NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Organization and Nature of Operations
Unless otherwise indicated, the terms “Company,” “Parker,” “we,” “us,” “its” and “our” refer to Parker Drilling Company, incorporated in Delaware, together with its wholly-owned subsidiaries, and “Parker Drilling” refers solely to the parent, Parker Drilling Company. Parker is an international provider of contract drilling and drilling-related services, as well as, rental tools and services. We have operated in over 60 countries since beginning operations in 1934, making us among the most geographically experienced drilling contractors and rental tools providers in the world.
Basis of Presentation
The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and are audited. In the opinion of the Company, these consolidated financial statements include all adjustments which, unless otherwise disclosed, are of a normal recurring nature, necessary for their fair presentation for the periods presented.
Consolidation
The consolidated financial statements include the accounts of the Company and subsidiaries in which we exercise control or have a controlling financial interest, including entities, if any, in which the Company is allocated a majority of the entity’s losses or returns, regardless of ownership percentage. If a subsidiary of Parker Drilling has a 50.0 percent interest in an entity but Parker Drilling’s interest in the subsidiary or the entity does not meet the consolidation criteria described above, then that interest is accounted for under the equity method.
Reclassifications
Certain reclassifications have been made to prior period amounts to conform to the current period presentation. These reclassifications did not materially affect our consolidated financial results.
Use of Estimates
The preparation of our consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect our reported amounts of assets and liabilities, our disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and our revenues and expenses during the periods reported. Estimates are typically used when accounting for certain significant items such as legal or contractual liability accruals, self-insured medical/dental plans, impairment, income taxes and valuation allowance, operating lease right-of-use assets, operating lease liabilities and other items requiring the use of estimates. Estimates are based on a number of variables, which may include third party valuations, historical experience, where applicable, and assumptions that we believe are reasonable under the circumstances. Due to the inherent uncertainty involved with estimates, actual results may differ from management estimates.
Cash, Cash Equivalents and Restricted Cash
For purposes of the consolidated balance sheets and the consolidated statements of cash flows, the Company considers cash equivalents to be highly liquid debt instruments that have a remaining maturity of three months or less at the date of purchase.
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Successor
|
|
|
Predecessor
|
|
|
December 31,
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|
|
December 31,
|
|
Dollars in thousands
|
2019
|
|
|
2018
|
|
Cash and cash equivalents
|
$
|
104,951
|
|
|
|
$
|
48,602
|
|
|
Restricted cash
|
—
|
|
|
|
10,389
|
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
104,951
|
|
|
|
$
|
58,991
|
|
The restricted cash balance as of December 31, 2018 included $9.8 million in a cash collateral account to support the letters of credit outstanding and $0.6 million held as compensating balances in the ordinary course of business for purchases and utilities.
Accounts Receivable and Allowance for Bad Debts
Trade accounts receivable are recorded at the invoice amount and typically do not bear interest. The allowance for bad debt is estimated for losses that may occur resulting from disputed amounts and the inability of our customers to pay amounts owed. We estimate the allowance based on historical write-off experience and information about specific customers. We review individually, for collectability, all balances over 90 days past due as well as balances due from any customer with respect to which we have information leading us to believe that a risk exists for potential collection.
Account balances are charged off against the allowance when we believe it is probable the receivable will not be recovered. We do not have any off-balance-sheet credit exposure related to customers.
The components of our accounts receivable, net of allowance for bad debt balance are as follows:
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|
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Successor
|
|
|
Predecessor
|
|
|
December 31,
|
|
|
December 31,
|
|
Dollars in thousands
|
2019
|
|
|
2018
|
|
Accounts Receivable
|
$
|
166,799
|
|
|
|
$
|
144,204
|
|
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Allowance for bad debts (1)
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(343
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)
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|
|
(7,767
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)
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|
Accounts receivable, net of allowance for bad debts
|
$
|
166,456
|
|
|
|
$
|
136,437
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|
|
|
|
|
(1)
|
Additional information on the allowance for bad debt as of December 31, 2019 and 2018, is reported on Schedule II — Valuation and Qualifying Accounts in Item 15. Exhibits and Financial Statement Schedules.
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Rig Materials and Supplies
Because international drilling generally occurs in remote locations, making timely delivery of spare parts uncertain, a complement of parts and supplies is maintained either at the drilling site or in warehouses close to the operation. During periods of high rig utilization, these parts are generally consumed and replenished within a one-year period. During a period of lower rig utilization in a particular location, the parts, like the related idle rigs, are generally not transferred to other international locations until new contracts are obtained because of the significant transportation costs that would result from such transfers. We classify those parts which are not expected to be utilized in the following year as long-term assets. Additionally, our International rental tools business holds machine shop consumables and steel stock for manufacture in our machine shops and inspection and repair shops, which are classified as current assets. Rig materials and supplies are valued at the lower of cost or market value.
Property, Plant, and Equipment
Property, plant, and equipment is carried at cost. Maintenance and most repair costs are expensed as incurred. The cost of upgrades and replacements is capitalized. The Company capitalizes software developed or obtained for internal use. Accordingly, the cost of third-party software, as well as the cost of third-party and internal personnel that are directly involved in application development activities, are capitalized during the application development phase of new software systems projects. Costs during the preliminary project stage and post-implementation stage of new software systems projects, including data conversion and training costs, are expensed as incurred. We account for depreciation of property, plant, and equipment on the straight-line method over the estimated useful lives of the assets after provision for salvage value. Leasehold improvements are depreciated over the shorter of their estimated useful lives or the term of the lease. Depreciation, for tax purposes, utilizes several methods of accelerated depreciation. See Note 4 - Property, Plant, and Equipment.
Depreciable lives for different categories of property, plant, and equipment are as follows:
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Computer, office equipment, and other
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3 to 10 years
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|
Land drilling equipment
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3 to 20 years
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|
Barge drilling equipment
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3 to 20 years
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|
Drill pipe, rental tools, and other
|
4 to 15 years
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|
Buildings and improvements
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5 to 30 years
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Impairment
We evaluate the carrying amounts of long-lived assets for potential impairment when events occur or circumstances change that indicate the carrying values of such assets may not be recoverable. We evaluate recoverability by determining the undiscounted estimated future net cash flows for the respective asset groups identified. If the sum of the estimated undiscounted
cash flows is less than the carrying value of the asset group, we measure the impairment as the amount by which the assets’ carrying value exceeds the fair value of such assets. Management considers a number of factors such as estimated future cash flows from the assets, appraisals and current market value analysis in determining fair value. Assets are written down to fair value if the final estimate of current fair value is below the net carrying value. The assumptions used in the impairment evaluation are inherently uncertain and require management judgment.
Intangible Assets
Our intangible assets are related to customer relationships, trade names and developed technology, which are classified as definite lived intangibles that are generally amortized over a weighted average period of approximately three to six years. We assess the recoverability of the unamortized balance of our intangible assets when indicators of impairment are present based on expected future profitability and undiscounted expected cash flows and their contribution to our overall operations. Should the review indicate that the carrying value is not fully recoverable, the excess of the carrying value over the fair value of the intangible assets would be recognized as an impairment loss. See Note 5 - Intangible Assets.
Capitalized Interest
Interest from external borrowings is capitalized on major projects until the assets are ready for their intended use. Capitalized interest is added to the cost of the underlying asset and is amortized over the useful lives of the assets in the same manner as the underlying assets. Capitalized interest costs reduce net interest expense in the consolidated statements of operations.
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Successor
|
|
|
Predecessor
|
|
|
December 31,
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|
|
December 31,
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Dollars in thousands
|
2019
|
|
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2018
|
|
Capitalized interest
|
$
|
—
|
|
|
|
$
|
125
|
|
Assets Held for Sale
We classify an asset as held for sale when the facts and circumstances meet the criteria for such classification, including the following: (a) we have committed to a plan to sell the asset, (b) the asset is available for immediate sale, (c) we have initiated actions to complete the sale, including locating a buyer, (d) the sale is expected to be completed within one year, (e) the asset is being actively marketed at a price that is reasonable relative to its fair value, and (f) the plan to sell is unlikely to be subject to significant changes or termination.
Income Taxes
Income taxes are accounted for under the asset and liability method and have been provided for based upon tax laws and rates in effect in the countries in which operations are conducted and income or losses are generated. There is little or no expected relationship between the provision for or benefit from income taxes and income or loss before income taxes as the countries in which we operate have taxation regimes that vary not only with respect to nominal rate, but also in terms of the availability of deductions, credits, and other benefits. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the temporary differences are expected to be recovered or settled and the effect of changes in tax rates is recognized in income in the period in which the change is enacted. Valuation allowances are established to reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. In order to determine the amount of deferred tax assets or liabilities, as well as the valuation allowances, we must make estimates and assumptions regarding future taxable income, where rigs will be deployed and other matters. Changes in these estimates and assumptions, including changes in tax laws and other changes affecting our ability to recognize the underlying deferred tax assets, could require us to adjust the valuation allowances.
The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that is greater than 50.0 percent likely of being realized and changes in recognition or measurement are reflected in the period in which the change in judgment occurs. See Note 10 - Income Taxes for further details.
Leases
As lessee, our leases are primarily operating leases. See Note 6 - Operating Leases.
As lessor, our leases are primarily operating leases which are included in revenue in our consolidated statement of operations. See Note 15 - Revenue.
Fair Value Measurements
See Note 9 - Fair Value Measurements.
Foreign Currency
For certain subsidiaries and branches outside the U.S., the local currency is the functional currency. The financial statements of these subsidiaries and branches are translated into U.S. dollars as follows: (i) assets and liabilities at month-end exchange rates; (ii) income, expenses and cash flows at monthly average exchange rates or exchange rates in effect on the date of the transaction; and (iii) stockholders’ equity at historical exchange rates. For those subsidiaries where the local currency is the functional currency, the resulting translation adjustment is recorded as a component of accumulated other elements of comprehensive income (loss) in the accompanying consolidated balance sheets.
Legal and Investigative Matters
We accrue estimates of the probable and estimable costs for the resolution of certain legal and investigative matters. We do not accrue any amounts for other matters for which the liability is not probable and reasonably estimable. Generally, the estimate of probable costs related to these matters is developed in consultation with our legal advisors. The estimates take into consideration factors such as the complexity of the issues, litigation risks and settlement costs. If the actual settlement costs, final judgments, or fines, after appeals, differ from our estimates, our future financial results may be adversely affected.
Revenue Recognition
See Note 15 - Revenue.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade receivables with a variety of national and international oil and natural gas companies. We generally do not require collateral on our trade receivables. We depend on a limited number of significant customers. Our largest customer, Exxon Neftegas Limited (“ENL”), constituted approximately 29.3 percent of our consolidated revenues for the nine months ended December 31, 2019. Excluding revenues from reimbursable costs (“reimbursable revenues”) of $63.2 million, ENL constituted approximately 18.6 percent of our total consolidated revenues for the nine months ended December 31, 2019. For the three months ended March 31, 2019, ENL constituted approximately 31.2 percent of our total consolidated revenues. Excluding reimbursable revenues of $26.3 million, ENL constituted approximately 17.7 percent of our total consolidated revenues for the three months ended March 31, 2019.
The following table includes our deposits in domestic banks in excess of federally insured limits and uninsured deposits in foreign banks:
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Successor
|
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Predecessor
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Dollars in thousands
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Deposits in domestic banks in excess of federally insured limits
|
$
|
53,303
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|
|
|
$
|
27,520
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|
|
Uninsured deposits in foreign banks
|
$
|
51,884
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|
|
|
$
|
32,907
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Stock-Based Compensation
Under our long-term incentive plan, we are authorized to issue the following: stock options; stock appreciation rights; restricted stock; restricted stock units; performance-based awards; and other types of awards in cash or stock to key employees, consultants, and directors. We typically grant restricted stock units, time-based phantom stock units, performance cash units, and performance-based phantom stock units.
Stock-based compensation expense is recognized, net of an estimated forfeiture rate, which is based on historical experience and adjusted, if necessary, in subsequent periods based on actual forfeitures. We recognize stock-based compensation expense in the same financial statement line item as cash compensation paid to the respective employees. Tax deduction benefits for awards in excess of recognized compensation costs are reported as an operating cash flow. See Note 12 - Stock-Based Compensation.
Earnings (Loss) Per Share (EPS)
Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. The effects of dilutive securities such as Successor unvested restricted stock units, Successor unvested stock options, Successor warrants and Predecessor preferred stock are included in the diluted EPS calculation, when applicable. See Note 14 - Earnings (Loss) Per Share (EPS).
Bankruptcy
On December 12, 2018 (the “Petition Date”), Parker Drilling and certain of its U.S. subsidiaries (collectively, the “Debtors”) filed a prearranged plan of reorganization (the “Plan”) and commenced voluntary petitions under chapter 11 (the “Chapter 11 Cases”) of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the “Bankruptcy Court”). The Plan was confirmed by the Bankruptcy Court on March 7, 2019, and the Debtors emerged from the bankruptcy proceedings on March 26, 2019 (the “Plan Effective Date”). The consolidated financial statements included herein have been prepared as if we were a going concern and in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. 852, Reorganizations (“Topic 852”). See Note 2 - Chapter 11 Emergence and Note 3 - Fresh Start Accounting for further details.
Note 2 - Chapter 11 Emergence
On December 12, 2018, prior to the commencement of the Chapter 11 Cases, the Debtors entered into a restructuring support agreement (as amended on January 28, 2019, the “RSA”) with certain significant holders of (1) 7.50% Senior Notes, due 2020 (the “7.50% Note Holders”) issued pursuant to the indenture (the “7.50% Notes Indenture”) dated July 30, 2013 (the “7.50% Notes”), by and among Parker Drilling, the subsidiary guarantors party thereto and Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”), (2) 6.75% Senior Notes, due 2022 (the “6.75% Note Holders”) issued pursuant to the indenture (the “6.75% Notes Indenture”) dated January 22, 2014 (the “6.75% Notes” and together with the 7.50% Notes, the “Senior Notes”), by and among Parker Drilling, the subsidiary guarantors party thereto and the Trustee, (3) Parker Drilling’s existing common stock (the “Predecessor Common Stock”) and (4) Parker Drilling’s 7.25% Series A Mandatory Convertible Preferred Stock (the “Predecessor Preferred Stock” and such holders to support a restructuring (the “Restructuring”) on the terms set forth in the Plan.
On the Petition Date, the Debtors filed voluntary petitions for reorganization under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas pursuant to a prearranged plan of reorganization. The Plan was confirmed by the Bankruptcy Court on March 7, 2019, and the Debtors emerged from the bankruptcy proceedings on March 26, 2019.
References to “Successor” relate to the consolidated condensed statement of operations or consolidated condensed balance sheet of the reorganized Company as of and subsequent to March 31, 2019. References to “Predecessor” relate to the consolidated condensed balance sheet of the Company prior to, and consolidated condensed statement of operations through and including, March 31, 2019.
On March 26, 2019:
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(1)
|
the Company amended and restated its certificate of incorporation and bylaws;
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(2)
|
the Company appointed new members to the Successor’s board of directors to replace directors of the Predecessor;
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•
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2,827,323 shares of Successor Common Stock pro rata to 7.50% Note Holders;
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|
|
|
|
•
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5,178,860 shares of Successor Common Stock pro rata to 6.75% Note Holders;
|
|
|
|
|
•
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90,558 shares of Successor Common Stock and 1,032,073 Successor warrants to purchase 1,032,073 shares of Successor Common Stock pro rata to holders of the Predecessor Preferred Stock;
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|
|
|
|
•
|
135,838 shares of Successor Common Stock and 1,548,109 Successor warrants to purchase 1,548,109 shares of Successor Common Stock pro rata to holders of the Predecessor Common Stock;
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|
|
|
|
•
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504,577 shares of Successor Common Stock to commitment parties under that certain Backstop Commitment Agreement, dated December 12, 2018 and amended and restated on January 28, 2019, (as amended and restated, the “Backstop Commitment Agreement”) in respect of the commitment premium due thereunder;
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|
|
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•
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1,403,910 shares of Successor Common Stock to the commitment parties under the Backstop Commitment Agreement in connection with their backstop obligation thereunder to purchase unsubscribed shares of Successor Common Stock; and
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|
|
|
•
|
4,903,308 shares of Successor Common Stock to participants in the rights offering extended by Parker to the applicable classes under the Plan (including to the commitment parties party to the Backstop Commitment Agreement); and
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|
|
|
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•
|
all of the Company’s agreements, instruments and other documents evidencing or relating to, or otherwise connected with, any of the Predecessor’s equity interests outstanding prior to the Plan Effective Date were cancelled and all such equity interests have no further force or effect.
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Reorganization Items
Any expenses, gains and losses that are realized or incurred subsequent to and as a direct result of the Chapter 11 Cases are recorded under reorganization items on our consolidated statement of operations.
Reorganization items consisted of:
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|
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|
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|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Nine Months Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Year Ended December 31,
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|
Dollars in thousands
|
2019
|
|
|
2019
|
|
2018
|
|
Gain on settlement of liabilities subject to compromise
|
$
|
—
|
|
|
|
$
|
(191,129
|
)
|
|
$
|
—
|
|
|
Fresh start valuation adjustments
|
—
|
|
|
|
242,567
|
|
|
—
|
|
|
Professional fees
|
1,173
|
|
|
|
30,107
|
|
|
2,251
|
|
|
Backstop premium on the rights offering paid in stock
|
—
|
|
|
|
11,033
|
|
|
—
|
|
|
Predecessor 6.75% senior notes, due July 2022 - unamortized debt issuance costs
|
—
|
|
|
|
—
|
|
|
3,775
|
|
|
Predecessor 7.50% senior notes, due August 2020 - unamortized debt issuance costs
|
—
|
|
|
|
—
|
|
|
1,580
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|
|
Predecessor 2015 secured credit agreement - unamortized debt issuance costs
|
—
|
|
|
|
—
|
|
|
1,208
|
|
|
Debtor in possession facility costs
|
—
|
|
|
|
—
|
|
|
975
|
|
|
Other
|
—
|
|
|
|
399
|
|
|
—
|
|
|
Reorganization items
|
$
|
1,173
|
|
|
|
$
|
92,977
|
|
|
$
|
9,789
|
|
Supplemental cash flow information related to reorganization items paid is as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Nine Months Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Year Ended December 31,
|
|
Dollars in thousands
|
2019
|
|
|
2019
|
|
2018
|
|
Reorganization items paid
|
$
|
22,168
|
|
|
|
$
|
8,617
|
|
|
$
|
—
|
|
Debtor in Possession Financing
Amounts outstanding against the debtor in possession financing facility were $10.0 million as of December 31, 2018. The debtor in possession financing facility was terminated as of March 26, 2019.
Liabilities Subject To Compromise
Pre-petition unsecured and under-secured obligations that could have been impacted by the Chapter 11 Cases have been classified as liabilities subject to compromise on our Predecessor consolidated balance sheet. These liabilities were reported at the amounts allowed as claims by the Bankruptcy Court.
Liabilities subject to compromise consisted of:
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|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
Dollars in thousands
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Predecessor 6.75% senior notes, due July 2022
|
$
|
—
|
|
|
|
$
|
360,000
|
|
|
Predecessor 7.50% senior notes, due August 2020
|
—
|
|
|
|
225,000
|
|
|
Accrued interest on predecessor senior notes
|
—
|
|
|
|
15,996
|
|
|
Liabilities subject to compromise
|
$
|
—
|
|
|
|
$
|
600,996
|
|
Contractual interest expense for the three months ended March 31, 2019, on our senior notes was $10.3 million; however, no interest expense was accrued on the senior notes, as they were impaired and extinguished upon emergence. See also Note 8 - Debt for further details.
Note 3 - Fresh Start Accounting
Upon emergence from bankruptcy, we adopted fresh start accounting (“Fresh Start Accounting”) in accordance with Topic 852, which resulted in the Company becoming a new entity for financial reporting purposes. In accordance with Topic 852, the Company is required to adopt Fresh Start Accounting upon its emergence from bankruptcy because (1) the holders of the then existing common shares of the Predecessor received less than 50 percent of the new common shares of the Successor outstanding upon emergence and (2) the reorganization value of the Company’s assets immediately prior to confirmation of the Plan was less than the total of all post-petition liabilities and allowed claims.
Upon adoption of Fresh Start Accounting, the reorganization value derived from the enterprise value as disclosed in the Plan was allocated to the Company’s assets and liabilities based on their fair values (except for deferred income taxes) in accordance with FASB ASC Topic No. 805, Business Combinations. The amount of deferred income taxes recorded was determined in accordance with FASB ASC Topic No. 740, Income Taxes.
We evaluated the events between March 26, 2019 and March 31, 2019 and concluded that the use of an accounting convenience date of March 31, 2019 (“Fresh Start Reporting Date”) would not have a material impact on our consolidated statement of operations or consolidated balance sheet. As such, the application of fresh start accounting was reflected in our consolidated condensed balance sheet as of March 31, 2019 and fresh start accounting adjustments related thereto were included in our consolidated condensed statement of operations for the three months ended March 31, 2019.
As a result of the adoption of Fresh Start Accounting and the effects of the implementation of the Plan, the consolidated financial statements of the Successor, are not comparable to the consolidated financial statements of the Predecessor.
The Company’s consolidated financial statements and related footnotes are presented with a “black line” division, which emphasizes the lack of comparability between amounts presented as of and after March 31, 2019 and amounts presented for all prior periods. The Company’s financial results for future periods following the application of Fresh Start Accounting will be different from historical trends and the differences may be material.
Reorganization Value
Under Topic 852, the Successor determined a value to be assigned to the equity of the emerging entity as of the date of adoption of Fresh Start Accounting. The Plan confirmed by the Bankruptcy Court estimated a range of enterprise values between $365.0 million and $485.0 million, with a midpoint of $425.0 million. The Company deemed it appropriate to use the midpoint between the low end and high end of the range to determine the final enterprise value of $425.0 million.
The following table reconciles the enterprise value to the estimated fair value of our Successor Common Stock as of the Fresh Start Reporting Date:
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
|
Enterprise value
|
$
|
425,000
|
|
|
Cash and cash equivalents and other
|
127,800
|
|
|
Fair value of term loan
|
(210,000
|
)
|
|
Fair value of successor stockholders’ equity
|
$
|
342,800
|
|
The following table reconciles the enterprise value to the reorganization value of the Successor’s assets to be allocated to the Company’s individual assets as of the Fresh Start Reporting Date:
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|
|
|
|
|
|
|
Dollars in thousands
|
|
|
Enterprise value
|
$
|
425,000
|
|
|
Cash and cash equivalents and other
|
127,800
|
|
|
Current liabilities
|
140,596
|
|
|
Non-current liabilities excluding long-term debt
|
20,985
|
|
|
Reorganization value of successor assets
|
$
|
714,381
|
|
With the assistance of financial advisors, we determined the enterprise and corresponding equity value of the Successor by calculating the present value of future cash flows based on our financial projections. The enterprise value and corresponding equity value are dependent upon achieving the future financial results set forth in our valuations, as well as the realization of certain other assumptions. All estimates, assumptions, valuations and financial projections, including the fair value adjustments, the enterprise value and equity value projections, are inherently subject to significant uncertainties and the resolution of contingencies beyond our control. Accordingly, we cannot assure you that the estimates, assumptions, valuations or financial projections will be realized, and actual results could vary materially.
Valuation Process
The fair values of the Company’s principal assets, including drilling equipment, rental tools, real property, and intangible assets were estimated with the assistance of third party valuation advisors. The income approach, market approach, and the cost approach were considered for estimating the value of each individual asset. Although the income approach was not applied to value the machinery and equipment and real property assets individually, the Company did consider the earnings of the reporting unit within which each of these assets reside. Economic obsolescence related to machinery and equipment and real property was also considered and was applied to stacked and underutilized assets based upon the status of the asset. Economic obsolescence was also considered in situations in which the earnings of the applicable reporting unit in which the assets are employed suggest economic obsolescence. When penalizing assets for economic obsolescence, an additional economic obsolescence penalty was levied, while considering scrap value to be the floor value for an asset. Because more than one approach was used to develop a valuation, the various approaches were reconciled to determine a final value conclusion. The reorganization value was allocated to the Company’s individual assets and liabilities based on their fair values as follows:
Rig Materials and Supplies
The fair value of the rig materials and supplies was determined using the direct and indirect cost approaches. The rig materials and supplies were analyzed on a line-by-line basis and each asset was adjusted for age, physical depreciation, and obsolescence.
Property, Plant, and Equipment
Building, Land and Improvements
The fair value of the land assets was estimated using the sales comparison (market) approach, which involved gathering data on comparable sales and current listings of land in each subject market, then adjusting the unit price (per acre or per square foot) of each comparable for differences in market conditions, location, size, and other factors. A per unit value conclusion was then determined based on the adjusted prices of the comparable sales and listings. Fair value of buildings and improvements was estimated using the direct cost approach, in which the estimated replacement cost of new improvements was adjusted for accrued physical depreciation and any functional or external obsolescence. As a supporting approach, the total fair value of all real property assets for each location was estimated using the sales comparison (or market approach). Held for sale assets were included at their respective pending or listed prices. The fair value of the leasehold improvements was determined using the cost approach, adjusted as needed for asset type, age, physical deterioration and obsolescence.
Rental Tools
The fair value of the rental tools was determined using a combination of the cost approach and sales comparison (market) approach depending upon the asset type. The fair value utilizing the cost approach was adjusted as needed for asset type, age, physical deterioration, and obsolescence. For assets where an active secondary market exists, we utilized the sales comparison (market) approach to estimate the fair value of the assets, which involved gathering market data and analyzing comparable sales of similar assets.
Drilling Equipment
The fair value of the drilling equipment was determined using a combination of the discounted cash flow method (income approach), the cost approach, and the sales comparison (market) approach. The income approach was utilized to estimate the fair value of drilling equipment that generated positive returns on projected cash flows over the remaining economic useful life of the drilling equipment and compared to the fair value utilizing the cost approach, adjusted as needed for asset type, age, physical deterioration and obsolescence. For assets where an active secondary market exists, we utilized the sales comparison (market) approach to estimate the fair value of the assets, which involved gathering market data and analyzing comparable sales of similar assets.
Intangible Assets
We applied the income approach methodology to estimate the value of the customer relationships, trade names, and developed technology. We determined the value of the customer relationships based on the present value of the incremental after-tax cash flows attributable only to the intangible asset. The value of the trade names was estimated through the relief from royalty method based on the present value of the cost savings realized by the owner of the asset as a result of not having to pay a stream of royalty payments to another party. The cost savings were based on hypothetical royalty payments of 0.2 percent of revenue reflecting a rate in which an arm’s length buyer would typically pay for the use of such intangible assets. Similar to the methodology used to value the trade name, we determined the value of the developed technology using a hypothetical royalty payment of 1.0 percent of revenue to reflect the attributable cost savings. The present value of the after-tax cash flows for all the intangible assets were estimated based on a discount rate of 20.0 percent.
Successor Warrants
The fair value of the Successor warrants was estimated by applying a Black-Scholes-Merton (“BSM”) model. The BSM model is a pricing model used to estimate the theoretical price or fair value for a European-style call or put option/warrant based on current stock price, strike price, time to maturity, risk-free rate, volatility, and dividend yield.
Consolidated Balance Sheet
The adjustments included in the following fresh start consolidated balance sheet as of March 31, 2019 reflect the effects of the transactions contemplated by the Plan and executed by the Company on the Fresh Start Reporting Date (reflected in the column “Reorganization Adjustments”), and fair value and other required accounting adjustments resulting from the adoption of Fresh Start Accounting (reflected in the column “Fresh Start Adjustments”). The explanatory notes provide additional information with regard to the adjustments recorded, the methods used to determine the fair values and significant assumptions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
Predecessor
|
|
Reorganization Adjustments
|
|
Fresh Start Adjustments
|
|
Successor
|
|
ASSETS
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
51,777
|
|
|
$
|
76,072
|
|
(1)
|
$
|
—
|
|
|
$
|
127,849
|
|
|
Restricted cash
|
11,070
|
|
|
10,366
|
|
(2)
|
—
|
|
|
21,436
|
|
|
Accounts and notes receivable, net
|
168,444
|
|
|
—
|
|
|
—
|
|
|
168,444
|
|
|
Rig materials and supplies
|
39,024
|
|
|
—
|
|
|
(21,185
|
)
|
(15)
|
17,839
|
|
|
Deferred costs
|
3,718
|
|
|
—
|
|
|
(3,603
|
)
|
(16)
|
115
|
|
|
Other tax assets
|
2,725
|
|
|
—
|
|
|
—
|
|
|
2,725
|
|
|
Other current assets
|
25,501
|
|
|
(8,764
|
)
|
(3)
|
—
|
|
|
16,737
|
|
|
Total current assets
|
302,259
|
|
|
77,674
|
|
|
(24,788
|
)
|
|
355,145
|
|
|
Property, plant, and equipment, net
|
533,938
|
|
|
—
|
|
|
(229,968
|
)
|
(17)
|
303,970
|
|
|
Intangible assets, net
|
4,245
|
|
|
—
|
|
|
13,755
|
|
(18)
|
18,000
|
|
|
Deferred income taxes
|
2,518
|
|
|
—
|
|
|
1,751
|
|
(19)
|
4,269
|
|
|
Rig materials and supplies
|
10,703
|
|
|
|
|
|
(6,845
|
)
|
(20)
|
3,858
|
|
|
Other non-current assets
|
27,342
|
|
|
1,253
|
|
(4)
|
544
|
|
(20)
|
29,139
|
|
|
Total assets
|
$
|
881,005
|
|
|
$
|
78,927
|
|
|
$
|
(245,551
|
)
|
|
$
|
714,381
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Debtor in possession financing
|
$
|
10,000
|
|
|
$
|
(10,000
|
)
|
(5)
|
$
|
—
|
|
|
$
|
—
|
|
|
Accounts payable
|
68,633
|
|
|
—
|
|
|
—
|
|
|
68,633
|
|
|
Accrued liabilities
|
65,828
|
|
|
4,990
|
|
(6)
|
(3,868
|
)
|
(21)
|
66,950
|
|
|
Accrued income taxes
|
5,013
|
|
|
—
|
|
|
—
|
|
|
5,013
|
|
|
Total current liabilities
|
149,474
|
|
|
(5,010
|
)
|
|
(3,868
|
)
|
|
140,596
|
|
|
Long-term debt
|
—
|
|
|
210,000
|
|
(7)
|
—
|
|
|
210,000
|
|
|
Other long-term liabilities
|
20,901
|
|
|
—
|
|
|
(866
|
)
|
(22)
|
20,035
|
|
|
Long-term deferred tax liability
|
28,445
|
|
|
—
|
|
|
(27,495
|
)
|
(19)
|
950
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities not subject to compromise
|
198,820
|
|
|
204,990
|
|
|
(32,229
|
)
|
|
371,581
|
|
|
Liabilities subject to compromise
|
600,996
|
|
|
(600,996
|
)
|
(8)
|
—
|
|
|
—
|
|
|
Total liabilities
|
799,816
|
|
|
(396,006
|
)
|
|
(32,229
|
)
|
|
371,581
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Predecessor preferred stock
|
500
|
|
|
(500
|
)
|
(9)
|
—
|
|
|
—
|
|
|
Predecessor common stock
|
1,398
|
|
|
(1,398
|
)
|
(10)
|
—
|
|
|
—
|
|
|
Predecessor capital in excess of par value
|
767,793
|
|
|
(35,839
|
)
|
(11)
|
(731,954
|
)
|
(23)
|
—
|
|
|
Predecessor accumulated other comprehensive income (loss)
|
(7,256
|
)
|
|
—
|
|
|
7,256
|
|
(23)
|
—
|
|
|
Successor common stock
|
—
|
|
|
150
|
|
(12)
|
—
|
|
|
150
|
|
|
Successor capital in excess of par value
|
—
|
|
|
342,650
|
|
(13)
|
—
|
|
|
342,650
|
|
|
Retained earnings (accumulated deficit)
|
(681,246
|
)
|
|
169,870
|
|
(14)
|
511,376
|
|
(23)
|
—
|
|
|
Total stockholders’ equity
|
81,189
|
|
|
474,933
|
|
|
(213,322
|
)
|
|
342,800
|
|
|
Total liabilities and stockholders’ equity
|
$
|
881,005
|
|
|
$
|
78,927
|
|
|
$
|
(245,551
|
)
|
|
$
|
714,381
|
|
Reorganization Adjustments
|
|
|
|
(1)
|
Changes in cash and cash equivalents included the following:
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
|
Proceeds from the rights offering
|
$
|
95,000
|
|
|
Transfers from restricted cash for the return of cash collateral (for letters of credit)
|
10,433
|
|
|
Proceeds from refund of backstop commitment fee
|
7,600
|
|
|
Transfers from restricted cash for deposit releases
|
250
|
|
|
Transfers to restricted cash for funding of professional fees
|
(21,049
|
)
|
|
Payment of debtor in possession financing principal and interest
|
(10,035
|
)
|
|
Payment of professional fees
|
(5,154
|
)
|
|
Payment of debt issuance costs for the successor credit facility
|
(490
|
)
|
|
Payment of fees on letters of credit
|
(58
|
)
|
|
Payment of term loan agent fees
|
(50
|
)
|
|
Payment of other reorganization expenses
|
(375
|
)
|
|
Net change in cash and cash equivalents
|
$
|
76,072
|
|
|
|
|
|
(2)
|
Changes in restricted cash reflects the net transfer of cash between restricted cash and cash and cash equivalents.
|
|
|
|
|
(3)
|
Changes in other current assets include the following:
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
|
Refund of backstop commitment fee
|
$
|
(7,600
|
)
|
|
Elimination of predecessor directors and officers insurance policies
|
(702
|
)
|
|
Reclass of prepaid costs related to the successor credit facility
|
(488
|
)
|
|
Payment of other costs related to the successor credit facility
|
26
|
|
|
Net change in other current assets
|
$
|
(8,764
|
)
|
|
|
|
|
(4)
|
Changes in other non-current assets include the following:
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
|
Capitalization of debt issuance costs on the successor credit facility
|
$
|
765
|
|
|
Reclass of prepaid costs related to the successor credit facility
|
488
|
|
|
Net change in other non-current assets
|
$
|
1,253
|
|
|
|
|
|
(5)
|
Reflects the payment of debtor in possession financing principal.
|
|
|
|
|
(6)
|
Changes in accrued liabilities include the following:
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
|
Accrual of professional fees
|
$
|
7,100
|
|
|
Payment of professional fees
|
(2,017
|
)
|
|
Payment of debtor in possession financing interest
|
(35
|
)
|
|
Payment of letters of credit fees
|
(58
|
)
|
|
Net change in accrued liabilities
|
$
|
4,990
|
|
|
|
|
|
(7)
|
Changes in long-term debt include the issuance of the $210.0 million Term Loan.
|
|
|
|
|
(8)
|
Liabilities subject to compromise to be settled in accordance with the Plan and the resulting gain was determined as follows:
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
|
Liabilities subject to compromise
|
$
|
(600,996
|
)
|
|
Issuance of term loan
|
210,000
|
|
|
Issuance of successor common stock to the 7.50% note holders and 6.75% note holders
|
175,058
|
|
|
Excess fair value ascribed to lenders participating in equity rights offering
|
24,809
|
|
|
Gain on settlement of liabilities subject to compromise
|
$
|
(191,129
|
)
|
|
|
|
|
(9)
|
Changes in Predecessor Preferred Stock reflects the cancellation of Predecessor Preferred Stock.
|
|
|
|
|
(10)
|
Changes in Predecessor Common Stock reflects the cancellation of Predecessor Common Stock.
|
|
|
|
|
(11)
|
Changes in Predecessor capital in excess of par include the following:
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
|
Cancellation of predecessor preferred stock
|
$
|
500
|
|
|
Cancellation of predecessor common stock
|
1,398
|
|
|
Issuance of successor warrants to predecessor common stock and predecessor preferred stock holders
|
(14,687
|
)
|
|
Issuance of successor common stock to predecessor common stock and predecessor preferred stock holders
|
(4,950
|
)
|
|
Excess fair value ascribed to parties participating in rights offering, excluding lenders
|
(18,100
|
)
|
|
Net change in predecessor capital in excess of par value
|
$
|
(35,839
|
)
|
|
|
|
|
(12)
|
Changes in Successor Common Stock include the following:
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
|
Issuance of successor common stock to the 7.50% note holders and 6.75% note holders
|
$
|
80
|
|
|
Issuance of successor common stock pursuant to rights offering
|
68
|
|
|
Issuance of successor common stock to predecessor common stock and predecessor preferred stock holders
|
2
|
|
|
Net change in successor common stock
|
$
|
150
|
|
|
|
|
|
(13)
|
Change in Successor capital in excess of par value include the following:
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
|
Issuance of successor common stock to the 7.50% note holders and 6.75% note holders
|
$
|
174,978
|
|
|
Issuance of successor common stock pursuant to rights offering
|
148,874
|
|
|
Issuance of successor warrants to predecessor common stock and predecessor preferred stock holders
|
14,687
|
|
|
Issuance of successor common stock to predecessor common stock and predecessor preferred stock holders
|
4,948
|
|
|
Equity issuance costs
|
(837
|
)
|
|
Net change in successor capital in excess of par value
|
$
|
342,650
|
|
|
|
|
|
(14)
|
Changes in accumulated deficit include the following:
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
|
Gain on settlement of liabilities subject to compromise
|
$
|
191,129
|
|
|
Backstop premium on rights offering
|
(11,032
|
)
|
|
Accrual of professional fees
|
(5,988
|
)
|
|
Payment of professional fees
|
(3,137
|
)
|
|
Elimination of predecessor directors and officers insurance policies
|
(702
|
)
|
|
Payment of other reorganization items
|
(400
|
)
|
|
Net change in accumulated deficit
|
$
|
169,870
|
|
Fresh Start Accounting Adjustments
|
|
|
|
(15)
|
Changes in rig materials and supplies reflect the fair value adjustment due to the adoption of fresh start accounting.
|
|
|
|
|
(16)
|
Changes in deferred costs reflect the elimination of capitalized mobilization costs due to the adoption of fresh start accounting.
|
|
|
|
|
(17)
|
Changes in property, plant, and equipment, net reflects the fair value adjustment due to the adoption of fresh start accounting.
|
|
|
|
|
(18)
|
Changes in intangible assets, net reflects the fair value adjustment due to the adoption of fresh start accounting.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
Successor Fair Value
|
|
|
Predecessor Historical Book Value
|
|
Customer relationships
|
$
|
16,300
|
|
|
|
$
|
—
|
|
|
Trade names
|
1,500
|
|
|
|
368
|
|
|
Developed technology
|
200
|
|
|
|
3,877
|
|
|
Intangible assets, net
|
$
|
18,000
|
|
|
|
$
|
4,245
|
|
|
|
|
|
(19)
|
Changes in deferred income taxes reflects the adjustment due to the adoption of fresh start accounting.
|
|
|
|
|
(20)
|
Changes in rig materials and supplies and other non-current assets reflect the following:
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
|
Fair value adjustment to rig material and supplies
|
$
|
(6,845
|
)
|
|
Net change in rig materials and supplies
|
$
|
(6,845
|
)
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
|
Fair value adjustment to investment in non-consolidated subsidiaries
|
$
|
2,290
|
|
|
Fair value adjustment to long-term notes receivable
|
(272
|
)
|
|
Elimination of capitalized mobilization costs
|
(857
|
)
|
|
Elimination of long-term other deferred charges
|
(617
|
)
|
|
Net change in other non-current assets
|
$
|
544
|
|
|
|
|
|
(21)
|
Changes in accrued liabilities due to the adoption of fresh start accounting include the following:
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
|
Elimination of deferred rent
|
$
|
(1,100
|
)
|
|
Elimination of deferred revenue
|
(2,768
|
)
|
|
Net change in accrued liabilities
|
$
|
(3,868
|
)
|
|
|
|
|
(22)
|
Changes in other long-term liabilities reflects the elimination of deferred revenue due to the adoption of fresh start accounting.
|
|
|
|
|
(23)
|
Changes reflect the cumulative impact of fresh start accounting adjustments discussed above and the elimination of Predecessor accumulated other comprehensive loss and Predecessor accumulated deficit.
|
Note 4 - Property, Plant, and Equipment
The components of our property, plant, and equipment balance are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
Dollars in Thousands
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Property, plant, and equipment, at cost:
|
|
|
|
|
|
Drilling equipment
|
$
|
139,722
|
|
|
|
$
|
720,037
|
|
|
Rental tools
|
164,592
|
|
|
|
581,107
|
|
|
Building, land and improvements
|
25,636
|
|
|
|
58,193
|
|
|
Other
|
15,902
|
|
|
|
115,977
|
|
|
Construction in progress
|
10,078
|
|
|
|
10,855
|
|
|
Total property, plant, and equipment, at cost
|
355,930
|
|
|
|
1,486,169
|
|
|
Accumulated depreciation
|
(56,162
|
)
|
|
|
(951,798
|
)
|
|
Property, plant, and equipment, net
|
$
|
299,768
|
|
|
|
$
|
534,371
|
|
Depreciation expense related to property, plant, and equipment is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Nine Months Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Year Ended December 31,
|
|
Dollars in thousands
|
2019
|
|
|
2019
|
|
2018
|
|
Depreciation expense
|
$
|
57,174
|
|
|
|
$
|
24,525
|
|
|
$
|
105,239
|
|
Loss on impairment
There was no loss on impairment for the nine months ended December 31, 2019, or the three months ended March 31, 2019. Loss on impairment was $50.7 million for the year ended December 31, 2018. During the third quarter of 2018, we noted that historically, our barge rig utilization has trended closely with oil prices in periods of both decline and recovery. Management determined the divergence between oil prices and utilization for our Gulf of Mexico inland barge and international barge asset groups necessitated performance of a recoverability analysis for these two asset groups. Average quarterly oil prices have increased sequentially beginning in the third quarter of 2017, reaching an average quarterly 3-year high in the third quarter of 2018, while our utilization remained flat for the nine months ending September 30, 2018, as compared to the year ended December 31, 2018.
Based upon our recoverability analysis, where the carrying values exceeded both estimated future undiscounted cash flows and a subsequent aggregate fair value determination based upon a cost approach method, we determined the Gulf of Mexico inland barge and international barge asset groups were impaired. The significant unobservable inputs to the cost approach method included replacement costs and remaining economic life. See also Note 9 - Fair Value Measurements.
We estimated the fair values to be $19.7 million and $3.4 million for the Gulf of Mexico inland barge asset group and the international barge asset group, respectively for the year ended December 31, 2018. We recognized a pretax impairment loss of approximately $44.0 million in total, or $34.2 million and $9.8 million for the Gulf of Mexico inland barge asset group and the international barge asset group, respectively, for the year ended December 31, 2018. The Gulf of Mexico inland barge asset group is reported as part of the U.S. (lower 48) drilling segment and the international barge asset group is reported as part of the International & Alaska drilling segment.
Gain (loss) on disposition of assets, net
During the normal course of operations, we periodically sell equipment deemed excess, obsolete, or not currently required for operations. Net gains recorded on asset disposition were $0.2 million and $0.4 million for the nine months ended December 31, 2019, and the three months ended March 31, 2019, respectively, and a net loss of $1.7 million for the year ended December 31,
2018. The net gains for 2019 were primarily related to disposal of equipment deemed to be excess, obsolete, or not currently required for operations. The net loss for 2018 was primarily related to equipment that was deemed obsolete in the International & Alaska drilling segment and U.S. rental tools segment.
Note 5 - Intangible Assets
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
Balance at December 31, 2019
|
|
Dollars in thousands
|
Estimated Useful Life (Years)
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Customer relationships
|
3
|
|
$
|
16,300
|
|
|
$
|
(4,075
|
)
|
|
$
|
12,225
|
|
|
Trade names
|
5
|
|
1,500
|
|
|
(225
|
)
|
|
1,275
|
|
|
Developed technology
|
6
|
|
200
|
|
|
(25
|
)
|
|
175
|
|
|
Total intangible assets
|
|
|
$
|
18,000
|
|
|
$
|
(4,325
|
)
|
|
$
|
13,675
|
|
Amortization expense related to intangible assets is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Nine Months Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Year Ended December 31,
|
|
Dollars in thousands
|
2019
|
|
|
2019
|
|
2018
|
|
Amortization expense
|
$
|
4,325
|
|
|
|
$
|
577
|
|
|
$
|
2,306
|
|
Our remaining intangibles amortization expense for the next five years is presented below:
|
|
|
|
|
|
|
|
Dollars in thousands
|
Expected future intangible amortization expense
|
|
2020
|
$
|
5,766
|
|
|
2021
|
$
|
5,766
|
|
|
2022
|
$
|
1,693
|
|
|
2023
|
$
|
333
|
|
|
Beyond 2023
|
$
|
117
|
|
Note 6 - Operating Leases
We adopted the Accounting Standards Update (“ASU”) 2016-02, Leases (“Topic 842”) effective January 1, 2019. As lessee, our leasing activities primarily consist of operating leases for administrative offices, warehouses, oilfield services equipment, office equipment, computers and other items. Our leases have remaining lease terms of 1 year to 15 years, some of which include options to extend the leases for up to 20 years, and some of which include options to terminate the leases within 1 year.
We elected the following package of practical expedients permitted under the transition guidance:
|
|
|
|
•
|
an election to adopt the modified retrospective transition method applied at the beginning of the period of adoption, which does not require a restatement of the prior period. Accordingly, no cumulative-effect adjustment to retained earnings was made.
|
|
|
|
|
•
|
an election not to apply the recognition requirements in Topic 842 to short-term leases (initial lease term of 12 months or less) and recognize lease payments in the consolidated statement of operations. Short-term leases have not been recorded on the balance sheet.
|
|
|
|
|
•
|
a practical expedient to not reassess whether a contract is or contains a lease and carry forward its historical lease classification.
|
|
|
|
|
•
|
a practical expedient to account for the lease and non-lease components separately (except as discussed below).
|
|
|
|
|
•
|
a practical expedient to account for the lease and non-lease components as a single lease component for certain assets, by class of underlying asset.
|
We determine whether a contract is or contains a lease at its inception. Topic 842 requires lessees to recognize operating lease right-of-use assets and operating lease liabilities on the balance sheet. An operating lease right-of-use asset represents our right to use an underlying asset for the lease term and an operating lease liability represents our obligation to make lease payments arising from the lease. An operating lease right-of-use asset and operating lease liability are recognized at the commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The operating lease right-of-use assets also include any lease payments made and exclude lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise those options. The adoption of this standard resulted in the recording of operating lease right-of-use assets and operating lease liabilities of approximately $21.0 million as of January 1, 2019.
Supplemental lease information related to our operating leases as of December 31, 2019 is shown below:
|
|
|
|
|
|
|
|
|
Successor
|
|
Dollars in thousands
|
December 31,
2019
|
|
Operating lease right-of-use assets (1)
|
$
|
28,955
|
|
|
|
|
|
Operating lease liabilities - current (2)
|
9,946
|
|
|
Operating lease liabilities - noncurrent (3)
|
18,979
|
|
|
Total operating lease liabilities
|
$
|
28,925
|
|
|
|
|
|
Weighted average remaining lease term (in years)
|
8
|
|
|
Weighted average discount rate
|
8.5
|
%
|
|
|
|
|
(1)
|
This amount is included in other non-current assets in our consolidated balance sheet.
|
|
|
|
|
(2)
|
This amount is included in accounts payable and accrued liabilities in our consolidated balance sheet.
|
|
|
|
|
(3)
|
This amount is included in other long-term liabilities in our consolidated balance sheet.
|
Supplemental cash flow information related to leases are as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Nine Months Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Dollars in thousands
|
2019
|
|
|
2019
|
|
Cash paid for amounts included in the measurement of operating lease liabilities
|
$
|
7,969
|
|
|
|
$
|
2,967
|
|
|
Operating lease right-of-use assets obtained in exchange for lease obligations
|
$
|
14,852
|
|
|
|
$
|
238
|
|
Maturities of operating lease liabilities as of December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
Successor
|
|
Dollars in thousands
|
Operating
Leases
|
|
2020
|
$
|
10,375
|
|
|
2021
|
6,704
|
|
|
2022
|
3,823
|
|
|
2023
|
3,045
|
|
|
2024
|
2,017
|
|
|
Beyond 2024
|
15,372
|
|
|
Total undiscounted lease liability
|
41,336
|
|
|
Imputed interest
|
(12,411
|
)
|
|
Total operating lease liabilities
|
$
|
28,925
|
|
Future minimum operating lease payments as of December 31, 2018 were as follows:
|
|
|
|
|
|
|
|
|
Predecessor
|
|
Dollars in thousands
|
Operating
Leases
|
|
2019
|
$
|
10,722
|
|
|
2020
|
7,887
|
|
|
2021
|
4,193
|
|
|
2022
|
1,968
|
|
|
2023
|
1,540
|
|
|
Beyond 2023
|
636
|
|
|
Total lease payments
|
$
|
26,946
|
|
Lease expense for lease payments is recognized on a straight-line basis over the lease term. Expenses for operating leases are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Nine Months Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Dollars in thousands
|
2019
|
|
|
2019
|
|
Operating lease expense
|
$
|
8,408
|
|
|
|
$
|
3,074
|
|
|
Short-term lease expense
|
1,938
|
|
|
|
492
|
|
|
Variable lease expense
|
5,347
|
|
|
|
1,778
|
|
|
Total lease expense
|
$
|
15,693
|
|
|
|
$
|
5,344
|
|
As of December 31, 2019, we had $1.6 million of additional operating leases that have not yet commenced, primarily for administrative offices and warehouses. These leases will commence in 2020 with lease terms of approximately 2 years.
Note 7 - Supplementary Accrued Liabilities Information
The significant components of accrued liabilities on our consolidated balance sheets as of December 31, 2019 and 2018 are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
Dollars in Thousands
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Accrued payroll & related benefits
|
$
|
30,791
|
|
|
|
$
|
20,736
|
|
|
Operating lease liabilities - current
|
9,946
|
|
|
|
—
|
|
|
Accrued professional fees & other
|
8,776
|
|
|
|
9,578
|
|
|
Accrued interest expense
|
4,977
|
|
|
|
32
|
|
|
Deferred mobilization fees
|
1,858
|
|
|
|
4,082
|
|
|
Workers’ compensation liabilities, net
|
1,606
|
|
|
|
957
|
|
|
Total accrued liabilities
|
$
|
57,954
|
|
|
|
$
|
35,385
|
|
Note 8 - Debt
The following table illustrates the Company’s debt portfolio as of December 31, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
Dollars in thousands
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Successor credit facility
|
$
|
—
|
|
|
|
$
|
—
|
|
|
Successor term loan, due March 2024
|
177,937
|
|
|
|
—
|
|
|
Predecessor 6.75% senior notes, due July 2022
|
—
|
|
|
|
360,000
|
|
|
Predecessor 7.50% senior notes, due August 2020
|
—
|
|
|
|
225,000
|
|
|
Predecessor 2015 secured credit agreement
|
—
|
|
|
|
—
|
|
|
Total debt
|
$
|
177,937
|
|
|
|
$
|
585,000
|
|
Successor Credit Facility
On March 26, 2019, pursuant to the terms of the Plan, we and certain of our subsidiaries, entered into a credit agreement with the lenders party thereto (the “Credit Facility Lenders”), Bank of America, N.A., as administrative agent and Bank of America, N.A. and Deutsche Bank Securities Inc. as joint lead arrangers and joint bookrunners, providing for a revolving credit facility (as amended and restated by the Amended and Restated Credit Agreement (as defined below), the “Credit Facility”) with initial aggregate commitments in the amount of $50.0 million, guaranteed by certain of our subsidiaries. Availability under the Credit Facility is subject to a monthly borrowing base calculation and, prior to the Amended and Restated Credit Agreement, was based on eligible domestic rental equipment and eligible domestic accounts receivable. The Credit Facility provides for a $30.0 million sublimit of the aggregate commitments that is available for the issuance of letters of credit. Prior to the Amended and Restated Credit Agreement, the Credit Facility required us to maintain minimum liquidity of $25.0 million, defined as cash in our liquidity account not to exceed $10.0 million and availability under the borrowing base, allowed for an increase to the aggregate commitments by up to an additional $75.0 million, subject to certain conditions, matured on March 26, 2023, and bore interest either at a rate equal to:
|
|
|
|
•
|
LIBOR plus an applicable margin that varies from 2.25 percent to 2.75 percent per annum or
|
|
|
|
|
•
|
a base rate plus an applicable margin that varies from 1.25 percent to 1.75 percent per annum.
|
Prior to the Amended and Restated Credit Agreement, we were required to pay a commitment fee of 0.5 percent per annum on the actual daily unused portion of the current aggregate commitments under the Credit Facility. We are required to pay customary letter of credit and fronting fees under the Credit Facility.
The Credit Facility also contains customary affirmative and negative covenants, including, among other things, as to compliance with laws (including environmental laws and anti-corruption laws), delivery of quarterly and annual consolidated financial statements and monthly borrowing base certificates, conduct of business, maintenance of property, maintenance of insurance, restrictions on the incurrence of liens, indebtedness, asset dispositions, fundamental changes, restricted payments, and other customary covenants. Additionally, the Credit Facility contains customary events of default and remedies for credit
facilities of this nature. If we do not comply with the financial and other covenants in the Credit Facility, the Credit Facility Lenders may, subject to customary cure rights, require immediate payment of all amounts outstanding under the Credit Facility, and any outstanding unfunded commitments may be terminated. As of December 31, 2019, we were in compliance with all the financial covenants under the Credit Facility.
On October 8, 2019, we entered into an amended and restated credit agreement (the “Amended and Restated Credit Agreement”), which amended and restated the Credit Facility. As a result of the Amended and Restated Credit Agreement:
|
|
|
|
(1)
|
the Credit Facility matures on October 8, 2024, subject to certain restrictions, including the refinancing of the Company’s Term Loan Agreement (as defined below),
|
|
|
|
|
(2)
|
our annual borrowing costs under the Credit Facility are lowered by reducing
|
|
|
|
|
•
|
the interest rate to (a) LIBOR plus a range of 1.75 percent to 2.25 percent (based on availability) or (b) a base rate plus a range of 0.75 percent to 1.25 percent (based on availability), and
|
|
|
|
|
•
|
the unused commitment fee to a range of 0.25 percent to 0.375 percent (based on utilization),
|
|
|
|
|
(3)
|
a $25 million liquidity covenant was replaced with a minimum fixed charge coverage ratio requirement of 1.0x when excess availability is less than the greater of
|
|
|
|
|
•
|
20.0 percent of the lesser of commitments and the borrowing base and
|
|
|
|
|
(4)
|
an additional borrower was allowed to be included in the borrowing base upon completion of a field examination,
|
|
|
|
|
(5)
|
the calculation of the borrowing base was revised by, among other things, excluding eligible domestic rental equipment and including 90 percent of investment grade eligible domestic accounts receivable,
|
|
|
|
|
(6)
|
the Company was allowed to grant a second priority lien on non-working capital assets in the event of a refinancing of the Term Loan Agreement,
|
|
|
|
|
(7)
|
the amount allowed for an increase to the aggregate commitments was reduced from $75.0 million to $50.0 million, and
|
|
|
|
|
(8)
|
we were permitted to make a voluntary prepayment of $35.0 million on our Term Loan on September 20, 2019 without such prepayment being included in the calculation of our fixed charge coverage ratio.
|
As of December 31, 2019, the borrowing base availability under the Credit Facility was $40.2 million, which was further reduced by $9.3 million in supporting letters of credit outstanding, resulting in availability under the Credit Facility of $30.9 million. As of December 31, 2019, debt issuance costs of $1.5 million ($1.3 million, net of amortization) are being amortized over the term of the Credit Facility on a straight-line basis.
Successor Term Loan, Due March 2024
On March 26, 2019, pursuant to the terms of the Plan, we and certain of our subsidiaries entered into a second lien term loan credit agreement (the “Term Loan Agreement”) with the lenders party thereto (the “Term Loan Lenders”) and UMB Bank, N.A., as administrative agent, providing for term loans (the “Term Loan”) in the amount of $210.0 million, guaranteed by certain of our subsidiaries. The Term Loan matures on March 26, 2024.
The Term Loan bears interest at a rate of 13.0 percent per annum, payable quarterly on the first day of each January, April, July, and October, beginning July 1, 2019, with 11.0 percent paid in cash and 2.0 percent paid in kind and capitalized by adding such amount to the outstanding principal.
We may voluntarily prepay all or a part of the Term Loan and, under certain conditions we are required to prepay all or a part of the Term Loan, in each case, at a premium (1) on or prior to 6 months after the closing date of 0 percent; (2) from 6 months and on or prior to two years after the closing date of 6.50 percent; (3) from two years and on or prior to three years after the closing date of 3.25 percent; and (4) from three years after the closing date and thereafter of 0 percent.
On September 20, 2019, we made a voluntary prepayment on the Term Loan of $35.0 million in principal, plus $1.0 million in interest associated with the principal payment. Since the prepayment occurred within the first six months from the closing date, no premium was applicable on the prepayment. As of December 31, 2019, the Term Loan balance was $177.9 million.
The Term Loan is subject to mandatory prepayments and customary reinvestment rights. The mandatory prepayments include prepayment requirements with respect to a change of control, asset sales and debt issuances, in each case subject to certain exceptions or conditions. The Term Loan Agreement also contains customary affirmative and negative covenants, including as to compliance with laws (including environmental laws and anti-corruption laws), delivery of quarterly and annual financial statements, conduct of business, maintenance of property, maintenance of insurance, restrictions on the incurrence of liens, indebtedness, asset dispositions, fundamental changes, restricted payments and other customary covenants. Additionally, the Term Loan Agreement contains customary events of default and remedies for facilities of this nature. If we do not comply with the covenants in the Term Loan Agreement, the Term Loan Lenders may, subject to customary cure rights, require immediate payment of all amounts outstanding under the Term Loan Agreement. As of December 31, 2019, we were in compliance with all the financial covenants under the Term Loan Agreement.
Predecessor 6.75% Senior Notes, Due July 2022
On January 22, 2014, we issued $360.0 million aggregate principal amount of the 6.75% Notes pursuant to the 6.75% Notes Indenture. The 6.75% Notes were general unsecured obligations of the Company and ranked equal in right of payment with all of our existing and future senior unsecured indebtedness. The 6.75% Notes were jointly and severally guaranteed by all of our subsidiaries that guaranteed indebtedness under the Second Amended and Restated Senior Secured Credit Agreement, as amended from time-to-time (“2015 Secured Credit Agreement”) and our 7.50% Notes. Interest on the 6.75% Notes was payable on January 15 and July 15 of each year, beginning July 15, 2014. Debt issuance costs related to the 6.75% Notes were approximately $7.6 million. After the commencement of the Chapter 11 Cases, the carrying amount of debt was adjusted to the claim amount and all unamortized debt issuance costs prior to the commencement of the Chapter 11 Cases were fully expensed.
Predecessor 7.50% Senior Notes, Due August 2020
On July 30, 2013, we issued $225.0 million aggregate principal amount of the 7.50% Notes pursuant to the 7.50% Notes Indenture. The 7.50% Notes were general unsecured obligations of the Company and ranked equal in right of payment with all of our existing and future senior unsecured indebtedness. The 7.50% Notes were jointly and severally guaranteed by all of our subsidiaries that guaranteed indebtedness under the 2015 Secured Credit Agreement and the 6.75% Notes. Interest on the 7.50% Notes was payable on February 1 and August 1 of each year, beginning February 1, 2014. Debt issuance costs related to the 7.50% Notes were approximately $5.6 million. After the commencement of the Chapter 11 Cases, the carrying amount of debt was adjusted to the claim amount and all unamortized debt issuance costs prior to the commencement of the Chapter 11 Cases were fully expensed.
The commencement of the Chapter 11 Cases constituted an event of default that accelerated the Company’s obligations under the indentures governing the 6.75% Notes and the 7.50% Notes. However, any efforts to enforce such payment obligations were automatically stayed under the provisions of the Bankruptcy Code. The principal balance on the 6.75% Notes and 7.50% Notes of $360.0 million and $225.0 million, respectively, had been reclassed from long-term debt to liabilities subject to compromise as of December 31, 2018. See also Note 2 - Chapter 11 Emergence for further details.
As previously disclosed in our Current Report on Form 8-K filed with the SEC on March 26, 2019, our obligations with respect to the Senior Notes as well as our subsidiaries’ obligations under their respective guarantees under the 6.75% Notes Indenture and the 7.50% Notes Indenture (and the Senior Notes) were cancelled and extinguished as provided in the Plan. From and after March 26, 2019, neither the Company nor its subsidiaries have any continuing obligations under the 6.75% Notes Indenture and 7.50% Notes Indenture or with respect to the Senior Notes or the guarantees related thereto except to the extent specifically provided in the Plan.
Predecessor 2015 Secured Credit Agreement
On January 26, 2015, we entered into the 2015 Secured Credit Agreement. The 2015 Secured Credit Agreement was originally comprised of a $200.0 million revolving credit facility (the “Revolver”). The 2015 Secured Credit Agreement formerly included financial maintenance covenants, including a leverage ratio, consolidated interest coverage ratio, senior secured leverage ratio, and asset coverage ratio, many of which were suspended beginning in September 2015.
We executed various amendments which, among other things: (1) modified the credit facility to an asset-based lending structure, (2) reduced the size of the Revolver to $80.0 million, (3) eliminated the financial maintenance covenants previously in effect and replaced them with a minimum liquidity covenant of $30.0 million and a monthly borrowing base calculation, (4) allowed for the refinancing of our existing Senior Notes with either secured or unsecured debt, (5) added the ability for the Company to designate certain of its subsidiaries as “Designated Borrowers”, and (6) permitted the Company to make restricted payments in the form of certain equity interests.
On October 25, 2018, we entered into a Consent Agreement and a Cash Collateral Agreement, whereby we could open bank accounts not subject to the 2015 Secured Credit Agreement for the purpose of depositing cash to secure certain letters of credit. On October 30, 2018, we deposited $10.0 million into a cash collateral account to support the letters of credit outstanding, which is included in the restricted cash balance on the consolidated balance sheet as of December 31, 2018.
Our obligations under the 2015 Secured Credit Agreement were guaranteed by substantially all of our direct and indirect domestic subsidiaries, other than immaterial subsidiaries and subsidiaries generating revenues primarily outside the United States, each of which has executed guaranty agreements, and were secured by first priority liens on our accounts receivable, specified rigs including barge rigs in the Gulf of Mexico (“GOM”) and land rigs in Alaska, certain U.S.-based rental equipment of the Company and its subsidiary guarantors and the equity interests of certain of the Company’s subsidiaries. In addition to the liquidity covenant and borrowing base requirements, the 2015 Secured Credit Agreement contains customary affirmative and negative covenants, such as limitations on indebtedness and liens, and restrictions on entry into certain affiliate transactions and payments (including certain payments of dividends).
All of the Company’s obligations under the 2015 Secured Credit Agreement were paid prior to the commencement of the Chapter 11 Cases, and the 2015 Secured Credit Agreement, including the Revolver thereunder, was terminated concurrently with the commencement of the Chapter 11 Cases. See also Note 2 - Chapter 11 Emergence for further details. Unamortized debt issuance costs were fully expensed upon termination of the 2015 Secured Credit Agreement.
Supplemental cash flow information related to interest paid is as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Nine Months Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Year Ended December 31,
|
|
Dollars in thousands
|
2019
|
|
|
2019
|
|
2018
|
|
Interest paid
|
$
|
12,199
|
|
|
|
$
|
184
|
|
|
$
|
41,175
|
|
Note 9 - Fair Value Measurements
Certain of our assets and liabilities are required to be measured at fair value on a recurring basis. For purposes of recording fair value adjustments for certain financial and non-financial assets and liabilities, and determining fair value disclosures, we estimate fair value at a price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market for the asset or liability.
The fair value measurement and disclosure requirements of FASB ASC Topic No. 820, Fair Value Measurement and Disclosures requires inputs that we categorize using a three-level hierarchy, from highest to lowest level of observable inputs, as follows:
|
|
|
|
•
|
Level 1 — Unadjusted quoted prices for identical assets or liabilities in active markets;
|
|
|
|
|
•
|
Level 2 — Direct or indirect observable inputs, including quoted prices or other market data, for similar assets or liabilities in active markets or identical assets or liabilities in less active markets; and
|
|
|
|
|
•
|
Level 3 — Unobservable inputs that require significant judgment for which there is little or no market data.
|
When multiple input levels are required for a valuation, we categorize the entire fair value measurement according to the lowest level of input that is significant to the entire measurement even though we may also have utilized significant inputs that are more readily observable. The amounts reported in our consolidated balance sheets for cash and cash equivalents, restricted cash, accounts receivable, and accounts payable approximate fair value.
Fair value of our Term Loan is determined using Level 2 inputs. The Level 2 fair value was determined using a market approach by comparing secured debt of other companies in our industry that have a similar credit rating and debt amount. Fair value of our 6.75% Notes and 7.50% Notes was determined using Level 2 inputs.
Fair values and related carrying values of our debt instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Dollars in thousands
|
Carrying
Amount
|
|
Fair Value
|
|
|
Carrying
Amount
|
|
Fair Value
|
|
Successor term loan, due March 2024
|
$
|
177,937
|
|
|
$
|
194,712
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Predecessor 6.75% senior notes, due July 2022
|
—
|
|
|
—
|
|
|
|
360,000
|
|
|
180,000
|
|
|
Predecessor 7.50% senior notes, due August 2020
|
—
|
|
|
—
|
|
|
|
225,000
|
|
|
117,000
|
|
|
Total
|
$
|
177,937
|
|
|
$
|
194,712
|
|
|
|
$
|
585,000
|
|
|
$
|
297,000
|
|
In 2018, Property, Plant, and Equipment for the Gulf of Mexico inland barge and international barge asset groups were impaired and written down to their estimated fair values. The estimated fair value was determined using Level 3 inputs. See Note 4 - Property, Plant, and Equipment for further details.
Market conditions could cause an instrument to be reclassified from Level 1 to Level 2, or Level 2 to Level 3. There were no transfers between levels of the fair value hierarchy or any changes in the valuation techniques used during the year ended December 31, 2019.
Note 10 - Income Taxes
Income (loss) before income taxes is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Nine Months Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Year Ended December 31,
|
|
Dollars in thousands
|
2019
|
|
|
2019
|
|
2018
|
|
United States
|
$
|
(3,342
|
)
|
|
|
$
|
16,785
|
|
|
$
|
(145,954
|
)
|
|
Foreign
|
20,946
|
|
|
|
(106,377
|
)
|
|
(11,947
|
)
|
|
Income (loss) before income taxes
|
$
|
17,604
|
|
|
|
$
|
(89,592
|
)
|
|
$
|
(157,901
|
)
|
Income tax expense
Income tax expense (benefit) is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Nine Months Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Year Ended December 31,
|
|
Dollars in thousands
|
2019
|
|
|
2019
|
|
2018
|
|
Federal
|
$
|
(2,503
|
)
|
|
|
$
|
(364
|
)
|
|
$
|
(14
|
)
|
|
State
|
136
|
|
|
|
50
|
|
|
229
|
|
|
Foreign
|
7,557
|
|
|
|
2,655
|
|
|
8,010
|
|
|
Total current tax expense
|
5,190
|
|
|
|
2,341
|
|
|
8,225
|
|
|
Federal
|
5,163
|
|
|
|
—
|
|
|
—
|
|
|
State
|
635
|
|
|
|
—
|
|
|
—
|
|
|
Foreign
|
107
|
|
|
|
(1,685
|
)
|
|
(429
|
)
|
|
Total deferred tax expense (benefit)
|
5,905
|
|
|
|
(1,685
|
)
|
|
(429
|
)
|
|
Total income tax expense
|
$
|
11,095
|
|
|
|
$
|
656
|
|
|
$
|
7,796
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
63.0
|
%
|
|
|
(0.7
|
)%
|
|
(4.9
|
)%
|
Effective tax rate
The Company’s effective tax rate differs from the amount that would be computed by applying the U.S federal income tax rate of 21% to pre-tax income as a result of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Nine Months Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Year Ended
December 31,
|
|
|
2019
|
|
|
2019
|
|
2018
|
|
Dollars in thousands
|
Amount
|
|
% of Pre-Tax
Income
|
|
|
Amount
|
|
% of Pre-Tax
Income
|
|
Amount
|
|
% of Pre-Tax
Income
|
|
Income tax expense (benefit) at U.S. statutory rate
|
$
|
3,696
|
|
|
21.0
|
%
|
|
|
$
|
(18,814
|
)
|
|
21.0
|
%
|
|
$
|
(33,160
|
)
|
|
21.0
|
%
|
|
Foreign taxes
|
565
|
|
|
3.2
|
%
|
|
|
1,809
|
|
|
(2.0
|
)%
|
|
7,321
|
|
|
(4.6
|
)%
|
|
Tax effect different from statutory rates
|
472
|
|
|
2.7
|
%
|
|
|
11,125
|
|
|
(12.4
|
)%
|
|
(68
|
)
|
|
—
|
%
|
|
State taxes, net of federal benefit
|
305
|
|
|
1.7
|
%
|
|
|
5,036
|
|
|
(5.6
|
)%
|
|
(2,552
|
)
|
|
1.6
|
%
|
|
Change in valuation allowance
|
3,706
|
|
|
21.1
|
%
|
|
|
(98,856
|
)
|
|
110.3
|
%
|
|
28,353
|
|
|
(18.0
|
)%
|
|
Uncertain tax positions
|
(2,056
|
)
|
|
(11.7
|
)%
|
|
|
(940
|
)
|
|
1.1
|
%
|
|
(221
|
)
|
|
0.1
|
%
|
|
Permanent differences
|
421
|
|
|
2.4
|
%
|
|
|
20,543
|
|
|
(22.9
|
)%
|
|
8,008
|
|
|
(5.1
|
)%
|
|
Prior year adjustments
|
(331
|
)
|
|
(1.9
|
)%
|
|
|
4,535
|
|
|
(5.1
|
)%
|
|
50
|
|
|
—
|
%
|
|
Expiration/write-off of deferred tax assets
|
4,217
|
|
|
23.9
|
%
|
|
|
76,034
|
|
|
(84.9
|
)%
|
|
—
|
|
|
—
|
%
|
|
Other
|
100
|
|
|
0.6
|
%
|
|
|
184
|
|
|
(0.2
|
)%
|
|
65
|
|
|
0.1
|
%
|
|
Income tax expense
|
$
|
11,095
|
|
|
63.0
|
%
|
|
|
$
|
656
|
|
|
(0.7
|
)%
|
|
$
|
7,796
|
|
|
(4.9
|
)%
|
Supplemental cash flow information related to income taxes paid (net of refunds) are as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Nine Months Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Year Ended December 31,
|
|
Dollars in thousands
|
2019
|
|
|
2019
|
|
2018
|
|
Income taxes paid (net of refunds)
|
$
|
8,161
|
|
|
|
$
|
1,421
|
|
|
$
|
7,373
|
|
Deferred tax assets and deferred tax liabilities consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Year Ended December 31,
|
|
|
Year Ended December 31,
|
|
Dollars in thousands
|
2019
|
|
|
2018
|
|
Federal net operating loss (“NOL”) carryforwards
|
$
|
39,636
|
|
|
|
$
|
109,002
|
|
|
State NOL carryforwards
|
5,165
|
|
|
|
13,168
|
|
|
Property, plant, and equipment
|
8,458
|
|
|
|
—
|
|
|
Excess interest
|
—
|
|
|
|
6,230
|
|
|
Other state deferred tax asset, net
|
1,149
|
|
|
|
1,201
|
|
|
Foreign tax credits
|
—
|
|
|
|
46,913
|
|
|
FIN 48
|
126
|
|
|
|
887
|
|
|
Foreign tax
|
45,026
|
|
|
|
40,190
|
|
|
Accruals not currently deductible for tax purposes
|
1,990
|
|
|
|
3,119
|
|
|
Deferred compensation
|
1,107
|
|
|
|
816
|
|
|
Other
|
377
|
|
|
|
1,297
|
|
|
Total deferred tax assets
|
103,034
|
|
|
|
222,823
|
|
|
Valuation allowance
|
(91,117
|
)
|
|
|
(186,267
|
)
|
|
Total deferred tax assets, net of valuation allowance
|
11,917
|
|
|
|
36,556
|
|
|
Property, plant, and equipment
|
(9,353
|
)
|
|
|
(28,440
|
)
|
|
Foreign taxes
|
(942
|
)
|
|
|
(510
|
)
|
|
Other state deferred tax liability, net
|
(2,236
|
)
|
|
|
(5,096
|
)
|
|
Intangibles
|
(1,972
|
)
|
|
|
(877
|
)
|
|
Total deferred tax liabilities
|
(14,503
|
)
|
|
|
(34,923
|
)
|
|
Net deferred tax asset (liability)
|
$
|
(2,586
|
)
|
|
|
$
|
1,633
|
|
As part of the process of preparing the consolidated financial statements, the Company is required to determine its provision for income taxes. This process involves measuring temporary and permanent differences resulting from differing treatment of items for tax and accounting purposes. These differences and the NOL and tax credit carryforwards result in deferred tax assets and liabilities. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that all or a portion of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of appropriate character in each taxing jurisdiction during the periods in which those temporary differences become deductible. Management considers the weight of available evidence, both positive and negative, including the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax planning strategies in making this assessment. To the extent the Company believes that it does not meet the test that recovery is more likely than not, it establishes a valuation allowance. To the extent that the Company establishes a valuation allowance or changes this allowance in a period, it adjusts the tax provision or tax benefit in the consolidated statement of operations. We use our judgment in determining provisions or benefits for income taxes, and any valuation allowance recorded against previously established deferred tax assets. We have measured the value of our deferred tax assets for the year ended December 31, 2019 based on the cumulative weight of positive and negative evidence that exists as of the date of the consolidated financial statements. Should the cumulative weight of all available positive and negative evidence change in the forecast period, the expectation of realization of deferred tax assets existing as of December 31, 2019 and prospectively may change.
The Company has evaluated the impact of the reorganization, described in Note 2 - Chapter 11 Emergence, including the change in control, resulting from its emergence from bankruptcy. The Company estimates that the Successor Company will fully absorb the cancellation of debt income (“COD”) income, approximately $191.8 million, realized by the Predecessor in connection with the reorganization with its net operating losses and capital losses. The remaining NOL carryforward is limited under Internal Revenue Code (“IRC”) section 382 due to the change in control annual limitation, estimated to be $6.9 million for U.S. tax purposes. The deferred tax assets associated with foreign tax credits, NOL and capital loss carryforwards (federal and state) expected to expire due to section 382 annual limitations was written off as of December 31, 2019, and the remaining federal NOL balance at December 31, 2019 is $170.6 million. It is more likely than not that the Successor will not realize future income tax benefits related to its remaining U.S. net deferred tax asset based on historical results and expected market conditions known on the date of
measurement, and the Company has therefore maintained a full valuation allowance against the remaining U.S. net deferred tax asset. This is periodically reassessed and could change in the future.
In our valuation allowance, there was an increase of $3.7 million for the nine months ended December 31, 2019, primarily related to incremental U.S. and certain foreign net operating losses and other deferred tax assets. There was a decrease of $98.9 million for the three months ended March 31, 2019, primarily related to the utilization of NOL carryforwards to absorb COD income and the write-off of NOLs due to the Section 382 annual limitation (which required a corresponding reduction to the valuation allowance). In our valuation allowance there was an increase of $28.4 million for the year ended December 31, 2018 primarily related to U.S. and certain foreign net operating losses and other deferred tax assets.
As of December 31, 2019, the Company has permanently reinvested accumulated undistributed earnings of foreign subsidiaries and, therefore, has not recorded a deferred tax liability related to subject earnings. Upon distribution of additional earnings in the form of dividends or otherwise, we could be subject to income taxes and withholding taxes. It is not practicable to determine precisely the amount of taxes that may be payable on the eventual remittance of these earnings due to many factors, including application of foreign tax credits, levels of accumulated earnings and profits at the time of remittance, and the sources of earnings remitted. The Company generally does not provide for taxes related to its undistributed earnings because such earnings either would not be taxable when remitted or they are considered to be indefinitely reinvested. Taxes that would be incurred if the undistributed earnings of other subsidiaries were distributed to their ultimate parent company would not be material.
Uncertain tax positions
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
|
Balance at January 1, 2019 (Predecessor)
|
$
|
(5,728
|
)
|
|
Additions based on tax position taken during a prior period
|
(148
|
)
|
|
Additions based on tax positions taken during the current period
|
(158
|
)
|
|
Reductions related to a lapse of applicable statute of limitations
|
1,141
|
|
|
Balance at March 31, 2019 (Predecessor)
|
(4,893
|
)
|
|
|
|
|
|
|
|
Additions based on tax positions taken during a prior period
|
(252
|
)
|
|
Additions based on tax positions taken during the current period
|
(492
|
)
|
|
Reductions based on tax positions taken during a prior period
|
9
|
|
|
Reductions related to settlement of tax matters
|
310
|
|
|
Reductions related to a lapse of applicable statute of limitations
|
1,668
|
|
|
Balance at December 31, 2019 (Successor)
|
$
|
(3,650
|
)
|
In many cases, our uncertain tax positions are related to tax years that remain subject to examination by tax authorities. The following describes the open tax years, by major tax jurisdiction, as of December 31, 2019:
|
|
|
|
|
|
Canada
|
2016-present
|
|
Kazakhstan
|
2008-present
|
|
Mexico
|
2015-present
|
|
Russia
|
2015-present
|
|
United States — Federal
|
2008-present
|
|
United Kingdom
|
2017-present
|
We apply the accounting guidance related to accounting for uncertainty in income taxes. This guidance prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. Our liability for unrecognized tax benefits is primarily related to foreign operations, (all of which, if recognized, would favorably impact our effective tax rate). Unrecognized tax benefits and accrued interest and penalties related to uncertain tax positions was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
Dollars in thousands
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Liability for unrecognized tax benefits (1)
|
$
|
3,650
|
|
|
|
$
|
5,728
|
|
|
Accrued interest related to uncertain tax positions
|
$
|
600
|
|
|
|
$
|
833
|
|
|
Penalties related to uncertain tax positions
|
$
|
791
|
|
|
|
$
|
1,273
|
|
|
|
|
|
(1)
|
Our effective tax rate would be favorably impacted if the liability for unrecognized tax benefits is recognized.
|
Note 11 - Commitments and Contingencies
Self-Insurance
We are self-insured for certain losses relating to workers’ compensation, employers’ liability, general liability (for onshore liability), protection and indemnity (for offshore liability) and property damage. Our exposure (that is, the retention or deductible) per occurrence is $0.3 million for worker’s compensation and employer’s liability, and $0.5 million for general liability, protection and indemnity and maritime employers’ liability (Jones Act). There is no annual aggregate deductible for protection and indemnity and maritime employers’ liability claims. We also assume retention for foreign casualty exposures of $0.3 million for workers’ compensation, employers’ liability, and $1.0 million for general liability losses. We do not have any deductible for auto liability claims. For all primary insurances mentioned above, the Company has excess coverage for those claims that exceed the retention and annual aggregate deductible. We maintain actuarially-determined accruals in our consolidated balance sheets to cover the self-insurance retentions.
We have self-insured retentions for certain other losses relating to rig, equipment, property, business interruption and political, war, and terrorism risks which vary according to the type of rig and line of coverage. Political risk insurance is procured for international operations. However, this coverage may not adequately protect us against liability from all potential consequences.
Our gross self-insurance accruals for workers’ compensation, employers’ liability, general liability, protection and indemnity and maritime employers’ liability and the related insurance recoveries/receivables were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
Dollars in thousands
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Gross self-insurance accruals
|
$
|
4,345
|
|
|
|
$
|
2,397
|
|
|
Insurance recoveries/receivables
|
$
|
3,621
|
|
|
|
$
|
1,636
|
|
Other Commitments
We have entered into employment agreements with certain members of management with automatic one year renewal periods at expiration dates. The agreements provide for, among other things, compensation, benefits and severance payments. The employment agreements also provide for lump sum compensation and benefits in the event of termination within two years following a change in control of the Company.
Contingencies
We are a party to various lawsuits and claims arising out of the ordinary course of business. We estimate the range of our liability related to pending litigation when we believe the amount or range of loss can be estimated. We record our best estimate of a loss when the loss is considered probable. When a liability is probable and there is a range of estimated loss with no best estimate in the range, we record the minimum estimated liability related to the lawsuits or claims. As additional information becomes available, we assess the potential liability related to our pending litigation and claims and revise our estimates. Due to uncertainties related to the resolution of lawsuits and claims, the ultimate outcome may differ significantly from our estimates. In the opinion of management and based on liability accruals provided, our ultimate exposure with respect to these pending lawsuits and claims is not expected to have a material adverse effect on our consolidated balance sheet or consolidated statement of cash flows, although they could have a material adverse effect on our consolidated statement of operations for a particular reporting period.
Note 12 - Stock-Based Compensation
Predecessor Stock Plan
Stock-based compensation awards were granted to employees under the Predecessor’s 2010 Long-Term Incentive Plan, as amended and restated as of May 10, 2016 (the “Predecessor Stock Plan”). The Predecessor Stock Plan authorized the compensation committee or the board of directors to issue stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based awards, and other types of awards in cash or stock to key employees, consultants, and directors. The maximum number of shares of Predecessor Common Stock that may be delivered pursuant to the awards was 1,120,000. As of March 26, 2019, all unvested Predecessor stock-based awards were canceled.
Successor Stock Plan
Stock-based compensation awards were granted to employees under the Successor’s 2019 Long-Term Incentive Plan as of March 26, 2019 (the “Successor Stock Plan”). The Successor Stock Plan authorizes the compensation committee or the board of directors to issue stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based awards, and other types of awards in cash or stock to key employees, consultants, and directors. The maximum number of shares of Successor Common Stock that may be delivered pursuant to the awards granted was 1,487,905. As of December 31, 2019, there were 841,408 shares remaining under the Successor Stock Plan.
Stock-Based Awards
Stock-based awards generally vest over three years. Stock-based compensation expense is recognized net of an estimated forfeiture rate, which is based on historical experience and adjusted, if necessary, in subsequent periods based on actual forfeitures. Stock-based compensation expense and cash compensation paid to the respective employees is included in our consolidated statements of operations in general and administrative expense.
|
|
|
|
1.
|
Restricted stock units are service-based awards and entitle a grantee to receive a share of common stock on a specified vesting date. The grant-date fair market value of unvested units is determined based on the closing trading price of the Company’s shares on the grant date. These awards vest when earned at the end of the service or performance period which is generally 1 to 3 years. These awards are expensed ratably over the applicable vesting period and are settled in shares of our common stock upon vesting. These awards are considered equity awards.
|
|
|
|
|
2.
|
Time-based phantom stock units are service-based awards and represent the equivalent of one share of common stock as of the grant date. The value of these awards is based on the common stock price. These awards vest when earned at the end of the service period which is generally 1 to 3 years. These awards are expensed ratably over the applicable vesting period and are settled in cash upon vesting. These awards are classified as liability awards.
|
|
|
|
|
3.
|
Performance cash units are performance-based awards that contain payout conditions which are based on our performance against a group of selected peer companies with regard to relative return on capital employed over a three-year performance period. Each unit has a nominal value of $100.0. A maximum of 200.0 percent of the number of units granted may be earned if performance at the maximum level is achieved. These awards vest to the extent earned at the end of a three-year graded service period. These awards are expensed ratably over the applicable vesting period and are settled in cash upon vesting. These awards are classified as liability awards.
|
|
|
|
|
4.
|
Performance-based phantom stock units are performance-based awards denominated in a number of shares which contain payout conditions based on our performance against a group of selected peer companies with regard to relative total shareholder return over a three-year performance period. They represent a grant of hypothetical stock to the equivalent number of shares of common stock but, with the employee receiving cash upon vesting. We used a simulation-based option pricing approach to determine the fair value of these awards. A maximum of 250.0 percent of the number of units granted may be earned if performance at the maximum level is achieved. These awards vest to the extent earned at the end of the three-year performance period. These awards are expensed ratably over the applicable vesting period and are settled in cash upon vesting. These awards are classified as liability awards.
|
|
|
|
|
5.
|
Stock options are service-based awards and entitle a grantee the right to buy a share of common stock at a fixed price on a specified vesting date. The grant-date fair value of unvested units is determined using the Black-Scholes option pricing model. These awards vest to the extent earned at the end of a three-year graded service period and expire 10 years from the grant date. These awards are expensed ratably over the applicable vesting period and are settled in shares of our common stock upon vesting. These awards are considered equity awards.
|
Restricted Stock Units
The following table presents restricted stock units activity:
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units
|
|
Weighted Average
Grant-Date Fair Value
|
|
Unvested at January 1, 2018 (Predecessor)
|
302,338
|
|
|
$
|
27.10
|
|
|
Granted
|
107,863
|
|
|
$
|
12.51
|
|
|
Vested
|
(156,524
|
)
|
|
$
|
29.87
|
|
|
Forfeited
|
(18,079
|
)
|
|
$
|
23.82
|
|
|
Unvested at January 1, 2019 (Predecessor)
|
235,598
|
|
|
$
|
18.84
|
|
|
Vested
|
(556
|
)
|
|
$
|
20.75
|
|
|
Canceled
|
(235,042
|
)
|
|
$
|
18.80
|
|
|
Unvested at March 31, 2019 (Predecessor)
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
496,569
|
|
|
$
|
21.58
|
|
|
Vested
|
(49,407
|
)
|
|
$
|
19.45
|
|
|
Forfeited
|
(148,222
|
)
|
|
$
|
23.00
|
|
|
Unvested at December 31, 2019 (Successor)
|
298,940
|
|
|
$
|
20.97
|
|
The following table presents total expense recognized and value of the units vested:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
Dollars in Thousands except units issued
|
Nine Months Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Year Ended
December 31,
|
|
|
2019
|
|
|
2019
|
|
2018
|
|
Total expense (gain)
|
$
|
2,938
|
|
|
|
$
|
1,512
|
|
|
$
|
2,833
|
|
|
Total value of the units vested
|
$
|
961
|
|
|
|
$
|
12
|
|
|
$
|
4,675
|
|
Total unrecognized compensation cost related to unamortized units was $4.1 million as of December 31, 2019. The remaining unrecognized compensation cost related to non-vested units will be amortized over a weighted-average vesting period of approximately 27 months.
Time-based Phantom Stock Units
The following table presents time-based phantom stock units activity:
|
|
|
|
|
|
|
|
Time-based Phantom Stock Units
|
|
Unvested at January 1, 2018 (Predecessor)
|
68,759
|
|
|
Granted
|
106,530
|
|
|
Vested
|
(28,387
|
)
|
|
Forfeited
|
(4,117
|
)
|
|
Unvested at January 1, 2019 (Predecessor)
|
142,785
|
|
|
Canceled
|
(142,785
|
)
|
|
Unvested at March 31, 2019 (Predecessor)
|
—
|
|
|
|
|
|
|
|
|
Granted
|
248,022
|
|
|
Unvested at December 31, 2019 (Successor)
|
248,022
|
|
The following table presents total expense recognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Nine Months Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Year Ended
December 31,
|
|
Dollars in Thousands except units issued
|
2019
|
|
|
2019
|
|
2018
|
|
Total expense (gain)
|
$
|
581
|
|
|
|
$
|
(29
|
)
|
|
$
|
(261
|
)
|
Performance Cash Units
The following table presents performance cash units activity:
|
|
|
|
|
|
|
|
Performance Cash Units
|
|
Unvested at January 1, 2018 (Predecessor)
|
23,021
|
|
|
Granted
|
16,149
|
|
|
Vested
|
(10,771
|
)
|
|
Forfeited
|
(791
|
)
|
|
Unvested at January 1, 2019 (Predecessor)
|
27,608
|
|
|
Vested
|
(27,608
|
)
|
|
Unvested at March 31, 2019 (Predecessor)
|
—
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2019 (Successor)
|
—
|
|
The following table presents total expense recognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Nine Months Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Year Ended
December 31,
|
|
Dollars in Thousands except units issued
|
2019
|
|
|
2019
|
|
2018
|
|
Total expense (gain)
|
$
|
—
|
|
|
|
358
|
|
|
$
|
161
|
|
Performance-based Phantom Stock Units
The following table presents performance-based phantom stock units activity:
|
|
|
|
|
|
|
|
Performance-based Phantom Stock Units
|
|
Unvested at January 1, 2018 (Predecessor)
|
87,395
|
|
|
Granted
|
107,645
|
|
|
Vested
|
(48,937
|
)
|
|
Forfeited
|
(3,778
|
)
|
|
Unvested at January 1, 2019 (Predecessor)
|
142,325
|
|
|
Canceled
|
(142,325
|
)
|
|
Unvested at March 31, 2019 (Predecessor)
|
—
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2019 (Successor)
|
—
|
|
The following table presents total expense recognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Nine Months Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Year Ended
December 31,
|
|
Dollars in Thousands except units issued
|
2019
|
|
|
2019
|
|
2018
|
|
Total expense (gain)
|
$
|
—
|
|
|
|
$
|
3
|
|
|
$
|
(600
|
)
|
Stock Options
The value of stock option awards is determined using the Black-Scholes option pricing model with following assumptions:
|
|
|
|
|
|
|
Risk-free interest rate (U.S. Treasury yield curve)
|
2.2
|
%
|
|
Expected dividend yield
|
—
|
%
|
|
Expected volatility
|
51.5
|
%
|
|
Expected term (in years)
|
6
|
|
The following table presents stock options activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
Weighted Average
Grant-Date Fair Value
|
|
Weighted Average
Exercise Price
|
|
Weighted Average
Remaining Contractual Life (in years)
|
|
Aggregate
Intrinsic
Value (1)
|
|
Outstanding at April 1, 2019 (Successor)
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
Granted
|
520,483
|
|
|
$
|
11.06
|
|
|
$
|
23.00
|
|
|
8.7
|
|
|
$
|
—
|
|
|
Exercised
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
Forfeited
|
(222,333
|
)
|
|
$
|
11.65
|
|
|
$
|
23.00
|
|
|
9.2
|
|
|
$
|
—
|
|
|
Outstanding at December 31, 2019 (Successor)
|
298,150
|
|
|
$
|
10.63
|
|
|
$
|
23.00
|
|
|
8.4
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2019 (Successor)
|
74,111
|
|
|
$
|
7.54
|
|
|
$
|
23.00
|
|
|
4.2
|
|
|
$
|
—
|
|
|
|
|
|
(1)
|
Aggregate intrinsic value is calculated as the difference between our closing stock price at fiscal year-end and the exercise price, multiplied by the number of in-the-money options and represents the pre-tax amount that would have been received by the option holders, had they all exercised their options on the fiscal year-end date.
|
The following tables presents total expense recognized and value of the units vested:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Nine Months Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Dollars in Thousands except units issued
|
2019
|
|
|
2019
|
|
Total expense (gain)
|
$
|
1,753
|
|
|
|
$
|
—
|
|
|
Total value of the units vested
|
$
|
559
|
|
|
|
$
|
—
|
|
Total unrecognized compensation cost related to unamortized units was $1.3 million as of December 31, 2019. The remaining unrecognized compensation cost related to non-vested units will be amortized over a weighted-average vesting period of approximately 27 months.
Note 13 - Stockholders' Equity
Predecessor Dividends
On February 28, 2018, the Company declared a cash dividend of $1.8125 per share of our Predecessor Preferred Stock for the period beginning on December 31, 2017 and ending on March 30, 2018, which was paid on April 2, 2018 to holders of record of the Predecessor Preferred Stock as of March 15, 2018. On May 10, 2018, the Company declared a cash dividend of $1.8125 per share of our Predecessor Preferred Stock for the period beginning on March 31, 2018 and ending on June 29, 2018, which was paid on July 2, 2018 to holders of record of the Predecessor Preferred Stock as of June 15, 2018. On August 23, 2018, the Company declared a cash dividend of $1.8125 per share of our Predecessor Preferred Stock for the period beginning on June 30, 2018 and ending on September 29, 2018, which was paid on September 28, 2018 to holders of record of the Predecessor Preferred Stock as of September 15, 2018.
Stock Splits
On January 9, 2020, the Company held a special meeting of stockholders (the “Special Meeting”). At the Special Meeting, the holders of a majority of the Company’s issued and outstanding shares of common stock entitled to vote approved amendments to the Company’s certificate of incorporation, as amended (the “Certificate of Incorporation”), to effect a reverse stock split of the Company’s common stock (the “Reverse Stock Split”), followed immediately by a forward stock split of the Company’s
common stock (the “Forward Stock Split,” and together with the Reverse Stock Split, the “Stock Splits”), at a ratio (i) not less than 1-for-5 and not greater than 1-for-100, in the case of the Reverse Stock Split, and (ii) not less than 5-for-1 and not greater than 100-for-1, in the case of the Forward Stock Split. If the Stock Splits are effectuated, then as a result of the Stock Splits, a stockholder owning immediately prior to the effective time of the Reverse Stock Split fewer than a minimum number of shares, which, depending on the stock split ratios chosen by the Board, would be between 5 and 100, would be paid $30.00, without interest, for each share of common stock held by such holder immediately prior to the effective time. Cashed out stockholders would no longer be stockholders of the Company. On January 29, 2019, in connection with the anticipated Stock Splits, the Company filed a Form 25 with the Securities and Exchange Commission (the “SEC”) to voluntarily delist its common stock from trading on the New York Stock Exchange (“NYSE”) and to deregister its common stock under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The delisting occurred ten calendar days after the filing of the Form 25 so that trading was suspended on February 10, 2020, prior to the market opening. Following the delisting, the Company’s Board has continued to evaluate updated ownership data to ascertain the aggregate costs within the ranges of stock split ratios that the Company’s stockholders approved at the Special Meeting. Based upon this analysis, the Board will continue to consider the appropriate ratio to effectuate the Stock Splits. As previously disclosed, the Board, at its sole discretion, may elect to abandon the Stock Splits and the overall deregistration process for any reason, including if it determines that effectuating the Stock Splits would be too costly. Assuming the Board determines to proceed with the Stock Splits and the overall deregistration process, the Company will file with the State of Delaware certificates of amendment to the Company’s Certificate of Incorporation to effectuate the Stock Splits. Following the effectiveness of the Stock Splits, the Company will file a Form 15 with the SEC certifying that it has less than 300 stockholders, which will terminate the registration of the Company’s common stock under Section 12(g) of the Exchange Act. As a result, the Company would cease to file annual, quarterly, current, and other reports and documents with the SEC, and stockholders will cease to receive annual reports and proxy statements. Even if the Company effectuates the Stock Splits and terminates its registration under Section 12(g) of the Exchange Act, the Company intends to continue to prepare audited annual and unaudited quarterly financial statements and to make such information available to its stockholders on a voluntary basis. However, the Company would not be required to do so by law and there is no assurance that even if the Company did make such information available that it would continue to do so in the future.
Note 14 - Earnings (Loss) Per Share (EPS)
Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. The effects of dilutive securities such as Successor unvested restricted stock units, Successor unvested stock options, Successor warrants and Predecessor preferred stock are included in the diluted EPS calculation, when applicable. The number of outstanding dilutive securities can change with turnover of employees holding these securities.
The Successor unvested restricted stock units represent shares of Successor Common Stock that were issued upon emergence from bankruptcy under the 2019 Long Term Incentive Plan to certain employees. The Successor unvested stock options were issued upon emergence from bankruptcy under the 2019 Long Term Incentive Plan to certain employees and are convertible into one share each of Successor Common Stock at an exercise price of $23. The Successor warrants were issued upon emergence from bankruptcy and are initially convertible into one share each of Successor Common Stock at an initial exercise price of $48.85. See Note 2 - Chapter 11 Emergence for more details. The 500,000 units of Predecessor preferred stock were convertible into 47.6190 shares of Predecessor common stock for each Predecessor preferred stock for a total of 1,587,300 shares of Predecessor common stock.
The following table represents the computation of earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Nine Months Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Year Ended December 31,
|
|
Dollars in thousands, except per share amounts
|
|
2019
|
|
|
2019
|
|
2018
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders (numerator)
|
|
$
|
6,509
|
|
|
|
$
|
(90,248
|
)
|
|
$
|
(168,416
|
)
|
|
Denominator
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
15,044,919
|
|
|
|
9,368,322
|
|
|
9,311,722
|
|
|
Number of shares used for basic EPS computation
|
|
15,044,919
|
|
|
|
9,368,322
|
|
|
9,311,722
|
|
|
Basic earnings (loss) per common share
|
|
$
|
0.43
|
|
|
|
$
|
(9.63
|
)
|
|
$
|
(18.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Nine Months Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Year Ended December 31,
|
|
Dollars in thousands, except per share amounts
|
|
2019
|
|
|
2019
|
|
2018
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders (numerator)
|
|
$
|
6,509
|
|
|
|
$
|
(90,248
|
)
|
|
$
|
(168,416
|
)
|
|
Denominator
|
|
|
|
|
|
|
|
|
Number of shares used for basic EPS computation
|
|
15,044,919
|
|
|
|
9,368,322
|
|
|
9,311,722
|
|
|
Successor unvested restricted stock units
|
|
15,446
|
|
|
|
—
|
|
|
—
|
|
|
Successor unvested stock options
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
Successor warrants
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
Predecessor preferred stock
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
Number of shares used for diluted EPS computation
|
|
15,060,365
|
|
|
|
9,368,322
|
|
|
9,311,722
|
|
|
Diluted earnings (loss) per common share
|
|
$
|
0.43
|
|
|
|
$
|
(9.63
|
)
|
|
$
|
(18.09
|
)
|
The following shares were excluded from the computation of diluted EPS as such shares would be anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Nine Months Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Year Ended December 31,
|
|
|
2019
|
|
|
2019
|
|
2018
|
|
Successor unvested restricted stock units
|
283,494
|
|
|
|
—
|
|
|
—
|
|
|
Successor outstanding stock options
|
298,150
|
|
|
|
—
|
|
|
—
|
|
|
Successor warrants
|
2,580,182
|
|
|
|
—
|
|
|
—
|
|
|
Predecessor preferred stock
|
—
|
|
|
|
1,587,300
|
|
|
1,587,300
|
|
Note 15 - Revenue
The following table shows the Company’s revenues by type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
Dollars in thousands
|
Nine Months Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
|
2019
|
|
|
2019
|
|
Lease revenue
|
$
|
174,074
|
|
|
|
$
|
42,041
|
|
|
Service revenue
|
298,321
|
|
|
|
115,356
|
|
|
Total revenues
|
$
|
472,395
|
|
|
|
$
|
157,397
|
|
Our business is comprised of two business lines: (1) rental tools services and (2) drilling services. See Note 17 - Reportable Segments for further details on these business lines and revenue disaggregation amounts.
Lease Revenue
We adopted Topic 842 effective January 1, 2019. For a lessor, lease revenue recognition begins at the commencement of the lease date, which is defined as the date on which a lessor makes an underlying asset available for use by the lessee. Any pre-commencement payments (e.g. mobilization) are deferred. Subsequently, any lease payments (i.e. related to any fixed consideration received) are recorded as receivables when due and payable by the lessee. All of our lease revenue is from variable lease payments. Variable lease payments are recognized as income in profit or loss as the variability is resolved (i.e. as performance or use of the asset occurs).
We elected the following package of practical expedients permitted under the transition guidance:
|
|
|
|
•
|
an election to adopt the modified retrospective transition method applied at the beginning of the period of adoption which does not require a restatement of the prior period. Accordingly, no cumulative-effect adjustment to retained earnings was made.
|
|
|
|
|
•
|
a practical expedient to not reassess whether a contract is or contains a lease and carry forward its historical lease classification.
|
|
|
|
|
•
|
a practical expedient to account as a single performance obligation entirely depending on predominant component(s) i.e. lease or non-lease component. Revenue is recognized under Topic 842, if the lease component is predominant. Similarly, revenue is recognized under ASU 2014-09, Revenue from Contracts with Customers (“Topic 606”) if the non-lease component is predominant.
|
Our lease revenue comes from rental tools services business and drilling services business as described below.
Rental Tools Services Business
Dayrate Revenues
Our rental tools services contracts generally provide for payment on a dayrate basis depending on the rate for the tool defined in the contract.
Such dayrate consideration is allocated to the distinct daily increment it relates to within the contract term, and therefore, recognized in line with the contractual rate billed for the services provided for any given day.
Drilling Services Business
Dayrate Revenues
Our drilling services contracts generally provide for payment on a dayrate basis, with higher rates for periods when the drilling unit is operating and lower rates or zero rates for periods when drilling operations are interrupted or restricted. The dayrate invoices billed to the customer are typically determined based on the varying rates applicable to the specific activities performed on an hourly basis.
Such dayrate consideration is allocated to the distinct hourly increment to which it relates within the contract term, and therefore, recognized in line with the contractual rate billed for the services provided for any given hour.
Mobilization Revenues
We may receive fees (on either a fixed lump-sum or variable dayrate basis) for the mobilization of our rigs.
These activities are not considered to be distinct within the context of the contract and therefore, the associated revenues are allocated to the overall performance obligation and typically recognized ratably over the initial term of the related drilling contract. We record a contract liability for mobilization fees received, which is typically amortized ratably to revenue as services are rendered over the initial term of the related drilling contract. The amortized amount is adjusted accordingly if the term of the initial contract is extended.
Service Revenue
We adopted Topic 606 effective January 1, 2018, using the modified retrospective implementation method. Accordingly, we have applied the five-step method outlined in Topic 606 for determining when and how revenue is recognized to all contracts that were not completed as of the date of adoption. Revenues for reporting periods beginning as of January 1, 2018 are presented under Topic 606, while prior period amounts have not been adjusted and continue to be reported under the previous revenue recognition guidance. For contracts that were modified before the effective date, we have considered the modification guidance within the new standard and determined that the revenue recognized and contract balances recorded prior to adoption for such contracts were not impacted. While Topic 606 requires additional disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, its adoption has not had a material impact on the measurement or recognition of our revenues. As part of the adoption, no adjustments were needed to the consolidated balance sheets, statements of operations and statements of cash flows.
Our rental tools and drilling services provided under each contract is a single performance obligation satisfied over time and comprised of a series of distinct time increments, or service periods. Total revenue is determined for each individual contract by estimating both fixed and variable consideration expected to be earned over the contract term. Fixed consideration generally relates to activities that are not distinct within the context of our contracts and is recognized on a straight-line basis over the contract term. Variable consideration generally relates to distinct service periods during the contract term and are recognized in the period when the services are performed. Our contract terms generally range from 2 to 60 months.
The amount estimated for variable consideration may be constrained (reduced) and is only recognized as revenue to the extent that it is probable that a significant reversal of previously recognized revenue will not occur during the contract term. When determining if variable consideration should be constrained, management considers whether there are factors outside the Company’s control that could result in a significant reversal of revenue as well as the likelihood and magnitude of a potential reversal of revenue. These estimates are re-assessed each reporting period as required. Accounts receivable are recognized when the right to consideration becomes unconditional based upon contractual billing schedules. Payment terms on invoiced amounts are typically 30 days.
Rental Tools Services Business
Dayrate Revenues
Our rental tools services contracts generally provide for payment on a dayrate basis depending on the rate for the tool defined in the contract.
Such dayrate consideration is allocated to the distinct daily increment it relates to within the contract term, and therefore, recognized in line with the contractual rate billed for the services provided for any given day.
Drilling Services Business
Dayrate Revenues
Our drilling services contracts generally provide for payment on a dayrate basis, with higher rates for periods when the drilling unit is operating and lower rates or zero rates for periods when drilling operations are interrupted or restricted. The dayrate invoices billed to the customer are typically determined based on the varying rates applicable to the specific activities performed on an hourly basis.
Such dayrate consideration is allocated to the distinct hourly increment to which it relates within the contract term, and therefore, recognized in line with the contractual rate billed for the services provided for any given hour.
Mobilization Revenues
We may receive fees (on either a fixed lump-sum or variable dayrate basis) for the mobilization of our rigs.
These activities are not considered to be distinct within the context of the contract and therefore, the associated revenues are allocated to the overall performance obligation and typically recognized ratably over the initial term of the related drilling
contract. We record a contract liability for mobilization fees received, which is typically amortized ratably to revenue as services are rendered over the initial term of the related drilling contract. The amortized amount is adjusted accordingly if the term of the initial contract is extended.
Capital Modification Revenues
We may, from time to time, receive fees from our customers for capital improvements to our rigs to meet contractual requirements (on either a fixed lump-sum or variable dayrate basis).
Such revenues are allocated to the overall performance obligation and typically recognized ratably over the initial term of the related drilling contract as these activities are not considered to be distinct within the context of our contracts. A contract liability is recorded for such fees when received.
Demobilization Revenues
We may receive fees (on either a fixed lump-sum or variable dayrate basis) for the demobilization of our rigs.
Due to the inherent uncertainty regarding the realization, we have elected to not recognize demobilization revenues until the uncertainty is resolved. Therefore, demobilization revenues are recognized once the related performance obligations have been completed.
Reimbursable Revenues
We generally receive reimbursements from our customers for the purchase of supplies, equipment, personnel services and other services provided at their request in accordance with a drilling contract or other agreement.
Such reimbursable revenues are variable and subject to uncertainty, as the amounts received and timing thereof is highly dependent on factors outside of our control. Accordingly, reimbursable revenues are not included in the total transaction price until the uncertainty is resolved, which typically occurs when the related costs are incurred on behalf of a customer. We are generally considered a principal in such transactions and record the associated revenues at the gross amount billed to the customer in our consolidated statements of operations. Such amounts are recognized once the services have been performed.
Reimbursable revenues during the period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Nine Months Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Year Ended December 31,
|
|
Dollars in thousands
|
2019
|
|
|
2019
|
|
2018
|
|
Reimbursable revenue
|
$
|
70,174
|
|
|
|
$
|
28,541
|
|
|
$
|
54,620
|
|
Contract Costs
The following is a description of the different costs that we may incur for our contracts:
Mobilization Costs
These costs include certain direct and incremental costs incurred for mobilization of contracted rigs. These costs relate directly to a contract, enhance resources of the Company that will be used in satisfying its performance obligations in the future and are expected to be recovered. These costs are capitalized when incurred as a current or noncurrent asset (depending on the length of the initial contract term), and are typically amortized over the initial term of the related drilling contract. Current and non-current capitalized mobilization costs are included in other current assets and other non-current assets, respectively, on our consolidated balance sheet.
Capitalized mobilization costs were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
Dollars in thousands
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Capitalized mobilization costs
|
$
|
5,376
|
|
|
|
$
|
5,343
|
|
There was no impairment loss in relation to capitalized costs. Amortization of these capitalized mobilization costs were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Nine Months Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Year Ended December 31,
|
|
Dollars in thousands
|
2019
|
|
|
2019
|
|
2018
|
|
Amortization of capitalized mobilization costs
|
$
|
1,541
|
|
|
|
$
|
3,066
|
|
|
$
|
6,648
|
|
Demobilization Costs
These costs are incurred for the demobilization of rigs at contract completion and are recognized as incurred during the demobilization process.
Capital Modification Costs
These costs are incurred for rig modifications or upgrades required for a contract, which are considered to be capital improvements, are capitalized as property, plant, and equipment and depreciated over the estimated useful life of the improvement.
Contract Liabilities
The following table provides information about contract liabilities from contracts with customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
Dollars in thousands
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Contract liabilities - current (Deferred revenue) (1)
|
$
|
1,920
|
|
|
|
$
|
4,081
|
|
|
Contract liabilities - noncurrent (Deferred revenue) (1)
|
531
|
|
|
|
2,441
|
|
|
Total contract liabilities
|
$
|
2,451
|
|
|
|
$
|
6,522
|
|
|
|
|
|
(1)
|
Contract liabilities - current and contract liabilities - noncurrent are included in accrued liabilities and other long-term liabilities, respectively, in our consolidated balance sheet as of December 31, 2019 and December 31, 2018.
|
Contract liabilities relate to mobilization revenues and capital modification revenues, where, we have unconditional right to cash or cash has been received but performance obligations have not been fulfilled. These liabilities are reduced and revenue is recognized as performance obligations are fulfilled.
Significant changes to contract liabilities balances during the nine months ended December 31, 2019 are shown below:
|
|
|
|
|
|
|
|
Dollars in thousands
|
Contract Liabilities
|
|
Balance at December 31, 2018 (Predecessor)
|
$
|
6,522
|
|
|
Decrease due to recognition of revenue
|
(1,451
|
)
|
|
Increase to deferred revenue during current period
|
1,635
|
|
|
Elimination of deferred revenue due to the adoption of fresh start accounting
|
(3,634
|
)
|
|
Balance at March 31, 2019 (Predecessor)
|
3,072
|
|
|
|
|
|
|
|
|
Decrease due to recognition of revenue
|
(7,198
|
)
|
|
Increase to deferred revenue during current period
|
6,577
|
|
|
Balance at December 31, 2019 (Successor)
|
$
|
2,451
|
|
Transaction Price Allocated to the Remaining Performance Obligations
The following table includes revenues expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Balance at December 31, 2019
|
|
Dollars in thousands
|
2020
|
|
2021
|
|
2022
|
|
Beyond 2022
|
|
Total
|
|
Deferred lease revenue
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
Deferred service revenue
|
$
|
1,920
|
|
|
531
|
|
|
—
|
|
|
—
|
|
|
$
|
2,451
|
|
The revenues included above consist of mobilization and capital modification revenues for both wholly and partially unsatisfied performance obligations, which have been estimated for purposes of allocating across the entire corresponding performance obligations. The amounts are derived from the specific terms within contracts that contain such provisions, and the expected timing for recognition of such revenue is based on the estimated start date and duration of each respective contract based on information known at December 31, 2019. The actual timing of recognition of such amounts may vary due to factors outside of our control. We have applied the disclosure practical expedient in FASB ASC Topic No. 606-10-50-14A(b) and have not included estimated variable consideration related to wholly unsatisfied performance obligations or to distinct future time increments within our contracts.
Note 16 - Employee Benefit Plan
The Company sponsors a defined contribution 401(k) plan (the “401(k) Plan”) in which substantially all U.S. employees are eligible to participate. During 2019 and 2018 the Company matched 25.0 percent of each participant’s pre-tax contributions in an amount not exceeding 6.0 percent of the participant’s compensation, up to the maximum amount of contributions allowed by law. Starting January 2020, the Company will match 100.0 percent of each participant’s pre-tax contributions in an amount not exceeding 5.0 percent of the participant’s compensation. 401(k) Plan participants hired prior to July 2017 become 100.0 percent vested immediately in the Company’s matching contributions, and 401(k) Plan participants hired after July 2017 become vested on a pro-rata basis over three years.
The costs of matching contributions to the 401(k) Plan were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Nine Months Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Year Ended December 31,
|
|
Dollars in thousands
|
2019
|
|
|
2019
|
|
2018
|
|
401(k) Plan matching contributions expense
|
$
|
639
|
|
|
|
$
|
179
|
|
|
$
|
642
|
|
Note 17 - Reportable Segments
Our business is comprised of two business lines: (1) rental tools services and (2) drilling services. We report our rental tools services business as two reportable segments: (1) U.S. rental tools and (2) International rental tools. We report our drilling services business as two reportable segments: (1) U.S. (lower 48) drilling and (2) International & Alaska drilling.
Within the four reportable segments, we have one business unit under U.S. rental tools, one business unit under International rental tools, one business unit under U.S. (lower 48) drilling, and we aggregate our Arctic, Eastern Hemisphere, and Latin America business units under International & Alaska drilling, for a total of six business units. The Company has aggregated each of its business units in one of the four reporting segments based on the guidelines of the FASB ASC Topic No. 280, Segment Reporting. We eliminate inter-segment revenues and expenses. We disclose revenues under the four reportable segments based on the similarity of the use and markets for the groups of products and services within each segment.
Rental Tools Services Business
In our rental tools services business, we provide premium rental equipment and services to exploration & production companies, drilling contractors, and service companies on land and offshore in the U.S. and select international markets. Tools we provide include standard and heavy-weight drill pipe, all of which are available with standard or high-torque connections, tubing, drill collars, pressure control equipment, including blowout preventers, and more. We also provide well construction services, which includes tubular running services and downhole tool rentals, well intervention services, which includes whipstocks, fishing, and related services, as well as inspection and machine shop support. Rental tools are used during drilling and/or workover programs and are requested by the customer as needed, requiring us to keep a broad inventory of rental tools in stock. Rental tools are usually rented on a daily or monthly basis.
U.S. Rental Tools
Our U.S. rental tools segment maintains an inventory of rental tools for deepwater drilling, completion, workover, and production applications at facilities in Louisiana, Texas, Wyoming, North Dakota, and West Virginia. We also provide well construction and well intervention services. Our largest single market for rental tools is U.S. land drilling, a cyclical market driven primarily by oil and natural gas prices and our customers’ access to project financing. A portion of our U.S. rental tools business supplies tubular goods and other equipment to offshore GOM customers.
International Rental Tools
Our International rental tools segment maintains an inventory of rental tools and provides well construction, well intervention, and surface and tubular services to our customers in the Middle East, Latin America, Europe, and Asia-Pacific regions.
Drilling Services Business
In our drilling services business, we drill oil, natural gas, and geothermal wells for customers globally. We provide this service with both Company-owned rigs and customer-owned rigs. We refer to the provision of drilling services with customer-owned rigs as our operations and management (“O&M”) service in which our customers own their drilling rigs, but choose Parker to operate and manage the rigs for them. The nature and scope of activities involved in drilling a well is similar whether it is drilled with a Company-owned rig (as part of a traditional drilling contract) or a customer-owned rig (as part of an O&M contract). In addition, we provide project-related services, such as engineering, procurement, project management, commissioning of customer-owned drilling rig projects, operations execution, and quality and safety management. We have extensive experience and expertise in drilling geologically challenging wells and in managing the logistical and technological challenges of operating in remote, harsh, and ecologically sensitive areas.
U.S. (lower 48) Drilling
Our U.S. (lower 48) drilling segment provides drilling services with our GOM barge drilling rig fleet and markets our U.S. (lower 48) based O&M services. We also provide O&M services for a customer-owned rig offshore California. Our GOM barge rigs drill for oil and natural gas in shallow waters in and along the inland waterways and coasts of Louisiana, Alabama, and Texas. The majority of these wells are drilled in shallow water depths ranging from 6 to 12 feet. Our rigs are suitable for a variety of drilling programs, from inland coastal waters requiring shallow draft barges, to open water drilling in both state and federal waters. Contract terms typically consist of well-to-well or multi-well programs, most commonly ranging from 20 to 180 days.
International & Alaska Drilling
Our International & Alaska drilling segment provides drilling services, using both Company-owned rigs and O&M contracts, and project-related services. The drilling markets in which this segment operates have one or more of the following characteristics:
|
|
|
|
•
|
customers typically are major, independent, or national oil and natural gas companies or integrated service providers;
|
|
|
|
|
•
|
drilling programs in remote locations with little infrastructure, requiring a large inventory of spare parts and other ancillary equipment and self-supported service capabilities;
|
|
|
|
|
•
|
complex wells and/or harsh environments (such as high pressures, deep depths, hazardous or geologically challenging conditions and sensitive environments) requiring specialized equipment and considerable experience to drill; and
|
|
|
|
|
•
|
O&M contracts that generally cover periods of one year or more.
|
We have rigs under contract in Alaska, Kazakhstan, the Kurdistan region of Iraq, Guatemala, Mexico, and on Sakhalin Island, Russia. In addition, we have O&M and ongoing project-related services for customer-owned rigs in Alaska, Kuwait, Canada, Indonesia, and on Sakhalin Island, Russia.
The following table represents the results of operations by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Nine Months Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Year Ended December 31,
|
|
Dollars in thousands
|
2019
|
|
|
2019
|
|
2018
|
|
Revenues: (1)
|
|
|
|
|
|
|
|
U.S. rental tools
|
$
|
144,698
|
|
|
|
$
|
52,595
|
|
|
$
|
176,531
|
|
|
International rental tools
|
71,292
|
|
|
|
21,109
|
|
|
79,150
|
|
|
Total rental tools services
|
215,990
|
|
|
|
73,704
|
|
|
255,681
|
|
|
U.S. (lower 48) drilling
|
36,710
|
|
|
|
6,627
|
|
|
11,729
|
|
|
International & Alaska drilling
|
219,695
|
|
|
|
77,066
|
|
|
213,411
|
|
|
Total drilling services
|
256,405
|
|
|
|
83,693
|
|
|
225,140
|
|
|
Total revenues
|
$
|
472,395
|
|
|
|
$
|
157,397
|
|
|
$
|
480,821
|
|
|
Operating gross margin: (2)
|
|
|
|
|
|
|
|
U.S. rental tools
|
$
|
38,054
|
|
|
|
$
|
17,289
|
|
|
$
|
44,512
|
|
|
International rental tools
|
4,633
|
|
|
|
(3,581
|
)
|
|
(11,684
|
)
|
|
Total rental tools services
|
42,687
|
|
|
|
13,708
|
|
|
32,828
|
|
|
U.S. (lower 48) drilling
|
2,189
|
|
|
|
(1,508
|
)
|
|
(15,720
|
)
|
|
International & Alaska drilling
|
11,845
|
|
|
|
(776
|
)
|
|
(21,936
|
)
|
|
Total drilling services
|
14,034
|
|
|
|
(2,284
|
)
|
|
(37,656
|
)
|
|
Total operating gross margin
|
56,721
|
|
|
|
11,424
|
|
|
(4,828
|
)
|
|
General and administrative expense
|
(17,967
|
)
|
|
|
(8,147
|
)
|
|
(24,545
|
)
|
|
Loss on impairment
|
—
|
|
|
|
—
|
|
|
(50,698
|
)
|
|
Gain (loss) on disposition of assets, net
|
226
|
|
|
|
384
|
|
|
(1,724
|
)
|
|
Pre-petition restructuring charges
|
—
|
|
|
|
—
|
|
|
(21,820
|
)
|
|
Reorganization items
|
(1,173
|
)
|
|
|
(92,977
|
)
|
|
(9,789
|
)
|
|
Total operating income (loss)
|
37,807
|
|
|
|
(89,316
|
)
|
|
(113,404
|
)
|
|
Interest expense
|
(20,902
|
)
|
|
|
(274
|
)
|
|
(42,565
|
)
|
|
Interest income
|
887
|
|
|
|
8
|
|
|
91
|
|
|
Other
|
(188
|
)
|
|
|
(10
|
)
|
|
(2,023
|
)
|
|
Income (loss) before income taxes
|
$
|
17,604
|
|
|
|
$
|
(89,592
|
)
|
|
$
|
(157,901
|
)
|
|
|
|
|
(1)
|
For the nine months ended December 31, 2019, our largest customer, ENL, constituted approximately 29.3 percent of our total consolidated revenues and approximately 62.9 percent of our International & Alaska drilling segment revenues. Excluding reimbursable revenues of $63.2 million, ENL constituted approximately 18.6 percent of our total consolidated revenues and approximately 48.8 percent of our International & Alaska drilling segment revenues.
|
For the three months ended March 31, 2019, our largest customer, ENL, constituted approximately 31.2 percent of our total consolidated revenues and approximately 63.8 percent of our International & Alaska drilling segment revenues. Excluding reimbursable revenues of $26.3 million, ENL constituted approximately 17.7 percent of our total consolidated revenues and approximately 46.6 percent of our International & Alaska drilling segment revenues.
For the year ended December 31, 2018, our largest customer, ENL, constituted approximately 25.7 percent of our total consolidated revenues and approximately 58.0 percent of our International & Alaska drilling segment revenues. Excluding reimbursable revenues of $47.2 million, ENL constituted approximately 17.9 percent of our total consolidated revenues and approximately 48.0 percent of our International & Alaska drilling segment revenues.
|
|
|
|
(2)
|
Operating gross margin is calculated as revenues less direct operating expenses, including depreciation and amortization expense.
|
Other business segment information
The following table represents capital expenditures and depreciation and amortization by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Nine Months Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Year Ended December 31,
|
|
Dollars in thousands
|
2019
|
|
|
2019
|
|
2018
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
U.S. rental tools
|
$
|
51,539
|
|
|
|
$
|
4,429
|
|
|
$
|
55,545
|
|
|
International rental tools
|
9,650
|
|
|
|
3,166
|
|
|
6,275
|
|
|
U.S. (lower 48) drilling
|
1,061
|
|
|
|
395
|
|
|
444
|
|
|
International & Alaska drilling
|
7,787
|
|
|
|
1,199
|
|
|
7,444
|
|
|
Corporate
|
1,070
|
|
|
|
42
|
|
|
859
|
|
|
Total capital expenditures
|
$
|
71,107
|
|
|
|
$
|
9,231
|
|
|
$
|
70,567
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization: (1)
|
|
|
|
|
|
|
|
U.S. rental tools
|
$
|
30,912
|
|
|
|
$
|
11,715
|
|
|
$
|
48,167
|
|
|
International rental tools
|
5,999
|
|
|
|
4,115
|
|
|
15,548
|
|
|
U.S. (lower 48) drilling
|
4,424
|
|
|
|
808
|
|
|
7,758
|
|
|
International & Alaska drilling
|
20,164
|
|
|
|
8,464
|
|
|
36,072
|
|
|
Total depreciation and amortization
|
$
|
61,499
|
|
|
|
$
|
25,102
|
|
|
$
|
107,545
|
|
|
|
|
|
(1)
|
For presentation purposes, for the nine months ended December 31, 2019, the three months ended March 31, 2019, and the year ended December 31, 2018, depreciation expense for corporate assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Nine Months Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Year Ended December 31,
|
|
Dollars in thousands
|
2019
|
|
|
2019
|
|
2018
|
|
Depreciation expense for corporate assets
|
$
|
572
|
|
|
|
$
|
2,337
|
|
|
$
|
8,441
|
|
The following table represents identifiable assets by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
Dollars in Thousands
|
December 31,
2019
|
|
|
December 31,
2018
|
|
U.S. rental tools
|
$
|
221,383
|
|
|
|
$
|
216,123
|
|
|
International rental tools
|
98,041
|
|
|
|
146,471
|
|
|
U.S. (lower 48) drilling
|
27,335
|
|
|
|
30,283
|
|
|
International & Alaska drilling
|
255,844
|
|
|
|
366,856
|
|
|
Total identifiable assets
|
602,603
|
|
|
|
759,733
|
|
|
Corporate
|
80,245
|
|
|
|
68,681
|
|
|
Total assets
|
$
|
682,848
|
|
|
|
$
|
828,414
|
|
Geographic information
The following table represents selected geographic information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Nine Months Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Year Ended December 31,
|
|
Dollars in Thousands
|
2019
|
|
|
2019
|
|
2018
|
|
Revenues:
|
|
|
|
|
|
|
|
United States
|
$
|
204,450
|
|
|
|
$
|
66,252
|
|
|
$
|
207,612
|
|
|
Russia
|
138,893
|
|
|
|
49,388
|
|
|
123,767
|
|
|
EMEA & Asia
|
69,027
|
|
|
|
25,133
|
|
|
92,568
|
|
|
Latin America
|
29,351
|
|
|
|
5,482
|
|
|
14,631
|
|
|
Other CIS
|
11,635
|
|
|
|
3,621
|
|
|
13,703
|
|
|
Other
|
19,039
|
|
|
|
7,521
|
|
|
28,540
|
|
|
Total revenues
|
$
|
472,395
|
|
|
|
$
|
157,397
|
|
|
$
|
480,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
Dollars in Thousands
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Long-lived assets: (1)
|
|
|
|
|
|
United States
|
$
|
238,497
|
|
|
|
$
|
369,106
|
|
|
Russia
|
3,276
|
|
|
|
16,964
|
|
|
EMEA & Asia
|
27,342
|
|
|
|
89,696
|
|
|
Latin America
|
20,181
|
|
|
|
36,656
|
|
|
Other CIS
|
10,472
|
|
|
|
21,949
|
|
|
Total long-lived assets
|
$
|
299,768
|
|
|
|
$
|
534,371
|
|
|
|
|
|
(1)
|
Long-lived assets consist of property, plant, and equipment, net.
|
Note 18 - Selected Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
2019
|
|
|
2019
|
|
Dollars in thousands, except per share data
|
First
Quarter
|
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Total
|
|
Revenues
|
$
|
157,397
|
|
|
|
$
|
156,031
|
|
|
$
|
160,083
|
|
|
$
|
156,281
|
|
|
$
|
472,395
|
|
|
Operating gross margin
|
$
|
11,424
|
|
|
|
$
|
22,991
|
|
|
$
|
22,268
|
|
|
$
|
11,462
|
|
|
$
|
56,721
|
|
|
Operating income (loss)
|
$
|
(89,316
|
)
|
|
|
$
|
16,366
|
|
|
$
|
15,982
|
|
|
$
|
5,459
|
|
|
$
|
37,807
|
|
|
Net income (loss)
|
$
|
(90,248
|
)
|
|
|
$
|
4,641
|
|
|
$
|
3,989
|
|
|
$
|
(2,121
|
)
|
|
$
|
6,509
|
|
|
Net income (loss) available to common stockholders
|
$
|
(90,248
|
)
|
|
|
$
|
4,641
|
|
|
$
|
3,989
|
|
|
$
|
(2,121
|
)
|
|
$
|
6,509
|
|
|
Basic earnings (loss) per common share (1)
|
$
|
(9.63
|
)
|
|
|
$
|
0.31
|
|
|
$
|
0.27
|
|
|
$
|
(0.14
|
)
|
|
$
|
0.43
|
|
|
Diluted earnings (loss) per common share (1)
|
$
|
(9.63
|
)
|
|
|
$
|
0.31
|
|
|
$
|
0.27
|
|
|
$
|
(0.14
|
)
|
|
$
|
0.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
2018
|
|
Dollars in thousands, except per share data
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Total
|
|
Revenues
|
$
|
109,675
|
|
|
$
|
118,603
|
|
|
$
|
123,395
|
|
|
$
|
129,148
|
|
|
$
|
480,821
|
|
|
Operating gross margin
|
$
|
(10,408
|
)
|
|
$
|
(167
|
)
|
|
$
|
1,932
|
|
|
$
|
3,815
|
|
|
$
|
(4,828
|
)
|
|
Operating income (loss)
|
$
|
(16,266
|
)
|
|
$
|
(8,933
|
)
|
|
$
|
(56,544
|
)
|
|
$
|
(31,661
|
)
|
|
$
|
(113,404
|
)
|
|
Net income (loss)
|
$
|
(28,796
|
)
|
|
$
|
(22,877
|
)
|
|
$
|
(70,951
|
)
|
|
$
|
(43,073
|
)
|
|
$
|
(165,697
|
)
|
|
Net income (loss) available to common stockholders
|
$
|
(29,702
|
)
|
|
$
|
(23,784
|
)
|
|
$
|
(71,857
|
)
|
|
$
|
(43,073
|
)
|
|
$
|
(168,416
|
)
|
|
Basic earnings (loss) per common share (1)
|
$
|
(3.21
|
)
|
|
$
|
(2.56
|
)
|
|
$
|
(7.70
|
)
|
|
$
|
(4.60
|
)
|
|
$
|
(18.09
|
)
|
|
Diluted earnings (loss) per common share (1)
|
$
|
(3.21
|
)
|
|
$
|
(2.56
|
)
|
|
$
|
(7.70
|
)
|
|
$
|
(4.60
|
)
|
|
$
|
(18.09
|
)
|
|
|
|
|
(1)
|
As a result of shares issued during the year, earnings (loss) per share for each of the year’s four quarters, which are based on weighted average shares outstanding during each quarter, may not equal the annual earnings (loss) per share, which is based on the weighted average shares outstanding during the year. Additionally, as a result of rounding to the thousands, earnings per share may not equal the year-to-date results.
|
Note 19 - Recent Accounting Pronouncements
Standards recently adopted
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This ASU requires (a) an entity to separate the lease components from the non-lease components in a contract where the lease component will be accounted for under ASU 2016-02 and the non-lease component will be accounted for under ASU 2014-09, (b) recognition of lease assets and lease liabilities by lessees and derecognition of the leased asset and recognition of a net investment in the lease by the lessor and (c) additional disclosure requirements for both lessees and lessors. We adopted the ASU 2016-02, Leases (Topic 842) effective January 1, 2019, using the modified retrospective transition method applied at the beginning of the period of adoption. See Note 6 - Operating Leases for further details.
Standards not yet adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326). This requires changes to the recognition of credit losses on financial instruments not accounted for at fair value through net income, including loans, debt securities, trade receivables, net investments in leases and available-for-sale debt securities. This ASU broadens the information that an entity must consider in developing its estimate of expected credit losses, requiring an entity to estimate credit losses over the life of an exposure based on historical information, current information and reasonable and supportable forecasts. The guidance is effective for interim and annual periods beginning after December 15, 2019. In October 2019, FASB tentatively decided to defer the effective dates for eligible SEC filers that are eligible to be smaller reporting companies to interim and annual periods beginning after December 15, 2022. We are currently evaluating the effect the guidance will have on our consolidated financial statements.
