NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
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|
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Year Ended December 31,
|
|
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2020
|
|
2019
|
|
2018
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(346,883)
|
|
|
$
|
(106,157)
|
|
|
$
|
59,331
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities
|
|
|
|
|
|
|
Depreciation and amortization
|
|
302,051
|
|
|
292,150
|
|
|
259,145
|
|
Amortization of deferred financing fees
|
|
2,217
|
|
|
1,360
|
|
|
3,147
|
|
(Gain) loss on disposal of assets
|
|
(14,461)
|
|
|
4,470
|
|
|
5,047
|
|
Stock-based compensation
|
|
25,826
|
|
|
28,977
|
|
|
17,166
|
|
Loss on debt extinguishment/modification, including prepayment premiums
|
|
—
|
|
|
526
|
|
|
7,563
|
|
Loss on contingent consideration liability
|
|
—
|
|
|
—
|
|
|
13,254
|
|
Loss on foreign currency translation
|
|
—
|
|
|
—
|
|
|
2,621
|
|
Unrealized loss on derivative recognized in other comprehensive loss
|
|
(6,422)
|
|
|
(7,628)
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|
|
(880)
|
|
Gain on financial instrument and derivatives, net
|
|
(2,815)
|
|
|
(239)
|
|
|
(697)
|
|
Gain on insurance proceeds recognized in other income
|
|
—
|
|
|
—
|
|
|
(14,892)
|
|
Loss on impairment of assets
|
|
37,008
|
|
|
12,346
|
|
|
—
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
Decrease in trade and other accounts receivable, net
|
|
183,083
|
|
|
172,566
|
|
|
27,485
|
|
Decrease (increase) in inventories
|
|
19,167
|
|
|
17,181
|
|
|
(2,725)
|
|
Decrease in prepaid and other current assets
|
|
5,160
|
|
|
3,703
|
|
|
2,734
|
|
Decrease (increase) in other assets
|
|
25,306
|
|
|
(242)
|
|
|
362
|
|
Increase (decrease) in accounts payable
|
|
(61,658)
|
|
|
(17,799)
|
|
|
11,304
|
|
Increase (decrease) in customer contract liabilities
|
|
206
|
|
|
—
|
|
|
(4,940)
|
|
Decrease in accrued expenses
|
|
(84,129)
|
|
|
(103,609)
|
|
|
(32,318)
|
|
Increase (decrease) in other liabilities
|
|
(14,771)
|
|
|
7,858
|
|
|
(2,396)
|
|
Net cash provided by operating activities
|
|
68,885
|
|
|
305,463
|
|
|
350,311
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
Asset and business acquisitions, including cash acquired
|
|
53,666
|
|
|
68,807
|
|
|
(35,003)
|
|
Purchase of property and equipment
|
|
(113,506)
|
|
|
(200,385)
|
|
|
(277,569)
|
|
Advances of deposit on equipment
|
|
(1,908)
|
|
|
(7,451)
|
|
|
(4,153)
|
|
Payments for leasehold improvements
|
|
—
|
|
|
—
|
|
|
(1,651)
|
|
Implementation of software
|
|
(8,813)
|
|
|
(4,408)
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|
|
(883)
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|
Proceeds from sale of assets
|
|
32,659
|
|
|
29,114
|
|
|
4,652
|
|
Proceeds from insurance recoveries
|
|
58
|
|
|
223
|
|
|
18,247
|
|
Equity-method investment
|
|
—
|
|
|
—
|
|
|
(1,146)
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
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|
(37,844)
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|
|
(114,100)
|
|
|
(297,506)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the asset-based revolver and term loan facilities
|
|
175,000
|
|
|
—
|
|
|
348,250
|
|
Payments on the asset-based revolver and secured notes and term loan facilities
|
|
(178,500)
|
|
|
(3,500)
|
|
|
(284,952)
|
|
Payments on finance leases
|
|
(3,752)
|
|
|
(6,035)
|
|
|
(4,119)
|
|
Payment of debt issuance costs
|
|
—
|
|
|
(1,229)
|
|
|
(7,331)
|
|
Payment of contingent consideration liability
|
|
—
|
|
|
—
|
|
|
(11,962)
|
|
Shares repurchased and retired related to share repurchase program
|
|
—
|
|
|
—
|
|
|
(104,861)
|
|
Shares repurchased and retired related to stock-based compensation
|
|
(2,573)
|
|
|
(5,982)
|
|
|
(3,579)
|
|
Net cash used in financing activities
|
|
(9,825)
|
|
|
(16,746)
|
|
|
(68,554)
|
|
Non-cash effect of foreign translation adjustments
|
|
(241)
|
|
|
192
|
|
|
(165)
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
|
20,975
|
|
|
174,809
|
|
|
(15,914)
|
|
Cash, cash equivalents and restricted cash, beginning
|
|
255,015
|
|
|
80,206
|
|
|
96,120
|
|
Cash, cash equivalents and restricted cash, ending
|
|
$
|
275,990
|
|
|
$
|
255,015
|
|
|
$
|
80,206
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
21,114
|
|
|
$
|
20,836
|
|
|
$
|
24,528
|
|
CVR settlement
|
|
—
|
|
|
—
|
|
|
19,918
|
|
Income taxes
|
|
1,206
|
|
|
1,726
|
|
|
5,529
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
Change in accrued capital expenditures
|
|
$
|
(13,812)
|
|
|
$
|
(17,274)
|
|
|
$
|
2,930
|
|
Non-cash additions to equity security investment
|
|
5,263
|
|
|
|
|
|
Non-cash additions to finance right-of use assets
|
|
—
|
|
|
6,269
|
|
|
—
|
|
Non-cash additions to finance lease liabilities, including current maturities
|
|
—
|
|
|
(6,286)
|
|
|
—
|
|
Non-cash additions to operating right-of-use assets
|
|
9,057
|
|
|
65,551
|
|
|
—
|
|
Non-cash additions to operating lease liabilities, including current maturities
|
|
(8,898)
|
|
|
(65,297)
|
|
|
—
|
|
|
|
|
|
|
|
|
Fair value of C&J assets acquired
|
|
—
|
|
|
806,218
|
|
|
—
|
|
106,627 shares of NexTier common stock issued in exchange for C&J capital stock and replacement awards
|
|
—
|
|
|
(485,124)
|
|
|
—
|
|
C&J liabilities assumed
|
|
—
|
|
|
(321,094)
|
|
|
—
|
|
See accompanying notes to the consolidated financial statements.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(1) Basis of Presentation and Nature of Operations
The accompanying consolidated financial statements were prepared using United States Generally Accepted Accounting Principles (“GAAP”) and the instructions to Form 10-K and Regulation S-X and include all of the accounts of NexTier and its consolidated subsidiaries. All intercompany transactions and balances have been eliminated.
The Company’s accounting policies are in accordance with GAAP. The preparation of financial statements in conformity with these accounting principles requires the Company to make estimates and assumptions that affect (1) the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and (2) the reported amounts of revenue and expenses during the reporting period. Ultimate results could differ from the Company’s estimates. Significant items subject to such estimates and assumptions include the useful lives of property and equipment and intangible assets; allowances for doubtful accounts; inventory reserves; acquisition accounting; contingent liabilities; and the valuation of property and equipment, intangible assets, equity issued as consideration in an acquisition, income taxes, stock-based incentive plan awards and derivatives.
Management believes the consolidated financial statements included herein contain all adjustments necessary to present fairly the Company’s financial position as of December 31, 2020 and 2019 and the results of its operations and cash flows for the years ended December 31, 2020, 2019 and 2018. Such adjustments are of a normal recurring nature.
On October 31, 2019, the Company completed its merger (the “C&J Merger”) with C&J Energy Services, Inc. (“C&J”) and changed its name to "NexTier Oilfield Solutions Inc." For more details regarding the C&J Merger, refer to Note (3) Mergers and Acquisitions.
The consolidated financial statements for 2018 and for the period from January 1, 2019 to October 31, 2019 reflect only the historical results of the Company prior to the completion of the C&J Merger. The financial statements have been prepared using the acquisition method of accounting under existing U.S. GAAP, which requires that one of the two companies in the C&J Merger be designated as the acquirer for accounting purposes. C&J and Keane determined that Keane was the accounting acquirer. Accordingly, consideration given by Keane to complete the C&J Merger was allocated to the underlying tangible and intangible assets and liabilities acquired based on their estimated fair values as of the date of completion of the C&J Merger, with any excess purchase price allocated to goodwill.
(2) Summary of Significant Accounting Policies
(a) Business Combinations and Asset Acquisitions
Business combinations are accounted for using the acquisition method of accounting in accordance with the Accounting Standards Codification (“ASC”) 805, “Business Combinations”, as amended by Accounting Standards Update (“ASU”) 2017-01, “Business Combinations (Topic 805), Clarifying the Definition of a Business.” The purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair values. Fair value of the acquired assets and liabilities is measured in accordance with the guidance of ASC 820, using discounted cash flows and other applicable valuation techniques. Any acquisition related costs incurred by the Company are expensed as incurred. Any excess purchase price over the fair value of the net identifiable assets acquired is recorded as goodwill if the definition of a business is met. Operating results of an acquired business are included in the Company’s results of operations from the date of acquisition.
Asset acquisitions are measured based on their cost to the Company, including transaction costs. Asset acquisition costs, or the consideration transferred by the Company, are assumed to be equal to the fair value of the net assets acquired. If the consideration transferred is cash, measurement is based on the amount of cash the Company paid to the seller, as well as transaction costs incurred. Consideration given in the form of non-monetary assets, liabilities incurred or equity interests issued is measured based on either the cost to the Company or the fair value of the assets or net assets acquired, whichever is more clearly evident. The cost of an asset acquisition is
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
allocated to the assets acquired based on their estimated relative fair values. Goodwill is not recognized in an asset acquisition.
The Company did not complete any mergers or acquisitions in 2020. Refer to Note (3) Mergers and Acquisitions for discussion of the mergers and acquisitions completed in 2019 and 2018.
(b) Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company’s cash is invested in overnight repurchase agreements and certificates of deposit with an initial term of less than three months.
Net cash received from certain dispositions or casualty events of more than $25.0 million per single transaction or $50.0 million per series of related transactions, under the 2018 Term Loan Facility (as defined herein), and of more than $50.0 million, under the 2019 ABL Facility (as defined herein), is not considered to be restricted as long as the Company, at management’s discretion, reinvests any part of such proceeds in assets (other than current assets) to be used for its business (in the case of the 2018 Term Loan Facility) and for replacing or repairing the assets in respect of which such proceeds were received (in the case of the 2019 ABL Facility), in each case within 12 months from the receipt date of such proceeds. Otherwise, the proceeds are required to be applied as a prepayment of the 2018 Term Loan Facility or any outstanding commitments under the 2019 ABL Facility. The Company did not have any qualifying asset sale proceeds or insurance proceeds that exceeded the dollar thresholds described above for the years ended December 31, 2020 and 2019.
Cash balances related to the Company's captive insurance subsidiary, which totaled $5.7 million at December 31, 2020, are included in cash and cash equivalents in the consolidated balance sheets, and the Company expects to use these cash balances to fund the operations of the captive insurance subsidiaries and to settle future anticipated claims.
The Company had less than $0.1 million restricted cash as of December 31, 2020 and none as of December 31, 2019.
(c) Trade Accounts Receivable
Trade accounts receivable are generally recorded at the invoiced amount. Amounts collected on trade accounts receivable are included in net cash provided by operating activities in the consolidated statements of cash flows. As a result of the adoption of ASU 2016-13 “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” on January 1, 2020 the Company evaluates its accounts receivable through a continuous process of assessing its portfolio on an individual customer and overall basis. This process consists of a thorough review of historical collection experience, current aging status of the customer accounts, and financial condition of customers. Based on our review of these factors, we establish or adjust allowances for specific customers. Trade accounts receivable were $125.3 million and $350.6 million at December 31, 2020 and 2019, respectively. As of December 31, 2020, and 2019, the Company had an allowance for credit losses of $2.7 million and $0.7 million, respectively.
(d) Inventories
Inventories are stated at the lower of cost or net realizable value. Costs of inventories include purchase, conversion and condition. As inventory is consumed, the expense is recorded in cost of services in the consolidated statements of operations and comprehensive income (loss) using the weighted average cost method for non-manufacturing inventory and standard cost method for manufacturing inventory.
The Company periodically reviews the nature and quantities of inventory on hand and evaluates the net realizable value of items based on historical usage patterns, known changes to equipment or processes and customer demand for specific products. Significant or unanticipated changes in business conditions could impact the magnitude and timing of impairment recognized. Provision for excess or obsolete inventories is determined based on historical usage of inventory on-hand, volume on-hand versus anticipated usage, technological advances and
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
consideration of current market conditions. Inventories that have not turned over for more than a year are subject to a slow-moving reserve provision. In addition, inventories that have become obsolete due to technological advances, excess volume on-hand or no longer configured to operate with the Company’s equipment are written-off.
(e) Revenue Recognition
The Company adopted ASU 2014-09, “Revenue from Contracts with Customers,” which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers, effective January 1, 2018, using the modified retrospective method. Changes were made to the relevant business processes and the related control activities, including information systems, in order to monitor and maintain appropriate controls over financial reporting. There were no significant changes to the Company’s internal control over financial reporting due to the Company’s adoption of ASU 2014-09.
The majority of the Company’s performance obligations are satisfied over time. The Company has determined this best represents the transfer of value from its services to the customer as performance by the Company helps to enhance a customer controlled asset (e.g., unplugging a well, enabling a well to produce oil or natural gas). Measurement of the satisfaction of the performance obligation is measured using the output method, which is typically evidenced by a field ticket. A field ticket includes items such as services performed, consumables used, and man hours incurred to complete the job for the customer. Each field ticket is used to invoice customers. Payment terms for invoices issued are in accordance with a master services agreement with each customer, which typically require payment within 30 days of the invoice issuance.
A portion of the Company’s contracts contain variable consideration; however, this variable consideration is typically unknown at the time of contract inception, and is not known until the job is complete, at which time the variability is resolved. Examples of variable consideration include the number of hours that will be incurred and the amount of consumables (such as chemicals and proppants) that will be used to complete a job.
Remaining Performance Obligations
The Company invoices its customers for the services provided at contractual rates multiplied by the applicable unit of measurement, including volume of consumables used and hours incurred. In accordance with ASC 606, the Company has elected the “Right to Invoice” practical expedient for all contracts, which allows the Company to invoice its customers in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date. With this election, the Company is not required to disclose information about the variable consideration related to its remaining performance obligations. The Company has also elected the practical expedient to expense immediately mobilization costs, as the amortization period would always be less than one year. As a result of electing these practical expedients, there was no material impact on the Company’s current revenue recognition processes and no retrospective adjustments were necessary. For those contracts with a term of more than one year, the Company had approximately $29.8 million of unsatisfied performance obligations as of December 31, 2020, which will be recognized as services are performed over the remaining contractual terms.
The Company’s obligations for refunds as well as the warranties and related obligations stated in its contracts with its customers are standard to the industry and are related to the correction of any defectiveness in the execution of its performance obligations.
Contract Balances
In line with industry practice, the Company bills its customers for its services in arrears, typically when the stage or well is completed or at month-end. The majority of the Company’s jobs are completed in less than 30 days. Furthermore, it is currently not standard practice for the Company to execute contracts with prepayment features. As such, the Company’s contract liabilities are immaterial to its consolidated balance sheets. Payment terms after invoicing are typically 30 days or less.
The Company does not have any significant contract costs to obtain or fulfill contracts with customers; as such, no amounts are recognized on the consolidated balance sheet. Taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from revenues in the
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
consolidated statements of operations and comprehensive income (loss) and net cash provided by operating activities in the consolidated statements of cash flows.
The following is a description of the Company’s core service lines separated by reportable segments from which the Company generates its revenue. For additional detailed information regarding reportable segments, see (21) Business Segments.
Revenue from the Company’s Completion Services, Well Construction and Intervention (“WC&I”), and Well Support Services segments are recognized as follows:
Completion Services
The Company provides hydraulic fracturing, wireline and pumpdown services pursuant to contractual arrangements, such as term contracts and pricing agreements. Revenue from these services are earned as services are rendered, which is generally on a per stage or fixed monthly rate. All revenue is recognized when a contract with a customer exists, the performance obligations under the contract have been satisfied over time, the amount to which the Company has the right to invoice has been determined and collectability of amounts subject to invoice is probable. Contract fulfillment costs, such as mobilization costs and shipping and handling costs, are expensed as incurred and are recorded in cost of services in the consolidated statements of operations and comprehensive income (loss). To the extent fulfillment costs are considered separate performance obligations that are billable to the customer, the amounts billed are recorded as revenue in the consolidated statements of operations and comprehensive income (loss).
Once a stage has been completed, a field ticket is created that includes charges for the service performed and the chemicals and proppant consumed during the course of the service. The field ticket may also include charges for the mobilization of the equipment to the location, any additional equipment used on the job and other miscellaneous items. The field ticket represents the amounts to which the Company has the right to invoice and to recognize as revenue.
Well Construction and Intervention
The Company provides cementing services pursuant to contractual arrangements, such as term contracts, or on a spot market basis. Revenue is recognized upon the completion of each performance obligation, which for cementing services, represents the portion of the well cemented: surface casing, intermediate casing or production liner. The performance obligations are satisfied over time. Jobs for these services are typically short term in nature, with most jobs completed in a day. Once the well has been cemented, a field ticket is created that includes charges for the services performed and the consumables used during the course of service. The field ticket represents the amounts to which the Company has the right to invoice and to recognize as revenue.
The Company provides a range of coiled tubing services primarily used for fracturing plug drill-out during completion operations and for well workover and maintenance, primarily on a spot market basis. Jobs for these services are typically short-term in nature, lasting anywhere from a few hours to multiple days. Revenue is recognized upon completion of each day’s work based upon a completed field ticket. The field ticket includes charges for the services performed and the consumables used during the course of service. The field ticket may also include charges for the mobilization and set-up of equipment, the personnel on the job, any additional equipment used on the job, and other miscellaneous consumables. The Company typically charges the customer for the services performed and resources provided on an hourly basis at agreed-upon spot market rates, at times, or pursuant to pricing agreements.
Historical Segment: Well Support Services Segment
On March 9, 2020, the Company completed the divestiture of its Well Support Services Segment. For additional information, see Note (21) Business Segments. Through its rig services line, the Company had provided workover and well servicing rigs that were primarily used for routine repair and maintenance of oil and gas wells, re-drilling operations and plug and abandonment operations. These services were provided on an hourly basis at prices that approximate spot market rates. A field ticket was generated and revenue is recognized upon the earliest of
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
the completion of a job or at the end of each day. A rig services job can last anywhere from a few hours to multiple days depending on the type of work being performed. The field ticket includes the base hourly rate charge and, if applicable, charges for additional personnel or equipment not contemplated in the base hourly rate. The field ticket may also include charges for the mobilization and set-up of equipment.
Through its fluids management service line, the Company used to provide storage, transportation and disposal services for fluids used in the drilling, completion and workover of oil and gas wells. Rates for these services vary and can be on a per job, per hour, or per load basis, or on the basis of quantities sold or disposed. Revenue is recognized upon the completion of each job or load, or delivered product, based on a completed field ticket.
Through its other special well site service line, the Company used to provide fishing, contract labor and tool rental services for completion and workover of oil and gas wells. Rates for these services vary and can be on a per job, per hour or on the basis of rental days per month. Revenue is recognized based on a field ticket issued upon the completion of each job or on a monthly billing for rental services provided.
Disaggregation of Revenue
Revenue activities during the years ended December 31, 2020, 2019 and 2018 were as follows:
|
|
|
|
|
|
|
|
|
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|
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|
|
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|
|
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|
|
|
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|
|
Year Ended December 31, 2020
|
|
|
Completion Services
|
|
WC&I
|
|
Well Support Services
|
|
Total
|
|
|
(In thousands)
|
Geography
|
|
|
|
|
|
|
|
|
Northeast
|
|
$
|
270,612
|
|
|
$
|
21,290
|
|
|
$
|
—
|
|
|
$
|
291,902
|
|
Central
|
|
131,833
|
|
|
7,478
|
|
|
—
|
|
|
139,311
|
|
West Texas
|
|
477,758
|
|
|
58,111
|
|
|
8,373
|
|
|
544,242
|
|
West
|
|
122,970
|
|
|
11,459
|
|
|
49,556
|
|
|
183,985
|
|
International
|
|
43,141
|
|
|
—
|
|
|
—
|
|
|
43,141
|
|
|
|
$
|
1,046,314
|
|
|
$
|
98,338
|
|
|
$
|
57,929
|
|
|
$
|
1,202,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
Completion Services
|
|
WC&I
|
|
Well Support Services
|
|
Total
|
|
|
(In thousands)
|
Geography
|
|
|
|
|
|
|
|
|
Northeast
|
|
$
|
479,685
|
|
|
$
|
5,193
|
|
|
$
|
—
|
|
|
$
|
484,878
|
|
Central
|
|
104,225
|
|
|
5,741
|
|
|
—
|
|
|
109,966
|
|
West Texas
|
|
839,652
|
|
|
24,575
|
|
|
9,336
|
|
|
873,563
|
|
West
|
|
273,364
|
|
|
27,530
|
|
|
39,247
|
|
|
340,141
|
|
International
|
|
13,008
|
|
|
—
|
|
|
—
|
|
|
13,008
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,709,934
|
|
|
$
|
63,039
|
|
|
$
|
48,583
|
|
|
$
|
1,821,556
|
|
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
Completion Services
|
|
WC&I
|
|
Well Support Services
|
|
Total
|
|
|
(In thousands)
|
Geography
|
|
|
|
|
|
|
|
|
Northeast
|
|
$
|
790,026
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
790,026
|
|
Central
|
|
61,083
|
|
|
—
|
|
|
—
|
|
|
61,083
|
|
West Texas
|
|
1,005,630
|
|
|
12,256
|
|
|
—
|
|
|
1,017,886
|
|
West
|
|
244,217
|
|
|
23,794
|
|
|
—
|
|
|
268,011
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,100,956
|
|
|
$
|
36,050
|
|
|
$
|
—
|
|
|
$
|
2,137,006
|
|
(f) Long-Lived Assets with Definite Lives
Property and equipment, inclusive of equipment under finance lease, are generally stated at cost.
Depreciation on property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which range from 13 months to 40 years. Management bases the estimate of the useful lives and salvage values of property and equipment on expected utilization, technological change and effectiveness of its maintenance programs. Depreciation methods, useful lives and residual values are reviewed annually or as needed based on activities related to specific assets. When components of an item of property and equipment are identifiable and have different useful lives, they are accounted for separately as major components of property and equipment.
Gains and losses on disposal of property and equipment are determined by comparing the proceeds from disposal with the carrying amount of property and equipment and are recognized net within operating costs and expenses in the consolidated statements of operations and comprehensive income (loss).
Major classifications of property and equipment and their respective useful lives are as follows:
|
|
|
|
|
|
Land
|
Indefinite life
|
Building and leasehold improvements
|
13 months – 40 years
|
Machinery and equipment
|
13 months – 10 years
|
Office furniture, fixtures and equipment
|
3 years – 5 years
|
Leasehold improvements are assigned a useful life equal to the term of the related lease, or its expected period of use.
In the first quarter of 2018, the Company reassessed the estimated useful lives of select machinery and equipment. The Company concluded that due to an increase in service intensity driven by a shift to more 24-hour work, higher stage volumes, larger stages and more proppant usage per stage, the estimated useful lives of these select machinery and equipment should be reduced by approximately 50%. In accordance with ASC 250, “Accounting Changes and Error Corrections,” the change in the estimated useful lives of the Company’s property and equipment was accounted for as a change in accounting estimate, on a prospective basis, effective January 1, 2018. This change resulted in an increase in depreciation expense and decrease in net income during the year ended December 31, 2018 of $15.0 million in the consolidated statement of operations and comprehensive income (loss).
Amortization on definite-lived intangible assets is calculated on the straight-line method over the estimated useful lives of the assets, which range from 2 to 15 years.
Property and equipment and definite-lived intangible assets (“Long-lived Assets”) are evaluated on a quarterly basis to identify events or changes in circumstances, referred to as triggering events that indicate the carrying value of certain property and equipment may not be recoverable or upon the occurrence of a triggering
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
event. An impairment loss is recorded in the period in which it is determined that the carrying amount of Long-lived Asset is not recoverable. The determination of recoverability is made based upon the estimated undiscounted future net cash flows of assets grouped at the lowest level for which there are identifiable cash flows independent of the cash flows of other groups of assets with such cash flows to be realized over the estimated remaining useful life of the primary asset within the asset group. The Company determined the lowest level of identifiable cash flows that are independent of other asset groups to be primarily at the service line level. The Company's asset groups consist of fracturing services, wireline, cementing, and coiled tubing, except for an entity level asset group for Long-lived Assets that do not have identifiable independent cash flows. Estimates of undiscounted future net cash flows of assets groups are projected based on estimates of projected revenue growth, unit count, utilization, pricing, gross profit rates, SG&A rates, working capital fluctuations and capital expenditures. Forecasted cash flows take into account known market conditions as of the assessment date, and management’s anticipated business outlook. A terminal period is used to reflect an estimate of stable, perpetual growth. If the estimated undiscounted future net cash flows for a given asset group is less than the carrying amount of the asset groups, an impairment loss is determined by comparing the estimated fair value with the carrying value of the related asset groups. The impairment loss is then allocated across the asset group's major classifications.
During the first quarter of 2020, management determined the reductions in commodity prices driven by the potential impact of the novel COVID-19 pandemic and global supply and demand dynamics coupled with the sustained decrease in the Company’s share price were deemed triggering events. As a result of the triggering event, recoverability testing was performed and it was determined that the estimated undiscounted future net cash flow for all asset groups was greater than the carrying amount of their related assets and no impairment loss was recorded.
During the third quarter of 2020, the Company assessed and determined the sustained reductions in commodity prices and continuing market economic disruptions as a triggering event. As a result of the triggering event, recoverability testing was performed and it was determined that the estimated undiscounted future net cash flows for all asset groups was greater than the carrying amount of their related assets and no impairment loss was recorded.
The Company did not recognize any impairment charges related to the Company’s long-lived assets for the years ended December 31, 2018, 2019, or 2020.
(g) Major Maintenance Activities
The Company incurs maintenance costs on its major equipment. The determination of whether an expenditure should be capitalized or expensed requires management judgment in the application of how the costs benefit future periods, relative to the Company’s capitalization policy. Costs that either establish or increase the efficiency, productivity, functionality or life of a fixed asset by greater than 12 months are capitalized.
(h) Goodwill and Indefinite-Lived Intangible Assets
Goodwill represents the excess of the purchase price of an acquired business over the estimated fair value of the identifiable assets acquired and liabilities assumed by the Company. For the purposes of goodwill impairment assessment, the Company evaluates goodwill for impairment annually, as of October 31, or more often as facts and circumstances warrant. When performing the impairment assessment, the Company evaluates factors, such as unexpected adverse economic conditions, competition and market changes. Goodwill is allocated across the Company’s Completions Services, Well Construction and Intervention and Well Support Services reporting units.
Before employing detailed impairment testing methodologies, the Company may first evaluate the likelihood of impairment by considering qualitative factors relevant to each reporting unit, such as macroeconomic, industry, market or any other factors that have a significant bearing on fair value. If the Company first utilizes a qualitative approach and determines that it is more likely than not that goodwill is impaired, detailed testing methodologies are then applied. Otherwise, the Company concludes that no impairment has occurred. The Company may also choose to bypass a qualitative approach and opt instead to employ detailed testing methodologies, regardless of a possible more likely than not outcome. The first step in the goodwill impairment test is to compare the fair value of each reporting unit to which goodwill has been assigned to the carrying amount of net assets, including goodwill, of the respective reporting unit. If the carrying amount of the reporting unit exceeds its fair
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
value, the Company recognizes an impairment expense in an amount equal to the excess, limited to the total amount of goodwill allocated to the reporting unit.
The Company performed the qualitative analysis of the goodwill impairment assessment by reviewing relevant qualitative factors. In the first and third quarter of 2020, the Company determined there were triggering events that would indicate the carrying amount of its goodwill may not be recoverable, and as such, quantitative detail impairment testing was conducted.
As a result, the Company recognized $32.6 million in goodwill impairment expense during 2020, of which $32.2 million related to the Completions Service reporting unit and $0.4 million representing the entire goodwill balance for the Well Construction and Intervention reporting unit. No goodwill impairment expense was recognized in 2019 or 2018. See Note (5) Goodwill.
The Company’s indefinite-lived assets consisted of the Company’s Keane trade name. The Company assessed its indefinite-lived intangible assets for impairment annually, as of October 31, or whenever events or circumstances indicate that the carrying amount of the assets may not be recoverable. The Company fully impaired its Keane trade name in 2019. For additional detailed information regarding the impairment of the Keane trade name, see Note (4) Intangible Assets. There was no indefinite-lived asset impairment recognized during 2018.
(i) Derivative Instruments and Hedging Activities
The Company utilizes interest rate derivatives to manage interest rate risk associated with its floating-rate borrowings. The Company recognizes all derivative instruments as either assets or liabilities on the consolidated balance sheets at their respective fair values. For derivatives designated in hedging relationships, changes in the fair value are either offset through earnings against the change in fair value of the hedged item attributable to the risk being hedged or recognized in accumulated other comprehensive income (loss) until the hedged item affects earnings.
The Company only enters into derivative contracts that it intends to designate as hedges for the variability of cash flows to be received or paid related to a recognized asset or liability (i.e. cash flow hedge). For all hedging relationships, the Company formally documents the hedging relationship and its risk-management objective and strategy for undertaking the hedge, the hedging instrument, the hedged transaction, the nature of the risk being hedged and how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively. The Company also formally assesses, both at the inception of the hedging relationship and on an ongoing basis, whether the derivatives that are used in hedging relationships are highly effective in offsetting changes in cash flows of hedged transactions. For derivative instruments that are designated and qualify as part of a cash flow hedging relationship, the gain or loss on the derivative is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.
The Company discontinues hedge accounting prospectively, when it determines that the derivative is no longer highly effective in offsetting cash flows attributable to the hedged risk, the derivative expires or is sold, terminated, or exercised, the originally forecasted transaction is no longer probable of occurring or if management decides to remove the designation of the cash flow hedge. The net derivative instrument gain or loss related to a discontinued cash flow hedge shall continue to be reported in accumulated other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the originally hedged transaction affects earnings, unless it is probable that the forecasted transaction will not occur by the end of the originally specified time period. When it is probable that the originally forecasted transaction will not occur by the end of the originally specified time period, the Company recognizes immediately, in earnings, any gains and losses related to the hedging relationship that were recognized in accumulated other comprehensive income (loss). In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company continues to carry the derivative at its fair value on the consolidated balance sheets and recognizes any subsequent changes in the derivative’s fair value in earnings.
In addition, we evaluate the terms of our operating agreements and other contracts, if any, to determine whether they contain embedded components that are required to be bifurcated and accounted for separately as
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
derivative financial instruments. For additional detailed information regarding reportable segments, see Note (10) Derivatives.
(j) Fair Value Measurement
Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the reporting date. The Company’s assets and liabilities that are measured at fair value at each reporting date are classified according to a hierarchy that prioritizes inputs and assumptions underlying the valuation techniques. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
•Level 1 Inputs: Quoted prices (unadjusted) in an active market for identical assets or liabilities.
•Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
•Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.
Assets and liabilities are classified in their entirety based on the lowest priority level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement of assets and liabilities within the levels of the fair value hierarchy. Reclassifications of fair value between Level 1, Level 2 and Level 3 of the fair value hierarchy, if applicable, are made at the end of each quarter.
(k) Stock-based compensation
The Company recognizes compensation expense for restricted stock awards, restricted stock units to be settled in common stock (“RSUs”), performance based RSU award (“PSUs”), and non-qualified stock options (“stock options”) based on the fair value of the awards at the date of grant. The fair value of restricted stock awards and RSUs is determined based on the number of shares or RSUs granted and the closing price of the Company’s common stock on the date of grant. The fair value of stock options is determined by applying the Black-Scholes model to the grant-date market value of the underlying common shares of the Company. The fair value of PSUs with market conditions is determined using a Monte Carlo simulation method. The Company has elected to recognize forfeiture credits for these awards as they are incurred, as this method best reflects actual stock-based compensation expense.
Compensation expense from time-based restricted stock awards, RSUs, PSUs, and stock options is amortized on a straight-line basis over the requisite service period, which is generally the vesting period.
Deferred compensation expense associated with liability-based awards, such as deferred stock awards that are expected to settle with the issuance of a variable number of shares based on a fixed monetary amount at inception, is recognized at the fixed monetary amount at inception and is amortized on a straight-line basis over the requisite service period, which is generally the vesting period. Upon settlement, the holders receive an amount of common stock equal to the fixed monetary amount at inception, based on the closing price of the Company’s stock on the date of settlement.
Tax deductions on the stock-based compensation awards are not realized until the awards are vested or exercised. The Company recognizes deferred tax assets for stock-based compensation awards that will result in future deductions on its income tax returns, based on the amount of tax deduction for stock-based compensation recognized at the statutory tax rate in the jurisdiction in which the Company will receive a tax deduction. If the tax
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
deduction for a stock-based award is greater than the cumulative GAAP compensation expense for that award upon realization of a tax deduction, an excess tax benefit will be recognized and recorded as a favorable impact on the effective tax rate. If the tax deduction for an award is less than the cumulative GAAP compensation expense for that award upon realization of the tax deduction, a tax shortfall will be recognized and recorded as an unfavorable impact on the effective tax rate. Any excess tax benefits or shortfalls will be recorded as discrete, adjustments in the period in which they occur. The cash flows resulting from any excess tax benefit will be classified as financing cash flows in the consolidated statements of cash flows.
The Company provides its employees with the option to settle income tax obligations arising from the vesting of their restricted or deferred stock-based compensation awards by withholding shares equal to such income tax obligations. Shares acquired from employees in connection with the settlement of the employees’ income tax obligations are accounted for as treasury shares that are subsequently retired. Restricted stock awards, RSUs, and PSUs are not considered issued and outstanding for purposes of earnings per share calculations until vested.
For additional information, see Note (12) Stock-Based Compensation.
(l) Taxes
Upon consummation of the Organizational Transactions and the IPO, the Company became subject to U.S. federal income taxes. A provision for U.S. federal income tax has been provided in the consolidated financial statements for the years ended December 31, 2020, 2019 and 2018.
Prior to 2019, the Company had a Canadian subsidiary, which was treated as a corporation for Canadian federal and provincial tax purposes. For Canadian tax purposes, the Company was subject to foreign income tax. As a result of the C&J Merger, the Company had foreign subsidiaries as of December 2020 in Canada, The Netherlands, Luxembourg and Ecuador. With the exception of the Canadian subsidiary, all other subsidiaries are dormant and have no active operations as of December 31, 2020.
The Company is responsible for certain state income and franchise taxes in the states in which it operates, which include, but not limited to California, Colorado, Louisiana, Montana, New Mexico, North Dakota, Oklahoma, Pennsylvania, Texas, Utah and West Virginia. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and tax carryforwards, if applicable.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date.
The Company recognizes interest accrued related to unrecognized tax benefits, if any, in income tax expense.
See Note (17) Income Taxes for a detailed discussion of the Company’s taxes and activities thereof during the years ended December 31, 2020, 2019 and 2018.
(m) Commitments and Contingencies
The Company accrues for contingent liabilities when such contingencies are probable and reasonably estimable. The Company generally records losses related to these types of contingencies as direct operating expenses or general and administrative expenses in the consolidated statements of operations and comprehensive income (loss).
Legal costs associated with the Company’s loss contingencies are recognized immediately when incurred as general and administrative expenses in the Company’s consolidated statements of operations and comprehensive income (loss).
(n) Equity-method investments
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Investments in non-controlled entities over which the Company has the ability to exercise significant influence over the noncontrolled entities’ operating and financial policies are accounted for under the equity-method. Under the equity-method, the investment in the non-controlled entity is initially recognized at cost and subsequently adjusted to reflect the Company’s share of the entity’s income (losses), any dividends received by the Company and any other-than-temporary impairments. Investments accounted for under the equity-method are presented within other noncurrent assets in the consolidated balance sheets. The Company did not have any equity-method investments as of December 31, 2020. As of December 31, 2019, the Company had $3.6 million in equity-method investments.
(o) Employee Benefits and Post-Employment Benefits
Contractual termination benefits are payable when employment is terminated due to an event specified in the provisions of a social/labor plan, state or federal law. Accordingly, in situations where minimum statutory termination benefits must be paid to the affected employees, the Company records employee severance costs associated with these activities in accordance with ASC 712, “Compensation—Nonretirement Post-Employment Benefits.” In all other situations where the Company pays termination benefits, including supplemental benefits paid in excess of statutory minimum amounts and benefits offered to affected employees based on management’s discretion, the Company records these termination costs in accordance with ASC 420, “Exit or Disposal Cost Obligations.” A liability is recognized for one-time termination benefits when the Company is committed to 1) making payments and the number of affected employees and the benefits received are known to both parties and 2) terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal for which such amount can be reasonably estimated.
(p) Leases
Effective January 1, 2019, the Company adopted ASU 2016-02, "Leases (Topic 842)," and related amendments, which set out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors, using the modified retrospective method. In connection with the adoption of these standards, the Company implemented internal controls to ensure that the Company's contracts are properly evaluated to determine applicability under ASU 2016-02 and that the Company properly applies ASU 2016-02 in accounting for and reporting on all its qualifying leases.
In accordance with ASU 2016-02, the Company considers any contract that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration to be a lease. The Company determines whether the contract into which it has entered is a lease at the lease commencement date. Rental arrangements with term lengths of one month or less are expensed as incurred, but not recognized as qualifying leases.
For lessees, leases can be classified as finance leases or operating leases, while for lessors, leases can be classified as sales-type leases, direct financing leases or operating leases. As lessee, all leases, with the exception of short-term leases, are capitalized on the balance sheet by recording a lease liability, which represents the Company's obligation to make lease payments arising from the lease and a right-of-use asset, which represents the Company's right to use the underlying asset being leased.
For leases in which the Company is the lessee, the Company uses a collateralized incremental borrowing rate to calculate the lease liability, as for most leases, the implicit rate in the lease is unknown. The collateralized incremental borrowing rate is based on a yield curve over various term lengths that approximates the borrowing rate the Company would receive if it collateralized its lease arrangements with all of its assets. For leases in which the Company is the lessor, the Company uses the rate implicit in the lease.
For finance leases, the Company amortizes the right-of-use asset on a straight-line basis over the earlier of the useful life of the right-of-use asset or the end of the lease term and records this amortization in rent expense on the consolidated statements of operations and comprehensive loss. The Company adjusts the lease liability to reflect lease payments made during the period and interest incurred on the lease liability using the effective interest method. The incurred interest expense is recorded in interest expense on the consolidated statements of operations and comprehensive loss. For operating leases, the Company recognizes one single lease cost, comprised of the lease
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
payments and amortization of any associated initial direct costs, within rent expense on the consolidated statements of operations and comprehensive loss. Variable lease costs not included in the determination of the lease liability at the commencement of a lease are recognized in the period when the specified target that triggers the variable lease payments becomes probable.
In accordance with ASC 842, the Company has made the following elections for its lease accounting:
•all short-term leases with term lengths of 12 months or less will not be capitalized; the underlying class of assets to which the Company has applied this expedient is primarily its apartment leases;
•for non-revenue contracts containing both lease and non-lease components, both components will be combined and accounted for as one lease component and accounted for under ASC 842; and
•for revenue contracts containing both lease and non-lease components, both components will be combined and accounted for as one component and accounted for under ASC 606.
As part of the Company's adoption of ASU 2016-02, the Company elected to adopt the standard using the modified retrospective transition method and elected the practical expedient transition method package whereby the Company did not:
•reassess whether any expired or existing contracts contained leases;
•reassess the lease classification for any expired or existing leases; and
•reassess initial direct costs for any existing leases.
For additional information, see Note (16) Leases.
(q) Research and development costs
Research and development costs are expensed as incurred as general and administrative expenses in the Company’s consolidated statements of operations and comprehensive income (loss). Research and development costs incurred directly by the Company were $4.8 million, $7.1 million and $7.1 million for the years ended December 31, 2020, 2019 and 2018, respectively.
(r) Reclassifications
Certain reclassifications have been made to prior period amounts to conform to current period financial statement presentation. These reclassifications did not affect previously reported results of operations, stockholders' equity, comprehensive income or cash flows.
(3) Mergers and Acquisitions
(a) C&J Energy Services, Inc.
On October 31, 2019, the Company completed the C&J Merger in accordance with the terms of the Agreement and Plan of Merger, dated as of June 16, 2019 (the "Merger Agreement"), by and among NexTier, C&J and King Merger Sub Corp., a wholly owned subsidiary of NexTier ("Merger Sub"), pursuant to which Merger Sub merged with and into C&J, with C&J surviving the merger as a wholly owned subsidiary of NexTier, and immediately following the C&J Merger, C&J was merged with and into King Merger Sub II LLC ("LLC Sub"), with LLC Sub continuing as the surviving entity as a wholly-owned subsidiary of NexTier and the successor in interest to C&J.
The C&J Merger was completed for total consideration of approximately $485.1 million, consisting of (i) equity consideration in the form of 105.9 million shares of Keane common stock issued to C&J stockholders with a value of $481.9 million and (ii) replacement share based compensation awards attributable to pre-merger services with a value of $3.2 million.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
The Company accounted for the C&J Merger using the acquisition method of accounting. The aggregate purchase price noted above was allocated to the major categories of assets acquired and liabilities assumed based upon their estimated fair values at the date of the acquisition. The majority of the measurements of assets acquired and liabilities assumed, were based on inputs that were not observable in the market and thus represented Level 3 inputs. The fair value of acquired inventory and property and equipment was based on both available market data and a cost approach. The fair value of the financial assets acquired included trade receivables with a fair value of $312.6 million. The gross amount due under the contracts was $322.8 million, of which $10.2 million was expected to be uncollectible. A liability of $40.2 million was recognized for legal reserves and sales and use tax assessments.
The following table summarizes the fair value of the consideration transferred in the C&J Merger and the allocation of the purchase price to the fair values of the assets acquired and liabilities assumed at the C&J Merger Date:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Purchase Consideration:
|
|
(Thousands of Dollars)
|
|
|
|
|
Equity consideration
|
|
$
|
481,912
|
|
|
|
|
|
Replacement awards attributable to pre-combination services
|
|
3,212
|
|
|
|
|
|
Less: Cash acquired
|
|
(68,807)
|
|
|
|
|
|
Total purchase consideration
|
|
$
|
416,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and accounts receivable
|
|
$
|
312,620
|
|
|
|
|
|
Inventories
|
|
43,142
|
|
|
|
|
|
Prepaid and other current assets
|
|
18,512
|
|
|
|
|
|
Property and equipment
|
|
311,886
|
|
|
|
|
|
Intangible assets
|
|
17,590
|
|
|
|
|
|
Right of use assets
|
|
24,318
|
|
|
|
|
|
Other noncurrent assets
|
|
4,409
|
|
|
|
|
|
Total identifiable assets acquired
|
|
732,477
|
|
|
|
|
|
Accounts payable
|
|
43,620
|
|
|
|
|
|
Accrued expenses
|
|
236,959
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term lease liability
|
|
7,842
|
|
|
|
|
|
Long term lease liability
|
|
15,517
|
|
|
|
|
|
Non-current liabilities
|
|
17,156
|
|
|
|
|
|
Total liabilities assumed
|
|
321,094
|
|
|
|
|
|
Goodwill
|
|
4,934
|
|
|
|
|
|
Total purchase consideration
|
|
$
|
416,317
|
|
|
|
|
|
The goodwill in this acquisition was primarily attributable to expected synergies and was allocated across the Company’s Completion Services, Well Construction and Intervention and Well Support Services reporting units.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Intangible assets related to the C&J Merger consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
Weighted average remaining
amortization period
(Years)
|
|
Gross
Carrying
Amounts
|
Technology
|
|
3
|
|
17,590
|
|
Total
|
|
|
|
$
|
17,590
|
|
Merger and integration related costs were recognized separately from the acquisition of assets and assumptions of liabilities in the C&J Merger. Merger costs consist of legal and professional fees and pre-merger notification fees. Integration costs consist of expenses incurred to integrate C&J’s operations, aligning accounting processes and procedures, and integrating its enterprise resource planning system with those of the Company. The expenses for all these transactions were expensed as incurred.
Merger and integration costs totaled $32.5 million and $68.7 million for the years ended December 31, 2020 and 2019, respectively, and are recorded within merger and integration costs on the Company’s consolidated statements of operations and comprehensive income (loss). The following table summarizes merger and integration costs for the years ended December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
|
|
Transaction Type
|
|
Year Ended
December 31, 2020
|
|
Year Ended
December 31, 2019
|
|
|
Merger
|
|
$
|
7,586
|
|
|
$
|
23,775
|
|
|
|
Integration
|
|
24,953
|
|
|
44,956
|
|
|
|
Total merger and integration costs
|
|
$
|
32,539
|
|
$
|
68,731
|
|
|
The following combined pro forma information assumes the C&J Merger occurred on January 1, 2018. The pro forma information presented below is for illustrative purposes only and does not reflect future events that occurred after December 31, 2019 or any operating efficiencies or inefficiencies that resulted from the C&J Merger. The information is not necessarily indicative of results that would have been achieved had the Company controlled C&J during the period presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited, amounts in thousands)
|
|
|
Year Ended December 31, 2019
|
|
Year Ended December 31, 2018
|
|
|
|
|
|
Revenue
|
|
$
|
3,406,288
|
|
|
$
|
4,359,095
|
|
Net income (loss)
|
|
(196,577)
|
|
|
66,746
|
|
|
|
|
|
|
Net income (loss) per share (basic)
|
|
$
|
(0.93)
|
|
|
$
|
0.32
|
|
Net income (loss) per share (diluted)
|
|
$
|
(0.93)
|
|
|
$
|
0.31
|
|
|
|
|
|
|
Weighted-average shares outstanding (basic)
|
|
211,376
|
|
|
210,945
|
|
Weighted-average shares outstanding (diluted)
|
|
211,376
|
|
|
212,964
|
|
The Company’s consolidated statement of operations and comprehensive income (loss) for 2019 includes revenue of $196.7 million and net loss of $21.4 million, from the C&J operations, from November 1, 2019 to December 31, 2019.
(b) Asset Acquisition from Refinery Specialties, Incorporated
On July 24, 2018, the Company executed a purchase agreement with Refinery Specialties, Incorporated (“RSI”) to acquire approximately 90,000 hydraulic horsepower and related support equipment for approximately
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
$35.4 million, inclusive of an $0.8 million deposit reimbursement related to future equipment deliveries. This acquisition was partially funded by the insurance proceeds the Company received in connection with a fire that resulted in damage to a portion of one of the Company’s fleets (for further details see Note (7) Property and Equipment, net). The Company also assumed operating leases for light duty vehicles in connection with the RSI transaction and RSI entered into a non-compete arrangement in turn with the Company. In September 2018, the Company, and RSI reached an agreement to refund the Company $0.8 million of the purchase price due to repair costs required for certain acquired equipment. The resulting purchase price after the refund was $34.6 million, and the Company incurred $0.4 million of transaction costs related to the acquisition, bringing total cash consideration related to the acquisition to $35.0 million.
The Company accounted for this acquisition as an asset acquisition pursuant to ASU 2017-01 and allocated the purchase price of the acquisition plus the transactions costs amongst the acquired hydraulic horsepower and related support equipment, as the fair value of the acquired hydraulic horsepower and related support equipment represented substantially all of the fair value of the gross assets acquired in the asset acquisition with RSI.
(4) Intangible Assets
The definite-lived intangible assets balance in the Company’s consolidated balance sheets represents the fair value measurement upon initial recognition, net of amortization, as applicable, related to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
December 31, 2020
|
|
|
|
|
Gross
Carrying
Amounts
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
Customer contracts
|
|
|
|
$
|
67,600
|
|
|
$
|
(37,607)
|
|
|
$
|
29,993
|
|
Non-compete agreements
|
|
|
|
700
|
|
|
(455)
|
|
|
245
|
|
|
|
|
|
|
|
|
|
|
Technology
|
|
|
|
29,378
|
|
|
(8,434)
|
|
|
20,944
|
|
Total
|
|
|
|
$
|
97,678
|
|
|
$
|
(46,496)
|
|
|
$
|
51,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
|
December 31, 2019
|
|
|
|
|
Gross
Carrying
Amounts
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
Customer contracts
|
|
|
|
$
|
67,600
|
|
|
$
|
(32,681)
|
|
|
$
|
34,919
|
|
Non-compete agreements
|
|
|
|
700
|
|
|
(408)
|
|
|
292
|
|
Technology
|
|
|
|
22,054
|
|
|
(2,244)
|
|
|
19,810
|
|
Total
|
|
|
|
$
|
90,354
|
|
|
$
|
(35,333)
|
|
|
$
|
55,021
|
|
Amortization expense related to the intangible assets for the years ended December 31, 2020, 2019 and 2018 was $12.6 million, $6.5 million and $6.3 million, respectively.
In connection with the C&J Merger, the Company was re-branded as NexTier and did not expect to obtain any further benefits or receive any cash flows associated with the Keane indefinite-lived trade name. As a result, the Company impaired $10.2 million related to the Keane trade name as of December 31, 2019. The impairment is recorded in impairment expense in the consolidated statements of operations and comprehensive income (loss).
Amortization for the Company’s definite-lived intangible assets, excluding in-process software, over the next five years, is as follows:
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
Year-end December 31,
|
|
(Thousands of Dollars)
|
2021
|
|
$
|
(14,213)
|
|
2022
|
|
(13,132)
|
|
2023
|
|
(7,382)
|
|
2024
|
|
(5,786)
|
|
2025
|
|
(5,312)
|
|
(5) Goodwill
Goodwill is allocated across three reporting units: Completion Services, Well Construction and Intervention Services and Well Support Services reporting units. At the reporting unit level, the Company tests goodwill for impairment on an annual basis as of October 31 of each year, or when events or changes in circumstances, referred to as triggering events, indicate the carrying value of goodwill may not be recoverable and that a potential impairment exists.
Judgment is used in assessing whether goodwill should be tested for impairment more frequently than annually. Factors such as unexpected adverse economic conditions, competition, market changes, and other external events may require more frequent assessments.
During the first quarter of 2020, a significant decline in the Company's share price, which resulted in the Company's market capitalization dropping below the book value of equity, as well as reductions in commodity prices driven by the potential impact of the COVID-19 pandemic and global supply and demand dynamics were deemed triggering events that led to a test for goodwill impairment. The impairment testing methodologies for the first quarter 2020 are discussed below.
Income approach
The income approach impairment testing methodology is based on a discounted cash flow model, which utilizes present values of cash flows to estimate fair value. For the Completions Services and Well Construction and Intervention reporting units, the future cash flows were projected based on estimates of projected revenue growth, unit count, utilization, pricing, gross profit rates, SG&A rates, working capital fluctuations and capital expenditures. Forecasted cash flows took into account known market conditions as of March 31, 2020, and management’s anticipated business outlook. A terminal period was used to reflect an estimate of stable, perpetual growth. The terminal period reflects a terminal growth rate of 2.5%. The future cash flows were discounted using a market-participant risk-adjusted weighted average cost of capital (“WACC”) of 19.9% for the Completions reporting unit and 22.4% for the Well Construction and Intervention reporting unit. These assumptions were derived from both observable and unobservable inputs and combined reflect management’s judgments and assumptions.
Market approach
The market approach impairment testing methodology is based upon the guideline public company method and the guideline transaction method. The application of the guideline public company method was based upon selected public companies operating within the same industry as the Company. Based on this set of comparable competitor data, operational multiples were derived for the reporting units weighted based on management’s assessment of reliability. The forward-looking selected market multiples for the guideline public company method were enterprise value to revenue and enterprise value to EBITDA multiples, with multiples ranging from 0.5x to 0.6x for revenues and from 3.3x to 6.2x for EBITDA. The application of the guideline transaction method was based upon valuation multiples derived from actual control transactions for comparable companies. Based on this, valuation multiples are derived from historical data of selected transactions, then evaluated and adjusted, if necessary, based on the strengths and weaknesses of the subject reporting unit relative to each acquired guideline company. The forward-looking selected market multiples for the guideline transaction method were enterprise value to revenue and enterprise value to book value of invested capital, with multiples ranging from 0.7x to 2.1x for revenues and from 0.6x to 1.3x for book value of invested capital.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
The fair value determined under the market approach is sensitive to these market multiples, and a decline in any of the multiples could reduce the estimated fair value of the reporting unit below its carrying value. Earnings estimates were derived from unobservable inputs that require significant estimates, judgments and assumptions as described in the income approach.
Reconciliation of value and goodwill impairment conclusion
The estimated fair value determined under the income approach was consistent with the estimated fair value determined under the market approach. The concluded fair value for both reporting units consisted of a weighted average, with a 40.0% weighted under the income approach and 60.0% weight under the market approach. Market data in support of the implied control premium were used in this reconciliation to corroborate the estimated reporting unit fair values with the Company's overall market-indicated value. The results of the impairment testing for goodwill resulted in the Company recognizing an impairment expense of $32.6 million during the first quarter of 2020, consisting of $32.2 million related to the Completions Services reporting unit and $0.4 million representing the entire balance of goodwill for the Well Construction and Intervention reporting unit.
During the third quarter of 2020, the Company assessed and deemed the sustained reductions in commodity prices and continuing market economic disruptions as a triggering event. As a result of the triggering event, the Company performed a test for goodwill impairment using the same methodologies used in the first quarter of 2020; however, no impairment of goodwill was recorded.
During the Company’s annual testing as of October 31, 2020, it was determined that there were no events that would indicate the carrying value of goodwill may not be recoverable or that a potential impairment exists.
The changes in the carrying amount of goodwill for the years ended December 31, 2020, 2019 and 2018 were as follows:
|
|
|
|
|
|
|
(Thousands of Dollars)
|
Goodwill as of December 31, 2018
|
$
|
132,524
|
|
C&J Merger
|
4,934
|
|
Goodwill as of December 31, 2019
|
137,458
|
|
Disposition of Well Support Services reporting unit
|
(660)
|
|
Impairment expense
|
(32,600)
|
|
Goodwill as of December 31, 2020
|
$
|
104,198
|
|
The changes in the carrying amount of goodwill for the years ended December 31, 2020 and 2019 consisted of amounts related to the disposition of the Well Support Services reporting unit, impairment expense, and the C&J Merger, respectively. For additional information, see Note (3) (Mergers and Acquisitions) and Note (21) (Business Segments). As discussed above, in 2020 the Company recognized impairment expense of $32.6 million. There were no triggering events and no impairment expense recorded for the years ended 2019 and 2018.
(6) Inventories, net
Inventories, net, consisted of the following at December 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
December 31,
2020
|
|
December 31,
2019
|
Sand, including freight
|
|
$
|
5,096
|
|
|
$
|
4,405
|
|
Chemicals and consumables
|
|
2,993
|
|
|
11,408
|
|
Materials and supplies
|
|
21,979
|
|
|
45,828
|
|
|
|
|
|
|
Total inventory, net
|
|
$
|
30,068
|
|
|
$
|
61,641
|
|
Inventories are reported net of obsolescence reserves of $4.4 million and $1.8 million as of December 31, 2020 and 2019, respectively. The Company recognized $2.6 million, $0.8 million and $0.7 million of obsolescence expense during the years ended December 31, 2020, 2019 and 2018. Additionally, during the year ended December 31, 2020, the Company recognized a $2.7 million write-down in inventory carrying value down to its net realizable value.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(7) Property and Equipment, net
Property and Equipment, net consisted of the following at December 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
December 31,
2020
|
|
December 31,
2019
|
Land
|
|
$
|
14,397
|
|
|
$
|
35,178
|
|
Building and leasehold improvements
|
|
78,078
|
|
|
90,950
|
|
Office furniture, fixtures and equipment
|
|
11,400
|
|
|
10,678
|
|
Machinery and equipment
|
|
1,284,163
|
|
|
1,259,697
|
|
|
|
1,388,038
|
|
|
1,396,503
|
|
Less accumulated depreciation
|
|
(929,290)
|
|
|
(723,060)
|
|
Construction in progress
|
|
11,963
|
|
|
35,961
|
|
Total property and equipment, net
|
|
$
|
470,711
|
|
|
$
|
709,404
|
|
Casualty Loss
On July 1, 2018, one of the Company’s hydraulic frac fleets operating in the Permian Basin was involved in an accidental fire, which resulted in damage to a portion of the equipment in that fleet. In 2018, the Company received $18.1 million of insurance proceeds for replacement cost of the damaged equipment, which offset the $3.2 million impairment loss recognized on the damaged equipment. The resulting gain of $14.9 million was recognized in other income (expense), net in the consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2018.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(8) Long-Term Debt
Long-term debt at December 31, 2020 and December 31, 2019 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
December 31,
2020
|
|
December 31,
2019
|
2018 Term Loan Facility
|
|
341,250
|
|
|
$
|
344,750
|
|
Less: Unamortized debt discount and debt issuance costs
|
|
(5,710)
|
|
|
$
|
(7,127)
|
|
Total debt, net of unamortized debt discount and debt issuance costs
|
|
335,540
|
|
|
337,623
|
|
Less: Current portion
|
|
(2,252)
|
|
|
$
|
(2,311)
|
|
Long-term debt, net of unamortized debt discount and debt issuance costs
|
|
$
|
333,288
|
|
|
$
|
335,312
|
|
Below is a summary of the Company’s credit facilities outstanding as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
2019 ABL Facility
|
|
2018 Term Loan Facility
|
Original facility size
|
|
$
|
450,000
|
|
|
$
|
350,000
|
|
Outstanding balance
|
|
$
|
—
|
|
|
$
|
341,250
|
|
|
|
|
|
|
Letters of credit issued
|
|
$
|
28,490
|
|
|
$
|
—
|
|
Available borrowing base commitment
|
|
$
|
73,463
|
|
|
n/a
|
Interest Rate(1)
|
|
LIBOR or base rate plus applicable margin
|
|
LIBOR or base rate plus applicable margin
|
Maturity Date
|
|
October 31, 2024
|
|
May 25, 2025
|
(1) London Interbank Offer Rate (“LIBOR”) is subject to a 1.00% floor
Maturities of the 2018 Term Loan Facility for the next five years are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Year-end December 31,
|
|
(Thousands of Dollars)
|
2021
|
|
$
|
3,500
|
|
2022
|
|
3,500
|
|
2023
|
|
3,500
|
|
2024
|
|
3,500
|
|
2025
|
|
327,250
|
|
|
|
$
|
341,250
|
|
Deferred Charges and Other Costs
Deferred charges include deferred financing costs and debt discounts or debt premiums. Deferred charges related to the 2019 ABL Facility (defined below) are capitalized. Deferred charges related to the 2018 Term Loan Facility (defined below) are netted against the carrying amount of term debt. Deferred charges are amortized to interest expense using the effective interest method. Interest expense related to the deferred financing costs for the years ended December 31, 2020, 2019 and 2018 was $2.2 million, $1.4 million, and $3.1 million, respectively.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
ABL Revolving Credit Facility
On October 31, 2019, the Company entered into the Second Amended and Restated Asset-Based Revolving Credit Agreement (“2019 ABL Facility”), modifying the Company’s pre-existing asset-based revolving credit facility (“2017 ABL Facility”). Deferred charges associated with the 2019 ABL Facility were capitalized and totaled $1.2 million. In connection with the modification of the 2017 ABL Facility, the Company wrote off $0.5 million of deferred financing costs. The remaining deferred financing costs related to the 2017 ABL Facility will be amortized over the life of the 2019 ABL Facility. Unamortized deferred charges associated with the 2019 and 2017 ABL Facilities were $3.1 million and $3.7 million as of December 31, 2020 and 2019, respectively, and are recorded in other noncurrent assets on the consolidated balance sheets. During the first quarter of 2020, the Company provided notice to the lenders to borrow a total of $175 million under the 2019 ABL Facility. The interest rates for the $150.0 million LIBOR borrowing and $25.0 million Base Rate borrowing were 2.125% and 3.75%, respectively. During the second quarter of 2020, the Company repaid the $150.0 million LIBOR borrowing and the $25.0 million Base Rate borrowing and did not incur any penalties.
Term Loan Facility
On May 25, 2018, the Company entered into a term loan facility (the “2018 Term Loan Facility”), the proceeds of which were used to repay the Company’s pre-existing term loan facility (the “2017 Term Loan Facility”). No prepayment penalties were incurred in connection with the Company’s early debt extinguishment of its 2017 Term Loan Facility. Deferred charges associated with the 2017 Term Loan Facility that were expensed upon repayment of the 2017 Term Loan Facility totaled $7.6 million. Deferred charges associated with the 2018 Term Loan Facility that were netted against the carrying amount of the term debt totaled $9.0 million. Unamortized deferred charges associated with the 2018 Term Loan Facility were $5.7 million and $7.1 million as of December 31, 2020 and 2019, respectively, and are recorded in long-term debt, net of deferred financing costs and debt discount, less current maturities on the consolidated balance sheets.
(9) Significant Risks and Uncertainties
Subsequent to the sale of the Well Support Services segment, the Company operates in two reportable segments: Completion Services and Well Construction and Intervention, with significant concentration in the Completion Services segment. During the years ended December 31, 2020, 2019 and 2018, sales to Completion Services customers represented 87%, 94% and 98% of the Company’s consolidated revenue, respectively.
The Company depends on its customers' willingness to make operating and capital expenditures to explore for, develop and produce oil and natural gas onshore in the U.S. This activity is driven by many factors, including current and expected crude oil and natural gas prices. The U.S. energy industry experienced a significant downturn in the second half of 2014 through early 2016, driven primarily by global oversupply and a decline in commodity prices. From early 2016 through late 2018, the U.S. generally experienced some recovery in commodity prices and drilling and completion activity. Over this time frame, the U.S. active rig count increased from a trough of 404 rigs in May 2016 to a peak of 1,083 rigs in December 2018, driving significant demand for the Company's completion services. From December 28, 2018 through December 31, 2019, U.S. active rig count decreased by approximately 26% to 805 rigs as market conditions tightened and competition within the completions industry increased.
In late 2019 and early 2020, and in response to the oversupply of hydraulic fracturing equipment, an increasing number of horsepower retirements were announced, removing a significant base of equipment from the market. Despite some of these announcements, the oversupply of hydraulic fracturing equipment persisted, resulting in a continuation of highly competitive market conditions into 2020.
In late first quarter of 2020, the industry faced sudden and unprecedented circumstances, including major shocks to both supply and demand. COVID-19 has resulted in significant demand destruction for oil products, driven by a significant slowdown in economic activity throughout the U.S. and abroad. This resulted in a rapid and significant decline in crude oil prices and an increasingly utilized storage network, limiting distribution outlets and optionality for production and further exacerbating price declines. U.S. exploration and production companies responded with drastic reductions in budgets and outright completion stoppages. From the end of the fourth quarter of 2019 to the end of the fourth quarter of 2020, U.S. active rig count decreased by 56%, from 805 to 351 rigs.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
This backdrop drastically impacted the demand for U.S. completions services and resulted in increased uncertainty throughout much of 2020. While activity has modestly improved relative to the trough in activity experienced in late May / early June 2020, and supply / demand dynamics are improving, the market remains highly competitive. The magnitude, cadence, and resilience of activity improvement is uncertain and dependent on a range of factors including COVID-19 demand resolution.
For the year ended December 31, 2020, revenue from two customers individually represented more than 10% and collectively represented 29% of the Company’s consolidated revenue. For the year ended December 31, 2019, four customers individually represented more than 10% and collectively represented 55% of the Company’s consolidated revenue. For the year ended December 31, 2018, three customers individually represented more than 10% and collectively represented 39% of the Company’s consolidated revenue.
For the years ended December 31, 2020 and 2019, purchases from one supplier represented approximately 5% of the Company’s overall purchases, and were primarily incurred within the Completion Services segment.
(10) Derivatives
The Company uses interest-rate-related derivative instruments to manage its variability of cash flows associated with changes in interest rates on its variable-rate debt.
On March 9, 2020, the Company sold its Well Support Services segment to Basic Energy Services, Inc. (“Basic”) for $93.7 million of total proceeds, including $59.4 million in cash, before transaction costs, escrowed amounts, and subject to customary working capital adjustments, for a net of $53.3 million received at close, and $34.4 million of par value Senior Secured Notes, with 10.75% coupon rate, (“WSS Notes”) previously issued by Basic. On July 29, 2020, the Company agreed to use the escrowed amount in the final settlement of the working capital reconciliation. Under the terms of the agreement, the WSS Notes are accompanied by a make-whole guarantee at par value, which guarantees the payment of $34.4 million to NexTier after the WSS Notes are held to the one-year anniversary of March 9, 2021. The cash equivalent make-whole is issued under a fund guarantee by Ascribe III Investments LLC, a private equity investment firm with approximately $1.0 billion in assets under management. In the event of a Basic restructuring or a credit rating downgrade in conjunction with a change in control prior to the one-year anniversary, the make-whole guarantee accelerates the WSS Notes to par value of $34.4 million. NexTier is entitled to semi-annual interest payments on the WSS Notes based on the 10.75% annual coupon throughout the holding period. The Company identified the make-whole guarantee as an embedded derivative and bifurcated the valuation of the WSS Note and the make-whole guarantee. The Company elected the fair value option for the WSS Notes at the inception of the transaction. The fair value on the date of the transaction for the make-whole derivative and WSS Notes was $12.2 million and $22.2 million, respectively, and resulted in a gain on divestiture of $8.7 million. The fair value of the WSS Notes and the make-whole guarantee are measured at the end of each reporting period. Unrealized gains and losses recognized in relation to the change in fair value of these instruments are recognized in net income (loss) in the consolidated statements of operations and comprehensive income (loss). The fair value of the WSS Notes and make-whole guarantee are recorded in Other Current Assets on the consolidated balance sheets. See Note (21) Business Segments for further discussion.
On May 25, 2018, the Company entered into the 2018 Term Loan Facility, which has an initial aggregate principal amount of $350 million, and repaid its pre-existing 2017 Term Loan Facility. The 2018 Term Loan Facility has a variable interest rate based on LIBOR, subject to a 1.0% floor. As a result of this transaction, the Company desired to hedge additional notional amounts to continue to hedge approximately 50% of its expected LIBOR exposure and to extend the terms of its swaps to align with the 2018 Term Loan Facility.
On June 22, 2018, the Company unwound its existing interest rate swaps and received $3.2 million in proceeds. The Company used the $3.2 million of proceeds to execute a new off-market interest rate swap. Under the terms of the new interest rate swap, the Company receives 1-month LIBOR, subject to a 1% floor, and makes payments based on a fixed rate of 2.625%. The new interest rate swap is effective through March 31, 2025 and has a notional amount of $175.0 million. The new interest rate swap was designated in a new cash flow hedge relationship.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
The Company discontinued hedge accounting on the pre-existing interest rate swaps upon termination. At the time hedge accounting was discontinued, the exiting interest rate swaps had $3.5 million of deferred gains in accumulated other comprehensive loss. This amount was not reclassified from accumulated other comprehensive loss into earnings, as it remained probable that the originally forecasted transaction will occur. This amount will be recognized into earnings through August 18, 2022, the termination date of the pre-existing interest rate swap.
The following tables present the fair value of the Company’s derivative instruments on a gross and net basis as of the periods shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
|
Derivatives
designated as
hedging
instruments
|
|
Derivatives
not
designated as
hedging
instruments
|
|
Gross Amounts
of Recognized
Assets and
Liabilities
|
|
Gross
Amounts
Offset in the
Balance
Sheet(1)
|
|
Net Amounts
Presented in
the Balance
Sheet(2)
|
As of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
Other current asset
|
$
|
—
|
|
$
|
27,243
|
|
$
|
27,243
|
|
$
|
—
|
|
$
|
27,243
|
|
|
|
|
|
|
|
|
|
|
Other current liability
|
(2,861)
|
|
—
|
|
(2,861)
|
|
—
|
|
(2,861)
|
Other noncurrent liability
|
(8,260)
|
|
—
|
|
(8,260)
|
|
—
|
|
(8,260)
|
As of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liability
|
(1,729)
|
|
—
|
|
(1,729)
|
|
—
|
|
(1,729)
|
Other noncurrent liability
|
(5,559)
|
|
—
|
|
(5,559)
|
|
—
|
|
(5,559)
|
|
|
|
|
|
|
|
|
|
|
(1) Agreements are in place that allow for the financial right of offset for derivative assets and derivative liabilities at settlement or in the event of a default under the agreements.
(2) There are no amounts subject to an enforceable master netting arrangement that are not netted in these amounts. There are no amounts of related financial collateral received or pledged.
The following table presents gains and losses for the Company’s interest rate derivatives designated as cash flow hedges (in thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Location
|
Amount of loss recognized in other comprehensive income on derivative
|
|
$
|
(6,422)
|
|
|
$
|
(7,628)
|
|
|
$
|
(880)
|
|
|
OCI
|
Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) (“AOCI”) into earnings
|
|
(2,334)
|
|
|
239
|
|
|
697
|
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
|
The gain (loss) recognized in other comprehensive income for the derivative instrument is presented within the hedging activities line item in the consolidated statements of operations and comprehensive income (loss).
There were no gains or losses recognized in earnings as a result of excluding amounts from the assessment of hedge effectiveness. Based on recorded values at December 31, 2020, $2.7 million of net losses will be reclassified from accumulated other comprehensive loss into earnings within the next 12 months.
The Company recognized a loss on the change in fair market value of the WSS Notes and make-whole derivative of $0.9 million for the year ended December 31, 2020 which is recorded within other income (expense) on the consolidated statements of operations and comprehensive income (loss). No loss was recorded in the year ended December 31, 2019.
See Note (11) (Fair Value Measurements and Financial Information) for further information related to the Company’s derivative instruments.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(11) Fair Value Measurements and Financial Information
The Company discloses the required fair values of financial instruments in its assets and liabilities under the hierarchy guidelines, in accordance with GAAP. The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, derivative instruments, long-term debt and finance lease obligations. As of December 31, 2020, and 2019, the carrying values of the Company’s financial instruments, included in its consolidated balance sheets, approximated or equaled their fair values.
Recurring Fair Value Measurement
As of December 31, 2020, the Company has four financial instruments measured at fair value on a recurring basis which are its interest rate derivative, make-whole derivative, WSS Notes (see Note (10) Derivatives above), and equity security investment. The equity security investment is composed primarily of common equity shares in a publicly traded company, acquired at a fair value of $5.3 million. The make-whole derivative, WSS Notes, and the equity security investment are presented within other current assets in the consolidated balance sheets, while the interest rate derivative is presented within other current liabilities and other noncurrent liabilities in the consolidated balance sheets. As of December 31, 2019, the Company had one financial instrument measured on a recurring basis, which was its interest rate derivative.
The fair market value of the derivative financial instruments reflected on the consolidated balance sheets as of December 31, 2020, and 2019 was determined using industry-standard models that consider various assumptions, including current market and contractual rates for the underlying instruments, time value, implied volatilities, nonperformance risk, as well as other relevant economic measures. Substantially all of these inputs are observable in the marketplace through the full term of the instrument and can be supported by observable data.
The following tables present the placement in the fair value hierarchy of assets and liabilities that were measured at fair value on a recurring basis at December 31, 2020, and 2019 (in thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements at reporting date using
|
|
|
December 31, 2020
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
Make-whole derivative
|
|
$
|
27,243
|
|
$
|
—
|
|
$
|
27,243
|
|
$
|
—
|
WSS Note
|
|
6,322
|
|
|
—
|
|
|
6,322
|
|
|
—
|
|
Equity security investment
|
|
11,263
|
|
|
11,263
|
|
|
—
|
|
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
|
$
|
(11,121)
|
|
$
|
—
|
|
$
|
(11,121)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements at reporting date using
|
|
|
December 31, 2019
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
|
$
|
(7,288)
|
|
$
|
—
|
|
$
|
(7,288)
|
|
$
|
—
|
Non-Routine Fair Value Measurement
The fair values of indefinite-lived assets and long-lived assets are determined with internal cash flow models based on significant unobservable inputs. The Company measures the fair value of its property, plant and equipment using the discounted cash flow method, the fair value of its customer contracts using the multi-period excess earning method and income based “with and without” method, the fair value of its trade names and acquired technology using the “income-based relief-from-royalty” method and the fair value of its non-compete agreement using the “lost income” approach. Assets acquired as a result of the acquisition of the RSI, and C&J transactions were recorded at their fair values on the date of acquisition. See Note (3) Mergers and Acquisitions for further details.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Given the unobservable nature of the inputs used in the Company’s internal cash flow models, the cash flows models are deemed to use Level 3 inputs.
Credit Risk
The Company’s financial instruments exposed to concentrations of credit risk consist primarily of cash and cash equivalents, derivative contracts and trade receivables.
The Company’s cash balances on deposit with financial institutions totaled $276.0 million and $255.0 million as of December 31, 2020 and 2019, respectively, which exceeded Federal Deposit Insurance Corporation insured limits. The Company regularly monitors these institutions’ financial condition.
The credit risk from the derivative contract derives from the potential failure of the counterparty to perform under the terms of the derivative contracts. The Company minimizes counterparty credit risk in derivative instruments by entering into transactions with high-quality counterparties, whose Standard & Poor’s credit rating is higher than BBB. The derivative instruments entered into by the Company do not contain credit-risk-related contingent features.
The majority of the Company’s trade receivables have payment terms of 30 days or less. Significant customers are those that individually account for 10% or more of the Company’s consolidated revenue or total accounts receivable. As of December 31, 2020, trade receivables from one customer individually represented 17% of the Company’s total accounts receivable. As of December 31, 2019, trade receivables from one customer individually represented more than 10% of the Company’s total accounts receivable. The Company mitigates the associated credit risk by performing credit evaluations and monitoring the payment patterns of its customers. The Company has a process in place to collect all receivables within 30 to 60 days of aging. As of December 31, 2020 and 2019, the Company had $2.7 million, including the increase of $1.5 million from the adoption of ASU 2016-13, and $0.7 million in allowance for credit losses, respectively. During 2020, the Company had $0.5 million of activity related to the current period bad debt expense, net of write-offs. Additionally, the Company had $2.0 million of recoveries from previously written-off receivables, net of the bad debt expense. During the years ended December 31, 2019 and 2018, the Company recorded bad debt expense of $0.6 million.
(12) Stock-Based Compensation
Effective as of October 31, 2019, the Company (i) amended and restated the Keane Group, Inc. Equity and Incentive Award Plan under the name NexTier Oilfield Solutions Inc. Equity and Incentive Award Plan (“Equity and Incentive Award Plan”), and (ii) assumed and amended and restated the C&J Energy Services, Inc. 2017 Management Incentive Plan under the name NexTier Oilfield Solutions Inc. (Former C&J Energy) Management Incentive Plan ( “Management Incentive Plan”, and collectively with the Equity and Incentive Award Plan, the “Equity Award Plans”). As part of the C&J Merger, the Company assumed the award agreements outstanding under the Management Incentive Plan on the terms set forth in the Merger agreement.
As of December 31, 2020, the Company had four types of stock-based compensation under its Equity Award Plans: (i) restricted stock awards issued to independent directors and certain executives and employees, (ii) restricted stock units issued to executive officers and key management employees, (iii) non-qualified stock options issued to executive officers and (iv) performance-based restricted stock units issued to executive officers and key management employees. The Company has approximately 9,098,304 shares of its common stock reserved and available for grant under the Equity and Incentive Award Plan and approximately 6,485,847 shares of its common stock reserved and available for grant under the Management Incentive Plan.
For details on the Company’s accounting policies for determining stock-based compensation expense, see Note (2) Summary of Significant Accounting Policies: (k) Stock-based compensation. Non-cash stock compensation expense is generally presented within selling, general and administrative expense in the consolidated statements of operations and comprehensive income (loss) however, for the year ended December 31, 2020 and 2019, the Company presented $2.7 million and $9.6 million, respectively, within merger and integration. These amounts primarily relate to the accelerated vesting of certain awards that contained pre-existing change in control provisions.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
The following table summarizes stock-based compensation expense for the years ended December 31, 2020, 2019 and 2018 (in thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Deferred stock awards
|
|
—
|
|
|
—
|
|
|
4,280
|
|
Restricted stock awards
|
|
1,589
|
|
|
1,486
|
|
|
611
|
|
Restricted stock units
|
|
19,201
|
|
|
20,426
|
|
|
9,822
|
|
Non-qualified stock options
|
|
894
|
|
|
3,498
|
|
|
2,453
|
|
Restricted stock performance-based stock unit awards
|
|
4,142
|
|
|
3,567
|
|
|
—
|
|
Stock-based compensation
|
|
$
|
25,826
|
|
|
$
|
28,977
|
|
|
$
|
17,166
|
|
Tax benefit
|
|
$
|
(5,557)
|
|
|
(6,954)
|
|
|
(4,134)
|
|
Stock-based compensation, net of tax
|
|
20,269
|
|
|
$
|
22,023
|
|
|
$
|
13,032
|
|
(a) Deferred stock awards
Upon consummation of the IPO, the executive officers of the Company identified in the table below became eligible for retention payments, the first on January 1, 2018 and the second on January 1, 2019, in the bonus amounts set forth in the table below. On March 16, 2017, the compensation committee (the “Compensation Committee”) of the Board of Directors approved, and each executive officer agreed, that in lieu of the executive officer’s cash retention payments, the executive officer was granted a deferred stock award under the Equity and Incentive Award Plan. Each executive officer’s deferred stock award provides that, subject to the executive officer remaining employed through the applicable vesting date and complying with the restrictive covenants imposed on him under his employment agreement with the Company, the executive officer will be entitled to receive payment of a stock bonus equal to the variable number of shares of the Company’s common stock having a fair market value on the payment date equal to the bonus amount set forth in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonus Amounts (In thousands)
|
|
|
First
|
|
Second
|
James C. Stewart
|
|
$
|
1,976
|
|
|
$
|
1,976
|
|
Gregory L. Powell
|
|
$
|
1,646
|
|
|
$
|
1,646
|
|
M. Paul DeBonis Jr.
|
|
$
|
659
|
|
|
$
|
659
|
|
The Company accounted for these deferred stock awards as liability classified awards and recorded them at fair value based on the fixed monetary value on the date of grant. The Company recognized $8.6 million as a deferred compensation expense liability and contra-equity during the first quarter of 2017.
The first stock bonuses vested on January 1, 2018 and were paid on February 15, 2018. The second stock bonus vested January 1, 2019, with an original payout date of February 15, 2019, that was amended in February 2019 to a payout date of March 4, 2019. For the year ended December 31, 2018, the Company recognized $4.3 million of non-cash stock compensation expense into earnings, while no compensation related to these awards was recorded during the years ended December 31, 2020 and 2019. As of December 31, 2020 and 2019 there was no remaining unamortized compensation cost related to unvested deferred stock awards.
(b) Restricted stock awards
For the years ended December 31, 2020, 2019, and 2018 the Company recognized $1.6 million, $1.5 million, and $0.6 million respectively, of non-cash stock compensation expense. As of December 31, 2020, total unamortized compensation cost related to unvested restricted stock awards was $0.6 million, which the Company expects to recognize over the remaining weighted-average period of 0.44 years.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Rollforward of restricted stock awards as of December 31, 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Restricted Stock Awards
(In thousands)
|
|
Weighted average grant date fair value
|
Total non-vested at December 31, 2019
|
|
292
|
|
|
$
|
4.55
|
|
Shares issued
|
|
687
|
|
|
2.16
|
|
Shares vested
|
|
(349)
|
|
|
3.93
|
|
Shares forfeited
|
|
(7)
|
|
|
4.55
|
|
Non-vested balance at December 31, 2020
|
|
623
|
|
|
$
|
2.27
|
|
|
|
|
|
|
(c) Restricted stock units
For the years ended December 31, 2020, 2019 and 2018, the Company recognized $19.2 million, $20.4 million and $9.8 million, respectively, of non-cash stock compensation expense. As of December 31, 2020, total unamortized compensation cost related to unvested restricted stock units was $15.9 million, which the Company expects to recognize over the remaining weighted-average period of 1.79 years.
Rollforward of restricted stock units as of December 31, 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Restricted Stock Units
(In thousands)
|
|
Weighted average grant date fair value
|
Total non-vested at December 31, 2019
|
|
2,760
|
|
|
$
|
10.82
|
|
Units issued
|
|
4,208
|
|
|
4.77
|
|
Units vested
|
|
(2,121)
|
|
|
9.88
|
|
Units forfeited
|
|
(760)
|
|
|
5.19
|
|
Non-vested balance at December 31, 2020
|
|
4,087
|
|
|
$
|
6.12
|
|
(d) Non-qualified stock options
For the years ended December 31, 2020, 2019 and 2018, the Company recognized $0.9 million, 3.5 million and $2.5 million, respectively, of non-cash stock compensation expense. As of December 31, 2020, total unamortized compensation cost related to unvested stock options was $0.1 million, which the Company expects to recognize over the remaining weighted-average period of 0.21 years.
Rollforward of stock options as of December 31, 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Stock Options
(In thousands)
|
|
Weighted average grant date fair value
|
Total outstanding at December 31, 2019
|
|
1,743
|
|
|
$
|
4.86
|
|
Options granted
|
|
—
|
|
|
—
|
|
Options exercised
|
|
—
|
|
|
—
|
|
Actual options forfeited
|
|
(2)
|
|
|
7.35
|
|
Options expired
|
|
—
|
|
|
—
|
|
Total outstanding at December 31, 2020
|
|
1,741
|
|
|
$
|
4.86
|
|
|
|
|
|
|
There were 1.7 million stock options exercisable or vested at December 31, 2020.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Assumptions used in calculating the fair value of the stock options granted during the year are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 Options Granted
|
|
2018 Options Granted
|
|
2017 Options Granted
|
Valuation assumptions:
|
|
|
|
|
|
Expected dividend yield
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
Expected equity volatility
|
49.6
|
%
|
|
46.3
|
%
|
|
51.5
|
%
|
Expected term (years)
|
7.3 - 8.1
|
|
6
|
|
6
|
Risk-free interest rate
|
1.7
|
%
|
|
2.7
|
%
|
|
1.6
|
%
|
Weighted average:
|
|
|
|
|
|
Exercise price per stock option
|
$19.09 - $26.41
|
|
$
|
15.31
|
|
|
$
|
19.00
|
|
Market price per share
|
$
|
4.55
|
|
|
$
|
15.31
|
|
|
$
|
14.49
|
|
Weighted average fair value per stock option
|
$
|
0.74
|
|
|
$
|
7.28
|
|
|
$
|
6.16
|
|
|
|
|
|
|
|
(e) Performance-based RSU awards
During the first quarter of 2020, the Company issued 1,033,936 of performance-based RSUs to executive officers under its Equity Award Plans, which were fair valued at $8.5 million using a Monte Carlo simulation method. 50% of the performance-based RSUs vest after two years (the "two-year performance-based RSUs"), while the remaining 50% vest after three years (the "three-year performance-based RSUs"). Each vesting is subject to a payout percentage based on the Company's annualized total stockholder return ranking relative to its total stockholder return peer group achieved during the performance period. The number of shares that may be earned at the end of the vesting period ranges from 50% to 200% of the target award amount, if the threshold performance criteria is met. These performance-based RSUs will be settled in the Company's common stock and are classified as equity awards. The compensation expense associated with these performance-based RSUs will be amortized into earnings on a straight-line basis. As of December 31, 2020, total unamortized compensation cost related to unvested performance-based RSUs was $4.4 million, which the Company expects to recognize over the weighted-average period of 2.00 years.
During the second quarter of 2020, the Company issued 405,541 of performance-based RSUs to executive officers under its Equity Award Plans, with an estimated value of $1.2 million, based on a 100% target value. The performance RSUs issued by the Company have service and performance conditions. The number of shares that may be earned at the end of the vesting period ranges from 0% to 150% of the target award amount, if the performance criteria is met. These performance-based RSUs will be settled in the Company's common stock and are classified as equity awards. The compensation expense associated with these performance-based RSUs will be amortized into earnings on a straight-line basis. As of December 31, 2020, total unamortized compensation cost related to unvested performance-based RSUs was $0.8 million, which the Company expects to recognize over the weighted-average period of 1.00 years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Performance-based RSU’s
(In thousands)
|
|
Weighted average grant date fair value
|
Total outstanding at December 31, 2019
|
|
—
|
|
|
$
|
—
|
|
Performance-based RSU’s issued
|
|
1,439
|
|
|
6.75
|
|
Performance-based RSU’s vested
|
|
(123)
|
|
|
1.65
|
|
Performance-based RSU’s forfeited
|
|
(48)
|
|
|
9.25
|
|
Total outstanding at December 31, 2020
|
|
1,268
|
|
|
$
|
7.15
|
|
Assumptions used in calculating the fair value of the first quarter performance-based RSU’s granted during the year are summarized below:
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Performance based RSU’s Granted
|
|
|
Valuation assumptions:
|
|
|
|
|
Expected dividend yield
|
|
0
|
%
|
|
|
Expected equity volatility, including peers
|
|
31.7% - 97.4%
|
|
|
Expected term (years)
|
|
2 - 3
|
|
|
Risk-free interest rate
|
|
0.8% - 1.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13) Stockholders’ Equity
(a) Vesting of Stock Awards
During the year ended December 31, 2020, 2,170,659 shares were issued, net of share settlements for payment of payroll taxes, upon the vesting of stock-based compensation awards. Shares withheld during the period were immediately retired by the Company.
(b) Secondary Offerings
On January 17, 2018, the Company’s Registration Statement on Form S-1 (File No. 333-222500) was declared effective by the SEC for an offering on behalf of Keane Investor, pursuant to which 15,320,015 shares were sold by the selling stockholder (including 1,998,262 shares sold pursuant to the exercise of the underwriters’ over-allotment option) at a price to the public of $18.25 per share. The Company did not sell any common stock in, and did not receive any of the proceeds from, the offering. Upon completion of the offering, Keane Investor controlled 50.8% of the Company’s outstanding common stock. During the December 31, 2018, the Company incurred $13.0 million of transaction costs on behalf of the selling stockholder, which were included within selling, general and administrative expenses in the consolidated statement of operations and comprehensive income (loss).
In February 2018, the Company filed a Registration Statement on Form S-3 (File No. 333-222831) that was effective upon its filing. In December 2018, a selling stockholder sold 5,251,249 of the Company’s common stock at a price to the public of $11.02 per share. In conjunction with this offering, the Company repurchased 520,000 shares. The Company did not sell any common stock in, and did not receive any of the proceeds from, this offering. As a result of this offering, Keane Investor owned approximately 49.6% of the Company’s outstanding common stock, and the Company ceased being a “controlled company” within the meaning of the NYSE rules.
(c) C&J Merger
As described in Note (3) Mergers and Acquisitions, the Company completed the C&J Merger on October 31, 2019 for total consideration of approximately $485.1 million, consisting of (i) equity consideration in the form of 105.9 million shares of Keane common stock issued to C&J stockholders with a value of $481.9 million and (ii) replacement share based compensation awards attributable to pre-Merger services with a value of $3.2 million.
(d) Stock Repurchase
During the year ended December 31, 2018, the Company settled $105.0 million of total share repurchases of its common stock at an average price of $12.93 per share, representing a total of 8,111,764 common shares of the Company. Of the total amount of shares repurchased in 2018, 1,248,440 shares and 520,000 shares were repurchased from White Deer Energy (as defined herein) and Keane Investor, respectively. The shares repurchased from Keane Investor were not repurchased under the Company’s existing stock repurchase program. For further details of these related-party transactions, see Note (19) Related Party Transactions.
On December 11, 2019, the Company announced the board of directors approved a new share repurchase program for up to $50.0 million through December 2020. No share repurchases were made under the share repurchase program in the years ended December 31, 2020 or 2019.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(14) Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss in the equity section of the consolidated balance sheets includes the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
|
Foreign currency
items
|
|
Interest rate
contract
|
|
AOCI
|
December 31, 2019
|
$
|
(116)
|
|
|
$
|
(8,665)
|
|
|
$
|
(8,781)
|
|
Net income (loss)
|
—
|
|
|
2,334
|
|
|
2,334
|
|
Other comprehensive loss
|
(241)
|
|
|
(6,422)
|
|
|
(6,663)
|
|
|
|
|
|
|
|
December 31, 2020
|
$
|
(357)
|
|
|
$
|
(12,753)
|
|
|
$
|
(13,110)
|
|
The following table summarizes reclassifications out of accumulated other comprehensive loss into earnings during years ended December 31, 2020, 2019 and 2018 (in thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Affected line item
in the consolidated
statements of
operations and
comprehensive income (loss)
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
Interest rate derivatives, hedging
|
|
$
|
(2,334)
|
|
|
$
|
239
|
|
|
$
|
697
|
|
|
Interest expense
|
Foreign currency items(1)
|
|
—
|
|
|
—
|
|
|
(2,621)
|
|
|
Other income
|
Total reclassifications
|
|
$
|
(2,334)
|
|
|
$
|
239
|
|
|
$
|
(1,924)
|
|
|
|
(1) During the fourth quarter of 2018, the Company liquidated its Canadian subsidiary, upon which it recognized a loss of $2.6 million from AOCI into earnings in the consolidated statement of operations and comprehensive income for the year ended December 31, 2018.
(15) Earnings per Share
Basic income or (loss) per share is based on the weighted average number of common shares outstanding during the period. Restricted stock awards and RSUs are not considered issued and outstanding for purposes of earnings per share calculations until vested.
Diluted income or (loss) per share includes additional common shares that would have been outstanding if potential common shares with a dilutive effect, such as stock awards from the Company’s Equity and Incentive Award Plan, had been issued. Anti-dilutive securities represent potentially dilutive securities that are excluded from the computation of diluted income or (loss) per share as their impact would be anti-dilutive.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
A reconciliation of the numerators and denominators used for the basic and diluted net loss per share computations is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Numerator:
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(346,883)
|
|
|
$
|
(106,157)
|
|
|
$
|
59,331
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
Basic weighted-average common shares outstanding(1)
|
|
213,795
|
|
|
122,977
|
|
|
109,335
|
|
Dilutive effect of restricted stock awards
|
|
199
|
|
|
43
|
|
|
17
|
|
Dilutive effect of deferred stock award granted to NEOs
|
|
—
|
|
|
—
|
|
|
214
|
|
Dilutive effect of RSUs granted under stock incentive plans
|
|
39
|
|
|
81
|
|
|
94
|
|
|
|
|
|
|
|
|
Dilutive effect of performance-based restricted stock awards granted under the Equity Plan
|
|
1,041
|
|
|
—
|
|
|
—
|
|
Diluted weighted-average common shares outstanding(2)
|
|
215,074
|
|
|
123,101
|
|
|
109,660
|
|
|
|
|
|
|
|
|
(1) As a result of the net loss incurred by the Company for the years ended December 31, 2020 and 2019, the calculation of diluted net loss per share gives no consideration to the potentially anti-dilutive securities shown in the above reconciliation, and as such is the same as basic net loss per share.
(16) Leases
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a purchase financed by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months, regardless of their classification. Leases with a term of 12 months or less may be accounted for similarly to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. In December 2018, the FASB issued ASU 2019-20, "Leases (Topic 842): Narrow-Scope Improvements for Lessors," which allows lessors to make a policy election to exclude sales taxes and other similar taxes from determining the consideration in the contract and variable payments not included in the consideration in the contract, requires lessors to exclude from variable payments lessor costs paid by lessees directly to third parties and clarified the accounting for variable payments for contracts with lease and nonlease components. The Company adopted these standards effective January 1, 2019, using the modified retrospective transition method. The Company recognized a lease right-of-use asset and lease liability of approximately $61.0 million on its consolidated balance sheet on January 1, 2019, for its operating leases that existed upon the effective date, with no additional impact to its consolidated statements of operations and comprehensive loss or statements of cash flows. The Company also determined that while its hydraulic fracturing fleets represent lease components in its customer contracts, these lease components do not represent the predominant components in its customer contracts. As such the Company has elected to account for the combined components of its customer contracts under ASC 606. In connection with the adoption of these standards, the Company implemented internal controls to ensure that the Company's contracts are properly evaluated to determine applicability under ASU 2016-02 and that the Company properly applies ASU 2016-02 in accounting for and reporting on all its qualifying leases.
The Company has operating leases for certain of its corporate offices, field shops, apartments, warehouses, rail cars, frac pumps, trailers, tractors and certain other equipment. The Company also has both operating and finance leases for its light duty vehicles.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
The Company's leases have variable payments with annual escalations that are based on the proportion by which the consumer price index ("CPI") for all urban consumers increased over the CPI index for the prior comparative year. The Company's leases have remaining lease terms of less than 1 to 14 years, some of which include extension and termination option. None of these extension and termination options were used to determine the Company's right-of-use assets and lease liabilities, as the Company has not determined it is probable that it will exercise any of these options. None of the Company's leases have residual value guarantees.
The components of the Company's lease costs are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
|
Year ended
December 31, 2020
|
|
Year ended
December 31, 2019
|
Operating lease cost
|
|
$
|
15,702
|
|
|
$
|
26,948
|
|
Finance lease cost:
|
|
|
|
|
Amortization of right-of-use assets
|
|
2,027
|
|
|
3,356
|
|
Interest on lease liabilities
|
|
269
|
|
625
|
Total finance lease cost
|
|
2,296
|
|
|
3,981
|
|
|
|
|
|
|
Short-term and Variable lease cost(1)
|
|
7,469
|
|
|
16,838
|
|
Sublease income
|
|
—
|
|
|
(116)
|
|
Total lease cost
|
|
$
|
25,467
|
|
|
$
|
47,651
|
|
|
|
|
|
|
(1)Cost from variable amounts excluded from determination of lease liability.
Supplemental cash flows related to leases are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
|
Year ended
December 31, 2020
|
|
Year ended
December 31, 2019
|
|
|
|
|
Cash paid for amounts included in the measurements of lease liabilities
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
21,049
|
|
|
$
|
25,318
|
|
Operating cash flows from finance leases
|
|
240
|
|
565
|
Financing cash flows from finance leases
|
|
3,752
|
|
6,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease terms are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31, 2020
|
|
Year ended
December 31, 2019
|
Operating leases
|
4.72 years
|
|
4.74 years
|
Finance leases
|
1.88 years
|
|
2.28 years
|
Weighted average discount rate on the Company's lease liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31, 2020
|
|
Year ended
December 31, 2019
|
Operating leases
|
8.65%
|
|
5.73%
|
Finance leases
|
5.79%
|
|
5.53%
|
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Maturities of the Company's lease liabilities as of December 31, 2020, per ASU 2016-02, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
Year ending December 31,
|
Operating leases
|
|
Finance leases
|
2021
|
$
|
20,856
|
|
|
$
|
653
|
|
2022
|
9,751
|
|
422
|
|
2023
|
6,888
|
|
97
|
|
2024
|
2,324
|
|
—
|
|
2025
|
1,866
|
|
—
|
|
Thereafter
|
9,161
|
|
—
|
|
Total undiscounted remaining minimum lease payments
|
50,846
|
|
|
1,172
|
|
Less imputed interest
|
(8,063)
|
|
|
(62)
|
|
Total discounted remaining minimum lease payments
|
$
|
42,783
|
|
|
$
|
1,110
|
|
|
|
|
|
The Company did not make any lease reassessments or modifications nor did it recognize any gains or losses on sale-leaseback transactions during the year ended December 31, 2020.
As of December 31, 2020, the Company does not have additional operating and finance leases that have not yet commenced, nor did the Company have any lease transactions with any of its related parties.
(17) Income Taxes
The following table summarizes the income (loss) from continuing operations before income taxes in the following jurisdictions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Domestic
|
|
$
|
(357,250)
|
|
|
$
|
(106,879)
|
|
|
$
|
66,260
|
|
Foreign
|
|
11,837
|
|
|
1,727
|
|
|
(2,659)
|
|
|
|
$
|
(345,413)
|
|
|
$
|
(105,152)
|
|
|
$
|
63,601
|
|
The components of the Company’s income tax provision are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
$
|
(297)
|
|
|
$
|
709
|
|
|
$
|
5,387
|
|
Foreign
|
|
1,858
|
|
|
627
|
|
|
31
|
|
Total current income tax provision
|
|
$
|
1,561
|
|
|
$
|
1,336
|
|
|
$
|
5,418
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
|
$
|
(158)
|
|
|
$
|
(239)
|
|
|
$
|
(1,031)
|
|
State
|
|
53
|
|
|
(92)
|
|
|
(117)
|
|
Foreign
|
|
14
|
|
|
—
|
|
|
—
|
|
Total deferred income tax provision
|
|
(91)
|
|
|
(331)
|
|
|
(1,148)
|
|
|
|
$
|
1,470
|
|
|
$
|
1,005
|
|
|
$
|
4,270
|
|
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
The following table presents the reconciliation of the Company’s income taxes calculated at the statutory federal tax rate, currently 21%, to the income tax provision in its consolidated statements of operations and comprehensive (loss). The Company’s effective tax rate for 2020 of (0.43)% differs from the statutory rate, primarily due to state taxes, foreign withholding taxes, and a change in the valuation allowance. The Company’s effective tax rate for 2019 was (0.96)%.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Income tax provision computed at the statutory federal rate
|
|
$
|
(72,537)
|
|
|
|
$
|
(22,082)
|
|
|
|
$
|
13,356
|
|
|
Reconciling items:
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal tax benefit
|
|
(12,222)
|
|
|
|
(1,463)
|
|
|
|
1,408
|
|
|
Deferred tax asset valuation adjustment
|
|
82,557
|
|
|
|
14,987
|
|
|
|
(22,639)
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent differences
|
|
4,589
|
|
|
|
9,962
|
|
|
|
5,237
|
|
|
Foreign withholding taxes
|
|
1,870
|
|
|
|
627
|
|
|
|
—
|
|
|
Other
|
|
(2,787)
|
|
|
|
(1,026)
|
|
|
|
6,908
|
|
|
Income tax provision
|
|
$
|
1,470
|
|
|
|
$
|
1,005
|
|
|
|
$
|
4,270
|
|
|
Deferred income taxes are provided to reflect the future tax consequences or benefits of differences between the tax basis of assets and liabilities and their reported amounts in the financial statements using enacted tax rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Deferred tax assets:
|
|
|
|
|
|
|
Stock-based compensation
|
|
$
|
4,972
|
|
|
$
|
4,124
|
|
|
$
|
3,979
|
|
Net operating loss and other carry-forwards
|
|
284,151
|
|
|
196,949
|
|
|
90,565
|
|
Accruals and other
|
|
15,535
|
|
|
21,411
|
|
|
4,524
|
|
PPE & Intangibles
|
|
—
|
|
|
1,474
|
|
|
—
|
|
Gross deferred tax assets
|
|
304,658
|
|
|
223,958
|
|
|
99,068
|
|
Valuation allowance
|
|
(294,101)
|
|
|
(223,419)
|
|
|
(41,779)
|
|
Total deferred tax assets
|
|
$
|
10,557
|
|
|
$
|
539
|
|
|
$
|
57,289
|
|
Deferred tax liability:
|
|
|
|
|
|
|
PP&E and intangibles
|
|
$
|
(8,317)
|
|
|
$
|
—
|
|
|
$
|
(56,799)
|
|
Prepaids and other
|
|
(2,240)
|
|
|
(645)
|
|
|
(756)
|
|
Total deferred tax liability
|
|
(10,557)
|
|
|
(645)
|
|
|
(57,555)
|
|
Net deferred tax liability
|
|
$
|
—
|
|
|
$
|
(106)
|
|
|
$
|
(266)
|
|
As of December 31, 2020, NexTier had total U.S. federal tax net operating loss (“NOL”) carryforwards of $1.2 billion, of which, $380.2 million, if not utilized, will begin to expire in the year 2031. The remaining federal NOLS can be carried forward indefinitely. The total deferred tax asset for net operating loss and other carryforwards also includes approximately $42.1 million of interest expense carryovers with indefinite life. Of the federal NOLs that can be carried forward indefinitely, $352.2 million is related to the Company’s current year federal tax loss. The Company has state NOLS of $480.1 million, which if not utilized, will expire in various years between 2025 and 2038. Additionally, the Company has $20.3 million of NOLs in foreign jurisdictions that, if not utilized, will begin to expire in the year 2035.
As a result of the C&J Merger on October 31, 2019, NexTier had a change in ownership for purposes of Section 382 of the Internal Revenue Code (“IRC”). As a result, the amount of pre-change NOLs and other tax attributes that are available to offset future taxable income are subject to an annual limitation. The annual limitation
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
is based on the value of the Company as of the effective date of the C&J Merger. The Company’s Section 382 annual limitation is $8.5 million. In addition, this annual limitation is subject to adjustments from the realization of net unrealized built-in gain (“NUBIG”) during a five-year recognition period ending October 31, 2024. As of December 31, 2020, it is expected that all of the Company’s pre-change NOLs of $398.8 million incurred prior to the C&J Merger will be available for use during the applicable carryforward period without becoming permanently lost by the Company due to expiration. The Company’s pre-change NOLs subject to expiration comprise $275.8 million out of the total $398.8 million.
C&J Energy Services, Inc. had Pre-change NOLs carry forward prior to the C&J Merger. As a result of the C&J Merger, such NOLs were carried over to the Company. These NOLs are also subject to an annual limitation under IRC Section 382. The Company’s annual limitation with respect to the C&J Energy NOLs is $8.6 million and is subject to adjustments from the realization of net unrealized built-in loss (“NUBIL”) during a five-year recognition period ending October 31, 2024. Due to this IRC Section 382 annual limitation, some of the NOLs carried over to the Company from C&J Energy Services, Inc. are expected to become permanently lost by the Company due to the expiration and will not be available for use by the Company during the applicable carryforward period. The Company has not reflected the NOLs expected to expire as a result of this limitation in its summary of deferred tax assets or in the NOLs disclosed within this paragraph. The pre-change NOLs carried over from C&J Energy Services, Inc. including built-in loss through December 31, 2020, total $405.8 million of which $104.4 million are subject to expiration, but not expected to expire as a result of the IRC Section 382 limitation.
ASC 740, “Income Taxes,” requires the Company to reduce its deferred tax assets by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that all or a portion of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are deductible. As a result of the Company’s evaluation of both the positive and negative evidence, the Company determined it does not believe it is more likely than not that its deferred tax assets will be utilized in the foreseeable future and has recorded a valuation allowance. The valuation allowance as of December 31, 2020 fully offsets the net deferred tax assets, excluding deferred tax liabilities related to certain indefinite-lived assets. The valuation allowance as of December 31, 2017 fully offsets the impact of the initial benefit recorded related to the formation of NexTier Oilfield Solutions Inc., excluding deferred tax liabilities related to certain indefinite lived assets. This initial deferred impact was recorded as an adjustment to equity due to a transaction between entities under common control. The valuation allowances as of December 31, 2020, 2019, and 2018 were $294.1 million, $223.4 million and $41.8 million, respectively.
Changes in the valuation allowance for deferred tax assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
Valuation allowance as of the beginning of January 1, 2020
|
|
$
|
223,419
|
|
Divestiture
|
|
(13,450)
|
|
Charge as (benefit) expense to income tax provision for current activities
|
|
82,557
|
|
Changes to other comprehensive income (loss)
|
|
1,575
|
|
Valuation allowance as of December 31, 2020
|
|
$
|
294,101
|
|
On December 22, 2017, the U.S. government enacted the Tax Act. The Tax Act makes broad and complex changes to the U.S. tax code, including but not limited to, (1) the requirement to pay a one-time transition tax on all undistributed earnings of foreign subsidiaries; (2) reducing the U.S. federal corporate income tax rate from 35% to 21%; (3) eliminating the alternative minimum tax; (4) creating a new limitation on deductible interest expense; and (5) changing rules related to use and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.
The Company evaluated the provisions of the Tax Act and determined only the reduced corporate tax rate from 35% to 21% would have an impact on its consolidated financial statements as of December 31, 2017. Accordingly, the Company recorded a provision to income taxes for the Company’s assessment of the tax impact of the Tax Act on ending deferred tax assets and liabilities and the corresponding valuation allowance. The effects of other provisions of the Tax Act are not expected to have an adverse impact on the Company’s consolidated financial
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
statements. The Company finalized its analysis of the Tax Act in 2018 and will continue to monitor guidance on provisions of the Tax Act to be issued by taxing authorities to assess the impact on the Company’s consolidated financial statements.
There were no unrecognized tax benefits nor any accrued interest or penalties associated with unrecognized tax benefits during the years ended December 31, 2020, 2019 and 2018. The Company believes it has appropriate support for the income tax positions taken and to be taken on the Company’s tax returns, and its accruals for tax liabilities are adequate for all open years based on our assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter. The Company classifies interest and penalties within the provision for income taxes. The Company’s tax returns are open to audit under the statute of limitations for the years ended December 31, 2017 through December 31, 2019 for federal tax purposes and for the years ended December 31, 2016 through December 31, 2019 for state tax purposes.
(18) Commitments and Contingencies
As of December 31, 2020, and 2019, the Company had $4.9 million and $9.0 million of deposits on equipment, respectively. Outstanding purchase commitments on equipment were $23.4 million and $64.0 million, as of December 31, 2020, and 2019, respectively.
As of December 31, 2020, the Company has a letter of credit of $28.5 million under the 2019 ABL Facility.
In the normal course of operations, the Company enters into certain long-term raw material supply agreements for the supply of proppant to be used in hydraulic fracturing. As part of some of these agreements, the Company is subject to minimum tonnage purchase requirements and may pay penalties in the event of any shortfall. The Company purchased $77.6 million, $160.0 million and $107.4 million amounts of proppant under its take-or-pay agreements during the years ended December 31, 2020, 2019 and 2018.
Aggregate minimum commitments under long-term raw material supply agreements with payment penalties for minimum tonnage purchases for the next five years as of December 31, 2020 are listed below:
|
|
|
|
|
|
|
(Thousands of Dollars)
|
Year-end December 31,
|
|
2021
|
$
|
23,418
|
|
2022
|
17,430
|
|
2023
|
7,500
|
|
2024
|
1,190
|
|
2025
|
—
|
|
|
$
|
49,538
|
|
Litigation
From time to time, the Company is subject to legal and administrative proceedings, settlements, investigations, claims and actions, as is typical of the industry. These claims include, but are not limited to, contract claims, environmental claims, employment related claims, claims alleging injury or claims related to operational issues and motor vehicle accidents. The Company’s assessment of the likely outcome of litigation matters is based on its judgment of a number of factors, including experience with similar matters, past history, precedents, relevant financial information and other evidence and facts specific to the matter. The Company may increase or decrease its legal accruals in the future, on a matter-by-matter basis, to account for developments in such matters. Notwithstanding the uncertainty as to the final outcome and based upon the information currently available to it, the Company does not currently believe these matters in aggregate will have a material adverse effect on its consolidated financial position, results of operations or liquidity.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Environmental
The Company is subject to various federal, state and local environmental laws and regulations that establish standards and requirements for protection of the environment. The Company cannot predict the future impact of such standards and requirements, which are subject to change and can have retroactive effectiveness. The Company continues to monitor the status of these laws and regulations. Currently, the Company 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 the Company’s business, material costs could be incurred in the near term to maintain compliance. The amount of such future expenditures is not determinable due to several factors, including the unknown magnitude of possible regulation or liabilities, the unknown timing and extent of the corrective actions which may be required, the determination of the Company’s liability in proportion to other responsible parties and the extent to which such expenditures are recoverable from insurance or indemnification.
Regulatory Audits
Prior to the consummation of the C&J Merger, the Company and C&J had been notified by certain state taxing authorities that these taxing authorities would be conducting routine sales and use tax audits of certain wholly owned operating subsidiaries of the Company for tax periods ranging from January 2011 through December 2019. The Company has recorded estimates of potential assessments for each audit totaling in the aggregate approximately $33.0 million. For one audit, in particular, the Company disagrees with many aspects of the state’s preliminary report and intends to contest the state’s position through litigation, if necessary. In addition, this reserve does not take into account the potential for refund claims in which the Company has not recorded.
(19) Related Party Transactions
Cerberus Operations and Advisory Company, Cerberus Capital Management, L.P. and Cerberus Technology Solutions LLC, affiliates of the Company’s principal equity holder, provide certain consulting services to the Company. The Company paid $2.2 million, $4.1 million and $0.3 million during the years ended December 31, 2020, 2019 and 2018, respectively.
In connection with the Organization Transaction, the Company engaged in transactions with affiliates. See Note (1) Basis of Presentation and Nature of Operations and Note (13) Stockholders’ Equity for a description of these transactions.
In connection with the Company’s research and development initiatives, the Company engaged in transactions with its equity-method investee. As of December 31, 2020, the Company had purchased $1.7 million of shares in its equity-method investee. In the first quarter of 2020, the Company had enough evidence to believe that it would not be able to recover its $1.7 million investment in its equity-method investee and completely impaired it. The impairment is recorded in impairment expense in the consolidated statement of operations and comprehensive income (loss). For additional information, see Note (2) Summary of Significant Accounting Policies
(20) Retirement Benefits and Nonretirement Postemployment Benefits
Defined Contribution Plan
The Company sponsors two different 401(k) defined contribution retirement plans covering eligible employees. The Company makes matching contributions of up to 3.5% of eligible compensation, but suspended the Company matching contribution to the 401(k) plans as of May 1, 2020. Eligible employees can make annual contributions to one of the two plans for which they are eligible up to the maximum amount allowed by current federal regulations, as noted in the plan documents. Contributions made by the Company related to the years ended December 31, 2020, 2019, and 2018 were $4.5 million, $8.1 million and $6.7 million, respectively.
Severance
The Company provides severance benefits to certain of its employees in connection with the termination of their employment. Severance benefits offered by the Company were $27.0 million, $16.7 million and $0.6 million for the years ended December 31, 2020, 2019 and 2018, respectively.
(21) Business Segments
In accordance with Accounting Standard Codification (“ASC”) No. 280, Segment Reporting (“ASC 280”), the Company routinely evaluates whether its separate segments have changed. This determination is made based on the following factors: (1) the Company’s chief operating decision maker (“CODM”) is currently managing each operating segment as a separate business and evaluating the performance of each segment and making resource allocation decisions distinctly and expects to do so for the foreseeable future, and (2) discrete financial information for each operating segment is available.
In 2019, due to the transformative nature of the C&J Merger, the CODM changed the way in which the Company is managed, including the level at which to make performance evaluation and resource allocation decisions. Discrete financial information was created to provide the segment information necessary for the CODM to manage the Company under the revised operating segment structure. On March 9, 2020 the Company announced it had completed the divestiture of its Well Support Services (“WSS”) segment. As a result of the changes to operating segments, the Company revised its reportable segments subsequent to the completion of the C&J Merger and prior to the WSS divestiture, the Company’s revised reportable segments were: (i) Completion Services and (ii) Well Construction and Intervention (“WC&I”) and (iii) Well Support Services. Subsequent to the WSS divestiture, the Company’s reportable segments were (i) Completion Services, and (ii) Well Construction and Intervention Services. This segment structure reflects the financial information and reports used by the Company’s management, specifically including its CODM, to make decisions regarding the Company’s business, including performance evaluation and resource allocation decisions. As a result of the revised reportable segment structure subsequent to the C&J merger, the Company has restated the corresponding items of segment information for all periods presented.
The following is a description of each reportable segment:
Completion Services
The Company’s Completion Services segment consists of the following businesses and service lines: (1) fracturing services; (2) wireline and pumpdown services; and (3) completion support services, which includes the Company's research and technology department.
Well Construction and Intervention Services
The Company’s WC&I Services segment consists of the following businesses and service lines: (1) cementing services and (2) coiled tubing services.
Historical Segment: Well Support Services
The Company’s Well Support Services segment consisted of the following businesses and service lines: (1) rig services; (2) fluids management services; and (3) other specialty well site services. On March 9, 2020, the Company completed the divestiture of its Well Support Services segment for $93.7 million of total proceeds, including $59.4 million in cash, before transaction costs, escrowed amounts, and subject to customary working capital adjustments, for a net of $53.3 million received at close, and $34.4 million of par value Senior Secured Notes, with 10.75% coupon rate, ("WSS Notes") previously issued by Basic. This resulted in a gain on divestiture of $8.7 million. The gain is recorded within (Gain) Loss on Disposal of Assets on the Consolidated Statements of Operations and Comprehensive (Loss) Income. Income per share for the three months ended March 31, 2020 attributable to the divested Well Support Services segment was less than $0.01. On July 29, 2020, the Company received the escrowed cash amount in final settlement for working capital reconciliation.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
The following tables present financial information with respect to the Company’s segments. Corporate and Other represents costs not directly associated with a segment, such as interest expense, income taxes and corporate overhead. Corporate assets include cash, deferred financing costs, derivatives and entity-level machinery equipment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Operations by reportable segment
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
Completion Services
|
|
$
|
1,046,314
|
|
|
$
|
1,709,934
|
|
|
$
|
2,100,956
|
|
WC&I
|
|
98,338
|
|
|
63,039
|
|
|
36,050
|
|
Well Support Services
|
|
57,929
|
|
|
48,583
|
|
|
—
|
|
Total revenue
|
|
$
|
1,202,581
|
|
|
$
|
1,821,556
|
|
|
$
|
2,137,006
|
|
Adjusted gross profit (loss):
|
|
|
|
|
|
|
Completion Services(1)
|
|
$
|
168,276
|
|
|
$
|
401,845
|
|
|
$
|
479,077
|
|
WC&I(1)
|
|
9,731
|
|
|
7,812
|
|
|
(2,390)
|
|
Well Support Services(1)
|
|
12,338
|
|
|
7,967
|
|
|
—
|
|
Total adjusted gross profit
|
|
$
|
190,345
|
|
|
$
|
417,624
|
|
|
$
|
476,687
|
|
Operating income (loss):
|
|
|
|
|
|
|
Completion Services
|
|
$
|
(144,425)
|
|
|
$
|
126,698
|
|
|
$
|
234,756
|
|
WC&I
|
|
(9,571)
|
|
|
3,855
|
|
|
(6,818)
|
|
Well Support Services
|
|
10,940
|
|
|
6,959
|
|
|
—
|
|
Corporate and Other
|
|
(188,221)
|
|
|
(221,261)
|
|
|
(129,928)
|
|
Total operating income (loss)
|
|
$
|
(331,277)
|
|
|
$
|
(83,749)
|
|
|
$
|
98,010
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
Completion Services
|
|
$
|
264,247
|
|
|
$
|
270,918
|
|
|
$
|
241,169
|
|
WC&I
|
|
18,045
|
|
|
3,822
|
|
|
4,428
|
|
Well Support Services
|
|
1,527
|
|
|
1,415
|
|
|
—
|
|
Corporate and Other
|
|
18,232
|
|
|
15,995
|
|
|
13,548
|
|
Total depreciation and amortization
|
|
$
|
302,051
|
|
|
$
|
292,150
|
|
|
$
|
259,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss):
|
|
|
|
|
|
|
Completion Services
|
|
$
|
(144,425)
|
|
|
$
|
126,698
|
|
|
$
|
234,756
|
|
WC&I
|
|
(9,571)
|
|
|
3,855
|
|
|
(6,818)
|
|
Well Support Services
|
|
10,940
|
|
|
6,959
|
|
|
—
|
|
Corporate and Other
|
|
(203,827)
|
|
|
(243,669)
|
|
|
(168,607)
|
|
Total net income (loss)
|
|
$
|
(346,883)
|
|
|
$
|
(106,157)
|
|
|
$
|
59,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Adjusted gross profit at the segment level is not considered to be a non-GAAP financial measure as it is the Company's segment measure of profitability and is required to be disclosed under GAAP pursuant to ASC 280.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2020
|
|
|
Completion Services
|
|
WC&I
|
|
Well Support Services
|
|
Total
|
Revenue
|
|
$
|
1,046,314
|
|
|
$
|
98,338
|
|
|
$
|
57,929
|
|
|
$
|
1,202,581
|
|
Cost of Services
|
|
893,785
|
|
|
93,198
|
|
|
45,591
|
|
|
1,032,574
|
|
Gross profit excluding depreciation and amortization
|
|
152,529
|
|
|
5,140
|
|
|
12,338
|
|
|
170,007
|
|
Management adjustments associated with cost of services(1)
|
|
15,747
|
|
|
4,591
|
|
|
—
|
|
|
20,338
|
|
Adjusted gross profit(2)
|
|
$
|
168,276
|
|
|
$
|
9,731
|
|
|
$
|
12,338
|
|
|
$
|
190,345
|
|
(1) Adjustments relate to market-driven severance and restructuring costs incurred as a result of significant declines in crude oil prices resulting from demand destruction from the COVID-19 pandemic and global oversupply.
(2) Adjusted gross profit at the segment level is not considered to be a non-GAAP financial measure as it is the Company’s segment measure of profitability and is required to be disclosed under GAAP pursuant to ASC 280.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2019
|
|
|
Completion Services
|
|
WC&I
|
|
Well Support Services
|
|
Total
|
Revenue
|
|
$
|
1,709,934
|
|
|
$
|
63,039
|
|
|
$
|
48,583
|
|
|
$
|
1,821,556
|
|
Cost of Services
|
|
1,308,089
|
|
|
55,227
|
|
|
40,616
|
|
|
1,403,932
|
|
Gross profit excluding depreciation and amortization
|
|
401,845
|
|
|
7,812
|
|
|
7,967
|
|
|
417,624
|
|
Management adjustments associated with cost of services
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Adjusted gross profit(2)
|
|
$
|
401,845
|
|
|
$
|
7,812
|
|
|
$
|
7,967
|
|
|
$
|
417,624
|
|
(2) Adjusted gross profit at the segment level is not considered to be a non-GAAP financial measure as it is the Company’s segment measure of profitability and is required to be disclosed under GAAP pursuant to ASC 280.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2018
|
|
|
Completion Services
|
|
WC&I
|
|
Well Support Services
|
|
Total
|
Revenue
|
|
$
|
2,100,956
|
|
|
$
|
36,050
|
|
|
$
|
—
|
|
|
$
|
2,137,006
|
|
Cost of Services
|
|
1,622,106
|
|
|
38,440
|
|
|
—
|
|
|
1,660,546
|
|
Gross profit excluding depreciation and amortization
|
|
478,850
|
|
|
(2,390)
|
|
|
—
|
|
|
476,460
|
|
Management adjustments associated with cost of services(3)
|
|
227
|
|
|
—
|
|
|
—
|
|
|
227
|
|
Adjusted gross profit(2)
|
|
$
|
479,077
|
|
|
$
|
(2,390)
|
|
|
$
|
—
|
|
|
$
|
476,687
|
|
(2) Adjusted gross profit at the segment level is not considered to be a non-GAAP financial measure as it is the Company’s segment measure of profitability and is required to be disclosed under GAAP pursuant to ASC 280.
(3) Adjustments relate to integration costs recorded in costs of services as a result of the RSI asset acquisition in 2018.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
December 31,
2020
|
|
December 31,
2019
|
Total assets by segment:
|
|
|
|
|
Completion Services
|
|
$
|
689,814
|
|
|
$
|
1,091,965
|
|
WC&I
|
|
62,959
|
|
|
106,493
|
|
Well Support Services
|
|
—
|
|
|
109,792
|
|
Corporate and Other
|
|
405,115
|
|
|
356,657
|
|
Total assets
|
|
$
|
1,157,888
|
|
|
$
|
1,664,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill by segment:
|
|
|
|
|
Completion Services
|
|
$
|
104,198
|
|
|
$
|
136,425
|
|
WC&I
|
|
—
|
|
|
372
|
|
Well Support Services
|
|
—
|
|
|
661
|
|
Corporate and Other
|
|
—
|
|
|
—
|
|
Total goodwill
|
|
$
|
104,198
|
|
|
$
|
137,458
|
|
(22) Selected Quarterly Financial Data
The following table sets forth certain unaudited financial and operating information for each quarter of the years ended December 31, 2020 and 2019. The unaudited quarterly information includes all adjustments that, in the opinion of management, are necessary for the fair presentation of the information presented. Operating results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
|
(Unaudited)
|
Selected Financial Data:
|
|
First
Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
Revenue
|
|
$
|
627,625
|
|
|
$
|
196,227
|
|
|
$
|
163,675
|
|
|
$
|
215,054
|
|
Costs of services (excluding depreciation and amortization, shown separately)
|
|
512,226
|
|
|
178,771
|
|
|
150,066
|
|
|
191,511
|
|
Depreciation and amortization
|
|
85,821
|
|
|
75,260
|
|
|
73,570
|
|
|
67,400
|
|
Selling, general and administrative expenses
|
|
56,884
|
|
|
38,024
|
|
|
25,521
|
|
|
23,718
|
|
Merger and integration
|
|
12,182
|
|
|
14,028
|
|
|
7,288
|
|
|
(959)
|
|
Gain on disposal of assets
|
|
(7,962)
|
|
|
(953)
|
|
|
(3,027)
|
|
|
(2,519)
|
|
Impairment
|
|
34,327
|
|
|
—
|
|
|
2,681
|
|
|
—
|
|
Total operating costs and expenses
|
|
693,478
|
|
|
305,130
|
|
|
256,099
|
|
|
279,151
|
|
Operating loss
|
|
(65,853)
|
|
|
(108,903)
|
|
|
(92,424)
|
|
|
(64,097)
|
|
Other income (expense), net
|
|
416
|
|
|
2,259
|
|
|
(3,978)
|
|
|
7,819
|
|
Interest expense
|
|
(6,066)
|
|
|
(5,353)
|
|
|
(5,524)
|
|
|
(3,709)
|
|
Total other income (expense)
|
|
(5,650)
|
|
|
(3,094)
|
|
|
(9,502)
|
|
|
4,110
|
|
Income tax expense
|
|
(253)
|
|
|
(491)
|
|
|
(507)
|
|
|
(219)
|
|
Net loss
|
|
$
|
(71,756)
|
|
|
$
|
(112,488)
|
|
|
$
|
(102,433)
|
|
|
$
|
(60,206)
|
|
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
(Unaudited)
|
Selected Financial Data:
|
|
First
Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
Revenue
|
|
$
|
421,654
|
|
|
$
|
427,733
|
|
|
$
|
443,953
|
|
|
$
|
528,216
|
|
Costs of services (excluding depreciation and amortization, shown separately)
|
|
337,646
|
|
|
324,503
|
|
|
333,438
|
|
|
408,345
|
|
Depreciation and amortization
|
|
71,476
|
|
|
69,886
|
|
|
68,708
|
|
|
82,080
|
|
Selling, general and administrative expenses
|
|
27,936
|
|
|
26,463
|
|
|
26,579
|
|
|
42,698
|
|
Merger and integration
|
|
—
|
|
|
6,108
|
|
|
6,651
|
|
|
55,972
|
|
(Gain) loss on disposal of assets
|
|
481
|
|
|
(330)
|
|
|
679
|
|
|
3,640
|
|
Impairment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,346
|
|
Total operating costs and expenses
|
|
437,539
|
|
|
426,630
|
|
|
436,055
|
|
|
605,081
|
|
Operating income
|
|
(15,885)
|
|
|
1,103
|
|
|
7,898
|
|
|
(76,865)
|
|
Other expense (income), net
|
|
448
|
|
|
(43)
|
|
|
55
|
|
|
(7)
|
|
Interest expense
|
|
(5,395)
|
|
|
(5,477)
|
|
|
(5,215)
|
|
|
(5,769)
|
|
Total other income (expenses)
|
|
(4,947)
|
|
|
(5,520)
|
|
|
(5,160)
|
|
|
(5,776)
|
|
Income tax income (expense)
|
|
(974)
|
|
|
(564)
|
|
|
820
|
|
|
(287)
|
|
Net income (loss)
|
|
$
|
(21,806)
|
|
|
$
|
(4,981)
|
|
|
$
|
3,558
|
|
|
$
|
(82,928)
|
|
(23) New Accounting Pronouncements
(a) Recently Adopted Accounting Standards
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which introduces a new impairment model for financial instruments that is based on expected credit losses rather than incurred credit losses. The new impairment model applies to most financial assets, including trade accounts receivable and lease receivables. In November 2018, the FASB issued ASU No. 2018-19, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses," which clarified that receivables arising from operating leases are not within the scope of ASC 326-20, "Financial Instruments-Credit Losses-Measured at Amortized Cost," and should be accounted for in accordance with ASC 842. In April 2019, the FASB issued ASU No. 2019-04, "Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments," which clarified certain amendments related to ASU 2016-13. In May 2019, the FASB issued ASU No. 2019-05, "Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief," which clarifies certain aspects of the amendments in ASU 2016-13. In November 2019, the FASB issued ASU No. 2019-10, "Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) and ASU 2019-11 Codification Improvements to Topic 326, Financial Instruments—Credit Losses."
The Company adopted these new standards effective January 1, 2020 and analyzed its trade accounts receivable based on a risk assessed portfolio approach, incorporating current and forecasted economic conditions as of January 1, 2020 which resulted in the increase of $1.5 million of allowances for expected credit losses related to our accounts receivable through a cumulative effect offset to retained earnings.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." This standard removed, modified and added disclosure requirements from ASC 820. ASU 2018-13 is effective for annual periods beginning after December 15, 2019. The Company adopted this standard on January 1, 2020 and there was no impact to its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract." The amendments in this standard aligned the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company adopted this standard on January 1, 2020 and there was no impact on its consolidated financial statements.
In November 2018, the FASB issued ASU 2018-18, "Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606." The amendments in this standard clarified that certain transactions should be accounted for under ASC 606 if one of the collaborative arrangement participants meets the definition of a customer and that transactions between collaborative participants not directly related to sales to third parties should not be recognized as revenue under Topic 606, if one of the collaborative arrangement participants is not a customer. The Company adopted this standard on January 1, 2020 and there was no impact on its consolidated financial statements.
In July 2019, the FASB issued ASU 2019-07, "Codification Updates to SEC Sections—Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates (SEC Update)". The Company adopted this standard on January 1, 2020 and there was no impact on its consolidated financial statements.
In August 2019, the FASB issued ASU 2019-08, "Compensation - Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements - Share-Based Consideration Payable to a Customer". ASU 2019-08 expands the scope of ASC Topic 718 to provide guidance for share-based payment awards granted to a customer in conjunction with selling goods or services accounted for under Topic 606. The Company adopted this standard on January 1, 2020 and there was no impact on its consolidated financial statements, as the Company has only issued shares to employees or nonemployee directors and has previously recognized its nonemployee directors share-based payments in line with its recognition of share-based payments to employees, using the grant-date fair value of the equity instruments issued, amortized over the requisite service period.
In March 2020, the FASB issued ASU 2020-03, "Codification Improvements to Financial Instruments," which improves and clarifies various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016. The ASU includes seven different issues that describe the areas of improvement and the related amendments to GAAP, intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments have different effective dates. The Company early adopted this new accounting guidance, and there was no additional impact on its consolidated financial statements.
(b) Recently Issued Accounting Standards
In January 2021, the FASB issued ASU 2021-01 “Reference Rate Reform (Topic 848)”. ASU 2021-10 expands on the US GAAP guidance on contract modifications and hedge accounting related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This standard is effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
In October 2020, the FASB issued ASU 2020-10 ‘Codification Improvements”. ASU 2020-10 improves the clarity and consistency of various provisions in the Codification. The Company does not expect ASU 2020-10 to have any impact on the its consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06 "Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40) ("ASU 2020-06"). ASU 2020-06 simplifies the guidance on the issuer's accounting for convertible debt instruments and convertible preferred stock. The Company does not expect ASU 2020-06 to have any impact on the Company's consolidated financial statements.
In June 2020, the FASB issued ASU 2020-05, "Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities," which provides a limited deferral of the effective dates of "Revenue from Contracts with Customers (ASC 606)" and "Leases (ASC 842)" to provide immediate, near-term relief for certain entities for whom these updates are either currently effective or imminently effective. The Company does not expect ASU 2020-05 to have any impact on the Company's consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848)," which is intended to provide temporary optional expedients and exceptions to the US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This standard is effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.
In January 2020, the FASB issued ASU 2020-01, "Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)," which clarifies the interaction between the accounting for investments in equity securities, investment in equity method and certain derivatives instruments. This standard is expected to reduce diversity in practice and increase comparability of the accounting for these interactions. This standard is effective for fiscal years beginning after December 15, 2021 and the adoption is not expected to have any impact on the Company's consolidated financial statements.
In December 2019, the Financial Accounting Standards Board issued ASU No 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). ASU 2019-12 removes certain exceptions to the general principles in Topic 740 in Generally Accepted Accounting Principles. ASU 2019-12 is effective for public entities for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company does not expect ASU 2019-12 to have a material effect on the Company’s current financial position, results of operations or financial statement disclosures.