Notes to Consolidated Financial Statements
September 30, 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 the Company’s Annual Report on Form 10-K for the year ended
December 31, 2015
. 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 Operations
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.
Risks and Uncertainties
Voluntary Petitions Under Chapter 11 of the Bankruptcy Code
On October 25, 2016, Basic and certain of its subsidiaries (collectively with Basic, the “Debtors”) filed voluntary petitions (the “Bankruptcy Petitions,” and the cases commenced thereby, the “Chapter 11 Cases”) under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Court”) to pursue a balance sheet restructuring pursuant to a Joint Prepackaged Chapter 11 Plan of the Debtors (as proposed, the “Prepackaged Plan”). The Debtors’ Chapter 11 Cases are being jointly administered under the caption
In re Basic Energy Services, Inc. et al.
(Case No. 16-12320). No trustee has been appointed, and the Debtors will continue to operate their businesses as “debtors in possession” under the jurisdiction of the Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Court. Basic expects to continue its operations without interruption during the pendency of the Chapter 11 Cases. To assure ordinary course operations, the Court approved on an interim basis a variety of “first day” motions seeking various relief and authorizing the Debtors to maintain their operations in the ordinary course. The Debtors expect to receive approval of the “first day” motions on a final basis on or before November 18, 2016. A summary of the key features of the Prepackaged Plan was included in Item 1.01 to our Current Report on Form 8-K filed on October 24, 2016.
The subsidiary Debtors in the Chapter 11 Cases are Basic Energy Services GP, LLC; Basic Energy Services LP, LLC; Basic Energy Services, L.P.; Basic ESA, Inc.; Chaparral Service, Inc.; SCH Disposal, L.L.C.; Sledge Drilling Corp.; Admiral Well Service, Inc.; Basic Marine Services, Inc.; JS Acquisition LLC; Permian Plaza, LLC; Maverick Coil Tubing Services, LLC; First Energy Services Company; JetStar Holdings, Inc.; Xterra Fishing & Rental Tools Co.; Maverick Solutions, LLC; LeBus Oil Field Service Co.; Acid Services, LLC; Taylor Industries, LLC; Maverick Stimulation Company, LLC; Globe Well Service, Inc.; JetStar Energy Services, Inc.; Platinum Pressure Services, Inc.; Maverick Thru-Tubing Services, LLC; MCM Holdings, LLC; MSM Leasing, LLC; and The Maverick Companies, LLC.
Restructuring Support Agreement
On October 23, 2016, Basic and its Debtor subsidiaries entered into a Restructuring Support Agreement (the “RSA”) with
100%
of the lenders under Basic’s Term Loan Credit Agreement (the “Consenting Term Loan Lenders”) and holders of over
80%
(the “Consenting Noteholders,” and collectively with the Consenting Term Loan Lenders, the “Required Restructuring Support Parties”) of Basic’s
7.75%
Senior Notes due 2019 (the “2019 Notes”) and Basic’s
7.75%
Senior Notes due 2022 (the “2022 Notes,” and together with the 2019 Notes, the “Unsecured Notes”). Under the RSA, each of the Required Restructuring Support Parties agreed to, among other things: (i) vote any claim it holds against the Debtors to accept the
Prepackaged Plan and not (a) change or withdraw (or cause to be changed or withdrawn) its vote to accept the Prepackaged Plan, (b) object to, delay, impede, or take any other action to interfere with, delay, or postpone acceptance, consummation, or implementation of the Prepackaged Plan, or (c) propose, file, support, or vote for any restructuring, sale of assets, workout, or plan of reorganization of the Debtors other than the Prepackaged Plan and (ii) subject to certain exceptions, limit its ability to transfer the indebtedness it holds.
Under the RSA, the Debtors agreed to, among other things: (i) take all reasonably necessary and proper action and use reasonable best efforts to consummate the Debtors’ restructuring in accordance with the RSA; (ii) use reasonable best efforts to meet the milestones set forth in the RSA; (iii) act in good faith and use reasonable best efforts to support and complete successfully the related solicitation of votes to obtain sufficient acceptances of the Prepackaged Plan (the “Solicitation”); (iv) use reasonable best efforts to obtain any and all required regulatory approvals and third-party approvals of the Debtors’ restructuring; (v) not directly or indirectly seek or solicit any discussions relating to, or enter into any agreements relating to, any alternative proposals; (vi) not take any actions inconsistent with the RSA and any other related documents executed by the Debtors; (vii) provide draft copies of all material motions, applications, or other documents that the Debtors intend to file with the Court to the Required Restructuring Support Parties’ counsel at least
three
calendar days prior to the date when the Debtors intend to file such document, or as soon as reasonably practicable, but in no event later than
one
business day, where
three
calendar days’ notice is not reasonably practicable; and (viii) support and take all actions that are necessary and appropriate to facilitate approval of the disclosure statement related to the Solicitation (the “Disclosure Statement”), confirmation of the Prepackaged Plan and consummation of the Debtors’ restructuring in accordance with the RSA.
The RSA is terminable by the Required Restructuring Support Parties or the Debtors under certain conditions. The termination provisions include the failure of a backstop agreement to be effective in accordance with its terms or the termination of such backstop agreement, as well as several milestone dates, including, among other things, with respect to (i) a failure by the Debtors to commence the Solicitation; (ii) a failure by the Debtors to commence chapter 11 proceedings and file the Prepackaged Plan and the Disclosure Statement; (iii) a failure by the Court to enter an order approving the Disclosure Statement; and (iv) a failure by the Court to enter an order confirming the Prepackaged Plan. The RSA and the obligations of all parties thereto may be terminated by mutual agreement by the Debtors and the Required Restructuring Support Parties.
Proposed Joint Prepackaged Chapter 11 Plan of Reorganization
Pursuant to the RSA, the Company commenced the Solicitation on October 24, 2016. In connection with the commencement of the Solicitation, the Disclosure Statement was distributed to certain creditors of the Company. Included in the Disclosure Statement is a proposed form of Prepackaged Plan. The Prepackaged Plan, which is subject to approval of the Court, anticipates that, among other things, on the effective date of the Prepackaged Plan (the “Effective Date”):
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•
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The existing shares of Basic will be canceled, and reorganized Basic Energy Services, Inc. will issue (i) new common shares (the “New Common Shares”) and (ii)
seven
(
7
) year warrants (the “Warrants”) entitling their holders upon exercise thereof, on a pro rata basis, to
6%
of the total outstanding New Common Shares (after giving effect to the conversion of the New Convertible Notes (as defined below)) at a per share price based upon a total equity value of
$1,789,000,000
of the reorganized Company, which New Common Shares and Warrants will be distributed as set forth below;
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•
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In connection with a rights offering (the “Rights Offering”), which shall be open to participation by eligible holders of the Company’s 2019 Notes and 2022 Notes and backstopped by certain supporting holders of Unsecured Notes, the Company will issue
9%
paid-in-kind ("PIK") interest unsecured notes due 2019 in the aggregate principal amount of
$131,250,000
(the “New Convertible Notes”), mandatorily convertible into common stock within
36
months or sooner upon the occurrence of certain events;
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•
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The Company’s Amended and Restated Credit Agreement, dated as of November 26, 2014, as amended (the “ABL Credit Agreement”) will be amended or restated or replaced with similar financing;
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•
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The Company’s Term Loan Credit Agreement, dated as of February 17, 2016 (the “Term Loan Agreement”), will be amended and restated on identical terms, subject to certain agreed upon changes set forth in the Prepackaged Plan, and the lenders under the Term Loan Agreement have agreed under the Prepackaged Plan to waive payment of the Applicable Premium (as such term is defined in the Term Loan Agreement) triggered by the Chapter 11 filing;
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•
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The Unsecured Notes will be canceled and discharged and the holders of those Unsecured Notes will receive New Common Shares representing, in the aggregate,
99.5%
of the New Common Shares issued on the Effective Date, and which upon conversion of the New Convertible Notes (assuming such conversion occurs
36
months after the Effective
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Date) will comprise
51.22%
of the total outstanding New Common Shares (in each case subject to dilution by the proposed management incentive plan and the New Common Shares issued upon exercise of the Warrants). Eligible holders of Unsecured Notes will also receive
100%
of the subscription rights to acquire
$125,000,000
in New Convertible Notes in accordance with Rights Offering procedures to be approved by the Court;
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•
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Each holder of existing equity interests in the Company will receive its pro rata share of (i) New Common Shares representing, in the aggregate,
0.5%
of the New Common Shares issued on the Effective Date, and which upon conversion of the New Convertible Notes (assuming such conversion occurs
36
months after the Effective Date) will comprise
0.26%
of the total outstanding New Common Shares (in each case subject to dilution by the proposed management incentive plan and the New Common Shares issued upon exercise of the Warrants) and (ii) the Warrants; and
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•
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Holders of allowed claims arising under the Company’s proposed debtor-in-possession credit facility (the “DIP Facility”), administrative expense claims, priority tax claims, other priority claims, other secured claims and general unsecured creditors of the Company will receive in exchange for their claims payment in full in cash or otherwise have their rights unimpaired under the Bankruptcy Code.
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Upon the consummation of the Prepackaged Plan, all unvested existing management equity-based compensation plans will be canceled. Reorganized Basic expects to implement a management incentive plan pursuant to which certain officers and employees of reorganized Basic will be eligible to receive, in the aggregate, cash and/or shares and/or options to acquire shares of New Common Stock up to
10%
of our total outstanding New Common Stock at the discretion of our reorganized Board of Directors.
Backstop Agreement
Basic entered into a backstop agreement (the “Backstop Agreement”) on October 25, 2016, pursuant to which the investors set forth in the Backstop Agreement (the “Investors”) agreed to backstop (the “Backstop Commitments”) the Rights Offering. Pursuant to the Backstop Commitments, each of the Investors, severally and not jointly, agreed to fully participate in the Rights Offering and purchase the New Convertible Notes in accordance with the percentages set forth in the Backstop Agreement to the extent unsubscribed under the Rights Offering. To compensate the Investors for the risk of their undertakings in the Backstop Agreement and as consideration for the Backstop Commitments, Basic plans to pay the Investors, subject to approval by the Court, in the aggregate, on the Effective Date, a backstop put premium in an amount equal to
five
percent of the aggregate amount of the Rights Offering, in the form of
$6.25
million aggregate principal amount of New Convertible Notes.
The Backstop Agreement is terminable by Basic and/or the Requisite Investors (as defined in the Backstop Agreement) under several conditions. The termination provisions include, among others, (i) the termination of the RSA, (ii) failure to meet certain milestone dates consistent with the RSA, or (iii) a material breach by either Basic or one or more of the Investors of any of the respective party’s undertakings, representations, warranties or covenants set forth in the Backstop Agreement that remains uncured for
five
business days after the breaching party receives written notice of such breach from the non-breaching party. Basic may be required to pay a termination fee in the amount of
$6.25
million to non-defaulting Investors if the Backstop Agreement is terminated as a result of the board exercising its fiduciary duties and terminating the RSA, the Court enters an order refusing to confirm the Prepackaged Plan or an injunction is issued against consummation of the transaction. There will be no over-subscription privilege in the Rights Offering.
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.
Accounting Estimates
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
•
Impairment of property and equipment, goodwill 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
•
Income taxes
2. Going Concern
The significant risks and uncertainties related to the Chapter 11 Cases raise substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. This assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business.
The Company incurred a net loss of
$265.3 million
for the nine months ended September 30, 2016, and a net loss of
$241.7 million
for the year ended December 31, 2015.
We expect that our primary sources of liquidity will be from cash on hand, cash from operations and, until emergence from Chapter 11, financing under our DIP Facility. Our secured term lenders and certain of our noteholders have committed to provide up to
$90.0 million
under the DIP Facility, of which, we received
$30.0 million
on October 26, 2016. We are in active discussions with potential lenders to find a replacement for our prepetition
$100.0 million
asset-based revolving credit facility.
For additional information, please see “Risk Factors” in Part II, Item 1A of this Quarterly Report, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” in Part I, Item 2 of this Quarterly Report and Note 16. Subsequent Events to these consolidated financial statements.
3. Acquisitions
In
2015
, Basic acquired substantially all of the assets of the following business, which was accounted for using the purchase method of accounting. The following table summarizes the values for the acquisition at the date of acquisition (in thousands):
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Total Cash Paid
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Closing Date
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(net of cash acquired)
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Harbor Resources, LLC
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July 17, 2015
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$
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4,500
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Aerion Rental, LLC
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July 24, 2015
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1,997
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Grey Rock Pressure Pumping, LLC
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August 31, 2015
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10,233
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Total 2015
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$
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16,730
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The operations of the acquisitions listed above are included in Basic’s consolidated statement of operations as of each respective closing date. The provisional values used with respect to Harbor Resources, LLC (“Harbor”), Aerion Rental, LLC (“Aerion”) and Grey Rock Pressure Pumping, LLC (“Grey Rock”) were finalized during the third quarter of
2016
. The pro forma effect of the acquisitions completed during 2015 were not material, either individually or when aggregated, to the reported results of operations. Basic has not made any acquisitions during the first
nine
months of
2016
.
4. Goodwill and Other Intangible Assets
During the years 2016 and 2015, as a result of the Company’s assessment of goodwill, we impaired all existing goodwill. During the quarter ended September 30, 2016 the Company recognized
$646,000
of goodwill as a result of finalizing the 2015 acquisitions of Aerion and Harbor, which was impaired in the same quarter. The Company also recognized a bargain purchase gain of
$662,000
upon finalizing the acquisition of Grey Rock, (see Note 3.
Acquisitions
to these consolidated financial statements
). After the impairment of
$646,000
, the Company had
no
additions to goodwill during the
nine
months ended
September 30, 2016
.
Basic’s intangible assets were as follows (in thousands):
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September 30, 2016
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December 31, 2015
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Customer relationships
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$
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91,719
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$
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92,660
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Non-compete agreements
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8,940
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13,057
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Trade names
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1,939
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1,939
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Other intangible assets
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2,096
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2,086
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104,694
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109,742
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Less accumulated amortization
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45,462
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42,997
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Intangible assets subject to amortization, net
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$
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59,232
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$
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66,745
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Amortization expense for the three months ended
September 30, 2016
and
2015
was approximately
$2.0 million
and
$2.2 million
, respectively. Amortization expense for the
nine
months ended
September 30, 2016
and
2015
was approximately
$6.5 million
and
$6.7 million
, respectively.
Intangible assets, net of accumulated amortization allocated to reporting units as of
September 30, 2016
, were as follows (in thousands):
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Completion
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And Remedial
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Contract
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Services
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Well Servicing
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Fluid Services
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Drilling
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Total
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Intangible assets subject to amortization, net
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$
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44,648
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$
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4,922
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$
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7,050
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$
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2,612
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$
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59,232
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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.
5. Property and Equipment
Property and equipment consisted of the following (in thousands):
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September 30, 2016
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December 31, 2015
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Land
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$
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21,432
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$
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19,893
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Buildings and improvements
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74,424
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73,599
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Well service units and equipment
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491,956
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488,003
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Frac equipment/test tanks
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354,740
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363,346
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Pumping equipment
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345,729
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345,938
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Fluid services equipment
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268,187
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268,249
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Disposal facilities
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161,598
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166,371
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Contract drilling equipment
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112,628
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112,068
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Rental equipment
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96,244
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94,970
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Light vehicles
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65,369
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67,521
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Software
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21,920
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21,920
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Other
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16,006
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16,672
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Construction equipment
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15,132
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15,174
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Brine and fresh water stations
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15,836
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13,761
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2,061,201
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2,067,485
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Less accumulated depreciation and amortization
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1,347,384
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1,221,195
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Property and equipment, net
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$
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713,817
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$
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846,290
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Basic is obligated under various capital leases for certain vehicles and equipment that expire at various dates during the next
five years
. The gross amount of property and equipment and related accumulated amortization recorded under capital leases and included above consisted of the following (in thousands):
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September 30, 2016
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December 31, 2015
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Fluid services equipment
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$
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112,048
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$
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129,459
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Pumping equipment
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37,864
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43,573
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Light vehicles
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25,538
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33,424
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Contract drilling equipment
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4,279
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6,493
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Well service units and equipment
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335
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541
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Construction equipment
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118
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288
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180,182
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213,778
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Less accumulated amortization
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82,168
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82,679
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$
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98,014
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$
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131,099
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Amortization of assets held under capital leases of approximately
$8.6 million
and
$10.2 million
for the three months ended
September 30, 2016
and
2015
, respectively and
$27.4 million
and
$31.4 million
for the
nine
months ended
September 30, 2016
and
2015
, respectively, is included in depreciation and amortization expense in the consolidated statements of operations.
6. Long-Term Debt and Interest Expense
Long-term debt consisted of the following (in thousands):
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September 30, 2016
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December 31, 2015
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Credit facilities:
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Term Loan, net of $15,642 unamortized debt issuance costs
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$
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148,946
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$
|
—
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7.75% Senior Notes due 2019 net of $2,953 and $3,931unamortized premium and debt issuance costs, respectively
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472,047
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471,068
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7.75% Senior Notes due 2022 net of $4,290 and $4,816 unamortized debt issuance costs, respectively
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295,710
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295,184
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Capital leases and other notes
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78,664
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111,063
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Total principal amount of debt instruments, net
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995,367
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877,315
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Less current portion
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954,812
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48,651
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Long-term debt
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$
|
40,555
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$
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828,664
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Term Loan Credit Agreement
On February 17, 2016, the Company entered into the Term Loan Credit Agreement (as subsequently amended, 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. On the closing date,
49.1%
of the proceeds of the closing date term loans were 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. On May 31, 2016, an additional
26%
, and on June 30, 2016, an additional
10%
of the proceeds of the closing date term loans were released upon
Basic causing not less than
85%
of the term loan priority collateral to become subject to a perfected lien in favor of the administrative agent. On August 31, 2016, upon the satisfaction of predetermined conditions related to perfection of collateral, the remaining proceeds of the Term Loans deposited in the escrow account were to be released subject to 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. However, the deadline for such conditions were subsequently extended on September 15, 2016, to a commercially reasonable period of time, pursuant to the Temporary Limited Waiver and Consent agreements described below.
Each Term Loan bears 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.
On August 31, 2016, the Company entered into a Temporary Limited Waiver and Consent (the “First Limited Waiver and Consent”) to the Term Loan Agreement. Pursuant to the First Limited Waiver and Consent, the Lenders temporarily waived the event of default under the Term Loan Agreement requiring Basic to cause not less than
95%
of the term loan priority collateral to become subject to a perfected, first priority lien in favor of the administrative agent for the benefit of the secured parties to the Term Loan Agreement on or prior to August 31, 2016. Also pursuant to the First Limited Waiver and Consent, the administrative agent and the lenders consented to the sale by Basic Energy Services, LP to the Texas Department of Transportation of a
0.513
acre tract of land situated in Howard County, Texas and the related partial release of lien that would have otherwise resulted in a violation the Term Loan Agreement.
On September 1, 2016, the Company entered into a Temporary Limited Waiver and Consent (the “Second Limited Waiver and Consent”) to the Term Loan Agreement. Pursuant to the Second Limited Waiver and Consent, the lenders temporarily waived the event of default under the Term Loan Agreement requiring Basic and its consolidated subsidiaries to maintain unrestricted cash balances and cash equivalents of not less than
$50,000,000
as of any date.
On September 13, 2016, the Company entered into a Temporary Limited Waiver and Consent (the “Third Limited Waiver”) to the Term Loan Agreement. Pursuant to the Third Limited Waiver, among other provisions, the lenders (i) extended the temporary waiver of the collateral coverage event of default and the liquidity event of default, (ii) temporarily waived the event of default pursuant to Section 8.01(e) of the Term Loan Agreement that would otherwise occur on September 14, 2016 at the expiration of the Company’s grace period with respect to the Company’s failure to make an interest payment on August 15, 2016 under the 2019 Notes and (iii) consented to Basic’s execution and delivery of a Control Agreement and the depositing of certain pledged cash with Bank of America, N.A. to secure a credit card program and acknowledge that such actions shall not constitute a default or event of default under the Term Loan Agreement or any related loan document.
On September 28, 2016, the Company entered into the First Amendment to Temporary Limited Waiver and Consent with respect to the Third Limited Waiver (the “Term Loan Waiver Amendment”). The Term Loan Waiver Amendment extended the termination of the Third Limited Waiver to the earliest to occur of (i) the occurrence or existence of any event of default under the Term Loan Agreement, other than certain events of default specified in the Third Limited Waiver, (ii) notice from the administrative agent or the required lenders of the occurrence or existence of any Temporary Limited Waiver Default (as defined in the Third Limited Waiver), (iii) the later of October 16, 2016 or such later date as the required lenders and Basic may agree in their respective sole discretion or (iv) as of any date the unrestricted cash balances and cash equivalents of Basic and its consolidated subsidiaries is less than certain levels specified therein.
On October 16, 2016, the Company entered into the Second Amendment to Temporary Limited Waiver and Consent, which extended the temporary limited waiver period to the earliest to occur of (i) the occurrence or existence of any event of default under the Term Loan Agreement, other than certain events of default specified in the Term Loan Waiver, (ii) notice from the administrative agent under the Term Loan Agreement or certain required lenders of the occurrence or existence of any Temporary Limited Waiver Default (as defined therein), (iii) the later of October 24, 2016 or such later date as certain required lenders and Basic may agree in their respective sole discretion or (iv) at any time prior to the execution of a restructuring support agreement by and among the parties to the Term Loan Waiver in connection with the commencement of an insolvency proceeding involving Basic and its affiliates, the unrestricted cash balances and cash equivalents of Basic and its consolidated subsidiaries is less than
$6,500,000
.
ABL Credit Facility
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 ABL 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 2019 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 ABL Facility to exclude term loan priority collateral, and released and discharged the administrative agent’s security interests in and liens on such collateral.
On September 14, 2016, the Company entered into the Temporary Limited Waiver (the “ABL Limited Waiver”) to the Modified ABL Facility. Pursuant to the ABL Limited Waiver, among other provisions, the lenders temporarily waived the anticipated event of default that would occur on September 14, 2016 at the expiration of the Company’s grace period with respect to the Company’s failure to make an interest payment on August 15, 2016 under the 2019 Notes.
On September 28, 2016, the Company entered into the First Amendment to Temporary Limited Waiver with respect to the ABL Limited Waiver (the “ABL Waiver Amendment”). The ABL Waiver Amendment extended the termination of the ABL Limited Waiver to the earliest to occur of (i) the occurrence or existence of any event of default under the Modified ABL Facility, other than the event of default specified in the ABL Limited Waiver, (ii) notice from the ABL Administrative Agent or the certain required lenders of the occurrence or existence of any Temporary Limited Waiver Default (as defined in the ABL Limited Waiver), (iii) the date on which the related forbearance of the 2019 Notes has terminated or (iv) the later of October 16, 2016 or such later date as certain required lenders and the Company may agree in their respective sole discretion.
On October 14, 2016, the Company entered into the Second Amendment to Temporary Limited Waiver, which extended the outside date of the temporary limited waiver period under the ABL Limited Waiver from October 16, 2016 to October 17, 2016.
On October 17, 2016, Basic entered into the Third Amendment to Temporary Limited Waiver, which further extended the outside date of the temporary limited waiver period under the ABL Limited Waiver from October 17, 2016 to October 24, 2016.
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 unamortized value of deferred debt issuance costs associated with the Modified ABL Facility continue to be presented as an asset on the Company’s consolidated balance sheets.
The filing of the Bankruptcy Petitions described in Note 1.
Basis of Presentation and Nature of Operations
, constituted events of default under the following debt instruments (the “Debt Instruments”):
|
|
•
|
The Term Loan Credit Agreement dated as of February 17, 2016, as amended, by and among Basic, as borrower, the lenders party thereto and U.S. Bank National Association, as administrative agent;
|
|
|
•
|
Amended and Restated Credit Agreement dated as of November 26, 2014, as amended, by and among Basic, as borrower, the lenders party thereto and Bank of America, N.A., as administrative agent, swing line lender and l/c issuer;
|
|
|
•
|
Indenture dated as of October 16, 2012, among the Company, as issuer, the guarantors named therein and Wilmington Trust, National Association, as successor trustee, which governs the 2019 Notes; and
|
|
|
•
|
Indenture dated as of February 15, 2011, as amended, among the Company, as issuer, the guarantors named therein and Wilmington Trust, National Association, as successor trustee, which governs the 2022 Notes.
|
The Debt Instruments provide that as a result of the commencement of the Chapter 11 Cases, the principal and accrued interest due thereunder shall be immediately due and payable. Any efforts to enforce such payment obligations under the Debt Instruments are automatically stayed as a result of the filing of the Bankruptcy Petitions, and the holders’ rights of enforcement in respect of the Debt Instruments are subject to the applicable provisions of the Bankruptcy Code.
Because the filing of the Bankruptcy Petitions constituted an event of default of the 2019 Notes and the 2022 Notes that accelerated the Company's obligations, the 2019 Notes and the 2022 Notes were classified as current liabilities at September 30, 2016.
As of
September 30, 2016
, Basic had
no
borrowings and
$51.1 million
of letters of credit outstanding under its Modified ABL Facility, giving Basic
$16.4 million
of available borrowing capacity based on its borrowing base determined as of such date.
Basic’s interest expense consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2016
|
|
2015
|
Cash payments for interest
|
|
$
|
38,459
|
|
|
$
|
49,628
|
|
Commitment and other fees paid
|
|
2,280
|
|
|
1,818
|
|
Amortization of debt issuance costs and discount or premium on notes
|
|
5,876
|
|
|
2,637
|
|
Change in accrued interest
|
|
20,503
|
|
|
(3,076
|
)
|
Other
|
|
70
|
|
|
(62
|
)
|
|
|
$
|
67,188
|
|
|
$
|
50,945
|
|
7. 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
On October 25, 2016, the Company commenced the Chapter 11 Cases, in an effort to implement the restructuring pursuant to the RSA. While the filing of the Bankruptcy Petitions automatically stays certain actions against us, including actions to collect pre-petition indebtedness or to exercise control over the property of our bankruptcy estates, we have been granted by the Court under interim orders to pay certain general unsecured prepetition claims in the ordinary course of business notwithstanding the commencement of the Chapter 11 Cases. The Prepackaged Plan, if confirmed, will provide for the treatment of claims against our bankruptcy estates, including pre-petition liabilities that have not otherwise been satisfied or addressed during the Chapter 11 Cases.
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
September 30, 2016
and
December 31, 2015
, self-insured risk accruals totaled approximately
$29.8 million
and
$30.8 million
, respectively, and these amounts are included in other long-term liabilities and accrued expenses.
8. Stockholders’ Equity
Common Stock
In March 2016, Basic granted various employees
790,263
restricted shares of common stock that vest over a
three
-year period.
Treasury Stock
As of
September 30, 2016
, Basic may purchase up to an additional
$9.5 million
of Basic’s shares of common stock under the repurchase program. During the first
nine
months of
2016
, Basic did not repurchase any shares 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
220,768
shares through net share settlements during the first
nine
months of
2016
and
216,870
shares through net share settlements during the first
nine
months of
2015
.
9. Incentive Plan
During the three months ended
September 30, 2016
and
2015
, compensation expense related to share-based arrangements was approximately
$2.2 million
and
$3.3 million
, respectively. For compensation expense recognized during the three months ended
September 30, 2015
, Basic recognized a tax benefit of approximately
$1.2 million
. During the
nine
months ended
September 30, 2016
and
2015
, compensation expense related to share-based arrangements was approximately
$7.4 million
and
$10.5 million
, respectively. For compensation expense recognized during the
nine
months ended
September 30, 2015
, Basic recognized a tax benefit of approximately
$3.8 million
.
As of
September 30, 2016
, there was approximately
$10.3 million
of total unrecognized compensation related to non-vested share-based compensation arrangements granted under the Company's long-term incentive plan. That cost is expected to be recognized over a weighted-average period of
1.7
years. The total fair value of share-based awards vested during the
nine
months ended
September 30, 2016
and
2015
was approximately
$2.5 million
and
$5.2 million
, respectively. During the
nine
months ended
September 30, 2016
and
2015
, there was
no
excess tax benefit due to the net operating loss carryforwards (“NOL”). If there were
no
NOL, then there would have been an excess tax benefit of approximately
$11,000
at
September 30, 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 long-term incentive plan expire
10 years
from the date they are granted, and generally vest over a
three
- to
five
-year service period.
The following table reflects changes during the
nine
-month period and a summary of stock options outstanding at
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Weighted
|
|
Remaining
|
|
Aggregate
|
|
|
Number of
|
|
Average
|
|
Contractual
|
|
Intrinsic
|
|
|
Options
|
|
Exercise
|
|
Term
|
|
Value
|
|
|
Granted
|
|
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
|
|
|
0.4
|
|
$
|
—
|
|
Exercisable, end of period
|
|
23,000
|
|
|
$
|
22.66
|
|
|
0.4
|
|
$
|
—
|
|
Vested or expected to vest, end of period
|
|
23,000
|
|
|
$
|
22.66
|
|
|
0.4
|
|
$
|
—
|
|
The total intrinsic value of share options exercised during the
nine
months September 30, 2015 was approximately
$37,000
. There were
no
stock options exercised during the
nine
months ended September 30, 2016.
Cash received from share option exercises under the Company's long-term incentive plan was approximately
$724,000
for the
nine
months ended
September 30, 2015
. During the
nine
months ended
September 30, 2016
and
2015
, there was
no
excess tax benefit due to the NOL. If there was
no
NOL, there would have been
no
tax benefit for at September 30, 2016, and
no
excess tax benefit at
September 30, 2015
.
Restricted Stock Awards
A summary of the status of Basic’s non-vested share grants at
September 30, 2016
and changes during the
nine
months ended
September 30, 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
|
|
(859,738
|
)
|
|
15.03
|
|
Forfeited during period
|
|
(8,511
|
)
|
|
23.97
|
|
Nonvested at end of period
|
|
1,889,390
|
|
|
$
|
9.13
|
|
Phantom
Stock Awards
On March 24, 2016, 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 New York Stock Exchange (the “NYSE”) trading day prior to and including the last NYSE trading day of 2015 and ending on the last NYSE trading day of 2017). The number of phantom shares to be issued will range from
0%
to
150%
of the
705,263
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, 2018 and 2019 (subject to accelerated vesting in certain circumstances). The Board of Directors also approved grants of phantom restricted stock awards to certain key employees. The number of phantom shares issued was
552,100
. These grants remain subject to vesting annually in one-third increments over a
three
-year period, with the first portion vesting March 15, 2017 (subject to accelerated vesting in certain circumstances).
Key Employee Retention Plan and Key Employee Incentive Plan
In June 2016, in order to retain top-tier executive talent, Basic entered into (i) Key Employee Retention Bonus ("KERP") agreements with certain of its employees, and (ii) Key Employee Incentive Bonus ("KEIP") agreements with certain of its executive officers. The Company’s Board of Directors authorized the KERP and KEIP, which are designed to supplement Basic’s existing employee compensation programs. The KERP and KEIP programs are to be paid in cash. The first and second installments of the KERP were paid in June and August. The remaining payments are expected to be paid during November 2016 and February 2017. The first payment of the KEIP was paid in June 2016, the second was paid in October 2016, upon the filing of the Chapter 11 petition. The remaining payment under the KEIP is expected to be paid upon the Company's emergence from Chapter 11.
Under the retention bonus agreements, if prior to June 20, 2017 either (i) a recipient voluntarily terminates his employment with the Company other than as an eligible retirement or (ii) his employment is terminated by the Company for cause then the recipient will both forfeit his right to payment of any remaining installment payments and be obligated to repay the Company for the total amount of any installment payments previously paid prior to such termination. The recipient will be eligible to receive any scheduled installment payments under the plans in the event of a termination of employment prior to the vesting date that is without cause, as an eligible retirement or by reason of disability or death.
10. Related Party Transactions
Basic had receivables from employees of approximately
$13,000
and
$34,000
as of
September 30, 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 term of the lease will continue until the salt water disposal well and brine well are plugged and no fresh water is being sold. The lease payments are the greater of (i) the sum of
$0.10
per barrel of disposed oil and gas waste and
$0.05
per barrel of brine or fresh water sold or (ii)
$5,000
per month.
In February 2015, Basic purchased
100
acres of vacant land outside of Midland, Texas for
$1.5 million
from DVCC. In October 2016, Basic completed a non-cash exchange with DVCC in which the land purchased in February 2015, was exchanged for
34.81
acres in Midland County to be used for a salt water disposal well.
11. 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 September 30,
|
|
Nine Months Ended September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(Unaudited)
|
|
(Unaudited)
|
Numerator (both basic and diluted):
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(92,097
|
)
|
|
$
|
(105,642
|
)
|
|
$
|
(265,319
|
)
|
|
$
|
(186,561
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic loss per share
|
|
42,689,773
|
|
|
40,168,406
|
|
|
41,957,755
|
|
|
40,458,557
|
|
Denominator for diluted loss per share
|
|
42,689,773
|
|
|
40,168,406
|
|
|
41,957,755
|
|
|
40,458,557
|
|
Basic loss per common share:
|
|
$
|
(2.16
|
)
|
|
$
|
(2.63
|
)
|
|
$
|
(6.32
|
)
|
|
$
|
(4.61
|
)
|
Diluted loss per common share:
|
|
$
|
(2.16
|
)
|
|
$
|
(2.63
|
)
|
|
$
|
(6.32
|
)
|
|
$
|
(4.61
|
)
|
Unvested restricted stock shares of approximately
1,371,098
and
826,597
were excluded from the computation of diluted loss per share for the three month and
nine
months ended
September 30, 2016
, respectively, and stock options and unvested restricted stock of
395,938
and
634,541
were excluded in the computation of diluted loss per share for the three and
nine
months ended
September 30, 2015
, respectively, as the effect would have been anti-dilutive.
12. Business Segment Information
The following table sets forth certain financial information with respect to Basic’s reportable segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completion
|
|
|
|
|
|
|
|
|
|
|
|
|
and Remedial
|
|
Fluid
|
|
Well
|
|
Contract
|
|
Corporate and
|
|
|
|
|
Services
|
|
Services
|
|
Servicing
|
|
Drilling
|
|
Other
|
|
Total
|
Three Months Ended September 30, 2016 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
49,425
|
|
|
47,178
|
|
|
43,160
|
|
|
1,847
|
|
|
$
|
—
|
|
|
$
|
141,610
|
|
Direct operating costs
|
|
(40,292
|
)
|
|
(39,268
|
)
|
|
(35,028
|
)
|
|
(1,683
|
)
|
|
—
|
|
|
$
|
(116,271
|
)
|
Segment profits
|
|
$
|
9,133
|
|
|
$
|
7,910
|
|
|
$
|
8,132
|
|
|
$
|
164
|
|
|
$
|
—
|
|
|
$
|
25,339
|
|
Depreciation and amortization
|
|
$
|
18,383
|
|
|
$
|
15,584
|
|
|
$
|
13,491
|
|
|
$
|
3,109
|
|
|
$
|
2,575
|
|
|
$
|
53,142
|
|
Capital expenditures (excluding acquisitions)
|
|
$
|
3,178
|
|
|
$
|
8,244
|
|
|
$
|
2,622
|
|
|
$
|
69
|
|
|
$
|
182
|
|
|
$
|
14,295
|
|
Three Months Ended September 30, 2015 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
67,240
|
|
|
$
|
62,631
|
|
|
$
|
55,533
|
|
|
$
|
3,843
|
|
|
$
|
—
|
|
|
$
|
189,247
|
|
Direct operating costs
|
|
(56,165
|
)
|
|
(47,706
|
)
|
|
(47,877
|
)
|
|
(3,182
|
)
|
|
—
|
|
|
(154,930
|
)
|
Segment profits
|
|
$
|
11,075
|
|
|
$
|
14,925
|
|
|
$
|
7,656
|
|
|
$
|
661
|
|
|
$
|
—
|
|
|
$
|
34,317
|
|
Depreciation and amortization
|
|
$
|
21,163
|
|
|
$
|
17,638
|
|
|
$
|
15,061
|
|
|
$
|
3,536
|
|
|
$
|
2,930
|
|
|
$
|
60,328
|
|
Capital expenditures (excluding acquisitions)
|
|
$
|
4,575
|
|
|
$
|
6,851
|
|
|
$
|
3,421
|
|
|
$
|
1,353
|
|
|
$
|
683
|
|
|
$
|
16,883
|
|
Nine Months Ended September 30, 2016 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
125,348
|
|
|
142,919
|
|
|
118,891
|
|
|
4,812
|
|
|
$
|
—
|
|
|
$
|
391,970
|
|
Direct operating costs
|
|
(107,941
|
)
|
|
(119,053
|
)
|
|
(101,345
|
)
|
|
(4,612
|
)
|
|
—
|
|
|
$
|
(332,951
|
)
|
Segment profits
|
|
$
|
17,407
|
|
|
$
|
23,866
|
|
|
$
|
17,546
|
|
|
$
|
200
|
|
|
$
|
—
|
|
|
$
|
59,019
|
|
Depreciation and amortization
|
|
$
|
56,782
|
|
|
$
|
48,133
|
|
|
$
|
41,669
|
|
|
$
|
9,603
|
|
|
$
|
7,954
|
|
|
$
|
164,141
|
|
Capital expenditures (excluding acquisitions)
|
|
$
|
4,689
|
|
|
$
|
14,422
|
|
|
$
|
6,076
|
|
|
$
|
182
|
|
|
$
|
2,689
|
|
|
$
|
28,058
|
|
Identifiable assets
|
|
$
|
308,989
|
|
|
$
|
216,202
|
|
|
$
|
200,451
|
|
|
$
|
43,566
|
|
|
$
|
233,840
|
|
|
$
|
1,003,048
|
|
Nine Months Ended September 30, 2015 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
249,070
|
|
|
$
|
200,138
|
|
|
$
|
175,701
|
|
|
$
|
19,655
|
|
|
$
|
—
|
|
|
$
|
644,564
|
|
Direct operating costs
|
|
(195,086
|
)
|
|
(150,218
|
)
|
|
(147,314
|
)
|
|
(14,197
|
)
|
|
—
|
|
|
(506,815
|
)
|
Segment profits
|
|
$
|
53,984
|
|
|
$
|
49,920
|
|
|
$
|
28,387
|
|
|
$
|
5,458
|
|
|
$
|
—
|
|
|
$
|
137,749
|
|
Depreciation and amortization
|
|
$
|
63,518
|
|
|
$
|
52,989
|
|
|
$
|
45,582
|
|
|
$
|
10,601
|
|
|
$
|
8,798
|
|
|
$
|
181,488
|
|
Capital expenditures (excluding acquisitions)
|
|
$
|
21,020
|
|
|
$
|
15,786
|
|
|
$
|
16,665
|
|
|
$
|
2,463
|
|
|
$
|
5,030
|
|
|
$
|
60,964
|
|
Identifiable assets
|
|
$
|
388,286
|
|
|
$
|
268,060
|
|
|
$
|
247,834
|
|
|
$
|
54,711
|
|
|
$
|
291,448
|
|
|
$
|
1,250,339
|
|
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 September 30,
|
|
Nine Months Ended September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Segment profits
|
|
$
|
25,339
|
|
|
$
|
34,317
|
|
|
$
|
59,019
|
|
|
$
|
137,749
|
|
General and administrative expenses
|
|
(30,065
|
)
|
|
(35,984
|
)
|
|
(86,706
|
)
|
|
(110,861
|
)
|
Restructuring costs
|
|
(10,470
|
)
|
|
—
|
|
|
(10,470
|
)
|
|
—
|
|
Depreciation and amortization
|
|
(53,142
|
)
|
|
(60,328
|
)
|
|
(164,141
|
)
|
|
(181,488
|
)
|
Gain (Loss) on disposal of assets
|
|
128
|
|
|
(1,128
|
)
|
|
(133
|
)
|
|
(1,119
|
)
|
Goodwill impairment
|
|
(646
|
)
|
|
(81,877
|
)
|
|
(646
|
)
|
|
(81,877
|
)
|
Operating loss
|
|
$
|
(68,856
|
)
|
|
$
|
(145,000
|
)
|
|
$
|
(203,077
|
)
|
|
$
|
(237,596
|
)
|
13. Supplemental Schedule of Cash Flow Information
The following table reflects non-cash financing and investing activity during the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2016
|
|
2015
|
|
|
(In thousands)
|
Capital leases issued for equipment
|
|
$
|
5,151
|
|
|
$
|
13,676
|
|
Asset retirement obligation additions (retirements)
|
|
$
|
(21
|
)
|
|
$
|
—
|
|
Basic paid
no
income taxes during the
nine
months ended
September 30, 2016
and
2015
. Basic paid interest of approximately
$38.5 million
and
$49.6 million
during the
nine
months ended
September 30, 2016
and
2015
, respectively.
14. Fair Value Measurements
The following is a summary of the carrying amounts and estimated fair values of our financial instruments as of
September 30, 2016
and
December 31, 2015
. The fair value of our long-term notes is based upon the quoted market prices at
September 30, 2016
and
December 31, 2015
and is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
September 30, 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
|
|
|
$
|
175,750
|
|
|
$
|
475,000
|
|
|
$
|
399,000
|
|
7.75% Senior Notes due 2022, excluding premium
|
1
|
|
$
|
300,000
|
|
|
$
|
111,500
|
|
|
$
|
300,000
|
|
|
$
|
238,500
|
|
Term Loan
|
3
|
|
$
|
164,600
|
|
|
$
|
160,283
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The fair value of the Company’s Unsecured Notes is based on quoted market prices available for the Unsecured Notes. The fair value of the Company’s Term Loan is based upon our discounted cash flows model using a third-party discount rate. The carrying amount of our Modified ABL Facility approximates fair value due to its variable-rate characteristics.
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.
15.
Recent Accounting Pronouncements
Recently adopted
In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” 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 November 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.
Not yet adopted
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.
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 has evaluated this pronouncement and determined that it will not 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 February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” The purpose of this Update 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 Update 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.
In April and May of 2016, the FASB issued ASU 2016-10 and 2016-12, respectively —Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing and Narrow-Scope Improvements and Practical Expedients. The amendments in these Updates affect the guidance in Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). Accounting Standards Update 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. Basic is in the process of determining if this pronouncement will have a material impact on its consolidated financial statements.
In August 2016, the FASB issued 2016-15—Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. Effective for Basic for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The amendments in this updated are intended to clarify cash flow treatment of eight specific cash flow issues with the objective of reducing diversity in practice. Early adoption is permitted, including adoption in an interim period. An entity that elects early adoption must adopt all of the amendments in the same period. These are clarifications of diversity in disclosures practices, and will not have a material effect on Basic's consolidated financial statements.
16. Subsequent Events
Voluntary Petition Under Chapter 11 of the Bankruptcy Code
On October 25, 2016, Basic and certain of its subsidiaries filed voluntary petitions in the United States Bankruptcy Court for the District of Delaware to pursue a balance sheet restructuring pursuant to a Joint Prepackaged Chapter 11 Plan of the Debtors. The Chapter 11 Cases are being jointly administered under the caption In re Basic Energy Services, Inc et al.. (Case No. 16-12320). No trustee has been appointed, and the Debtors will continue to operate their businesses as “debtors in possession” under the jurisdiction of the Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Court. Basic expects to continue its operations without interruption during the pendency of the Chapter 11 Cases. To assure ordinary course operations, the Court approved on an interim basis a variety of “first day” motions seeking various relief and authorizing the Debtors to maintain their operations in the ordinary course. The Debtors expect to receive approval of the "first day" motions on a final basis on or before November 18, 2016. Descriptions of the RSA and Backstop Agreement are included in Note 1. Basis of Presentation and Nature of Operations.