Notes to Consolidated Financial Statements
March 31, 2016
(unaudited)
1. Basis of Presentation and Nature of Operations
Basis of Presentation
The accompanying unaudited consolidated financial statements of Basic Energy Services, Inc. and subsidiaries (“Basic” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (
“
GAAP
”
) for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.
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 in accordance with GAAP and financial statement requirements promulgated by the U.S. Securities and Exchange Commission (“SEC”).
The notes to the consolidated financial statements (unaudited) should be read in conjunction with the notes to the consolidated financial statements contained in
our Annual Report on Form 10-K for the year ended
December 31,
201
5
.
In the opinion of management, all adjustments which are of a normal recurring nature considered necessary for a fair presentation have been made in the accompanying unaudited financial statements.
Nature of Operation
s
Basic provides a wide range of well site services to oil and natural gas drilling and producing companies
, including completion and remedial services, fluid services, well servicing and contract drilling. These services are primarily provided using Basic’s fleet of equipment. Basic’s operations are concentrated in the major United States onshore oil and gas producing regions in Texas, New Mexico, Oklahoma, Arkansas, Kansas, Louisiana, Wyoming, North Dakota, Colorado,
Utah, Montana, West Virginia, Ohio, California
, Kentucky
and Pennsylvania.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Basic and its wholly owned subsidiaries. Basic has no variable interest in any other organization, entity, partnership or contract. All intercompany transactions and balances have been eliminated.
Estimates and Uncertainties
Preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
Management uses historical and other pertinent information to determine these estimates.
Actual results could differ from those estimates. Areas where critical accounting estimates are made by management include:
|
·
|
|
Depreciation and amortization of property and equipment and intangible assets
|
|
·
|
|
Impair
ment of property and equipment
and intangible assets
|
|
·
|
|
Allowance for doubtful accounts
|
|
·
|
|
Litigation and self-insured risk reserves
|
|
·
|
|
Fair value of assets acquired and liabilities assumed
in an acquisition
|
|
·
|
|
Stock-based compensation
|
2. Acquisitions
In
201
5,
Basic acquired substantially all of the assets of the following business
es
, which w
ere
accounted for using the purchase method of accounting.
The following table summarizes
the
values for the acquisition
s
at the date of
each
acquisition (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash Paid
|
|
Closing Date
|
|
(net of cash acquired)
|
|
|
|
|
|
Harbor Resources, LLC
|
July 17, 2015
|
|
$
|
4,500
|
Aerion Rental, LLC
|
July 24, 2015
|
|
$
|
1,997
|
Grey Rock Pressure Pumping, LLC
|
August 31, 2015
|
|
$
|
10,233
|
Total 2015
|
|
|
$
|
16,730
|
The operations of the acquisition
s
listed above are included in Basic’s
consolidated
statement of operations as of
the
each respective
closing date.
The pro forma effect of the acquisition
s
completed
during
2015
were
not material, either individually or when aggregated, to the reported results of operations. The provisional value used with respect to Harbor Resources, LLC, Aerion Rental, LLC and Grey
Rock Pressure Pumping, LLC will be finalized once the valuation of the tangible and intangible assets is complete
.
Basic did not make any material acquisitions during the first three months of 2016.
3. Goodwill and Other Intangible Assets
During 2015, as a result of t
he Company
’s assessment of goodwill, we
impaired all existing
goodwill.
The Company had no additions to goodwill for the three months ended March 31, 2016.
Basic’s intangibl
e assets
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
Customer relationships
|
|
$
|
92,660
|
|
$
|
92,660
|
Non-compete agreements
|
|
|
13,057
|
|
|
13,057
|
Trade names
|
|
|
1,939
|
|
|
1,939
|
Other intangible assets
|
|
|
2,085
|
|
|
2,086
|
|
|
|
109,741
|
|
|
109,742
|
Less accumulated amortization
|
|
|
45,223
|
|
|
42,997
|
Intangible assets subject to amortization, net
|
|
$
|
64,518
|
|
$
|
66,745
|
Amortization expense
was approximately
$2.2
million
for
each of
the three months ended
March 31, 2016
and 201
5
.
Intangible assets, net of accumulated amortization allocated to reporting units as of
March 31, 2016
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
And Remedial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
Well Servicing
|
|
Fluid Services
|
|
Contract Drilling
|
|
Total
|
Intangible assets subject to amortization, net
|
$
|
48,043
|
|
$
|
5,769
|
|
$
|
7,885
|
|
$
|
2,821
|
|
$
|
64,518
|
Customer relationships are amortized over a
15
-year life, non-compete agreements are amortized over a
five
-year life, and other intangible assets are amortized over a
15
-year life.
4. Property and Equipment
Property and equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
Land
|
$
|
20,168
|
|
$
|
19,893
|
Buildings and improvements
|
|
75,182
|
|
|
73,599
|
Well service units and equipment
|
|
488,259
|
|
|
488,003
|
Frac equipment/test tanks
|
|
363,071
|
|
|
363,346
|
Pumping equipment
|
|
344,873
|
|
|
345,938
|
Fluid services equipment
|
|
269,653
|
|
|
268,249
|
Disposal facilities
|
|
165,481
|
|
|
166,371
|
Contract drilling equipment
|
|
112,176
|
|
|
112,068
|
Rental equipment
|
|
95,717
|
|
|
94,970
|
Light vehicles
|
|
67,300
|
|
|
67,521
|
Software
|
|
21,920
|
|
|
21,920
|
Other
|
|
16,471
|
|
|
16,672
|
Construction equipment
|
|
15,050
|
|
|
15,174
|
Brine and fresh water stations
|
|
13,850
|
|
|
13,761
|
|
|
2,069,171
|
|
|
2,067,485
|
Less accumulated depreciation and amortization
|
|
1,271,198
|
|
|
1,221,195
|
Property and equipment, net
|
$
|
797,973
|
|
$
|
846,290
|
Basic is obligated under various capital leases for certain vehicles and equipment that expire at various dates during the next
five
years. The gross amount of property and equipment and related accumulated amortization recorded under capital leases and included above consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
Fluid services equipment
|
$
|
125,605
|
|
$
|
129,459
|
Pumping equipment
|
|
42,440
|
|
|
43,573
|
Light vehicles
|
|
30,719
|
|
|
33,424
|
Contract drilling equipment
|
|
5,840
|
|
|
6,493
|
Well service units and equipment
|
|
605
|
|
|
541
|
Construction equipment
|
|
288
|
|
|
288
|
Buildings and improvements
|
|
92
|
|
|
—
|
|
|
205,589
|
|
|
213,778
|
Less accumulated amortization
|
|
85,363
|
|
|
82,679
|
|
$
|
120,226
|
|
$
|
131,099
|
Amortization of assets held under capital leases of approximately $
9
.
6
million and $
10
.
8
million for the
three months ended
March 31, 2016
and
201
5
, respectively
,
is included in depreciation and amortization expense in the consolidated statements of operations.
5. Long-Term Debt and Interest Expense
Long-term debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
Credit Facilities:
|
|
|
|
|
|
Term Loan
|
$
|
165,000
|
|
$
|
—
|
7.75%
Senior Notes due 2019
|
|
475,000
|
|
|
475,000
|
7.75%
Senior Notes due 2022
|
|
300,000
|
|
|
300,000
|
Unamortized premium
|
|
888
|
|
|
956
|
Capital leases and other notes
|
|
99,669
|
|
|
111,063
|
Total debt
|
|
1,040,557
|
|
|
887,019
|
Less debt issuance costs, net of amortization
|
|
23,423
|
|
|
9,704
|
Less current portion
|
|
47,344
|
|
|
48,651
|
Long-term debt
|
$
|
969,790
|
|
$
|
828,664
|
On February 17, 2016, the Company entered into the Term Loan Credit Agreement (the “Term Loan Agreement”) with a syndicate of lenders and U.S. Bank National Association, as administrative agent for the lenders. The Term Loan Agreement includes two categories of borrowings (collectively, the “Term Loans”): (a) the closing date term loan borrowings in an aggregate amount of
$165.0
million
on the closing date, and (b) a delayed draw term loan borrowing in an aggregate principal amount not to exceed
$15.0
million. The making of the Term Loans is subject to the satisfaction of certain conditions precedent, including, with respect to the delayed draw term loans, the consent of the lenders providing the delayed draw term loans.
On February 26, 2016, the Company satisfied the conditions precedent to the making of the closing date term loans, and the proceeds of the closing date term loans were deposited into an escrow account, pending satisfaction of certain conditions. Th
e proceeds of the Term Loans deposited in the escrow account will be released from escrow only upon the satisfaction of the following conditions: (i) on the closing date,
49.1%
of the
proceeds of the closing date term loans may be released upon Basic causing not less than
49.1%
of the term loan priority collateral to become subject to a perfected lien in favor of the administrative agent; (ii) on May 31, 2016, upon the Company causing not less than
75%
of the term loan priority collateral to become subject to a perfected lien in favor of the administrative agent, the Term Loans in the escrow account may be released to the extent that the aggregate amount of Term Loans released to the Company on or prior to such date equals
75%
of the Term Loans funded into the escrow account; and (iii) on August 31, 2016, the remaining proceeds of the Term Loans deposited in the escrow account may be released upon the Company causing not less than
95%
of the term loan priority collateral to become subject to a perfected lien in favor of the administrative agent.
Borrowings under the Term Loan Agreement will mature in February, 2021. However, if Basic has not completed an acceptable 2019 senior notes refinancing by November, 2018, then the borrowings under the Term Loan Agreement will mature in November, 2018. Basic is required to prepay the Term Loan Agreement under certain circumstances without premium or penalty unless such prepayment is in connection with the “springing” maturity date of November, 2018 described above, a change of control or the incurrence of indebtedness not permitted under the Term Loan Agreement and under certain other circumstances, in which case such prepayment will be subject to the applicable premium.
Each Term Loan will bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to
13.50%
. In addition, Basic was responsible for the applicable lenders’ fees, including a closing payment equal to
7.00%
of the aggregate principal amount of commitments of each lender under the Term Loan Agreement as of the effective date, and administrative agent fees.
The Term Loan Agreement contains various covenants that, subject to agreed upon exceptions, limit Basic’s ability and the ability of certain of Basic’s subsidiaries to:
|
·
|
|
enter into sale and leaseback transactions;
|
|
·
|
|
make loans, capital expenditures, acquisitions and investments;
|
|
·
|
|
change the nature of business;
|
|
·
|
|
acquire or sell assets or consolidate or merge with or into other companies;
|
|
·
|
|
declare or pay dividends;
|
|
·
|
|
enter into transactions with affiliates;
|
|
·
|
|
enter into burdensome agreements;
|
|
·
|
|
prepay, redeem or modify or terminate other indebtedness;
|
|
·
|
|
change accounting policies and reporting practices;
|
|
·
|
|
amend organizational documents; and
|
|
·
|
|
use proceeds to fund any activities of or business with any person that is the subject of governmental sanctions.
|
If an event of default occurs under the Term Loan Agreement, then the administrative agent may, with the consent of the required lenders, or shall, at the direction of, the required lenders, (i) terminate lenders’ commitments under the Term Loan Agreement, (ii) declare any outstanding loans under the Term Loan Agreement to be immediately due and payable, and (iii) exercise on behalf of itself and the lenders all rights and remedies available to it and the lenders under the loan documents or applicable law or equity.
On February 26, 2016, in connection with the initial closing date of the Term Loan Agreement, the Company entered into an
amendment to its existing
$250
million revolving credit facility (as so amended, the “Modified Facility”) with a syndicate of lenders and Bank of America, N.A., as administrative agent for the lenders, which, among other things: (i) reduced the maximum aggregate commitments thereunder from
$250
million to
$100
million; (ii) revised the maturity date to the earliest to occur of November, 2019 and August, 2018 if a specified refinancing of Basic’s 2019 senior notes has not been completed by August, 2018; (iii) modified the borrowing base calculation; (iv)
permitted Basic to incur Term Loans under the new Term Loan Agreement in an aggregate principal amount not to
exceed
$180
million, and enter
into and permitted to exist other obligations and liens relating to the Term Loan Agreement; and
(v)
redefined the collateral under the Modified Facility to exclude term loan priority collateral, and released and discharged the administrative agent’s security interests in and liens on such collateral.
The Company adopted Accounting Standards Update (“ASU”) 2015-03, “
Simplifying the Presentation of Debt Issuance Cost
”
beginning on January 1, 2016, and retrospectively for all periods presented. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The table below presents long-term debt and associated deferred debt
issuance costs, net of amortization. The unamortized value of deferred debt issuance costs associated with our revolving credit facility were not affected by the ASU and continue to be presented as an asset on the Company’s consolidated balance sheets.
A
s of
March 31, 2016,
Basic had
no
borrowings and
$50.3
million of letters of credit outstanding under
its Modified Facility,
giving Basic
$17.7
million of available borrowing capacity
under the Modified Facility based on its borrowing base determined as of such date.
Interest
expense
increased to
$20.7
million during the
first quarter
of
2016
mainly due to the write-off of deferred debt costs of
$2.0
million, related to the amendment to the Modified Facility. The Company also incurred one month of interest on the Term Loans, which closed in the first quarter of 2016
.
Basic’s interest expense consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
Cash payments for interest
|
$
|
18,698
|
|
$
|
18,875
|
Commitment and other fees paid
|
|
673
|
|
|
407
|
Amortization of debt issuance costs and discount or premium on notes
|
|
2,922
|
|
|
681
|
Change in accrued interest
|
|
(1,607)
|
|
|
(2,989)
|
Other
|
|
28
|
|
|
(111)
|
|
$
|
20,714
|
|
$
|
16,863
|
6. Commitments and Contingencies
Environmental
Basic is subject to various federal, state and local environmental laws and regulations that establish standards and requirements for protection of the environment. Basic cannot predict the future impact of such standards and requirements, which are subject to change and can have retroactive effectiveness. Basic continues to monitor the status of these laws and regulations. Management believes that the likelihood of any of these items resulting in a material adverse impact to Basic’s financial position, liquidity, capital resources or future results of operations is remote.
Currently, Basic has not been fined, cited or notified of any environmental violations that would have a material adverse effect upon its financial position, liquidity or capital resources. However, management does recognize that by the very nature of its business, material costs could be incurred in the near term to bring Basic into total compliance. The amount of such future expenditures is not determinable due to several factors, including the unknown magnitude of possible contamination, the unknown timing and extent of the corrective actions which may be required, the determination of Basic’s liability in proportion to other responsible parties and the extent to which such expenditures are recoverable from insurance or indemnification.
Litigation
From time to time, Basic is a party to litigation or other legal proceedings that Basic considers to be a part of the ordinary course of business. Basic is not currently involved in any legal proceedings that it considers probable or reasonably possible, individually or in the aggregate, to result in a material adverse effect on its financial condition, results of operations or liquidity.
Self-Insured Risk Accruals
Basic is self-insured up to retention limits as it relates to workers’ compensation, general liability claims, and medical and dental coverage of its employees. Basic generally maintains no physical property damage coverage on its workover rig fleet, with the exception of certain of its 24-hour workover rigs and newly manufactured rigs. Basic has deductibles per occurrence for workers’ compensation, general liability claims,
automobile liability
and medical
coverage of $
2
.
5
million, $
1.0
million,
$1.0
million, and $
400,000
, respectively. Basic maintains accruals in the accompanying consolidated balance sheets related to self-insurance retentions based upon third-party data and claims history.
At
March 31, 2016
and
December 31, 2015
, self-insured
risk accruals totaled approximately $
32.
0
million and $
3
0
.
8
million, respectively.
During the second quarter of 2015, Basic accrued
$4.5
million related to a customer audit. This amount
was settled in part during 2015 and the final amounts
will be
settled
during
the remainder of 2016
.
7. Stockholders’ Equity
Common Stock
In March 201
6
, Basic granted various employees
790
,
263
restricted shares of common stock that vest over a
three
-year period.
Treasury Stock
During the first
three
months of
201
6
, Basic
did not
repurchase
any
shares
of common stock under the repurchase program
. As of
March 31, 2016
, Basic
may
purchase up to an additional
$9
.5
million of Basic’s shares of common stock under
the
repurchase
program.
Basic has acquired treasury shares through net share settlements for payment of payroll taxes upon the vesting of restricted stock. Basic acquired a total of
2
1
9
,
8
3
7
shares through net share settlements during the first
three
months of 201
6
and
194
,
93
0
shares through net share settlements during the first
three
months of 201
5
.
8. Incentive Plan
At
March 31, 2016
and
201
5
, compensation expense related to share-based arrangements was
approximately $
2
.
8
million and $
4
.
0
million, respectively.
For compensation expense recognized during the three months ended
March 31, 2016
and
201
5
, Basic recognized a tax benefit of
approximately $
1.0
million
and $
1.
4
million, respectively.
As of
March 31, 2016
, there was approximately $
1
4
.
8
million of total unrecognized compensation related to non-vested share-based compensation arrangements granted under the
Company’s incentive p
lan. That cost is expected to be recognized over a weighted-average period of
2.
2
years. The total fair value of share-based awards vested during the
three months ended March 31, 2016
and 201
5
was approximately $
2
.
5
million and $
4
.
8
million, respectively. During the
three
months ended
March 31, 2016
and 201
5
,
there was
no
excess tax benefit due to the net operating loss carryforwards (“NOL”). If there was no NOL, the
re would have
been
no
excess
tax benefit at
March 31, 2016
and
2015
.
Stock Option Awards
The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option-pricing model. Options granted under the
Company’s incentive p
lan expire
ten
years from the date they are granted, and generally vest over a
three
- to
five
-year service period.
The following table reflects the summary of stock options outstanding at
March 31, 2016
and the changes during the
three
months
then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
Aggregate
|
|
|
Number of
|
|
Weighted
|
|
Contractual
|
|
Intrinsic
|
|
|
Options
|
|
Average
|
|
Term
|
|
Value
|
|
|
Granted
|
|
Exercise Price
|
|
(Years)
|
|
(000's)
|
Non-statutory stock options:
|
|
|
|
|
|
|
|
|
|
|
Outstanding, beginning of period
|
|
175,000
|
|
$
|
26.29
|
|
|
|
|
|
Options expired
|
|
(152,000)
|
|
|
26.84
|
|
|
|
|
|
Outstanding, end of period
|
|
23,000
|
|
$
|
22.66
|
|
0.95
|
|
$
|
—
|
Exercisable, end of period
|
|
23,000
|
|
$
|
22.66
|
|
0.95
|
|
$
|
—
|
Vested or expected to vest, end of period
|
|
23,000
|
|
$
|
22.66
|
|
0.95
|
|
$
|
—
|
There were no options granted, forfeited, or exercised during the three months ended March 31, 2016.
The total intrinsic value of share options exercised during the
three months ended
March 31, 2015
was approximately $
37,000
.
Cash received from share option exercises under the Plan was approximately $
72
4,000
for the
three months ended
March 31, 2015
. During the
three months ended
March 31, 2016
and 201
5
, there was
no
excess tax benefit due to the NOL. If there was no NOL, there would have been
no
excess tax benefit at
March 31, 2016
and 201
5
.
Basic has a history of issuing treasury and newly issued shares to satisfy share option exercises.
Restricted Stock Awards
A summary of the status of Basic’s non-vested share grants at
March 31, 2016
and changes during the
three months ended March 31, 2016
is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Number of
|
|
Grant Date Fair
|
Nonvested Shares
|
|
Shares
|
|
Value Per Share
|
Nonvested at beginning of period
|
|
1,967,376
|
|
$
|
14.34
|
Granted during period
|
|
790,263
|
|
|
2.73
|
Vested during period
|
|
(857,223)
|
|
|
15.00
|
Forfeited during period
|
|
(5,680)
|
|
|
23.29
|
Nonvested at end of period
|
|
1,894,736
|
|
$
|
9.17
|
Phantom
Stock Awards
On March 24
,
201
6
, Basic’s Board of Directors approved grants of performance-based
phantom
stock awards to certain members of management. The performance-based
phantom stock
awards are tied to Basic’s achievement of total stockholder return
(“TSR”)
relative to the TSR of a peer group of energy services companies
over the performance period
(defined as the
two
-year calculation period starting on the 20th NYSE trading day prior to and including the last NYSE trading day of 201
5
and ending on the last NYSE trading day of 201
7
)
. The number of
phantom
shares to be issued will range from
0%
to
150%
of the
70
5
,
263
target number of
phantom
shares
,
depending on the performance noted above. Any
phantom
shares earned at the end of the performance period will then remain subject to vesting
in one-
half
increments on March 15, 201
8
and 201
9
(subject to accelerated vesting in certain circumstances)
. As of
March 31, 2016
, Basic estimated that
100%
of the target number of performance-based awards will be earned.
T
he
Board of Directors
also approved grants of phantom restricted stock awards to certain key employees.
The number of
phantom
shares issued was
5
52
,
1
00
. These grants remain subject to vesting
annually in one-third increments
over a
three
-year period, with the first portion vesting March 15, 201
7
(subject to accelerated vesting in certain circumstances)
.
9. Related Party Transactions
Basic had receivables from employees of approximately $
29
,000
and
$34
,000
as of
March 31, 2016
and
December 31, 2015
, respectively.
In December 2010, Basic entered into a lease agreement with Darle Vuelta Cattle Co., LLC (“DVCC”) for the right to operate a salt water disposal well, brine well and fresh water well. The
initial
term of the lease
was
two
years and will continue until the salt water disposal well and brine well are plugged and no fresh water is being sold. The lease payments are the greater of (i) the sum of
$0.10
per barrel of disposed oil and gas waste and
$0.05
per barrel of brine or fresh water sold or (ii)
$5,000
per month. In February 2015, Basic purchased
100
acres of vacant land outside of Midland, Texas for
$1.5
million from DVCC.
10. Earnings Per Share
The following table sets forth the computation of unaudited basic and diluted
loss
per share (in thousands, except share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
(Unaudited)
|
Numerator (both basic and diluted):
|
|
|
|
|
|
Net loss
|
$
|
(83,339)
|
|
$
|
(32,624)
|
Denominator:
|
|
|
|
|
|
Denominator for basic loss per share
|
|
41,608,920
|
|
|
40,072,451
|
Denominator for diluted loss per share
|
|
41,608,920
|
|
|
40,072,451
|
Basic loss per common share:
|
$
|
(2.00)
|
|
$
|
(0.81)
|
Diluted loss per common share:
|
$
|
(2.00)
|
|
$
|
(0.81)
|
Unvested
restricted stock shares of approximately
888
,
490
were excluded
from
the computation of diluted
loss
per share for the three
months ended
March 31, 2016,
and stock options and unvested restricted stock of
593
,
608
were excluded from the computation of diluted loss per share for the three months ended March 31, 2015
,
as the effect would have been anti-dilutive.
11. Business Segment Information
The following table sets forth certain financial information with respect to Basic’s reportable segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
And Remedial
|
|
|
|
|
|
Well
|
|
Contract
|
|
Corporate and
|
|
|
|
|
Services
|
|
Fluid Services
|
|
Servicing
|
|
Drilling
|
|
Other
|
|
Total
|
Three Months Ended March 31, 2016 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
$
|
39,696
|
|
$
|
50,250
|
|
$
|
38,906
|
|
$
|
1,504
|
|
$
|
—
|
|
$
|
130,356
|
Direct operating costs
|
|
(34,788)
|
|
|
(41,167)
|
|
|
(34,470)
|
|
|
(1,561)
|
|
|
—
|
|
|
(111,986)
|
Segment profit (loss)
|
$
|
4,908
|
|
$
|
9,083
|
|
$
|
4,436
|
|
$
|
(57)
|
|
$
|
—
|
|
$
|
18,370
|
Depreciation and amortization
|
$
|
19,484
|
|
$
|
16,600
|
|
$
|
14,064
|
|
$
|
3,272
|
|
$
|
2,732
|
|
$
|
56,152
|
Capital expenditures (excluding acquisitions)
|
$
|
576
|
|
$
|
3,147
|
|
$
|
1,151
|
|
$
|
118
|
|
$
|
975
|
|
$
|
5,967
|
Identifiable assets
|
$
|
345,242
|
|
$
|
242,292
|
|
$
|
219,393
|
|
$
|
48,891
|
|
$
|
312,707
|
|
$
|
1,168,525
|
Three Months Ended March 31, 2015 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
$
|
112,775
|
|
$
|
73,803
|
|
$
|
63,668
|
|
$
|
11,475
|
|
$
|
—
|
|
$
|
261,721
|
Direct operating costs
|
|
(81,251)
|
|
|
(54,132)
|
|
|
(52,401)
|
|
|
(7,525)
|
|
|
—
|
|
|
(195,309)
|
Segment profits
|
$
|
31,524
|
|
$
|
19,671
|
|
$
|
11,267
|
|
$
|
3,950
|
|
$
|
—
|
|
$
|
66,412
|
Depreciation and amortization
|
$
|
21,454
|
|
$
|
17,776
|
|
$
|
15,268
|
|
$
|
3,562
|
|
$
|
2,869
|
|
$
|
60,929
|
Capital expenditures (excluding acquisitions)
|
$
|
14,171
|
|
$
|
6,226
|
|
$
|
10,351
|
|
$
|
874
|
|
$
|
2,516
|
|
$
|
34,138
|
Identifiable assets
|
$
|
495,892
|
|
$
|
292,438
|
|
$
|
271,202
|
|
$
|
59,319
|
|
$
|
380,699
|
|
$
|
1,499,550
|
The following table reconciles the segment profits reported above to the operating
loss
as reported in the consolidated statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
2016
|
|
2015
|
Segment profits
|
$
|
18,370
|
|
$
|
66,412
|
General and administrative expenses
|
|
(29,562)
|
|
|
(39,204)
|
Depreciation and amortization
|
|
(56,152)
|
|
|
(60,929)
|
Gain (Loss) on disposal of assets
|
|
75
|
|
|
(48)
|
Operating loss
|
$
|
(67,269)
|
|
$
|
(33,769)
|
12. Supplemental Schedule of Cash Flow Information
The following table reflects non-cash financing and investing activity during the following periods
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Capital leases issued for equipment
|
$
|
1,390
|
|
$
|
8,308
|
Asset retirement obligation additions
|
$
|
9
|
|
$
|
13
|
Basic paid
no
income taxes during the
three months ended March 31, 2016
and
201
5
,
respectively
. Basic paid interest of
approximately
$18.7
million
and
$
18.9
million
during the
three months ended March 31, 2016
and
201
5
, respectively.
13. Fair Value Measurements
The following is a summary of the carrying amounts and estimated fair values of our financial instruments as of
March 31, 2016
and December 31,
201
5
. The fair value of our notes is based upon the quoted market prices at
March
3
1
,
201
6
and December 31,
201
5
and is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
March 31, 2016
|
|
December 31, 2015
|
|
Hierarchy Level
|
|
Carrying Amount
|
|
Fair Value
|
|
Carrying Amount
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
7.75%
Senior Notes due 2019, excluding premium
|
1
|
|
$
|
475,000
|
|
$
|
151,406
|
|
$
|
475,000
|
|
$
|
149,625
|
7.75%
Senior Notes due 2022, excluding premium
|
1
|
|
$
|
300,000
|
|
$
|
87,750
|
|
$
|
300,000
|
|
$
|
87,030
|
Term Loan
|
3
|
|
$
|
165,000
|
|
$
|
165,000
|
|
|
—
|
|
|
—
|
The carrying amounts of cash and cash equivalents, trade accounts receivable, accounts receivable-related parties, accounts payable and accrued expenses approximate fair value due to the short maturities of these instruments. The carrying amount of our revolving credit facility in long-term debt also approximates fair value due to its variable-rate characteristics.
The carrying value of the Company’s term loan as of March 31, 2016 approximates fair value based upon the limited passage of time since being issue
d
on February 29, 2016.
14. Income Taxes
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows (in thousands):
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
Deferred tax assets:
|
|
|
|
|
|
Operating loss carryforward
|
$
|
154,544
|
|
$
|
130,826
|
Goodwill and intangibles
|
|
32,125
|
|
|
32,992
|
Accrued liabilities
|
|
12,760
|
|
|
14,028
|
Deferred compensation
|
|
10,091
|
|
|
12,988
|
Receivables allowance
|
|
883
|
|
|
976
|
Asset retirement obligation
|
|
684
|
|
|
672
|
Inventory
|
|
163
|
|
|
164
|
Valuation allowances
|
|
(24,477)
|
|
|
(878)
|
Total deferred tax assets
|
$
|
186,773
|
|
$
|
191,768
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Property and equipment
|
|
(185,966)
|
|
|
(195,211)
|
Prepaid expenses
|
|
(807)
|
|
|
(1,623)
|
Total deferred tax liabilities
|
$
|
(186,773)
|
|
$
|
(196,834)
|
Net deferred tax liability
|
$
|
—
|
|
$
|
(5,066)
|
Valuation Allowance
Basic provides a valuation allowance when it is more likely than not that some portion of the deferred tax assets will not be realized. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated
to utilize the existing deferred tax assets. Based on this evaluation, as of March 31, 2016, a valuation allowance of approximately
$
24.5
million
for deferred tax assets for which the Company may be unable to realize the future tax benefit
.
Deferred Taxes
Basic has elected to adopt ASU
2015-17,
“
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
.
” beginning in the interim period ended March 31, 2016, and retrospectively for all periods presented
.
This Update requires
that
all
deferred tax assets and liabilities be classified as noncurrent.
As a result of adopting this standard retrospectively, Basic reclassified a
$13.5
million
current
deferred tax asset to non-current deferred tax liability for the period ended December 31, 2015.
1
5
.
Recent Accounting Pronouncements
In August, 2014, the FASB issued Accounting Standards Update
(“ASU”)
2014-15, “
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
,” which requires management to assess a company’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. Under the new standard, disclosures are required when conditions give rise to substantial doubt about a company’s ability to continue as a going concern within one year from the financial statement issuance date. The Update applies to all companies and is effective for the annual period ending after December 15, 2016, and all annual and interim periods thereafter.
Basic
does not expect
this pronouncement
to
have a material impact on its consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, “
Simplifying the Presentation of Debt Issuance Cost
s
.
” ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The ASU is effective for annual periods beginning after December 15, 2015. Basic
has adopted
this pronouncement
, which resulted in a reclassification of deferred debt costs related to long-term debt from an asset to an offset of the related liability. The adoption of the ASU
did not affect our method of amortizing debt issuance costs, and will not affect the statement of operations.
In July 2015
,
the FASB issued ASU 2015-11,
“Simplifying the Measurement of Inventory.”
ASU 2015-11
,
changes the measurement principle for entities that do not measure inventory using the last-in, first-out (LIFO) or retail inventory method from the lower of cost or market to lower of cost and net realizable value. The ASU also eliminates the requirement for these entities to consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory. The ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods.
Basic
does not expect
this pronouncement
to
have a material impact on its consolidated financial statements.
In August 2015
,
the FASB issued ASU 2015-14,
“Revenue from Contracts with Customers—Deferral of the Effective Date
,
”
that defers by one year the effective date of ASU 2014-09,
“Revenue from Contracts with Customers
.
”
The ASU is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period.
Basic is in the process of determining if this pronouncement will have a material impact on its consolidated financial statements.
In Novem
ber 2015, the FASB issued ASU
2015-17,
“
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
.
”
The main provision of this Update is to simplify the presentation of deferred income taxes by requiring that deferred tax assets and liabilities be classified as noncurrent in the statement of financial position. This Update is effective for Basic in annual and interim periods beginning after December 15, 2016
, however early adoption is permitted. Basic has elected to adopt this ASU beginning in the interim period ended March 31, 2016, and retrospectively for all periods presented
.
See Note: 14 for discussion of Basic’s adoption of this Update.
In February 2016, the FASB issued ASU 2016-02,
“Leases (Topic 842)
.”
The purpose of this
U
pdate to is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This Update is effective for Basic in annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Basic is in the process of determining if this pronouncement will have a material impact on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09,
“
Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
.”
The purpose of this
U
pdate to is to simplify overly complex areas of GAAP, while maintaining or improving the usefulness of the information. The areas for simplification in this Update involve several aspects of the accounting for 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. This Update is effective for Basic in annual periods beginning after December 15, 2016, including interim periods within those fiscal years. Basic is in the process of determining if this pronouncement will have a material impact on its consolidated financial statements.