tax assets was
$10.5 million
and
$19.8 million
, respectively. The valuation allowance
is the primary factor causing our effective tax rate to be significantly lower than the statutory rate of 35%
.
The amount of the deferred tax asset considered realizable, however, would increase if cumulative losses are no longer present and additional weight is given to subjective evidence in the form of projected future taxable income.
4
.
Debt
Our debt consists of the following (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Senior secured revolving credit facility
|
$
|
88,695
|
|
|
$
|
46,000
|
|
Senior notes
|
300,000
|
|
|
300,000
|
|
|
388,695
|
|
|
346,000
|
|
Less unamortized debt issuance costs
|
(5,597
|
)
|
|
(6,527
|
)
|
|
$
|
383,098
|
|
|
$
|
339,473
|
|
Senior Secured Revolving Credit Facility
We have a credit agreement,
as most recently amended on
June 30, 2016
, with Wells Fargo Bank, N.A. and a syndicate of lenders which
provides for a senior secured revolving credit facility, with sub-limits for letters of credit and swing-line loans, of up to a current aggregate commitment amount of
$150 million
, subject to availability under a borrowing base comprised of certain eligible cash, certain eligible receivables, certain eligible inventory, and certain eligible equipment of ours and certain of our subsidiaries, all of which matures in
March 2019
(the “Revolving Credit Facility”).
The Revolving Credit Facility contains customary mandatory prepayments from the proceeds of certain asset dispositions or equity or debt issuances, which are applied to reduce outstanding revolving and swing-line loans and to cash-collateralize letter of credit exposure, and in certain cases, also reduce the commitment amount available
.
Borrowings under the Revolving Credit Facility bear interest, at our option, at the LIBOR rate or at the bank prime rate, plus an applicable per annum margin of
5.50%
and
4.50%
, respectively. The Revolving Credit Facility requires a commitment fee due quarterly based on the average daily unused amount of the commitments of the lenders, a fronting fee due for each letter of credit issued, and a quarterly letter of credit fee due based on the average undrawn amount of letters of credit outstanding during such period. Additionally, the Revolving Credit Facility requires that if on the last business day of each week, our aggregate amount of cash at the end of the preceding day (as calculated pursuant to the Revolving Credit Facility) exceeds
$20 million
, we pay down the outstanding principal balance by the amount of such excess.
Our obligations under the Revolving Credit Facility are secured by substantially all of our domestic assets
(including equity interests in Pioneer Global Holdings, Inc. and
65%
of the outstanding voting equity interests, and
100%
of non-voting equity interests, of any first-tier foreign subsidiaries owned by Pioneer Global Holdings, Inc., but excluding any equity interest in, and any assets of, Pioneer Services Holdings, LLC)
and are guaranteed by certain of our domestic subsidiaries
, including Pioneer Global Holdings, Inc.
Borrowings under the Revolving Credit Facility are available for acquisitions, working capital and other general corporate purposes.
As of
June 30, 2017
, we had
$88.7 million
outstanding under our Revolving Credit Facility and
$11.8 million
in committed letters of credit, which resulted in borrowing availability of
$49.5 million
under our Revolving Credit Facility.
There are no limitations on our ability to access the borrowing capacity provided there is no default, all representations and warranties are true and correct, and compliance with financial covenants under the Revolving Credit Facility is maintained.
At
June 30, 2017
, we were in compliance with our financial covenants under the Revolving Credit Facility.
The financial covenants contained in our Revolving Credit Facility include the following
:
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|
•
|
For the four-fiscal quarter period ended June 30, 2017, EBITDA as defined in the Revolving Credit Facility was required to not be less than
$12 million
. There
is no minimum requirement beyond June 30, 2017.
|
|
|
•
|
A maximum senior consolidated leverage ratio, calculated as senior consolidated debt at the period end, which excludes unsecured and subordinated debt, divided by EBITDA for the trailing twelve month period at each quarter end, as defined in the Revolving Credit Facility.
The senior consolidated leverage ratio cannot exceed the maximum amounts as follows:
|
|
|
|
|
|
|
|
w
|
5.00
|
|
to 1.00
|
on
|
September 30, 2017
|
w
|
4.00
|
|
to 1.00
|
on
|
December 31, 2017
|
w
|
3.50
|
|
to 1.00
|
on
|
March 31, 2018
|
w
|
3.25
|
|
to 1.00
|
on
|
June 30, 2018
|
w
|
2.50
|
|
to 1.00
|
at any time after June 30, 2018
|
|
|
•
|
A minimum interest coverage ratio, calculated as EBITDA for the trailing twelve month period at each quarter end, as defined in the Revolving Credit Facility, divided by interest expense for the same period.
The interest coverage ratio cannot be less than the minimum amounts as follows:
|
|
|
|
|
|
|
|
w
|
1.00
|
|
to 1.00
|
for the quarterly period ending
|
September 30, 2017
|
w
|
1.25
|
|
to 1.00
|
for the quarterly period ending
|
December 31, 2017
|
w
|
1.50
|
|
to 1.00
|
at any time after December 31, 2017
|
The Revolving Credit Facility restricts capital expenditures to the following amounts during each forthcoming fiscal year as follows:
|
|
|
|
w
|
$35 million
|
in fiscal year 2017
|
w
|
$50 million
|
in fiscal year 2018
|
w
|
$50 million
|
in fiscal year 2019
|
The capital expenditure threshold for each of the fiscal years above may be increased by up to
50%
of the unused portion of the capital expenditure threshold for the immediate preceding fiscal year, limited to a maximum of
$5 million
in 2017, and
$7.5 million
in each of the years 2018 and 2019.
In addition to the above requirements, additional capital expenditures may be made up to the amount of net proceeds from equity issuances, or if the following conditions are satisfied:
|
|
•
|
the aggregate outstanding commitments under the Revolving Credit Facility do not exceed
$150 million
;
|
|
|
•
|
the pro forma senior leverage and total leverage ratios, calculated as defined in the Revolving Credit Facility, are less than
2.00
to 1.00 and
4.50
to 1.00, respectively.
|
Pursuant to the terms above, our capital expenditures are limited to a total of
$101.7 million
for the fiscal year 2017.
The Revolving Credit Facility has additional restrictive covenants that, among other things, limit our ability to:
|
|
•
|
incur additional debt or make prepayments of existing debt;
|
|
|
•
|
create liens on or dispose of our assets;
|
|
|
•
|
pay dividends on stock or repurchase stock;
|
|
|
•
|
enter into acquisitions, mergers, consolidations, sale leaseback transactions, or hedging contracts;
|
|
|
•
|
make other restricted investments;
|
|
|
•
|
conduct transactions with affiliates; and
|
|
|
•
|
limits our use of the net proceeds of any offering of our equity securities to the repayment of debt outstanding under the Revolving Credit Facility.
|
In addition, the Revolving Credit Facility contains customary events of default, including without limitation:
|
|
•
|
breaches of representations and warranties;
|
|
|
•
|
cross-defaults to certain other material indebtedness in excess of specified amounts;
|
|
|
•
|
certain events of bankruptcy and insolvency;
|
|
|
•
|
judgment defaults in excess of specified amounts;
|
|
|
•
|
failure of any guaranty or security document supporting the credit agreement; and
|
Senior Notes
In
2014
, we issued
$300 million
of unregistered senior notes at face value, with a coupon interest rate of
6.125%
that are due in
2022
(the “Senior Notes”). The Senior Notes will mature on
March 15, 2022
with interest due semi-annually in arrears on
March 15
and
September 15
of each year. We have the option to redeem the Senior Notes, in whole or in part, at any time on or after
March 15, 2017
in each case at the redemption price specified in the Indenture dated
March 18, 2014
(the “Indenture”) plus any accrued and unpaid interest and any additional interest (as defined in the Indenture) thereon to the date of redemption.
In accordance with a registration rights agreement with the holders of our Senior Notes, we filed an exchange offer registration statement on Form S-4 with the Securities and Exchange Commission that became effective on
October 2, 2014
. The exchange offer registration statement enabled the holders of our Senior Notes to exchange their senior notes for publicly registered notes with substantially identical terms. References to the “Senior Notes” herein include the senior notes issued in the exchange offer.
If we experience a change of control (as defined in the Indenture), we will be required to make an offer to each holder of the Senior Notes to repurchase all or any part of the Senior Notes at a purchase price equal to
101%
of the principal amount of each Senior Note, plus accrued and unpaid interest, if any, to the date of repurchase. If we engage in certain asset sales, within 365 days of such sale we will be required to use the net cash proceeds from such sale, to the extent we do not reinvest those proceeds in our business, to make an offer to repurchase the Senior Notes at a price equal to
100%
of the principal amount of each Senior Note, plus accrued and unpaid interest to the repurchase date.
The Indenture, among other things,
limits us and certain of our subsidiaries in our ability to
:
|
|
•
|
pay dividends on stock, repurchase stock, redeem subordinated indebtedness or make other restricted payments and investments;
|
|
|
•
|
incur, assume or guarantee additional indebtedness or issue preferred or disqualified stock;
|
|
|
•
|
create liens on our or their assets
;
|
|
|
•
|
enter into sale and leaseback transactions;
|
|
|
•
|
sell or transfer assets;
|
|
|
•
|
borrow, pay dividends, or transfer other assets from certain of our subsidiaries;
|
|
|
•
|
consolidate with or merge with or into, or sell all or substantially all of our properties to any other person;
|
|
|
•
|
enter into transactions with affiliates; and
|
|
|
•
|
enter into new lines of business.
|
The Senior Notes are not subject to any sinking fund requirements.
The Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by certain of our existing domestic subsidiaries and by certain of our future domestic subsidiaries.
(See Note
10
,
Guarantor/Non-Guarantor Condensed Consolidated Financial Statements
.)
Debt Issuance Costs
Costs incurred in connection with the Revolving Credit Facility were capitalized and are being amortized using the straight-line method over the term of the Revolving Credit Facility which matures in
March 2019
. Costs incurred in connection with the issuance of our Senior Notes were capitalized and are being amortized using the straight-line method (which approximates amortization using the interest method) over the term of the Senior Notes which mature in
March 2022
.
|
|
5
.
|
Fair Value of Financial Instruments
|
The FASB’s Accounting Standards Codification (ASC) Topic 820,
Fair Value Measurements and Disclosures
, defines fair value and provides a hierarchal framework associated with the level of subjectivity used in measuring assets and liabilities at fair value. At
June 30, 2017
and
December 31, 2016
, our financial instruments consist primarily of cash, trade and other receivables, trade payables, phantom stock unit awards and long-term debt.
The carrying value of cash, trade and other receivables, and trade payables are considered to be representative of their respective fair values due to the short-term nature of these instruments. At
June 30, 2017
and
December 31, 2016
, the aggregate estimated fair value of our phantom stock unit awards was
$3.4 million
and
$7.0 million
, respectively, for which the vested portion recognized as a liability in our
condensed consolidated
balance sheets was
$1.5 million
and
$2.0 million
, respectively. The phantom stock unit awards, and the measurement of fair value for these awards, are described in more detail in Note
7
,
Stock-Based Compensation Plans
.
The fair value of our long-term debt is estimated using a discounted cash flow analysis, based on rates that we believe we would currently pay for similar types of debt instruments. This discounted cash flow analysis is based on inputs defined by ASC Topic 820 as Level 2 inputs, which are observable inputs for similar types of debt instruments. The following table presents the supplemental fair value information about long-term debt at
June 30, 2017
and
December 31, 2016
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
Total debt, net of debt issuance costs
|
$
|
383,098
|
|
|
$
|
344,055
|
|
|
$
|
339,473
|
|
|
$
|
326,249
|
|
|
|
6
.
|
Earnings (Loss) Per Common Share
|
The following table presents a reconciliation of the numerators and denominators of the basic earnings per share and diluted earnings per share computations (amounts in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Numerator (both basic and diluted):
|
|
|
|
|
|
|
|
Net loss
|
$
|
(20,209
|
)
|
|
$
|
(29,991
|
)
|
|
$
|
(45,333
|
)
|
|
$
|
(57,690
|
)
|
Denominator:
|
|
|
|
|
|
|
|
Weighted-average shares (denominator for basic earnings (loss) per share)
|
77,377
|
|
|
64,781
|
|
|
77,225
|
|
|
64,679
|
|
Diluted effect of outstanding stock options, restricted stock and restricted stock unit awards
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Denominator for diluted earnings (loss) per share
|
77,377
|
|
|
64,781
|
|
|
77,225
|
|
|
64,679
|
|
Loss per common share—Basic
|
$
|
(0.26
|
)
|
|
$
|
(0.46
|
)
|
|
$
|
(0.59
|
)
|
|
$
|
(0.89
|
)
|
Loss per common share—Diluted
|
$
|
(0.26
|
)
|
|
$
|
(0.46
|
)
|
|
$
|
(0.59
|
)
|
|
$
|
(0.89
|
)
|
Potentially dilutive securities excluded as anti-dilutive
|
5,185
|
|
|
5,095
|
|
|
4,750
|
|
|
5,152
|
|
|
|
7
.
|
Stock-Based Compensation Plans
|
We grant stock option and restricted stock awards with vesting based on time of service conditions. We grant restricted stock unit awards with vesting based on time of service conditions, and in certain cases, subject to performance and market conditions. In 2016, we granted phantom stock unit awards with vesting based on time of service, performance and market conditions, which were classified as liability awards under ASC Topic 718,
Compensation—Stock Compensation
since we expect to settle the awards in cash when they become vested.
We recognize compensation cost for our stock-based compensation awards based on the fair value estimated in accordance with ASC Topic 718
.
For our awards with graded vesting, we recognize compensation expense on a straight-line basis over the service period for each separately vesting portion of the award as if the award was, in substance, multiple awards.
We adopted ASU 2016-09 in the first quarter of 2017 and elected to prospectively recognize forfeitures when they occur, rather than estimating future forfeitures.
The following table summarizes the stock-based compensation expense recognized, by award type, and the compensation expense (benefit) recognized for phantom stock unit awards during the
three and six months
ended
June 30, 2017
and
2016
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Stock option awards
|
$
|
246
|
|
|
$
|
188
|
|
|
$
|
477
|
|
|
$
|
381
|
|
Restricted stock awards
|
117
|
|
|
103
|
|
|
229
|
|
|
190
|
|
Restricted stock unit awards
|
645
|
|
|
597
|
|
|
1,629
|
|
|
1,494
|
|
|
$
|
1,008
|
|
|
$
|
888
|
|
|
$
|
2,335
|
|
|
$
|
2,065
|
|
Phantom stock unit awards
|
$
|
(581
|
)
|
|
$
|
608
|
|
|
$
|
(481
|
)
|
|
$
|
726
|
|
Stock Options
We grant stock option awards which generally become exercisable over a
three
-year period and expire
ten
years after the date of grant. Our stock-based compensation plans require that all stock option awards have an exercise price that is not less than the fair market value of our common stock on the date of grant. We issue shares of our common stock when vested stock option awards are exercised.
We estimate the fair value of each option grant on the date of grant using a Black-Scholes option pricing model.
The following table summarizes the assumptions used in the Black-Scholes option pricing model based on a weighted-average calculation for the options granted during the
six months
ended
June 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
2017
|
|
2016
|
Expected volatility
|
76
|
%
|
|
70
|
%
|
Risk-free interest rates
|
2.1
|
%
|
|
1.5
|
%
|
Expected life in years
|
5.86
|
|
|
5.70
|
|
Options granted
|
268,185
|
|
905,966
|
Grant-date fair value
|
$4.28
|
|
$0.80
|
The assumptions used in the Black-Scholes option pricing model are based on multiple factors, including historical exercise patterns of homogeneous groups with respect to exercise and post-vesting employment termination behaviors, expected future exercising patterns for these same homogeneous groups and volatility of our stock price. As we have not declared dividends since we became a public company, we did not use a dividend yield. In each case, the actual value that will be realized, if any, will depend on the future performance of our common stock and overall stock market conditions. There is no assurance the value an optionee actually realizes will be at or near the value we have estimated using the Black-Scholes options-pricing model.
Restricted Stock and Restricted Stock Units
We grant restricted stock awards that vest over a
one
-year period with a fair value based on the closing price of our common stock on the date of the grant.
When restricted stock awards are granted, or when restricted stock unit awards are converted to restricted stock, shares of our common stock are considered issued, but subject to certain restrictions.
We grant restricted stock unit awards with vesting based on time of service conditions only (“time-based RSUs”), and we grant restricted stock unit awards with vesting based on time of service, which are also subject to performance and market conditions (“performance-based RSUs”). Shares of our common stock are issued to recipients of restricted stock units only when they have satisfied the applicable vesting conditions.
The following table summarizes the number and weighted-average grant-date fair value of the restricted stock and restricted stock unit awards granted during the
three and six months
ended
June 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Restricted Stock:
|
|
|
|
|
|
|
|
Restricted stock awards granted
|
167,272
|
|
|
166,664
|
|
|
167,272
|
|
|
166,664
|
|
Weighted-average grant-date fair value
|
$
|
2.75
|
|
|
$
|
2.76
|
|
|
$
|
2.75
|
|
|
$
|
2.76
|
|
Time-based RSUs:
|
|
|
|
|
|
|
|
Time-based RSUs granted
|
30,000
|
|
|
28,500
|
|
|
96,728
|
|
|
260,334
|
|
Weighted-average grant-date fair value
|
$
|
4.00
|
|
|
$
|
2.88
|
|
|
$
|
5.61
|
|
|
$
|
1.48
|
|
Performance-based RSUs:
|
|
|
|
|
|
|
|
Performance-based RSUs granted
|
—
|
|
|
—
|
|
|
563,469
|
|
|
—
|
|
Weighted-average grant-date fair value
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7.75
|
|
|
$
|
—
|
|
Our time-based RSUs generally vest over a
three
-year period, with fair values based on the closing price of our common stock on the date of grant.
Our performance-based RSUs generally cliff vest after
39
months from the date of grant and are granted at a target number of issuable shares, for which the final number of shares of common stock is adjusted based on our actual achievement levels that are measured against predetermined performance conditions. The number of shares of common stock awarded will be based upon the Company’s achievement in certain performance conditions, as compared to a predefined peer group, over the performance period, generally
three
years.
Approximately
half
of the performance-based RSUs outstanding are subject to a market condition based on relative total shareholder return, as compared to that of our predetermined peer group, and therefore the fair value of these awards is measured using a Monte Carlo simulation model. Compensation expense for equity awards with a market condition is reduced only for actual forfeitures; no adjustment to expense is otherwise made, regardless of the number of shares issued. The remaining performance-based RSUs are subject to performance conditions, based on our EBITDA and EBITDA return on capital employed, relative to our predetermined peer group, and therefore the fair value is based on the closing price of our common stock on the date of grant, applied to the estimated number of shares that will be awarded. Compensation expense ultimately recognized for awards with performance conditions will be equal to the fair value of the restricted stock unit award based on the actual outcome of the service and performance conditions.
In
April 2017
, we determined that
121%
of the target number of shares granted during
2014
were actually earned based on the Company’s achievement of the performance measures as described above
.
As of
June 30, 2017
, we estimate that the weighted average achievement level for our outstanding performance-based RSUs granted in 2015 and 2017 will be approximately
98%
of the predetermined performance conditions
.
Phantom Stock Unit Awards
In 2016, we granted
1,268,068
phantom stock unit awards with a weighted-average grant-date fair value of
$1.35
per share. These awards cliff-vest after
39
months from the date of grant, with vesting based on time of service, performance and market conditions.
The number of units ultimately awarded will be based upon the Company’s achievement in certain performance conditions, as compared to a predefined peer group, over the
three
-year performance period, and each unit awarded will entitle the employee to a cash payment equal to the stock price of our common stock on the date of vesting, subject to a maximum of
$8.08
(which is four times the stock price on the date of grant).
The fair value of these awards is measured using inputs that are defined as Level 3 inputs under ASC Topic 820,
Fair Value Measurements and Disclosures
.
Approximately half of the phantom stock unit awards granted are subject to a market condition based on relative total shareholder return, as compared to that of our predetermined peer group, and therefore the fair value of these awards is measured using a Monte Carlo simulation model. The remaining phantom stock unit awards are subject to performance conditions, based on our EBITDA and EBITDA return on capital employed, relative to our predetermined peer group, and the fair value of these awards is measured using a Black-Scholes pricing model.
As of
June 30, 2017
, our achievement level for the awards granted during 2016 is estimated to be approximately
130%
. The final
payout percentage will be based on our performance versus the performance of our peer group, over the three year period ending December 31, 2018.
These
awards are classified as liability awards under ASC Topic 718,
Compensation—Stock Compensation
, because we expect to settle the awards in cash when they vest, and are remeasured at fair value at the end of each reporting period until they vest. The change in fair value is recognized as a current period compensation cost in our statement of operations.
Therefore, changes in the inputs used to measure fair value can result in volatility in our compensation cost. This volatility increases as the phantom stock awards approach the vesting date.
We estimate that a hypothetical increase of
$1
in the market price of our common stock as of
June 30, 2017
, if all other inputs were unchanged, would result in an increase in cumulative compensation cost of
$0.7 million
, which represents the hypothetical increase in fair value of the liability which would be recognized as compensation cost in our statement of operations.
We have
two
operating segments referred to as the Production Services Segment and the Drilling Services Segment which is the basis management uses for making operating decisions and assessing performance.
Our Production Services Segment provides a range of services
, including well servicing, wireline services and coiled tubing services,
to a diverse group of exploration and production companies, with our operations concentrated in the major United States onshore oil and gas producing regions in the Mid-Continent and Rocky Mountain states and in the Gulf Coast, both onshore and offshore.
Our Drilling Services Segment provides contract land drilling services to a diverse group of exploration and production companies through our
four
drilling divisions in the US and internationally in Colombia.
In addition to our drilling rigs, we provide the drilling crews and most of the ancillary equipment needed to operate our drilling rigs.
The following table sets forth certain financial information for our
two
operating segments and corporate as of and for the
three and six months
ended
June 30, 2017
and
2016
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the three months ended June 30,
|
|
As of and for the six months ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Production Services Segment:
|
|
|
|
|
|
|
|
Revenues
|
$
|
68,351
|
|
|
$
|
34,331
|
|
|
$
|
125,092
|
|
|
$
|
76,099
|
|
Operating costs
|
52,733
|
|
|
28,742
|
|
|
98,374
|
|
|
63,591
|
|
Segment margin
|
$
|
15,618
|
|
|
$
|
5,589
|
|
|
$
|
26,718
|
|
|
$
|
12,508
|
|
Identifiable assets
|
$
|
249,823
|
|
|
$
|
256,284
|
|
|
$
|
249,823
|
|
|
$
|
256,284
|
|
Depreciation and amortization
|
11,541
|
|
|
13,188
|
|
|
23,132
|
|
|
27,002
|
|
Capital expenditures
|
6,490
|
|
|
2,953
|
|
|
24,118
|
|
|
6,242
|
|
|
|
|
|
|
|
|
|
Drilling Services Segment:
|
|
|
|
|
|
|
|
Revenues
|
$
|
38,779
|
|
|
$
|
27,959
|
|
|
$
|
77,795
|
|
|
$
|
61,143
|
|
Operating costs
|
26,348
|
|
|
14,773
|
|
|
53,455
|
|
|
32,213
|
|
Segment margin
|
$
|
12,431
|
|
|
$
|
13,186
|
|
|
$
|
24,340
|
|
|
$
|
28,930
|
|
Identifiable assets
|
$
|
445,788
|
|
|
$
|
478,799
|
|
|
$
|
445,788
|
|
|
$
|
478,799
|
|
Depreciation and amortization
|
12,891
|
|
|
15,408
|
|
|
25,992
|
|
|
31,086
|
|
Capital expenditures
|
7,657
|
|
|
5,437
|
|
|
17,495
|
|
|
7,545
|
|
|
|
|
|
|
|
|
|
Corporate:
|
|
|
|
|
|
|
|
Identifiable assets
|
$
|
12,930
|
|
|
$
|
15,441
|
|
|
$
|
12,930
|
|
|
$
|
15,441
|
|
Depreciation and amortization
|
308
|
|
|
326
|
|
|
608
|
|
|
658
|
|
Capital expenditures
|
230
|
|
|
79
|
|
|
371
|
|
|
175
|
|
Total:
|
|
|
|
|
|
|
|
Revenues
|
$
|
107,130
|
|
|
$
|
62,290
|
|
|
$
|
202,887
|
|
|
$
|
137,242
|
|
Operating costs
|
79,081
|
|
|
43,515
|
|
|
151,829
|
|
|
95,804
|
|
Consolidated margin
|
$
|
28,049
|
|
|
$
|
18,775
|
|
|
$
|
51,058
|
|
|
$
|
41,438
|
|
Identifiable assets
|
$
|
708,541
|
|
|
$
|
750,524
|
|
|
$
|
708,541
|
|
|
$
|
750,524
|
|
Depreciation and amortization
|
24,740
|
|
|
28,922
|
|
|
49,732
|
|
|
58,746
|
|
Capital expenditures
|
14,377
|
|
|
8,469
|
|
|
41,984
|
|
|
13,962
|
|
The following table reconciles the
consolidated
margin of our two operating segments and corporate
reported above to income (loss) from operations as reported on the
condensed consolidated
statements of operations for the
three and six months
ended
June 30, 2017
and
2016
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Consolidated margin
|
$
|
28,049
|
|
|
$
|
18,775
|
|
|
$
|
51,058
|
|
|
$
|
41,438
|
|
Depreciation and amortization
|
(24,740
|
)
|
|
(28,922
|
)
|
|
(49,732
|
)
|
|
(58,746
|
)
|
General and administrative
|
(16,090
|
)
|
|
(15,258
|
)
|
|
(33,814
|
)
|
|
(31,766
|
)
|
Bad debt (expense) recovery
|
226
|
|
|
(112
|
)
|
|
589
|
|
|
(57
|
)
|
Impairment charges
|
(795
|
)
|
|
—
|
|
|
(795
|
)
|
|
—
|
|
Gain (loss) on dispositions of property and equipment, net
|
621
|
|
|
(508
|
)
|
|
1,092
|
|
|
92
|
|
Loss from operations
|
$
|
(12,729
|
)
|
|
$
|
(26,025
|
)
|
|
$
|
(31,602
|
)
|
|
$
|
(49,039
|
)
|
The following table sets forth certain financial information for our international operations in Colombia as of and for the
three and six months
ended
June 30, 2017
and
2016
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the three months ended June 30,
|
|
As of and for the six months ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Revenues
|
$
|
8,305
|
|
|
$
|
261
|
|
|
$
|
18,976
|
|
|
$
|
1,357
|
|
Identifiable assets
(1)
|
33,468
|
|
|
42,347
|
|
|
33,468
|
|
|
42,347
|
|
|
|
(1)
|
Identifiable assets for our international operations in Colombia include
five
drilling rigs that are owned by our Colombia subsidiary and
three
drilling rigs that are owned by one of our domestic subsidiaries and leased to our Colombia subsidiary.
|
|
|
9
.
|
Commitments and Contingencies
|
In connection with our operations in Colombia, our foreign subsidiaries have obtained bonds for bidding on drilling contracts, performing under drilling contracts, and remitting customs and importation duties. We have guaranteed payments of
$35.0 million
relating to our performance under these bonds as of
June 30, 2017
.
We are currently undergoing sales and use tax audits for multi-year periods and we are working to resolve all relevant issues.
As of
June 30, 2017
and
December 31, 2016
,
our accrued liability was
$1.0 million
and
$0.6 million
, respectively,
based on our estimate of the sales and use tax obligations that are expected to result from these audits
.
Due to the inherent uncertainty of the audit process, we believe that it is reasonably possible that we may incur additional tax assessments with respect to one or more of the audits in excess of the amount accrued. We believe that such an outcome would not have a material adverse effect on our results of operations or financial position. Because certain of these audits are in a preliminary stage, an estimate of the possible loss or range of loss from an adverse result in all or substantially all of these cases cannot reasonably be made.
Due to the nature of our business, we are, from time to time, involved in litigation or subject to disputes or claims related to our business activities, including workers’ compensation claims and employment-related disputes. Legal costs relating to these matters are expensed as incurred. In the opinion of our management, none of the pending litigation, disputes or claims against us will have a material adverse effect on our financial condition, results of operations or cash flow from operations.
|
|
10
.
|
Guarantor/Non-Guarantor Condensed Consolidating Financial Statements
|
Our Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by all existing
100%
owned domestic subsidiaries, except for Pioneer Services Holdings, LLC.
The subsidiaries that generally operate our non-U.S. business concentrated in Colombia do not guarantee our Senior Notes.
The non-guarantor subsidiaries do not have any payment obligations under the Senior Notes, the guarantees or the Indenture.
In the event of a bankruptcy, liquidation or reorganization of any non-guarantor subsidiary, such non-guarantor subsidiary will pay the holders of its debt and other liabilities, including its trade creditors, before it will be able to distribute any of its assets to us. In the future, any non-U.S. subsidiaries, immaterial subsidiaries and subsidiaries that we designate as unrestricted subsidiaries under the Indenture will not guarantee the Senior Notes. As of
June 30, 2017
, there were no restrictions on the ability of subsidiary guarantors to transfer funds to the parent company.
As a result of the guarantee arrangements, we are presenting the following condensed consolidating balance sheets, statements of operations and statements of cash flows of the issuer, the guarantor subsidiaries and the non-guarantor subsidiaries.
CONDENSED CONSOLIDATING BALANCE SHEETS
(unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
8,511
|
|
|
$
|
(2,665
|
)
|
|
$
|
1,048
|
|
|
$
|
—
|
|
|
$
|
6,894
|
|
Receivables, net of allowance
|
4
|
|
|
76,010
|
|
|
14,871
|
|
|
(36
|
)
|
|
90,849
|
|
Intercompany receivable (payable)
|
(24,836
|
)
|
|
45,138
|
|
|
(20,302
|
)
|
|
—
|
|
|
—
|
|
Inventory
|
—
|
|
|
6,348
|
|
|
5,463
|
|
|
—
|
|
|
11,811
|
|
Assets held for sale
|
—
|
|
|
11,052
|
|
|
52
|
|
|
—
|
|
|
11,104
|
|
Prepaid expenses and other current assets
|
1,691
|
|
|
4,074
|
|
|
1,524
|
|
|
—
|
|
|
7,289
|
|
Total current assets
|
(14,630
|
)
|
|
139,957
|
|
|
2,656
|
|
|
(36
|
)
|
|
127,947
|
|
Net property and equipment
|
2,262
|
|
|
552,260
|
|
|
24,508
|
|
|
—
|
|
|
579,030
|
|
Investment in subsidiaries
|
585,947
|
|
|
22,653
|
|
|
—
|
|
|
(608,600
|
)
|
|
—
|
|
Deferred income taxes
|
58,460
|
|
|
—
|
|
|
—
|
|
|
(58,460
|
)
|
|
—
|
|
Other long-term assets
|
459
|
|
|
917
|
|
|
188
|
|
|
—
|
|
|
1,564
|
|
Total assets
|
$
|
632,498
|
|
|
$
|
715,787
|
|
|
$
|
27,352
|
|
|
$
|
(667,096
|
)
|
|
$
|
708,541
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
926
|
|
|
$
|
25,721
|
|
|
$
|
1,732
|
|
|
$
|
—
|
|
|
$
|
28,379
|
|
Deferred revenues
|
—
|
|
|
628
|
|
|
381
|
|
|
—
|
|
|
1,009
|
|
Accrued expenses
|
9,040
|
|
|
34,198
|
|
|
2,553
|
|
|
(36
|
)
|
|
45,755
|
|
Total current liabilities
|
9,966
|
|
|
60,547
|
|
|
4,666
|
|
|
(36
|
)
|
|
75,143
|
|
Long-term debt, less debt issuance costs
|
383,098
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
383,098
|
|
Deferred income taxes
|
—
|
|
|
67,409
|
|
|
—
|
|
|
(58,460
|
)
|
|
8,949
|
|
Other long-term liabilities
|
1,569
|
|
|
1,884
|
|
|
33
|
|
|
—
|
|
|
3,486
|
|
Total liabilities
|
394,633
|
|
|
129,840
|
|
|
4,699
|
|
|
(58,496
|
)
|
|
470,676
|
|
Total shareholders’ equity
|
237,865
|
|
|
585,947
|
|
|
22,653
|
|
|
(608,600
|
)
|
|
237,865
|
|
Total liabilities and shareholders’ equity
|
$
|
632,498
|
|
|
$
|
715,787
|
|
|
$
|
27,352
|
|
|
$
|
(667,096
|
)
|
|
$
|
708,541
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
9,898
|
|
|
$
|
(764
|
)
|
|
$
|
1,060
|
|
|
$
|
—
|
|
|
$
|
10,194
|
|
Receivables, net of allowance
|
480
|
|
|
64,946
|
|
|
7,210
|
|
|
(513
|
)
|
|
72,123
|
|
Intercompany receivable (payable)
|
(24,836
|
)
|
|
35,427
|
|
|
(10,591
|
)
|
|
—
|
|
|
—
|
|
Inventory
|
—
|
|
|
5,659
|
|
|
4,001
|
|
|
—
|
|
|
9,660
|
|
Assets held for sale
|
—
|
|
|
15,035
|
|
|
58
|
|
|
—
|
|
|
15,093
|
|
Prepaid expenses and other current assets
|
1,280
|
|
|
4,014
|
|
|
1,632
|
|
|
—
|
|
|
6,926
|
|
Total current assets
|
(13,178
|
)
|
|
124,317
|
|
|
3,370
|
|
|
(513
|
)
|
|
113,996
|
|
Net property and equipment
|
2,501
|
|
|
556,062
|
|
|
25,517
|
|
|
—
|
|
|
584,080
|
|
Investment in subsidiaries
|
577,965
|
|
|
24,270
|
|
|
—
|
|
|
(602,235
|
)
|
|
—
|
|
Deferred income taxes
|
65,041
|
|
|
—
|
|
|
—
|
|
|
(65,041
|
)
|
|
—
|
|
Other long-term assets
|
583
|
|
|
1,029
|
|
|
414
|
|
|
—
|
|
|
2,026
|
|
Total assets
|
$
|
632,912
|
|
|
$
|
705,678
|
|
|
$
|
29,301
|
|
|
$
|
(667,789
|
)
|
|
$
|
700,102
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
546
|
|
|
$
|
16,317
|
|
|
$
|
2,345
|
|
|
$
|
—
|
|
|
$
|
19,208
|
|
Deferred revenues
|
—
|
|
|
680
|
|
|
769
|
|
|
—
|
|
|
1,449
|
|
Accrued expenses
|
9,316
|
|
|
34,765
|
|
|
1,777
|
|
|
(513
|
)
|
|
45,345
|
|
Total current liabilities
|
9,862
|
|
|
51,762
|
|
|
4,891
|
|
|
(513
|
)
|
|
66,002
|
|
Long-term debt, less debt issuance costs
|
339,473
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
339,473
|
|
Deferred income taxes
|
—
|
|
|
73,249
|
|
|
(28
|
)
|
|
(65,041
|
)
|
|
8,180
|
|
Other long-term liabilities
|
2,179
|
|
|
2,702
|
|
|
168
|
|
|
—
|
|
|
5,049
|
|
Total liabilities
|
351,514
|
|
|
127,713
|
|
|
5,031
|
|
|
(65,554
|
)
|
|
418,704
|
|
Total shareholders’ equity
|
281,398
|
|
|
577,965
|
|
|
24,270
|
|
|
(602,235
|
)
|
|
281,398
|
|
Total liabilities and shareholders’ equity
|
$
|
632,912
|
|
|
$
|
705,678
|
|
|
$
|
29,301
|
|
|
$
|
(667,789
|
)
|
|
$
|
700,102
|
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2017
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Revenues
|
$
|
—
|
|
|
$
|
98,824
|
|
|
$
|
8,306
|
|
|
$
|
—
|
|
|
$
|
107,130
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
Operating costs
|
—
|
|
|
73,114
|
|
|
5,967
|
|
|
—
|
|
|
79,081
|
|
Depreciation and amortization
|
307
|
|
|
23,076
|
|
|
1,357
|
|
|
—
|
|
|
24,740
|
|
General and administrative
|
4,941
|
|
|
10,811
|
|
|
476
|
|
|
(138
|
)
|
|
16,090
|
|
Intercompany leasing
|
—
|
|
|
(1,215
|
)
|
|
1,215
|
|
|
—
|
|
|
—
|
|
Bad debt recovery
|
—
|
|
|
(226
|
)
|
|
—
|
|
|
—
|
|
|
(226
|
)
|
Impairment charges
|
—
|
|
|
795
|
|
|
—
|
|
|
—
|
|
|
795
|
|
Loss (gain) on dispositions of property and equipment, net
|
2
|
|
|
(511
|
)
|
|
(112
|
)
|
|
—
|
|
|
(621
|
)
|
Total costs and expenses
|
5,250
|
|
|
105,844
|
|
|
8,903
|
|
|
(138
|
)
|
|
119,859
|
|
Income (loss) from operations
|
(5,250
|
)
|
|
(7,020
|
)
|
|
(597
|
)
|
|
138
|
|
|
(12,729
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries
|
(6,283
|
)
|
|
(883
|
)
|
|
—
|
|
|
7,166
|
|
|
—
|
|
Interest expense
|
(6,480
|
)
|
|
62
|
|
|
—
|
|
|
—
|
|
|
(6,418
|
)
|
Other
|
12
|
|
|
245
|
|
|
(46
|
)
|
|
(138
|
)
|
|
73
|
|
Total other income (expense)
|
(12,751
|
)
|
|
(576
|
)
|
|
(46
|
)
|
|
7,028
|
|
|
(6,345
|
)
|
Income (loss) before income taxes
|
(18,001
|
)
|
|
(7,596
|
)
|
|
(643
|
)
|
|
7,166
|
|
|
(19,074
|
)
|
Income tax (expense) benefit
1
|
(2,208
|
)
|
|
1,313
|
|
|
(240
|
)
|
|
—
|
|
|
(1,135
|
)
|
Net income (loss)
|
$
|
(20,209
|
)
|
|
$
|
(6,283
|
)
|
|
$
|
(883
|
)
|
|
$
|
7,166
|
|
|
$
|
(20,209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2016
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Revenues
|
$
|
—
|
|
|
$
|
62,029
|
|
|
$
|
261
|
|
|
$
|
—
|
|
|
$
|
62,290
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
Operating costs
|
—
|
|
|
42,395
|
|
|
1,120
|
|
|
—
|
|
|
43,515
|
|
Depreciation and amortization
|
325
|
|
|
26,867
|
|
|
1,730
|
|
|
—
|
|
|
28,922
|
|
General and administrative
|
5,393
|
|
|
9,496
|
|
|
507
|
|
|
(138
|
)
|
|
15,258
|
|
Intercompany leasing
|
—
|
|
|
(1,215
|
)
|
|
1,215
|
|
|
—
|
|
|
—
|
|
Bad debt expense
|
—
|
|
|
112
|
|
|
—
|
|
|
—
|
|
|
112
|
|
Loss (gain) on dispositions of property and equipment, net
|
—
|
|
|
514
|
|
|
(6
|
)
|
|
—
|
|
|
508
|
|
Total costs and expenses
|
5,718
|
|
|
78,169
|
|
|
4,566
|
|
|
(138
|
)
|
|
88,315
|
|
Income (loss) from operations
|
(5,718
|
)
|
|
(16,140
|
)
|
|
(4,305
|
)
|
|
138
|
|
|
(26,025
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries
|
(18,210
|
)
|
|
(4,344
|
)
|
|
—
|
|
|
22,554
|
|
|
—
|
|
Interest expense
|
(6,325
|
)
|
|
(52
|
)
|
|
2
|
|
|
—
|
|
|
(6,375
|
)
|
Loss on extinguishment of debt
|
(299
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(299
|
)
|
Other
|
5
|
|
|
685
|
|
|
166
|
|
|
(138
|
)
|
|
718
|
|
Total other income (expense)
|
(24,829
|
)
|
|
(3,711
|
)
|
|
168
|
|
|
22,416
|
|
|
(5,956
|
)
|
Income (loss) before income taxes
|
(30,547
|
)
|
|
(19,851
|
)
|
|
(4,137
|
)
|
|
22,554
|
|
|
(31,981
|
)
|
Income tax (expense) benefit
1
|
556
|
|
|
1,641
|
|
|
(207
|
)
|
|
—
|
|
|
1,990
|
|
Net income (loss)
|
$
|
(29,991
|
)
|
|
$
|
(18,210
|
)
|
|
$
|
(4,344
|
)
|
|
$
|
22,554
|
|
|
$
|
(29,991
|
)
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2017
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Revenues
|
$
|
—
|
|
|
$
|
183,910
|
|
|
$
|
18,977
|
|
|
$
|
—
|
|
|
$
|
202,887
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
Operating costs
|
—
|
|
|
138,269
|
|
|
13,560
|
|
|
—
|
|
|
151,829
|
|
Depreciation and amortization
|
608
|
|
|
46,145
|
|
|
2,979
|
|
|
—
|
|
|
49,732
|
|
General and administrative
|
10,770
|
|
|
22,394
|
|
|
926
|
|
|
(276
|
)
|
|
33,814
|
|
Intercompany leasing
|
—
|
|
|
(2,430
|
)
|
|
2,430
|
|
|
—
|
|
|
—
|
|
Bad debt recovery
|
—
|
|
|
(589
|
)
|
|
—
|
|
|
—
|
|
|
(589
|
)
|
Impairment charges
|
—
|
|
|
795
|
|
|
—
|
|
|
—
|
|
|
795
|
|
Loss (gain) on dispositions of property and equipment, net
|
2
|
|
|
(967
|
)
|
|
(127
|
)
|
|
—
|
|
|
(1,092
|
)
|
Total costs and expenses
|
11,380
|
|
|
203,617
|
|
|
19,768
|
|
|
(276
|
)
|
|
234,489
|
|
Income (loss) from operations
|
(11,380
|
)
|
|
(19,707
|
)
|
|
(791
|
)
|
|
276
|
|
|
(31,602
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries
|
(14,868
|
)
|
|
(1,531
|
)
|
|
—
|
|
|
16,399
|
|
|
—
|
|
Interest expense
|
(12,496
|
)
|
|
19
|
|
|
—
|
|
|
—
|
|
|
(12,477
|
)
|
Other
|
28
|
|
|
458
|
|
|
(281
|
)
|
|
(276
|
)
|
|
(71
|
)
|
Total other income (expense)
|
(27,336
|
)
|
|
(1,054
|
)
|
|
(281
|
)
|
|
16,123
|
|
|
(12,548
|
)
|
Income (loss) before income taxes
|
(38,716
|
)
|
|
(20,761
|
)
|
|
(1,072
|
)
|
|
16,399
|
|
|
(44,150
|
)
|
Income tax (expense) benefit
1
|
(6,617
|
)
|
|
5,893
|
|
|
(459
|
)
|
|
—
|
|
|
(1,183
|
)
|
Net income (loss)
|
$
|
(45,333
|
)
|
|
$
|
(14,868
|
)
|
|
$
|
(1,531
|
)
|
|
$
|
16,399
|
|
|
$
|
(45,333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2016
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Revenues
|
$
|
—
|
|
|
$
|
135,885
|
|
|
$
|
1,357
|
|
|
$
|
—
|
|
|
$
|
137,242
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
Operating costs
|
—
|
|
|
92,705
|
|
|
3,099
|
|
|
—
|
|
|
95,804
|
|
Depreciation and amortization
|
657
|
|
|
54,598
|
|
|
3,491
|
|
|
—
|
|
|
58,746
|
|
General and administrative
|
11,278
|
|
|
20,044
|
|
|
720
|
|
|
(276
|
)
|
|
31,766
|
|
Intercompany leasing
|
—
|
|
|
(2,430
|
)
|
|
2,430
|
|
|
—
|
|
|
—
|
|
Bad debt expense
|
—
|
|
|
57
|
|
|
—
|
|
|
—
|
|
|
57
|
|
Gain on dispositions of property and equipment, net
|
—
|
|
|
(41
|
)
|
|
(51
|
)
|
|
—
|
|
|
(92
|
)
|
Total costs and expenses
|
11,935
|
|
|
164,933
|
|
|
9,689
|
|
|
(276
|
)
|
|
186,281
|
|
Income (loss) from operations
|
(11,935
|
)
|
|
(29,048
|
)
|
|
(8,332
|
)
|
|
276
|
|
|
(49,039
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries
|
(34,627
|
)
|
|
(9,190
|
)
|
|
—
|
|
|
43,817
|
|
|
—
|
|
Interest expense
|
(12,559
|
)
|
|
(74
|
)
|
|
4
|
|
|
—
|
|
|
(12,629
|
)
|
Loss on extinguishment of debt
|
(299
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(299
|
)
|
Other
|
(2
|
)
|
|
1,005
|
|
|
(398
|
)
|
|
(276
|
)
|
|
329
|
|
Total other income (expense)
|
(47,487
|
)
|
|
(8,259
|
)
|
|
(394
|
)
|
|
43,541
|
|
|
(12,599
|
)
|
Income (loss) before income taxes
|
(59,422
|
)
|
|
(37,307
|
)
|
|
(8,726
|
)
|
|
43,817
|
|
|
(61,638
|
)
|
Income tax (expense) benefit
1
|
1,732
|
|
|
2,680
|
|
|
(464
|
)
|
|
—
|
|
|
3,948
|
|
Net income (loss)
|
$
|
(57,690
|
)
|
|
$
|
(34,627
|
)
|
|
$
|
(9,190
|
)
|
|
$
|
43,817
|
|
|
$
|
(57,690
|
)
|
|
|
|
|
|
|
|
|
|
|
1
The income tax expense (benefit) reflected in each column does not include any tax effect of the equity in earnings (losses) of subsidiaries.
|
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2017
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Cash flows from operating activities
|
$
|
(21,031
|
)
|
|
$
|
2,799
|
|
|
$
|
1,935
|
|
|
$
|
—
|
|
|
$
|
(16,297
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
(317
|
)
|
|
(37,904
|
)
|
|
(2,081
|
)
|
|
270
|
|
|
(40,032
|
)
|
Proceeds from sale of property and equipment
|
—
|
|
|
7,869
|
|
|
149
|
|
|
(270
|
)
|
|
7,748
|
|
Proceeds from insurance recoveries
|
—
|
|
|
3,119
|
|
|
—
|
|
|
—
|
|
|
3,119
|
|
|
(317
|
)
|
|
(26,916
|
)
|
|
(1,932
|
)
|
|
—
|
|
|
(29,165
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Debt repayments
|
(12,305
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,305
|
)
|
Proceeds from issuance of debt
|
55,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
55,000
|
|
Purchase of treasury stock
|
(533
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(533
|
)
|
Intercompany contributions/distributions
|
(22,201
|
)
|
|
22,216
|
|
|
(15
|
)
|
|
—
|
|
|
—
|
|
|
19,961
|
|
|
22,216
|
|
|
(15
|
)
|
|
—
|
|
|
42,162
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
(1,387
|
)
|
|
(1,901
|
)
|
|
(12
|
)
|
|
—
|
|
|
(3,300
|
)
|
Beginning cash and cash equivalents
|
9,898
|
|
|
(764
|
)
|
|
1,060
|
|
|
—
|
|
|
10,194
|
|
Ending cash and cash equivalents
|
$
|
8,511
|
|
|
$
|
(2,665
|
)
|
|
$
|
1,048
|
|
|
$
|
—
|
|
|
$
|
6,894
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2016
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Cash flows from operating activities
|
$
|
(22,636
|
)
|
|
$
|
33,298
|
|
|
$
|
2,934
|
|
|
$
|
—
|
|
|
$
|
13,596
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
(148
|
)
|
|
(12,819
|
)
|
|
(273
|
)
|
|
—
|
|
|
(13,240
|
)
|
Proceeds from sale of property and equipment
|
—
|
|
|
761
|
|
|
51
|
|
|
—
|
|
|
812
|
|
|
(148
|
)
|
|
(12,058
|
)
|
|
(222
|
)
|
|
—
|
|
|
(12,428
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Debt issuance costs
|
(809
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(809
|
)
|
Proceeds from exercise of options
|
183
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
183
|
|
Purchase of treasury stock
|
(124
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(124
|
)
|
Intercompany contributions/distributions
|
16,841
|
|
|
(16,740
|
)
|
|
(101
|
)
|
|
—
|
|
|
—
|
|
|
16,091
|
|
|
(16,740
|
)
|
|
(101
|
)
|
|
—
|
|
|
(750
|
)
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
(6,693
|
)
|
|
4,500
|
|
|
2,611
|
|
|
—
|
|
|
418
|
|
Beginning cash and cash equivalents
|
17,221
|
|
|
(5,612
|
)
|
|
2,551
|
|
|
—
|
|
|
14,160
|
|
Ending cash and cash equivalents
|
$
|
10,528
|
|
|
$
|
(1,112
|
)
|
|
$
|
5,162
|
|
|
$
|
—
|
|
|
$
|
14,578
|
|
|
|