NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Key Energy Services, Inc., and its wholly owned subsidiaries (collectively, “Key,” the “Company,” “we,” “us,” “its,” and “our”) provide a full range of well services to major oil companies, independent oil and natural gas production companies. Our services include rig-based and coiled tubing-based well maintenance and workover services, well completion and recompletion services, fluid management services, fishing and rental services, and other ancillary oilfield services. Additionally, certain of our rigs are capable of specialty drilling applications. We operate in most major oil and natural gas producing regions of the continental United States. We previously had operations in Mexico, which was sold during the fourth quarter of 2016, and Canada and Russia, which were sold in the second and third quarters of 2017, respectively.
Basis of Presentation
The consolidated financial statements included in this Annual Report on Form 10-K present our financial position, results of operations and cash flows for the periods presented in accordance with GAAP.
The preparation of these consolidated financial statements requires us to develop estimates and to make assumptions that affect our financial position, results of operations and cash flows. These estimates also impact the nature and extent of our disclosure, if any, of our contingent liabilities. Among other things, we use estimates to (i) analyze assets for possible impairment, (ii) determine depreciable lives for our assets, (iii) assess future tax exposure and realization of deferred tax assets, (iv) determine amounts to accrue for contingencies, (v) value tangible and intangible assets, (vi) assess workers’ compensation, vehicular liability, self-insured risk accruals and other insurance reserves, (vii) provide allowances for our uncollectible accounts receivable, (viii) value our asset retirement obligations, and (ix) value our equity-based compensation. We review all significant estimates on a recurring basis and record the effect of any necessary adjustments prior to publication of our financial statements. Adjustments made with respect to the use of estimates relate to improved information not previously available. Because of the limitations inherent in this process, our actual results may differ materially from these estimates. We believe that our estimates are reasonable.
On October 24, 2016, Key and certain of our domestic subsidiaries filed voluntary petitions for reorganization under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware pursuant to a prepackaged plan of reorganization (“the Plan”). The Plan was confirmed by the Bankruptcy Court on December 6, 2016, and the Company emerged from the bankruptcy proceedings on December 15, 2016 (“the Effective Date”).
Upon emergence on the Effective Date, the Company adopted fresh start accounting which resulted in the creation of a new entity for financial reporting purposes. As a result of the application of fresh start accounting, as well as the effects of the implementation of the Plan, the Consolidated Financial Statements on or after December 16, 2016 are not comparable with the Consolidated Financial Statements prior to that date. Refer to “
Note 3. Fresh Start Accounting
” for additional information.
References to “Successor” or “Successor Company” relate to the financial position and results of operations of the reorganized Company subsequent to December 15, 2016. References to “Predecessor” or “Predecessor Company” refer to the financial position and results of operations of the Company on and prior to December 15, 2016.
We have evaluated events occurring after the balance sheet date included in this Annual Report on Form 10-K for possible disclosure as a subsequent event. Management monitored for subsequent events through the date that these financial statements were issued.
Principles of Consolidation
Within our consolidated financial statements, we include our accounts and the accounts of our majority-owned or controlled subsidiaries. We eliminate intercompany accounts and transactions. When we have an interest in an entity for which we do not have significant control or influence, we account for that interest using the cost method. When we have an interest in an entity and can exert significant influence but not control, we account for that interest using the equity method.
Acquisitions
From time to time, we acquire businesses or assets that are consistent with our long-term growth strategy. Results of operations for acquisitions are included in our financial statements beginning on the date of acquisition and are accounted for using the acquisition method. For all business combinations (whether partial, full or in stages), the acquirer records 100% of all assets and liabilities of the acquired business, including goodwill, at their fair values; including contingent consideration. Final valuations of assets and liabilities are obtained and recorded as soon as practicable no later than one year from the date of the acquisition.
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Revenue Recognition
We recognize revenue when all of the following criteria have been met: (i) contract with a customer is identified, (ii) performance obligations in the contract is identified, (iii) transaction price is determined (iv) transaction price is allocated to the performance obligations and (v) revenue is recognized when (or as) the performance obligation(s) are satisfied.
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Identifying the contract with the customer ensures that there is an understanding between the company and the customer, about the specific nature and terms of a transaction, has been finalized.
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At the inception of a contract, the company assesses the goods or services promised in a contract with a customer, and identifies a performance obligation for each promise to transfer to the customer either: (i) a good or service (or a bundle of goods or services) that is distinct or (ii) a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer.
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The transaction price is the amount of consideration to which a company expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties. The transaction price may include fixed amounts, variable amounts, or both. By its nature, variable amounts of a transaction price have inherent uncertainty as the amount ultimately expected to be realized is not determinable at the outset of a contract. However, the company shall estimate the amount of variable consideration at contract inception, subject to certain limitations.
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Once the separate performance obligations are identified and the transaction price has been determined, the company allocates the transaction price to the performance obligations. This is generally done in proportion to their standalone selling prices. As a result, any discount within the contract is generally allocated proportionally to all of the separate performance obligations in the contract.
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Revenue is only recognized when it satisfies an identified performance obligation by transferring a promised good or service to a customer. A good or service is considered transferred when the customer obtains control.
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While not typical for our business, our contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenues to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers or using expected cost-plus margin. For combined products and services within a contract, we account for individual products and services separately if they are distinct- i.e. if a product or service is separately identifiable from other items in the contract and if a customer can benefit from it on its own or with other resources that are readily available to the customer. The consideration (including any discounts) is allocated between separate products and services within a contract based on the prices at which we separately sell our services. For items that are not sold separately, we estimate the standalone selling prices using the expected cost-plus margin approach.
Cash and Cash Equivalents
We consider short-term investments with an original maturity of less than three months to be cash equivalents. As of
December 31, 2018
, all of our obligations under our ABL Facility and Term Loan Facility were secured by most of our assets, including assets held by our subsidiaries, which includes our cash and cash equivalents. We restrict investment of cash to financial institutions with high credit standing and limit the amount of credit exposure to any one financial institution.
We maintain our cash in bank deposit and brokerage accounts which exceed federally insured limits. As of
December 31, 2018
, accounts were guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to
$250,000
and substantially all of our accounts held deposits in excess of the FDIC limits.
We believe that the cash held by our other foreign subsidiaries could be repatriated for general corporate use without material withholdings. From time to time and in the normal course of business in connection with our operations or ongoing legal matters, we are required to place certain amounts of our cash in deposit accounts with restrictions that limit our ability to withdraw those funds. Our restricted cash is primarily used to maintain compliance with our ABL Facility.
Certain of our cash accounts are zero-balance controlled disbursement accounts that do not have right of offset against our other cash balances. We present the outstanding checks written against these zero-balance accounts as a component of accounts payable in the accompanying consolidated balance sheets.
Accounts Receivable and Allowance for Doubtful Accounts
We establish provisions for losses on accounts receivable if we determine that there is a possibility that we will not collect all or part of the outstanding balances. We regularly review accounts over
150
days past due from the invoice date for collectability and establish or adjust our allowance as necessary using the specific identification method. If we exhaust all collection efforts and determine that the balance will never be collected, we write off the accounts receivable and the associated provision for uncollectible accounts.
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
From time to time we are entitled to proceeds under our insurance policies for amounts that we have reserved in our self-insurance liability. We present these insurance receivables gross on our balance sheet as a component of other assets, separate from the corresponding liability.
Concentration of Credit Risk and Significant Customers
Our customers include major oil and natural gas production companies, independent oil and natural gas production companies, and natural gas production companies. We perform ongoing credit evaluations of our customers and usually do not require material collateral. We maintain reserves for potential credit losses when necessary. Our results of operations and financial position should be considered in light of the fluctuations in demand experienced by oilfield service companies as changes in oil and gas producers’ expenditures and budgets occur. These fluctuations can impact our results of operations and financial position as supply and demand factors directly affect utilization and hours which are the primary determinants of our net cash provided by operating activities.
During the year ended
2017
and the
period from January 1, 2016 through December 15, 2016
, Chevron Texaco Exploration and Production accounted for approximately
12%
and
14%
of our consolidated revenue, respectively. During the
period from January 1, 2016 through December 15, 2016
, OXY USA Inc. accounted for approximately
13%
of our consolidated revenue. No other customer accounted for more than 10% of our consolidated revenue during
the years ended December 31, 2018 and 2017, the period from December 16, 2016 through December 31, 2016 and the period from January 1, 2016 through December 15, 2016
. No customers accounted for more than 10% of our total accounts receivable as of
December 31, 2018
and
2017
.
Inventories
Inventories, which consist primarily of equipment parts and spares for use in our operations and supplies held for consumption, are valued at the lower of average cost or market.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation. Depreciation is provided for our assets over the estimated depreciable lives of the assets using the straight-line method. Depreciation expense for
the years ended December 31, 2018 and 2017, the period from December 16, 2016 through December 31, 2016 and the period from January 1, 2016 through December 15, 2016
were
$82.6 million
,
$84.5 million
,
$3.6 million
and
$129.5 million
, respectively. We depreciate our operational assets over their depreciable lives to their salvage value, which is a value higher than the assets’ value as scrap. Salvage value approximates
10%
of an operational asset’s acquisition cost. When an operational asset is stacked or taken out of service, we review its physical condition, depreciable life and ultimate salvage value to determine if the asset is operable and whether the remaining depreciable life and salvage value should be adjusted. When we scrap an asset, we accelerate the depreciation of the asset down to its salvage value. When we dispose of an asset, a gain or loss is recognized.
As of
December 31, 2018
, the estimated useful lives of our asset classes are as follows:
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Description
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Years
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Well service rigs and components
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3-15
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Oilfield trucks, vehicles and related equipment
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4-7
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Fishing and rental tools, coiled tubing units and equipment, tubulars and pressure control equipment
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3-10
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Disposal wells
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15
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Furniture and equipment
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3-7
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Buildings and improvements
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15-30
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Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A long-lived asset or asset group should be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. For purposes of testing for impairment, we group our long-lived assets along our lines of business based on the services provided, which is the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. We would record an impairment charge, reducing the net carrying value to estimated fair value, if the asset group’s estimated future cash flows were less than its net carrying value. Events or changes in circumstance that cause us to evaluate our fixed assets for recoverability and possible impairment may include changes in market conditions, such as adverse movements in the prices of oil and natural gas, or changes of an asset group, such as its expected future life, intended use or physical condition, which could reduce the fair value of certain of our property and equipment. The development of future cash flows and the determination of fair value for an asset group involves significant judgment and estimates. See
“Note 10. Property and Equipment,”
for further discussion.
Asset Retirement Obligations
We recognize a liability for the fair value of all legal obligations associated with the retirement of tangible long-lived assets and capitalize an equal amount as a cost of the asset. We depreciate the additional cost over the estimated useful life of the assets. Our obligations to perform our asset retirement activities are unconditional, despite the uncertainties that may exist surrounding an individual retirement activity. Accordingly, we recognize a liability for the fair value of a conditional asset retirement obligation if the fair value can be reasonably estimated. In determining the fair value, we examine the inputs that we believe a market participant would use if we were to transfer the liability. We probability-weight the potential costs a third-party would charge, adjust the cost for inflation for the estimated life of the asset, and discount this cost using our credit adjusted risk free rate. Significant judgment is involved in estimating future cash flows associated with such obligations, as well as the ultimate timing of those cash flows. If our estimates of the amount or timing of the cash flows change, such changes may have a material impact on our results of operations. See
“Note 14. Asset Retirement Obligations.”
Deposits
Due to capacity constraints on equipment manufacturers, we are sometimes required to make advanced payments for certain oilfield service equipment and other items used in the normal course of business. As of the years ended
December 31, 2018
and
2017
, deposits totaled
$1.3 million
and
$1.2 million
, respectively. Deposits consist primarily of deposit requirements of insurance companies and payments made related to high demand long-lead time items.
Capitalized Interest
Interest is capitalized on the average amount of accumulated expenditures for major capital projects under construction using an effective interest rate based on related debt until the underlying assets are placed into service. The capitalized interest is added to the cost of the assets and amortized to depreciation expense over the useful life of the assets, and is included in the depreciation and amortization line in the accompanying consolidated statements of operations.
Deferred Financing Costs
Deferred financing costs associated with long-term debt are carried at cost and are amortized to interest expense using the effective interest method over the life of the related debt instrument. When the related debt instrument is retired, any remaining unamortized costs are included in the determination of the gain or loss on the extinguishment of the debt. We record gains and losses from the extinguishment of debt as a part of continuing operations. In accordance with ASU 2015-03, we record debt financing costs as a reduction of our long-term debt. See
“Note 16. Long-term Debt,”
for further discussion.
Valuation of Tangible and Finite-Lived Intangible Assets
Our fixed assets and finite-lived intangibles are tested for potential impairment when circumstances or events indicate a possible impairment may exist. These circumstances or events are referred to as “trigger events” and examples of such trigger events include, but are not limited to, an adverse change in market conditions, a significant decrease in benefits being derived from an acquired business, a change in the use of an asset, or a significant disposal of a particular asset or asset class.
If a trigger event occurs, an impairment test is performed based on an undiscounted cash flow analysis. To perform an impairment test, we make judgments, estimates and assumptions regarding long-term forecasts of revenues and expenses relating to the assets subject to review. Market conditions, energy prices, estimated depreciable lives of the assets, discount rate assumptions and legal factors impact our operations and have a significant effect on the estimates we use to determine whether our assets are impaired. If the results of the undiscounted cash flow analysis indicate that the carrying value of the assets being tested for impairment are not recoverable, then we record an impairment charge to write the carrying value of the assets down to their fair value. Using different judgments, assumptions or estimates, we could potentially arrive at a materially different fair value for the assets being tested for impairment, which may result in an impairment charge.
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Internal-Use Software
We capitalize costs incurred during the application development stage of internal-use software and amortize these costs over the software’s estimated useful life, generally
five
to
seven
years. Costs incurred related to selection or maintenance of internal-use software are expensed as incurred.
Litigation
When estimating our liabilities related to litigation, we take into account all available facts and circumstances in order to determine whether a loss is probable and reasonably estimable.
Various suits and claims arising in the ordinary course of business are pending against us. We conduct business throughout the continental United States and may be subject to jury verdicts or arbitrations that result in outcomes in favor of the plaintiffs. We are also exposed to various claims abroad. We continually assess our contingent liabilities, including potential litigation liabilities, as well as the adequacy of our accruals and our need for the disclosure of these items. We establish a provision for a contingent liability when it is probable that a liability has been incurred and the amount is reasonably estimable. See
“Note 17. Commitments and Contingencies.”
Environmental
Our operations routinely involve the storage, handling, transport and disposal of bulk waste materials, some of which contain oil, contaminants, and regulated substances. These operations are subject to various federal, state and local laws and regulations intended to protect the environment. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. We record liabilities on an undiscounted basis when our remediation efforts are probable and the costs to conduct such remediation efforts can be reasonably estimated. While our litigation reserves reflect the application of our insurance coverage, our environmental reserves do not reflect management’s assessment of the insurance coverage that may apply to the matters at issue. See
“Note 17. Commitments and Contingencies.”
Self-Insurance
We are primarily self-insured against physical damage to our equipment and automobiles as well as workers’ compensation claims. The accruals that we maintain on our consolidated balance sheet relate to these deductibles and self-insured retentions, which we estimate through the use of historical claims data and trend analysis. To assist management with the liability amount for our self-insurance reserves, we utilize the services of a third party actuary. The actual outcome of any claim could differ significantly from estimated amounts. We adjust loss estimates in the calculation of these accruals, based upon actual claim settlements and reported claims. See
“Note 17. Commitments and Contingencies.”
Income Taxes
We account for deferred income taxes using the asset and liability method and provide income taxes for all significant temporary differences. Management determines our current tax liability as well as taxes incurred as a result of current operations, yet deferred until future periods. Current taxes payable represent our liability related to our income tax returns for the current year, while net deferred tax expense or benefit represents the change in the balance of deferred tax assets and liabilities reported on our consolidated balance sheets. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Further, management makes certain assumptions about the timing of temporary tax differences for the differing treatment of certain items for tax and accounting purposes or whether such differences are permanent. The final determination of our tax liability involves the interpretation of local tax laws, tax treaties, and related authorities in each jurisdiction as well as the significant use of estimates and assumptions regarding the scope of future operations and results achieved and the timing and nature of income earned and expenditures incurred.
We record valuation allowances to reduce deferred tax assets if we determine that it is more likely than not (e.g., a likelihood of more than 50%) that some or all of the deferred tax assets will not be realized in future periods. To assess the likelihood, we use estimates and judgment regarding our future taxable income, as well as the jurisdiction in which this taxable income is generated, to determine whether a valuation allowance is required. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character and in the related jurisdiction in the future. Evidence supporting this ability can include our current financial position, our results of operations, both actual and forecasted results, the reversal of deferred tax liabilities, and tax planning strategies as well as the current and forecasted business economics of our industry. Additionally, we record uncertain tax positions in the financial statements at their net recognizable amount, based on the amount that management deems is more likely than not to be sustained upon ultimate settlement with the tax authorities in the domestic and international tax jurisdictions in which we operate.
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
If our estimates or assumptions regarding our current and deferred tax items are inaccurate or are modified, these changes could have potentially material negative impacts on our earnings. See
“Note 15. Income Taxes”
for further discussion of accounting for income taxes, changes in our valuation allowance, components of our tax rate reconciliation and realization of loss carryforwards.
Earnings Per Share
Basic earnings per common share is determined by dividing net earnings applicable to common stock by the weighted average number of common shares actually outstanding during the period. Diluted earnings per common share is based on the increased number of shares that would be outstanding assuming conversion of dilutive outstanding convertible securities using the treasury stock and “as if converted” methods. See
“Note 12. Earnings Per Share.”
Share-Based Compensation
We issue or have issued time-based vesting and performance-based vesting stock options, time-based vesting and performance-based vesting restricted stock units, and restricted stock awards to our employees as part of those employees’ compensation and as a retention tool for non-employee directors. We calculate the fair value of the awards on the grant date and amortize that fair value to compensation expense ratably over the vesting period of the award, net of forfeitures. The grant-date fair value of our time-based restricted stock units and restricted stock awards is determined using our stock price on the grant date. The grant-date fair value of our performance-based restricted stock units is determined using our stock price on the grant date assuming a 1.0x payout target, however, a maximum 2.0x payout could be achieved if certain EBITDA-based performance measures are met. The fair value of our stock option awards are estimated using a Black-Scholes fair value model.
The valuation of our stock options requires us to estimate the expected term of award, which we estimate using the simplified method, as we do not have sufficient historical exercise information. Additionally, the valuation of our stock option awards is also dependent on historical stock price volatility. In view of the limited amount of time elapsed since our reorganization, volatility is calculated based on historical stock price volatility of our peer group with a lookback period equivalent to the expected term of the award. Fair value of performance-based stock options and restricted stock units is estimated in the same manner as our time-based awards and assumes that performance goals will be achieved and the awards will vest. If the performance based awards do not vest, any previously recognized compensation costs will be reversed. We record share-based compensation as a component of general and administrative or direct operating expense based on the role of the applicable individual. See
“Note 20. Share-Based Compensation.”
Foreign Currency Gains and Losses
With respect to our former operations in Russia, which were sold in the third quarter of 2017, where the local currency was the functional currency, assets and liabilities were translated at the rates of exchange in effect on the balance sheet date, while income and expense items were translated at average rates of exchange during the period. The resulting gains or losses arising from the translation of accounts from the functional currency to the U.S. dollar were included as a separate component of stockholders’ equity in other comprehensive income until a partial or complete sale or liquidation of our net investment in the foreign entity.
From time to time our former foreign subsidiaries may have entered into transactions that are denominated in currencies other than their functional currency. These transactions were initially recorded in the functional currency of that subsidiary based on the applicable exchange rate in effect on the date of the transaction. At the end of each month, those transactions were remeasured to an equivalent amount of the functional currency based on the applicable exchange rates in effect at that time. Any adjustment required to remeasure a transaction to the equivalent amount of the functional currency at the end of the month was recorded in the income or loss of the foreign subsidiary as a component of other income, net.
Comprehensive Loss
We display comprehensive loss and its components in our financial statements, and we classify items of comprehensive income (loss) by their nature in our financial statements and display the accumulated balance of other comprehensive income (loss) separately in our stockholders’ equity.
Leases
We lease real property and equipment through various leasing arrangements. When we enter into a leasing arrangement, we analyze the terms of the arrangement to determine whether the lease should be accounted for as an operating lease or a capital lease.
We periodically incur costs to improve the assets that we lease under these arrangements. If the value of the leasehold improvements exceeds our threshold for capitalization, we record the improvement as a component of our property and equipment and amortize the improvement over the useful life of the improvement or the lease term, whichever is shorter.
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Certain of our operating lease agreements are structured to include scheduled and specified rent increases over the term of the lease agreement. These increases may be the result of an inducement or “rent holiday” conveyed to us early in the lease, or are included to reflect the anticipated effects of inflation. We recognize scheduled and specified rent increases on a straight-line basis over the term of the lease agreement. In addition, certain of our operating lease agreements contain incentives to induce us to enter into the lease agreement, such as up-front cash payments to us, payment by the lessor of our costs, such as moving expenses, or the assumption by the lessor of our pre-existing lease agreements with third parties. Any payments made to us or on our behalf represent incentives that we consider to be a reduction of our rent expense, and are recognized on a straight-line basis over the term of the lease agreement.
Recent Accounting Developments
ASU 2018-02.
In February 2018, the FASB issued ASU 2018-02,
Income Statement—Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
. This standard allows a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act (the “2017 Tax Act”) that was enacted on December 22, 2017. We adopted this guidance as of January 1, 2018. The adoption of this standard did not have an impact on our consolidated financial statements.
ASU 2016-18.
In November 2016, the FASB issued ASU, 2016-18
Statement of Cash Flows (Topic 230), Restricted Cash
. This standard provides guidance on the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. Restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts shown on the statements of cash flows. The amendments of this ASU should be applied using a retrospective transition method and are effective for reporting periods beginning after December 15, 2017, with early adoption permitted. We adopted the new standard effective January 1, 2018 and other than the revised statement of cash flows presentation of restricted cash, the adoption of this standard did not have an impact on our consolidated financial statements.
ASU 2016-15
. In August 2016 the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments
, that clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is permitted. We adopted the new standard effective January 1, 2018 and the adoption of this standard did not have a material impact on our consolidated financial statements.
ASU 2016-13.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments—Credit Losses (Topic 326),
Measurement of Credit Losses on Financial Instruments
that will change how companies measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For available-for-sale debt securities, entities will be required to record allowances rather than reduce the carrying amount. The amendments in this update will be effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods. Early adoption is permitted for annual periods beginning after December 15, 2018. The Company is evaluating the effect of this standard on our consolidated financial statements.
ASU 2016-02
. In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
, which will replace the existing lease guidance. The new standard is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. Additional disclosure requirements include qualitative disclosures along with specific quantitative disclosures with the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for the Company for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. As part of our assessment work to-date, we have formed an implementation work team, conducted training for the relevant staff regarding the potential impacts of the new ASU and are continuing our contract analysis and policy review. We have engaged external resources to assist us in our efforts to complete the analysis of potential changes to current accounting practices. Additionally, we have created additional internal controls over financial reporting and made changes in business practices and processes related to the ASU. Key has elected the new prospective “Comparatives Under 840” transition method as defined in ASU 2018-11 and adopted the new standard as of January 1, 2019. Applying the Comparatives Under 840 transition method, the adoption of the new standard will require a cumulative effect adjustment to retained earnings, which we believe will be immaterial.
ASU 2014-09
. In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
. The objective of this ASU is to establish the principles to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue from contracts with customers. The core principle is to recognize revenue to depict
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 must be adopted using either a full retrospective method or a modified retrospective method. We adopted the new standard effective January 1, 2018 using the full retrospective method and the adoption of this standard did not have a material impact on our consolidated financial statements.
NOTE 2. EMERGENCE FROM VOLUNTARY REORGANIZATION
On October 24, 2016, Key and certain of our domestic subsidiaries filed voluntary petitions for reorganization under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware pursuant to a prepackaged plan of reorganization. The Plan was confirmed by the Bankruptcy Court on December 6, 2016, and the Company emerged from the bankruptcy proceedings on December 15, 2016.
On the Effective Date, the Company:
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Reincorporated the Successor Company in the state of Delaware and adopted an amended and restated certificate of incorporation and bylaws;
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Appointed new members to the Successor Company’s board of directors to replace directors of the Predecessor Company;
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•
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Issued to the Predecessor Company’s former stockholders, in exchange for the cancellation and discharge of the Predecessor Company’s common stock:
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◦
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815,887
shares of the Successor Company’s common stock;
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◦
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919,004
warrants to expire on December 15, 2020, and
919,004
warrants to expire on December 15, 2021, each exercisable for one share of the Successor Company’s common stock;
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•
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Issued to former holders of the Predecessor Company’s 6.75% senior notes, in exchange for the cancellation and discharge of such notes,
7,500,000
shares of the Successor Company’s common stock;
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•
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Issued
11,769,014
shares of the Successor Company’s common stock to certain participants in rights offerings conducted pursuant to the Plan;
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•
|
Issued to Soter Capital LLC (“Soter”) the sole share of the Successor Company’s Series A Preferred Stock, which confers certain rights to elect directors (but has no economic rights);
|
|
|
|
|
•
|
Entered into a new $80 million ABL Facility (which was increased to
$100 million
on February 3, 2017) and a $250 million Term Loan Facility upon termination of the Predecessor Company’s asset-based revolving credit facility and term loan facility;
|
|
|
|
|
•
|
Entered into a Registration Rights Agreement with certain stockholders of the Successor Company;
|
|
|
|
|
•
|
Adopted the 2016 Incentive Plan for officers, directors and employees of the Successor Company and its subsidiaries; and
|
|
|
|
|
•
|
Entered into a corporate advisory services agreement between the Successor Company and Platinum Equity Advisors, LLC (“Platinum”) pursuant to which Platinum will provide certain business advisory services to the Company.
|
The foregoing is a summary of the substantive provisions of the Plan and related transactions and is not intended to be a complete description of, or a substitute for a full and complete reading of, the Plan and the other documents referred to above.
NOTE 3. FRESH START ACCOUNTING
In accordance
ASC 852 Reorganizations
(“ASC 852”), fresh-start accounting was required upon the Company’s emergence from Chapter 11 because (i) the holders of existing voting shares of the Predecessor received less than 50% of the voting shares of the Successor and (ii) the reorganization value of the Predecessor assets immediately prior to confirmation of the Plan was less than the total of all post-petition liabilities and allowed claims.
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
All conditions required for the adoption of fresh-start accounting were met when the Company’s Plan of Reorganization became effective, December 15, 2016. The implementation of the Plan and the application of fresh-start accounting materially changed the carrying amounts and classifications reported in the Company’s consolidated financial statements and resulted in the Company becoming a new entity for financial reporting purposes. As a result of the application of fresh-start accounting and the effects of the implementation of the Plan, the financial statements after December 15, 2016 are not comparable with the financial statements on and prior to December 15, 2016.
Upon the application of fresh-start accounting, the Company allocated the reorganization value to its individual assets and liabilities in conformity with ASC 805, Business Combinations (“ASC 805”). Reorganization value represents the fair value of the Successor Company’s assets before considering liabilities. The excess reorganization value over the fair value of identified tangible and intangible assets is reported as goodwill.
Reorganization Value - Under ASC 852, the Successor Company must determine a value to be assigned to the equity of the emerging company as of the date of adoption of fresh-start accounting. To facilitate this calculation, the Company estimated the enterprise value of the Successor Company by relying on a discounted cash flow (“DCF”) analysis under the income approach. The Company also considered the guideline public company and guideline transactions methods under the market approach as reasonableness checks to the indications from the income approach.
Enterprise value represents the fair value of an entity’s interest-bearing debt and stockholders’ equity. In the disclosure statement associated with the Plan, which was confirmed by the Bankruptcy Court, the Company estimated a range of enterprise values between
$425 million
and
$475 million
, with a midpoint of
$450 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
$450 million
utilized for fresh-start accounting. The enterprise value plus excess cash adjustments of approximately
$52 million
less the fair value of debt of
$250 million
, resulted in equity value of the Successor of
$252.1 million
.
To estimate enterprise value utilizing the DCF method, the Company established an estimate of future cash flows for the period ranging from 2016 to 2025 and discounted the estimated future cash flows to present value. The expected cash flows for the period 2016 to 2025 were based on the financial projections and assumptions utilized in the disclosure statement. The expected cash flows for the period 2016 to 2025 were derived from earnings forecasts and assumptions regarding growth and margin projections, as applicable. A terminal value was included, based on the cash flows of the final year of the forecast period.
The discount rate of
14.5%
was estimated based on an after-tax weighted average cost of capital (“WACC”) reflecting the rate of return that would be expected by a market participant. The WACC also takes into consideration a company specific risk premium reflecting the risk associated with the overall uncertainty of the financial projections used to estimate future cash flows.
The guideline public company and guideline transaction analysis identified a group of comparable companies and transactions that have operating and financial characteristics comparable in certain respects to the Company, including, for example, comparable lines of business, business risks and market presence. Under these methodologies, certain financial multiples and ratios that measure financial performance and value are calculated for each selected company or transactions and then compared to the implied multiples from the DCF analysis. The Company considered enterprise value as a multiple of each selected company and transactions publicly available earnings before interest, taxes, depreciation and amortization (“EBITDA”).
The estimated enterprise value and the equity value are highly dependent on the achievement of the future financial results contemplated in the projections that were set forth in the Plan. The estimates and assumptions made in the valuation are inherently subject to significant uncertainties. The primary assumptions for which there is a reasonable possibility of the occurrence of a variation that would have significantly affected the reorganization value include the assumptions regarding revenue growth, operating expenses, the amount and timing of capital expenditures and the discount rate utilized.
Fresh-start accounting reflects the value of the Successor Company as determined in the confirmed Plan. Under fresh-start accounting, asset values are remeasured and allocated based on their respective fair values in conformity with the purchase method of accounting for business combinations in ASC 805. Liabilities existing as of the Effective Date, other than deferred taxes were recorded at the present value of amounts expected to be paid using appropriate risk adjusted interest rates. Deferred taxes were determined in conformity with applicable accounting standards. Predecessor accumulated depreciation, accumulated amortization, accumulated other comprehensive loss and retained deficit were eliminated.
The significant assumptions related to the valuations of assets and liabilities in connection with fresh-start accounting include the following:
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Machinery and Equipment
To estimate the fair value of machinery and equipment, the Company considered the income approach, the cost approach, and the sales comparison (market) approach. The primary approaches that were relied upon to value these assets were the cost approach and the market approach. Although the income approach was not applied to value the machinery and equipment assets individually, the Company did consider the earnings of the enterprise of which these assets are a part. When more than one approach is used to develop a valuation, the various approaches are reconciled to determine a final value conclusion.
The typical starting point or basis of the valuation estimate is replacement cost new (RCN), reproduction cost new (CRN), or a combination of both. Once the RCN and CRN estimates are adjusted for physical and functional conditions, they are then compared to market data and other indications of value, where available, to confirm results obtained by the cost approach.
Where direct RCN estimates were not available or deemed inappropriate, the CRN for machinery and equipment was estimated using the indirect (trending) method, in which percentage changes in applicable price indices are applied to historical costs to convert them into indications of current costs. To estimate the CRN amounts, inflation indices from established external sources were then applied to historical costs to estimate the CRN for each asset.
The market approach measures the value of an asset through an analysis of recent sales or offerings of comparable property, and takes into account physical, functional and economic conditions. Where direct or comparable matches could not be reasonably obtained, the Company utilized the percent of cost technique of the market approach. This technique looks at general sales, sales listings, and auction data for each major asset category. This information is then used in conjunction with each asset’s effective age to develop ratios between the sales price and RCN or CRN of similar asset types. A market-based depreciation curve was developed and applied to asset categories where sufficient sales and auction information existed.
Where market information was not available or a market approach was deemed inappropriate, the Company developed a cost approach. In doing so, an indicated value is derived by deducting physical deterioration from the RCN or CRN of each identifiable asset or group of assets. Physical deterioration is the loss in value or usefulness of a property due to the using up or expiration of its useful life caused by wear and tear, deterioration, exposure to various elements, physical stresses, and similar factors.
Functional and economic obsolescence related to these was also considered. Functional obsolescence due to excess capital costs was eliminated through the direct method of the cost approach to estimate the RCN. Functional obsolescence was applied in the form of a cost-to-cure penalty to certain personal property assets needing significant capital repairs. Economic obsolescence was also applied to stacked and underutilized assets based on the status of the asset. Economic obsolescence was also considered in situations in which the earnings of the applicable business segment 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.
Land and Building
In establishing the fair value of the real property assets, each of the three traditional approaches to value: the income approach, the market approach and the cost approach was considered. The Company primarily relied on the market and cost approaches.
Land - In valuing the fee simple interest in the land, the Company utilized the sales comparison approach (market approach). The sales comparison approach estimates value based on what other purchasers and sellers in the market have agreed to as the price for comparable properties. This approach is based on the principle of substitution, which states that the limits of prices, rents and rates tend to be set by the prevailing prices, rents and rates of equally desirable substitutes. In conducting the sales comparison approach, data was gathered on comparable properties and adjustments were made for factors including market conditions, size, access/frontage, zoning, location, and conditions of sale. Greatest weight was typically given to the comparable sales in proximity and similar in size to each of the owned sites. In some cases, market participants were contacted to augment the analysis and to confirm the conclusions of value.
Building & Site Improvements - In valuing the fee simple interest in the real property improvements, the Company utilized the direct and indirect methods of the cost approach. For the direct method cost approach analysis, the starting point or basis of the cost approach is the RCN. In order to estimate the RCN of the buildings and site improvements, various factors were considered including building size, year built, number of stories, and the breakout of the space, property history, and maintenance history. We used the data collected to calculate the RCN of the buildings using recognized estimating sources for developing replacement, reproduction, and insurable value costs.
In the application of the indirect method cost approach, the first step is to estimate a CRN for each improvement via the indirect (trending) method of the cost approach. To estimate the CRN amounts, the Company applied published inflation indices
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
obtained from third party sources to each asset’s historical cost to convert the known cost into an indication of current cost. As historical cost was used as the starting point for estimating RCN, we only considered this approach for assets with historical records.
Once the RCN and CRN of the improvements was computed, the Company estimated an allowance for physical depreciation for the buildings and land improvements based upon its respective age.
Intangible Assets
The financial information used to estimate the fair values of intangible assets was consistent with the information used in estimating the Company’s enterprise value. Trademarks and tradenames were valued primarily utilizing the relief from royalty method of the income approach. The resulting value of the intangible assets based on the application of this approach was
$520
. Significant inputs and assumptions included remaining useful lives, the forecasted revenue streams, applicable royalty rates, tax rates, and applicable discount rates. Customer relationships were considered in the analysis, but based on the valuation under the excess earnings methodology, no value was attributed to customer relationships.
Debt
The fair value of debt was
$250 million
of which
$2.5 million
represents the current portion. The fair value of debt was determined using an income approach based on market yields for comparable securities. The fair value with respect to the Term Loan was estimated to approximate par value.
Asset Retirement Obligations
The fair value of the asset retirement obligations was determined by using estimated plugging and abandonment costs as of December 15, 2016, adjusted for inflation using an annual average of
1.26%
and then discounted at the appropriate credit-adjusted risk free rate ranging from
2.2%
to
2.9%
depending on the life of the well. The fair value of asset retirement obligations was estimated at
$9.1 million
.
Income Taxes
The amount of deferred income taxes recorded was determined in accordance with ASC 740, Income Taxes (“ASC 740”).
Warrants
Pursuant to the Plan and on the Effective Date, the Company issued
two
series of warrants to the former holders of the Predecessor Company’s common stock. One series of warrants will expire on December 15, 2020 and the other series of warrants will expire on December 15, 2021. Each warrant is exercisable for one share of the Company’s common stock, par value
$0.01
. At issuance, the warrants were recorded at fair value, which was determined using the Black-Scholes option pricing model with the assumptions detailed in the following table. The warrants are equity classified and, at issuance, were recorded as an increase to additional paid-in capital in the amount of
$3.8 million
.
Assumptions for Black-Scholes option pricing model:
|
|
|
|
|
|
Volatility
|
60.0% to 62.0%
|
|
Risk-free Interest Rate
|
1.86% to 2.10%
|
|
Time Until Expiration
|
4 years to 5 years
|
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following fresh-start condensed consolidated balance sheet presents the implementation of the Plan and the adoption of fresh-start accounting as of December 15, 2016. Reorganization adjustments have been recorded within the condensed consolidated balance sheet to reflect the effects of the Plan, including discharge of liabilities subject to compromise and the adoption of fresh-start accounting in accordance with ASC 852 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor Company
|
|
Reorganization Adjustments (A)
|
|
Fresh Start
Adjustments
|
|
Successor Company
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
38,751
|
|
|
$
|
52,437
|
|
B
|
$
|
—
|
|
|
$
|
91,188
|
|
|
Restricted cash
|
19,292
|
|
|
5,400
|
|
C
|
—
|
|
|
24,692
|
|
|
Accounts receivable, net
|
72,560
|
|
|
(210
|
)
|
D
|
—
|
|
|
72,350
|
|
|
Inventories
|
22,900
|
|
|
—
|
|
|
383
|
|
N
|
23,283
|
|
|
Other current assets
|
27,648
|
|
|
(2,295
|
)
|
E
|
—
|
|
|
25,353
|
|
|
Total current assets
|
181,151
|
|
|
55,332
|
|
|
383
|
|
|
236,866
|
|
|
Property and equipment, gross
|
2,235,828
|
|
|
—
|
|
|
(1,827,392
|
)
|
O
|
408,436
|
|
|
Accumulated depreciation
|
(1,523,585
|
)
|
|
—
|
|
|
1,523,585
|
|
O
|
—
|
|
|
Property and equipment, net
|
712,243
|
|
|
—
|
|
|
(303,807
|
)
|
|
408,436
|
|
|
Other intangible assets, net
|
3,596
|
|
|
—
|
|
|
(3,076
|
)
|
P
|
520
|
|
|
Other assets
|
17,428
|
|
|
—
|
|
|
369
|
|
Q
|
17,797
|
|
|
TOTAL ASSETS
|
$
|
914,418
|
|
|
$
|
55,332
|
|
|
$
|
(306,131
|
)
|
|
$
|
663,619
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
12,338
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,338
|
|
|
Other current liabilities
|
99,524
|
|
|
(1,032
|
)
|
F
|
(264
|
)
|
R
|
98,228
|
|
|
Current portion of long-term debt
|
(3,099
|
)
|
|
5,599
|
|
G
|
—
|
|
|
2,500
|
|
|
Total current liabilities
|
108,763
|
|
|
4,567
|
|
|
(264
|
)
|
|
113,066
|
|
|
Long-term debt
|
—
|
|
|
245,460
|
|
H
|
—
|
|
|
245,460
|
|
|
Workers’ compensation, vehicular and health insurance liabilities
|
23,126
|
|
|
—
|
|
|
—
|
|
|
23,126
|
|
|
Deferred tax liabilities
|
35
|
|
|
—
|
|
|
—
|
|
|
35
|
|
|
Other non-current liabilities
|
35,754
|
|
|
332
|
|
I
|
(6,284
|
)
|
S
|
29,802
|
|
|
Liabilities subject to compromise
|
996,527
|
|
|
(996,527
|
)
|
J
|
—
|
|
|
—
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Common stock
|
16,055
|
|
|
(15,854
|
)
|
K
|
—
|
|
|
201
|
|
|
Additional paid-in capital
|
969,915
|
|
|
252,516
|
|
L
|
(970,502
|
)
|
T
|
251,929
|
|
|
Accumulated other comprehensive loss
|
(40,394
|
)
|
|
—
|
|
|
40,394
|
|
T
|
—
|
|
|
Retained earnings (deficit)
|
(1,195,363
|
)
|
|
564,838
|
|
M
|
630,525
|
|
T
|
—
|
|
|
Total equity
|
(249,787
|
)
|
|
801,500
|
|
|
(299,583
|
)
|
|
252,130
|
|
|
TOTAL LIABILITIES AND EQUITY
|
$
|
914,418
|
|
|
$
|
55,332
|
|
|
$
|
(306,131
|
)
|
|
$
|
663,619
|
|
Reorganization and Fresh Start Adjustments
Reorganization Adjustments (in thousands)
|
|
|
|
A.
|
Represents amounts recorded on the Effective Date for the implementation of the Plan, including the settlement of liabilities subject to compromise, issuance of new debt and repayment of old debt, reinstatement of contract rejection obligations, write-off of debt issuance costs, proceeds received from the rights offering, distributions of Successor common stock and the Warrants, the cancellation of the Predecessor common stock, and the cancellation of the Predecessor stock incentive plan.
|
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
B.
|
The Effective Date cash activity from the implementation of the Plan and the Rights Offering are as follows:
|
|
|
|
Sources:
|
|
|
|
|
Proceeds from Rights Offering
|
$
|
108,984
|
|
|
|
|
Overfunding of Rights Offering to be returned
|
98
|
|
|
|
|
Total Sources
|
$
|
109,082
|
|
|
|
Uses:
|
|
|
|
|
Payment of Predecessor Term Loan Facility
|
$
|
(38,876
|
)
|
|
|
|
Payment of interest on Predecessor Term Loan Facility
|
(4,277
|
)
|
|
|
|
Payment of bank fees
|
(2,126
|
)
|
|
|
|
Transfer to restricted cash to fund professional fee escrow
|
(5,400
|
)
|
|
|
|
Payment of professional fees
|
(5,656
|
)
|
|
|
|
Payment of letters of credit fees and fronting fees of Predecessor ABL Facility
|
(260
|
)
|
|
|
|
Equity Holder Cash-Out Subscription
|
200
|
|
|
|
|
Payment to Equity Holders who chose to cash out
|
(200
|
)
|
|
|
|
Payment to non-qualified holders of the 2021 Notes
|
(25
|
)
|
|
|
|
Payment of contract rejection damage claim
|
(25
|
)
|
|
|
|
Total Uses
|
$
|
(56,645
|
)
|
|
|
|
Net sources of cash
|
$
|
52,437
|
|
|
|
|
|
|
|
|
|
|
|
C.
|
Transfer of cash and cash equivalents to fund professional fee escrow cash account as required by the Plan.
|
|
|
|
|
|
|
|
D.
|
Satisfaction of payroll withholdings related to accelerated vesting of Predecessor restricted stock units and awards.
|
|
|
|
|
|
|
|
E.
|
Elimination of Predecessor Directors and Officers ("D&O") insurance policies and release of prepaid professional retainer net of capitalized ABL Facility related fee:
|
|
|
Predecessor D&O insurance
|
$
|
(2,203
|
)
|
|
|
Release of professional retainer
|
(150
|
)
|
|
|
Payment of ABL Facility related fee
|
58
|
|
|
|
Total
|
$
|
(2,295
|
)
|
|
|
|
|
|
|
|
|
|
|
F.
|
Decrease in accrued current liabilities consists of the following:
|
|
|
|
Reinstate rejection damage and other claims from Liabilities Subject to Compromise (short-term)
|
$
|
2,677
|
|
|
|
Accrual for success fees incurred upon emergence
|
3,786
|
|
|
|
Over funding of Rights Offering to be returned
|
98
|
|
|
|
Payment of interest on Predecessor Term Loan Facility
|
(4,277
|
)
|
|
|
Payment of professional fees and the application of retainer balances
|
(3,056
|
)
|
|
|
Payment of letters of credit fees and fronting fees on the Predecessor ABL Facility
|
(260
|
)
|
|
|
Total
|
$
|
(1,032
|
)
|
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
G.
|
Elimination of debt issuance costs on Predecessor ABL Facility and record current portion of Term Loan Facility:
|
|
|
|
Predecessor ABL Facility issuance costs
|
$
|
3,099
|
|
|
|
Current portion of Term Loan Facility
|
2,500
|
|
|
|
Total
|
$
|
5,599
|
|
|
|
|
|
|
|
|
|
|
|
H.
|
Represents Term Loan Facility, at fair value, net of deferred finance costs on ABL Facility:
|
|
|
|
Long-term debt
|
$
|
250,000
|
|
|
|
Less: current portion
|
(2,500
|
)
|
|
|
Bank fees on the ABL Facility
|
(2,040
|
)
|
|
|
Total
|
$
|
245,460
|
|
|
|
|
|
|
|
|
|
|
|
I.
|
Reinstate rejection damage and other claims from Liabilities Subject to Compromise.
|
|
|
|
|
|
|
J.
|
Liabilities Subject to Compromise were settled as follows in accordance with the Plan:
|
|
|
|
Write-off of Liabilities Subject to Compromise
|
$
|
996,527
|
|
|
|
Term Loan Facility
|
(250,000
|
)
|
|
|
Payment of Predecessor Term Loan Facility principal
|
(38,876
|
)
|
|
|
Contract rejection damage and other claims to be satisfied in cash (long and short-term)
|
(3,010
|
)
|
|
|
Payment of contract rejection damage claim
|
(25
|
)
|
|
|
Payment to non-qualified holders of the 2021 Notes
|
(25
|
)
|
|
|
Issuance of Successor common stock to satisfy 2021 Notes claims
|
(125,892
|
)
|
|
|
Gain due to settlement of Liabilities Subject to Compromise
|
$
|
578,699
|
|
|
|
|
|
|
|
|
|
|
|
K.
|
Represents the cancellation of Predecessor common stock (par value of $16,055) and the distribution of Successor common stock (par value of $201).
|
|
|
|
|
|
|
|
L.
|
Consists of the net impact of the following:
|
|
|
|
Predecessor additional paid in capital:
|
|
|
|
Elimination of par value of Predecessor common stock
|
$
|
16,055
|
|
|
|
Compensation expense related to acceleration of Predecessor restricted stock units and awards
|
1,996
|
|
|
|
Warrants issued to holders of Predecessor common stock
|
(3,768
|
)
|
|
|
Issuance of Successor common stock to holders of Predecessor common stock
|
(13,695
|
)
|
|
|
Total
|
$
|
588
|
|
|
|
|
|
|
|
|
Successor additional paid in capital:
|
|
|
|
Issuance of common stock for the Rights Offering
|
$
|
108,866
|
|
|
|
Issuance of Successor common stock to satisfy 2021 Notes claims
|
125,817
|
|
|
|
Issuance of Successor common stock to holders of Predecessor common stock
|
13,687
|
|
|
|
Warrants issued to holders of Predecessor common stock
|
3,768
|
|
|
|
Shares withheld to satisfy payroll tax obligations
|
(210
|
)
|
|
|
Total
|
251,928
|
|
|
|
Net impact of Predecessor and Successor additional paid in capital
|
$
|
252,516
|
|
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
M.
|
Reflects the cumulative impact of the reorganization adjustments discussed above:
|
|
|
|
Reorganization items:
|
|
|
|
Gain due to settlement of Liabilities Subject to Compromise
|
$
|
578,699
|
|
|
|
Success fees incurred upon emergence
|
(6,536
|
)
|
|
|
Write of deferred issuance costs of Predecessor ABL Facility
|
(3,099
|
)
|
|
|
Total
|
$
|
569,064
|
|
|
|
|
|
|
|
Other:
|
|
|
|
Elimination of Predecessor D&O prepaid insurance
|
$
|
(2,203
|
)
|
|
|
Bank fees and charges
|
(27
|
)
|
|
|
Compensation expense related to acceleration of Predecessor restricted stock awards
|
(1,996
|
)
|
|
|
Total
|
$
|
(4,226
|
)
|
|
|
|
|
|
|
Net cumulative impact of the reorganization adjustments
|
$
|
564,838
|
|
|
|
|
|
|
N.
|
A fresh start adjustment to increase the net book value of inventories to their estimated fair value, based upon current replacement costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
O.
|
An adjustment to adjust the net book value of property and equipment to estimated fair value.
|
|
|
The following table summarizes the components of property and equipment, net as of the Effective Date, both before (Predecessor) and after (Successor) fair value adjustments:
|
|
|
|
|
|
|
Successor Fair Value
|
|
Predecessor Historical Cost
|
|
|
Oilfield service equipment
|
$
|
267,648
|
|
|
$
|
1,660,592
|
|
|
|
Disposal wells
|
23,288
|
|
|
74,008
|
|
|
|
Motor vehicles
|
39,322
|
|
|
262,370
|
|
|
|
Furniture and equipment
|
8,835
|
|
|
129,084
|
|
|
|
Buildings and land
|
65,525
|
|
|
103,635
|
|
|
|
Work in progress
|
3,818
|
|
|
6,139
|
|
|
|
Gross property and equipment
|
408,436
|
|
|
2,235,828
|
|
|
|
Accumulated depreciation
|
—
|
|
|
(1,523,585
|
)
|
|
|
Net property and equipment
|
$
|
408,436
|
|
|
$
|
712,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P.
|
An adjustment the net book value of other intangible assets to estimated fair value.
|
|
|
|
|
The following table summarizes the components of other intangible assets, net as of the Effective Date, both before (Predecessor) and after (Successor) fair value adjustments:
|
|
|
|
|
|
Successor Fair Value
|
|
Predecessor Historical Cost
|
|
|
Non-compete agreements
|
$
|
—
|
|
|
$
|
1,535
|
|
|
|
Patents, trademarks and tradenames
|
520
|
|
|
400
|
|
|
|
Customer relationships and contracts
|
—
|
|
|
40,640
|
|
|
|
Developed technology
|
—
|
|
|
4,778
|
|
|
|
Gross carrying value
|
520
|
|
|
47,353
|
|
|
|
Accumulated amortization
|
—
|
|
|
(43,757
|
)
|
|
|
Net other intangible assets
|
$
|
520
|
|
|
$
|
3,596
|
|
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
Q.
|
Represents fair value adjustment related to assets held for sale.
|
|
|
|
|
|
|
|
|
R.
|
Reduction in other current liabilities relates to the elimination of the current portion of deferred rent liabilities.
|
|
|
|
|
S.
|
Reduction in other long term liabilities relates to the elimination of the non-current portion of deferred rent liabilities totaling $3,429 and reduction in asset retirement obligation to reflect estimated fair value totaling $2,855.
|
|
|
|
|
|
T.
|
Reflects the cumulative impact of the fresh start accounting adjustments discussed above and the elimination of the Predecessor Company’s accumulated other comprehensive loss:
|
|
|
|
|
Property and equipment fair value adjustment
|
$
|
(303,807
|
)
|
|
|
Assets held for sale fair value adjustment
|
369
|
|
|
|
Elimination of deferred rent liability
|
3,693
|
|
|
|
ARO fair value adjustment
|
2,855
|
|
|
|
Inventory fair value adjustment
|
383
|
|
|
|
Intangible assets fair value adjustment
|
(3,076
|
)
|
|
|
Elimination of Predecessor accumulated other comprehensive loss
|
(40,394
|
)
|
|
|
Elimination of Predecessor additional paid in capital
|
970,502
|
|
|
|
Elimination of Predecessor retained deficit
|
$
|
630,525
|
|
NOTE 4. LIABILITIES SUBJECT TO COMPROMISE
Pursuant to ASC 852 liabilities subject to compromise in chapter 11 cases are distinguished from liabilities of non-filing entities, liabilities not expected to be compromised and from post-petition liabilities. The amount of liabilities subject to compromise represent the Company’s estimate, where an estimate is determinable, of known or potential prepetition claims to be addressed in connection with the bankruptcy proceedings. Such liabilities are reported at the Company’s current estimate, of the allowed claim amounts even though the claims may be settled for lesser amounts.
Prior to settlements pursuant to the Plan, liabilities subject to compromise was comprised of the following (in thousands):
|
|
|
|
|
|
|
|
2021 Notes
|
$
|
675,000
|
|
|
2021 Notes Interest
|
29,616
|
|
|
Predecessor Term Loan Facility
|
288,876
|
|
|
Severance
|
1,980
|
|
|
Lease and claim rejections
|
1,055
|
|
|
Total
|
$
|
996,527
|
|
NOTE 5. REORGANIZATION ITEMS
ASC 852 requires that the financial statements for periods subsequent to the filing of the Chapter 11 cases distinguish transactions and events that are directly associated with the reorganization of the ongoing operations of the business. Revenues, expenses, realized gains and losses, adjustments to the expected amount of allowed claims for liabilities subject to compromise and provisions for losses that can be directly associated with the reorganization and restructuring of the business have been reported as “Reorganization items, net” in the Consolidated Statements of Operations.
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes reorganizations items (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Year Ended December 31, 2018
|
|
Year Ended December 31, 2017
|
|
|
Period from January 1, 2016 through December 15, 2016
|
|
Gain on debt discharge
|
$
|
—
|
|
|
$
|
—
|
|
|
|
$
|
(578,699
|
)
|
|
Settlement/Rejection damages
|
—
|
|
|
—
|
|
|
|
(770
|
)
|
|
Fresh-start asset revaluation (gain) loss, net
|
—
|
|
|
10
|
|
|
|
299,583
|
|
|
Professional fees
|
—
|
|
|
1,491
|
|
|
|
15,156
|
|
|
Write-off of deferred financing costs, debt premiums and debt discounts
|
—
|
|
|
—
|
|
|
|
19,159
|
|
|
Total reorganization items, net
|
$
|
—
|
|
|
$
|
1,501
|
|
|
|
$
|
(245,571
|
)
|
With the exception of $1.5 million and $15.2 million in professional fees for the year ended December 31, 2017 and the
period from December 16, 2016 to December 31, 2016
, respectively, and $1.0 million in settlement and rejection damages for the
period from December 16, 2016 to December 31, 2016
, reorganization items are non-cash expenses.
NOTE 6. REVENUE FROM CONTRACTS WITH CUSTOMERS
On January 1, 2018, we adopted ASC 606 using the full retrospective method applied to those contracts that were not completed as of December 15, 2016. As noted in prior periods, we emerged from voluntary reorganization under Chapter 11 of the United States Bankruptcy Code on December 15, 2016 and therefore applied fresh-start accounting and adopted ASC 606 in effect at the fresh-start accounting date. As a result of electing to use the full retrospective adoption approach as described above, results for reporting periods beginning after December 15, 2016 are presented under ASC 606.
The adoption of ASC 606 did not have a material impact on our consolidated financial statements, and we did not record any adjustments to opening retained earnings as of December 15, 2016, because our services and rental contracts are principally charged on an hourly or daily rate basis and are primarily short-term in nature, typically less than 30 days.
Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. The following table presents our revenues disaggregated by revenue source (in thousands). Sales taxes are excluded from revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Year Ended December 31, 2018
|
|
Year Ended December 31, 2017
|
|
Period from December 16, 2016 through December 31, 2016
|
|
|
Period from January 1, 2016 through December 15, 2016
|
|
Rig Services
|
$
|
296,969
|
|
|
$
|
248,830
|
|
|
$
|
8,549
|
|
|
|
$
|
222,877
|
|
|
Fishing and Rental Services
|
64,691
|
|
|
59,172
|
|
|
3,389
|
|
|
|
55,790
|
|
|
Coiled Tubing Services
|
71,013
|
|
|
41,866
|
|
|
1,392
|
|
|
|
30,569
|
|
|
Fluid Management Services
|
89,022
|
|
|
80,726
|
|
|
3,208
|
|
|
|
76,008
|
|
|
International
|
—
|
|
|
5,571
|
|
|
1,292
|
|
|
|
14,179
|
|
|
Total
|
$
|
521,695
|
|
|
$
|
436,165
|
|
|
$
|
17,830
|
|
|
|
$
|
399,423
|
|
Disaggregation of Revenue
We have disaggregated our revenues by our reportable segments including Rig Services, Fishing & Rental Services, Coiled Tubing Services and Fluid Management Services.
Rig Services
Our Rig Services include the completion of newly drilled wells, workover and recompletion of existing oil and natural gas wells, well maintenance, and the plugging and abandonment of wells at the end of their useful lives. We also provide specialty drilling services to oil and natural gas producers with certain of our larger rigs that are capable of providing conventional and horizontal drilling services. Our rigs encompass various sizes and capabilities, allowing us to service all types of oil and gas wells.
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We recognize revenue within the Rig Services segment by measuring progress toward satisfying the performance obligation in a manner that best depicts the transfer of goods or services to the customer. The control over services is transferred as the services are rendered to the customer. Specifically, we recognize revenue as the services are provided, typically daily, as we have the right to invoice the customer for the services performed. Rig Services are billed monthly. Payment terms for Rig Services are usually 30 days from invoice receipt.
Fishing and Rental Services
We offer a full line of services and rental equipment designed for use in providing drilling and workover services. Fishing services involve recovering lost or stuck equipment in the wellbore utilizing a broad array of “fishing tools.” Our rental tool inventory consists of drill pipe, tubulars, handling tools (including our patented Hydra-Walk® pipe-handling units and services), pressure-control equipment, pumps, power swivels, reversing units, foam air units.
We recognize revenue within the Fishing and Rental Services segment by measuring progress toward satisfying the performance obligation in a manner that best depicts the transfer of goods or services to the customer. The control over services is transferred as the services are rendered to the customer. Specifically, we recognize revenue as the services are provided, typically daily, as we have the right to invoice the customer for the services performed. Fishing and Rental Services are billed and paid monthly. Payment terms for Fishing and Rental Services are usually 30 days from invoice receipt.
Coiled Tubing Services
Coiled Tubing Services involve the use of a continuous metal pipe spooled onto a large reel, which is then deployed into oil and natural gas wells to perform various applications, such as wellbore clean-outs, nitrogen jet lifts, through-tubing fishing, and formation stimulations utilizing acid and chemical treatments. Coiled tubing is also used for a number of horizontal well applications such as milling temporary isolation plugs that separate frac zones, and various other pre- and post-hydraulic fracturing well preparation services.
We recognize revenue within the Coiled Tubing Services segment by measuring progress toward satisfying the performance obligation in a manner that best depicts the transfer of goods or services to the customer. The control over services is transferred as the services are rendered to the customer. Specifically, we recognize revenue, typically daily, as the services are provided as we have the right to invoice the customer for the services performed. Coiled Tubing Services are billed and paid monthly. Payment terms for Coiled Tubing Services are usually 30 days from invoice receipt.
Fluid Management Services
We provide transportation and well-site storage services for various fluids utilized in connection with drilling, completions, workover and maintenance activities. We also provide disposal services for fluids produced subsequent to well completion. These fluids are removed from the well site and transported for disposal in saltwater disposal wells owned by us or a third party.
We recognize revenue within the Fluid Management Services segment by measuring progress toward satisfying the performance obligation in a manner that best depicts the transfer of goods or services to the customer. The control over services is transferred as the services are rendered to the customer. Specifically, we recognize revenue as the services are provided, typically daily, as we have the right to invoice the customer for the services performed. Fluid Management Services are billed and paid monthly. Payment terms for Fluid Management Services are usually 30 days from invoice receipt.
International
Our former International segment included our former operations in Mexico, Canada and Russia. Our services in Mexico and Russia consisted of rig-based services such as the maintenance, workover, and recompletion of existing oil wells, completion of newly-drilled wells, and plugging and abandonment of wells at the end of their useful lives. We also had a technology development and control systems business based in Canada, which was focused on the development of hardware and software related to oilfield service equipment controls, data acquisition and digital information flow.
We recognized revenue within the International segment by measuring progress toward satisfying the performance obligation in a manner that best depicted the transfer of goods or services to the customer. The control over services was transferred as the services were rendered to the customer. Specifically, we recognized revenue as the services were provided, typically daily, as we had the right to invoice the customer for the services performed. Services within the international segment were billed and paid monthly. Payment terms for services within the International segment were usually 30 days from invoice receipt.
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Arrangements with Multiple Performance Obligations
While not typical for our business, our contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenues to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers or using expected cost-plus margin. For combined products and services within a contract, we account for individual products and services separately if they are distinct- i.e. if a product or service is separately identifiable from other items in the contract and if a customer can benefit from it on its own or with other resources that are readily available to the customer. The consideration (including any discounts) is allocated between separate products and services within a contract based on the prices at which we separately sell our services. For items that are not sold separately, we estimate the standalone selling prices using the expected cost-plus margin approach.
Contract Balances
Under our revenue contracts, we invoice customers once our performance obligations have been satisfied, at which point payment is unconditional. Accordingly, our revenue contracts do not give rise to contract assets or liabilities under ASC 606.
Practical Expedients and Exemptions
We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within general and administrative expenses.
The majority of our services are short-term in nature with a contract term of one year or less. For those contracts, we have utilized the practical expedient in ASC 606-10-50-14 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.
Additionally, our payment terms are short-term in nature with settlements of one year or less. We have, therefore, utilized the practical expedient in ASC 606-10-32-18 exempting the Company from adjusting the promised amount of consideration for the effects of a significant financing component given that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.
Further, in many of our service contracts we have a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date (for example, a service contract in which an entity bills a fixed amount for each hour of service provided). For those contracts, we have utilized the practical expedient in ASC 606-10-55-18 exempting the Company from disclosure of the entity to recognize revenue in the amount to which the Company has a right to invoice.
Accordingly, we do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
NOTE 7. OTHER BALANCE SHEET INFORMATION
The table below presents comparative detailed information about other current assets at
December 31, 2018
and
2017
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
Other current assets:
|
|
|
|
|
Prepaid current assets
|
$
|
11,207
|
|
|
$
|
9,598
|
|
|
Reinsurance receivable
|
6,365
|
|
|
7,328
|
|
|
Other
|
501
|
|
|
2,551
|
|
|
Total
|
$
|
18,073
|
|
|
$
|
19,477
|
|
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The table below presents comparative detailed information about other non-current assets at
December 31, 2018
and
2017
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
Other non-current assets:
|
|
|
|
|
Reinsurance receivable
|
$
|
6,743
|
|
|
$
|
7,768
|
|
|
Deposits
|
1,309
|
|
|
1,246
|
|
|
Other
|
510
|
|
|
5,528
|
|
|
Total
|
$
|
8,562
|
|
|
$
|
14,542
|
|
The table below presents comparative detailed information about other current liabilities at
December 31, 2018
and
2017
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
Other current liabilities:
|
|
|
|
|
Accrued payroll, taxes and employee benefits
|
$
|
19,346
|
|
|
$
|
19,874
|
|
|
Accrued operating expenditures
|
15,861
|
|
|
11,644
|
|
|
Income, sales, use and other taxes
|
8,911
|
|
|
12,151
|
|
|
Self-insurance reserves
|
25,358
|
|
|
26,761
|
|
|
Accrued interest
|
7,105
|
|
|
6,605
|
|
|
Accrued insurance premiums
|
5,651
|
|
|
4,077
|
|
|
Unsettled legal claims
|
4,356
|
|
|
4,747
|
|
|
Accrued severance
|
83
|
|
|
250
|
|
|
Other
|
706
|
|
|
1,470
|
|
|
Total
|
$
|
87,377
|
|
|
$
|
87,579
|
|
The table below presents comparative detailed information about other non-current liabilities at
December 31, 2018
and
2017
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
Other non-current liabilities:
|
|
|
|
|
Asset retirement obligations
|
$
|
9,018
|
|
|
$
|
8,931
|
|
|
Environmental liabilities
|
2,227
|
|
|
1,977
|
|
|
Accrued sales, use and other taxes
|
17,024
|
|
|
17,142
|
|
|
Other
|
67
|
|
|
116
|
|
|
Total
|
$
|
28,336
|
|
|
$
|
28,166
|
|
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 8.
OTHER (INCOME) LOSS, NET
The table below presents comparative detailed information about our other income and expense for
the years ended December 31, 2018 and 2017, the period from December 16, 2016 through December 31, 2016 and the period from January 1, 2016 through December 15, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Year Ended December 31, 2018
|
|
Year Ended December 31, 2017
|
|
Period from December 16, 2016 through December 31, 2016
|
|
|
Period from January 1, 2016 through December 15, 2016
|
|
Interest income
|
$
|
(820
|
)
|
|
$
|
(711
|
)
|
|
$
|
(20
|
)
|
|
|
$
|
(407
|
)
|
|
Foreign exchange (gain) loss
|
(2
|
)
|
|
(33
|
)
|
|
17
|
|
|
|
1,005
|
|
|
Other, net
|
(1,532
|
)
|
|
(6,443
|
)
|
|
35
|
|
|
|
(3,041
|
)
|
|
Total
|
$
|
(2,354
|
)
|
|
$
|
(7,187
|
)
|
|
$
|
32
|
|
|
|
$
|
(2,443
|
)
|
NOTE 9. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The table below presents a rollforward of our allowance for doubtful accounts for
the years ended December 31, 2018 and 2017, the period from December 16, 2016 through December 31, 2016 and the period from January 1, 2016 through December 15, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
Beginning
of Period
|
|
Charged to
Expense
|
|
Deductions
|
|
Balance at
End of
Period
|
|
Successor:
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
$
|
875
|
|
|
$
|
286
|
|
|
$
|
(105
|
)
|
|
$
|
1,056
|
|
|
As of December 31, 2017
|
168
|
|
|
1,420
|
|
|
(713
|
)
|
|
875
|
|
|
As of December 31, 2016
|
—
|
|
|
168
|
|
|
—
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor:
|
|
|
|
|
|
|
|
|
As of December 15, 2016
|
20,915
|
|
|
2,532
|
|
|
(20,404
|
)
|
|
3,043
|
|
In connection with the application of fresh start accounting on December 15, 2016, the carrying value of trade receivables was adjusted to fair value, eliminating the reserve for doubtful accounts. See “
Note 3. Fresh Start Accounting
” for more details.
NOTE 10. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
Major classes of property and equipment:
|
|
|
|
|
Oilfield service equipment
|
$
|
284,943
|
|
|
$
|
260,396
|
|
|
Disposal wells
|
30,863
|
|
|
29,633
|
|
|
Motor vehicles
|
44,286
|
|
|
43,366
|
|
|
Furniture and equipment
|
6,469
|
|
|
5,456
|
|
|
Buildings and land
|
65,328
|
|
|
66,964
|
|
|
Work in progress
|
7,154
|
|
|
7,312
|
|
|
Gross property and equipment
|
439,043
|
|
|
413,127
|
|
|
Accumulated depreciation
|
(163,333
|
)
|
|
(85,813
|
)
|
|
Net property and equipment
|
$
|
275,710
|
|
|
$
|
327,314
|
|
Interest is capitalized on the average amount of accumulated expenditures for major capital projects under construction using an effective interest rate based on related debt until the underlying assets are placed into service. Capitalized interest for
the
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
years ended December 31, 2018 and 2017, the period from December 16, 2016 through December 31, 2016 and the period from January 1, 2016 through December 15, 2016
was
zero
. As of
December 31, 2018
and
2017
, we have no capital lease obligations.
NOTE 11. INTANGIBLE ASSETS
The components of our intangible assets as of
December 31, 2018
and
2017
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
Gross carrying value
|
$
|
520
|
|
|
$
|
520
|
|
|
Accumulated amortization
|
(116
|
)
|
|
(58
|
)
|
|
Net carrying value
|
$
|
404
|
|
|
$
|
462
|
|
Amortization expense for our intangible assets with determinable lives was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
Year Ended December 31, 2018
|
|
Year Ended December 31, 2017
|
|
Period from December 16, 2016 through December 31, 2016
|
|
|
Period from January 1, 2016 through December 15, 2016
|
|
Noncompete agreements
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
$
|
179
|
|
|
Patents and trademarks
|
58
|
|
|
58
|
|
|
—
|
|
|
|
40
|
|
|
Customer relationships and contracts
|
—
|
|
|
—
|
|
|
—
|
|
|
|
1,239
|
|
|
Developed technology
|
—
|
|
|
—
|
|
|
—
|
|
|
|
340
|
|
|
Total intangible asset amortization expense
|
$
|
58
|
|
|
$
|
58
|
|
|
$
|
—
|
|
|
|
$
|
1,798
|
|
The weighted average remaining amortization periods and expected amortization expense for the next five years for our definite lived intangible assets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average remaining
amortization
period (years)
|
|
Expected Amortization Expense
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Trademarks
|
7.0
|
|
$
|
58
|
|
|
$
|
58
|
|
|
$
|
58
|
|
|
$
|
58
|
|
|
$
|
58
|
|
|
Total expected intangible asset amortization expense
|
|
|
$
|
58
|
|
|
$
|
58
|
|
|
$
|
58
|
|
|
$
|
58
|
|
|
$
|
58
|
|
NOTE 12. EARNINGS PER SHARE
The following table presents our basic and diluted earnings per share (“EPS
”
) for the years ended
December 31, 2018
,
2017
and
2016
(in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Year Ended December 31, 2018
|
|
Year Ended December 31, 2017
|
|
Period from December 16, 2016 through December 31, 2016
|
|
|
Period from January 1, 2016 through December 15, 2016
|
|
Basic and diluted EPS Calculation:
|
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(88,796
|
)
|
|
$
|
(120,589
|
)
|
|
$
|
(10,244
|
)
|
|
|
$
|
(131,736
|
)
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
20,250
|
|
|
20,105
|
|
|
20,090
|
|
|
|
160,587
|
|
|
Basic loss per share
|
$
|
(4.38
|
)
|
|
$
|
(6.00
|
)
|
|
$
|
(0.51
|
)
|
|
|
$
|
(0.82
|
)
|
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Stock options, warrants and stock appreciation rights (“SARs”) are included in the computation of diluted earnings per share using the treasury stock method. Restricted stock awards are legally considered issued and outstanding when granted and are included in basic weighted average shares outstanding.
The company has issued potentially dilutive instruments such as RSUs, stock options, SARs and warrants. However, the company did not include these instruments in its calculation of diluted loss per share during the periods presented, because to include them would be anti-dilutive. The following table shows potentially dilutive instruments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Year Ended December 31, 2018
|
|
Year Ended December 31, 2017
|
|
Period from December 16, 2016 through December 31, 2016
|
|
|
Period from January 1, 2016 through December 15, 2016
|
|
RSUs
|
1,192
|
|
|
1,778
|
|
|
667
|
|
|
|
93
|
|
|
Stock options
|
138
|
|
|
701
|
|
|
648
|
|
|
|
812
|
|
|
SARs
|
—
|
|
|
—
|
|
|
—
|
|
|
|
240
|
|
|
Warrants
|
1,838
|
|
|
1,838
|
|
|
1,838
|
|
|
|
—
|
|
|
Total
|
3,168
|
|
|
4,317
|
|
|
3,153
|
|
|
|
1,145
|
|
There have been no material changes in share amounts subsequent to the balance sheet date that would have a material impact on the earnings per share calculation.
NOTE 13. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, cash equivalents, accounts receivable, accounts payable and accrued liabilities.
These carrying amounts approximate fair value because of the short maturity of the instruments or because the carrying value is equal to the fair value of those instruments on the balance sheet date.
Term Loan Facility due 2021
. Because the variable interest rates of these loans approximate current market rates, the fair values of the loans borrowed under this facility approximate their carrying values.
NOTE 14. ASSET RETIREMENT OBLIGATIONS
In connection with our well servicing activities, we operate a number of saltwater disposal (“SWD”) facilities. Our operations involve the transportation, handling and disposal of fluids in our SWD facilities that are by-products of the drilling process. SWD facilities used in connection with our fluid hauling operations are subject to future costs associated with the retirement of these properties. As a result, we have incurred costs associated with the proper storage and disposal of these materials.
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Annual accretion of the assets associated with the asset retirement obligations were
$0.2 million
,
$0.2 million
, less than
$0.1 million
and
$0.6 million
for
the years ended December 31, 2018 and 2017, the period from December 16, 2016 through December 31, 2016 and the period from January 1, 2016 through December 15, 2016
, respectively. The application of fresh-start accounting with the effectiveness of the Company’s Plan of Reorganization has resulted in the financial statements of the Predecessor and Successor not being comparable. A summary of changes in our asset retirement obligations is as follows (in thousands):
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Balance at December 31, 2015
|
$
|
12,570
|
|
|
Additions
|
68
|
|
|
Costs incurred
|
(918
|
)
|
|
Accretion expense
|
570
|
|
|
Disposals
|
(400
|
)
|
|
Balance at December 15, 2016
|
11,890
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Balance at December 15, 2016
|
9,035
|
|
|
Additions
|
—
|
|
|
Costs incurred
|
—
|
|
|
Accretion expense
|
34
|
|
|
Disposals
|
—
|
|
|
Balance at December 31, 2016
|
9,069
|
|
|
Additions
|
36
|
|
|
Costs incurred
|
(147
|
)
|
|
Accretion expense
|
221
|
|
|
Disposals
|
(248
|
)
|
|
Balance at December 31, 2017
|
8,931
|
|
|
Additions
|
340
|
|
|
Costs incurred
|
(417
|
)
|
|
Accretion expense
|
164
|
|
|
Disposals
|
—
|
|
|
Balance at December 31, 2018
|
$
|
9,018
|
|
NOTE 15. INCOME TAXES
The U.S. Tax Cuts and Jobs Act (the “2017 Tax Act”) was enacted on December 22, 2017. The 2017 Tax Act is comprehensive tax reform legislation that contains significant changes to corporate taxation. Provisions on the enacted law include a permanent reduction of the corporate income tax rate from
35%
to
21%
, imposing a mandatory one-time tax on un-repatriated accumulated earnings of foreign subsidiaries, a partial limitation on the deductibility of business interest expense, a limitation on net operating losses to 80% of taxable income each year, a shift of the U.S. taxation of multinational corporations from a tax on worldwide income to a partial territorial system (along with rules that create a new U.S. minimum tax on earnings of foreign subsidiaries), and other related provisions to maintain the U.S. tax base.
We recognized the income tax effects of the 2017 Tax Act in accordance with Staff Accounting Bulletin No. 118 (“SAB 118”) during 2017. SAB 118 provided SEC staff guidance for the application of ASC Topic 740, Income Taxes, and allowed for a measurement period of up to one year after the enactment date to finalize the recording of the related tax impacts. As such, our 2017 financial results reflected the provisional income tax effects of the 2017 Tax Act for which the accounting under ASC Topic 740 was incomplete but a reasonable estimate could be determined. We did not identify any items for which the income tax effects of the 2017 Tax Act could not be reasonably estimated as of December 31, 2017. Additional clarifying guidance and law corrections were issued by the U.S. government during 2018 related to the 2017 Tax Act, which provided further insight into properly accounting for the impacts of U.S. tax reform. During 2018, we finalized our accounting for this matter and concluded that no adjustments were required from our provisionally recorded amounts from 2017. We no longer have any provisionally recorded items related to the enactment of the 2017 Tax Act as of December 31, 2018.
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The components of our income tax expense are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Year Ended December 31, 2018
|
|
Year Ended December 31, 2017
|
|
Period from December 16, 2016 through December 31, 2016
|
|
|
Period from January 1, 2016 through December 15, 2016
|
|
Current income tax (expense) benefit
|
$
|
1,979
|
|
|
$
|
1,667
|
|
|
$
|
—
|
|
|
|
$
|
(2,042
|
)
|
|
Deferred income tax (expense) benefit
|
—
|
|
|
35
|
|
|
—
|
|
|
|
(787
|
)
|
|
Total income tax (expense) benefit
|
$
|
1,979
|
|
|
$
|
1,702
|
|
|
$
|
—
|
|
|
|
$
|
(2,829
|
)
|
We made federal income tax payments of
zero
for
the years ended December 31, 2018 and 2017, the period from December 16, 2016 through December 31, 2016 and the period from January 1, 2016 through December 15, 2016
, respectively. In addition, we received federal income tax refunds of
$1.1 million
,
zero
,
0.4 million
and
6.9 million
during
the years ended December 31, 2018 and 2017, the period from December 16, 2016 through December 31, 2016 and the period from January 1, 2016 through December 15, 2016
, respectively.
Income tax (expense) benefit differs from amounts computed by applying the statutory federal rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Year Ended December 31, 2018
|
|
Year Ended December 31, 2017
|
|
Period from December 16, 2016 through December 31, 2016
|
|
|
Period from January 1, 2016 through December 15, 2016
|
|
Income tax benefit computed at Federal statutory rate
|
21.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
State taxes
|
(0.2
|
)%
|
|
—
|
%
|
|
—
|
%
|
|
|
(9.1
|
)%
|
|
Meals and entertainment
|
(0.4
|
)%
|
|
(0.4
|
)%
|
|
—
|
%
|
|
|
(0.3
|
)%
|
|
Foreign rate difference
|
—
|
%
|
|
0.4
|
%
|
|
—
|
%
|
|
|
(0.3
|
)%
|
|
Non-deductible goodwill and asset impairments
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
|
(4.0
|
)%
|
|
Non-deductible bankruptcy costs
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
|
(15.7
|
)%
|
|
Non-taxable cancellation of debt income
|
2.6
|
%
|
|
—
|
%
|
|
—
|
%
|
|
|
154.6
|
%
|
|
Penalties and other non-deductible expenses
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
|
(2.3
|
)%
|
|
Sale of Mexico
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
|
16.5
|
%
|
|
Change in valuation allowance
|
(20.1
|
)%
|
|
(33.8
|
)%
|
|
(35.0
|
)%
|
|
|
(171.1
|
)%
|
|
Equity compensation
|
(0.7
|
)%
|
|
(1.0
|
)%
|
|
—
|
%
|
|
|
—
|
%
|
|
U.S. tax reform - impact to deferred tax assets and liabilities
|
—
|
%
|
|
(67.4
|
)%
|
|
—
|
%
|
|
|
—
|
%
|
|
U.S. tax reform - change in valuation allowance
|
—
|
%
|
|
67.4
|
%
|
|
—
|
%
|
|
|
—
|
%
|
|
Other
|
—
|
%
|
|
1.2
|
%
|
|
—
|
%
|
|
|
(5.5
|
)%
|
|
Effective income tax rate
|
2.2
|
%
|
|
1.4
|
%
|
|
—
|
%
|
|
|
(2.2
|
)%
|
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of
December 31, 2018
and
2017
, our deferred tax assets and liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
Deferred tax assets:
|
|
|
|
|
Net operating loss and tax credit carryforwards
|
$
|
113,230
|
|
|
$
|
103,251
|
|
|
Capital loss carryforwards
|
15,826
|
|
|
16,375
|
|
|
Foreign tax credit carryforward
|
17,095
|
|
|
17,095
|
|
|
Self-insurance reserves
|
8,581
|
|
|
8,734
|
|
|
Interest expense limitation
|
6,055
|
|
|
—
|
|
|
Accrued liabilities
|
9,213
|
|
|
9,479
|
|
|
Share-based compensation
|
1,221
|
|
|
513
|
|
|
Intangible assets
|
44,748
|
|
|
52,146
|
|
|
Other
|
670
|
|
|
1,036
|
|
|
Total deferred tax assets
|
216,639
|
|
|
208,629
|
|
|
Valuation allowance for deferred tax assets
|
(190,791
|
)
|
|
(175,577
|
)
|
|
Net deferred tax assets
|
25,848
|
|
|
33,052
|
|
|
Deferred tax liabilities:
|
|
|
|
|
Property and equipment
|
(25,848
|
)
|
|
(33,052
|
)
|
|
Total deferred tax liabilities
|
(25,848
|
)
|
|
(33,052
|
)
|
|
Net deferred tax asset (liability), net of valuation allowance
|
$
|
—
|
|
|
$
|
—
|
|
The December 31, 2018 net deferred tax asset is comprised of
$216.6 million
deferred tax assets before valuation allowance, and
$25.8 million
deferred tax liabilities. The valuation allowance against the net deferred tax asset increased by approximately $15.2 million from December 31, 2017 to December 31, 2018.
Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the tax basis of an asset or liability and its reported amount in the Consolidated Financial Statements. The measurement of deferred tax assets and liabilities is based on enacted tax laws and rates currently in effect in each of the jurisdictions in which we have operations.
In recording deferred income tax assets, we consider whether it is more likely than not that some portion or all of the deferred income tax assets will be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income of the appropriate character during the periods in which those deferred income tax assets would be deductible. We consider the scheduled reversal of deferred income tax liabilities and projected future taxable income for this determination. Due to the history of losses in recent years and the continued challenges in the oil and gas industry, management continues to believe that it is more likely than not that we will not be able to realize our net deferred tax assets, and therefore a valuation allowance remains on the net deferred tax asset balance.
We estimate that as of
December 31, 2018
,
2017
and
2016
, we have available
$434.2 million
,
$373.1 million
and
$252.8 million
(after attribute reduction), respectively, of federal net operating loss carryforwards. However, Internal Revenue Code Sections 382 and 383 impose limitations on a corporation’s ability to utilize tax attributes if the corporation experiences an “ownership change.” The Company experienced an ownership change on December 15, 2016, as the emergence of the Company and certain of its domestic subsidiaries from chapter 11 bankruptcy proceedings is considered a change in ownership for purposes of IRC Section 382. As a result, approximately
$2.4 million
of our net operating losses as of
December 31, 2018
are subject to Section 382 limitation and expire in
2019
to
2020
. If a subsequent ownership change were to occur as a result of future transactions in the Company’s stock, the Company’s use of remaining U.S. tax attributes may be further limited.
We estimate that as of
December 31, 2018
,
2017
and
2016
, we have available
$429.3 million
,
$485.6 million
and
$378.8 million
, respectively, of state net operating loss carryforwards that will expire between
2019
and
2038
. We estimate that we have remaining capital loss carryforward of
$75.3 million
. Our remaining capital loss carryforwards will expire in
2021
.
We are no longer subject examination for tax years before 2015 in federal and most state jurisdictions.
Under the Plan, a substantial portion of the Company’s pre-petition debt securities, revolving credit facility and other obligations were extinguished. Absent an exception, a debtor recognizes cancellation of indebtedness income (“CODI”) upon discharge of its
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
outstanding indebtedness for an amount of consideration that is less than its adjusted issue price. The Internal Revenue Code of 1986, as amended (“IRC”), provides that a debtor in a bankruptcy case may exclude CODI from taxable income but must reduce certain of its tax attributes by the amount of any CODI realized as a result of the consummation of a plan of reorganization. The amount of CODI realized by a taxpayer is the adjusted issue price of any indebtedness discharged less the sum of (i) the amount of cash paid, (ii) the issue price of any new indebtedness issued and (iii) the fair market value of any other consideration, including equity, issued. As a result of the market value of equity upon emergence from chapter 11 bankruptcy proceedings, the estimated amount of U.S. CODI is approximately
$295.8 million
, which will reduce the value of Key’s U.S. net operating losses including federal and state that had a value of
$518.8 million
as of December 15, 2016. The actual reduction in tax attributes did not occur until the first day of the Company’s tax year subsequent to the date of emergence, or December 16, 2016.
Uncertainty in Income Taxes
As of December 31, 2018, December 31, 2017, December 31, 2016 and December 16, 2016 we had
zero
,
$0.1 million
,
$0.4 million
and
$0.4 million
, respectively, of unrecognized tax benefits which, if recognized, would impact our effective tax rate. We recognized a net tax benefit
$0.1 million
in 2018,
$0.3 million
in 2017,
zero
for the period ended December 31, 2016,
$0.2 million
for the period ended December 15, 2016 for statutes of limitations expiration. As of December 31, 2018 our ending balance for uncertain tax position reserves in zero, due to the statute of limitations lapse. A reconciliation of the gross change in the unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
Predecessor:
|
|
|
Balance at December 31, 2015
|
$
|
566
|
|
|
Reductions as a result of a lapse of the applicable statute of limitations
|
(206
|
)
|
|
Balance at December 15, 2016
|
360
|
|
|
|
|
|
|
|
|
Successor:
|
|
|
Balance at December 15, 2016
|
360
|
|
|
Reductions as a result of a lapse of the applicable statute of limitations
|
—
|
|
|
Balance at December 31, 2016
|
360
|
|
|
Reductions as a result of a lapse of the applicable statute of limitations
|
(252
|
)
|
|
Year Ended December 31, 2017
|
108
|
|
|
Reductions as a result of a lapse of the applicable statute of limitations
|
(108
|
)
|
|
Year Ended December 31, 2018
|
$
|
—
|
|
NOTE 16. LONG-TERM DEBT
The components of our long-term debt are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
Term Loan Facility due 2021
|
$
|
245,000
|
|
|
$
|
247,500
|
|
|
Debt issuance costs and unamortized premium (discount) on debt, net
|
(1,421
|
)
|
|
(1,897
|
)
|
|
Total
|
243,579
|
|
|
245,603
|
|
|
Less current portion
|
(2,500
|
)
|
|
(2,500
|
)
|
|
Long-term debt
|
$
|
241,079
|
|
|
$
|
243,103
|
|
ABL Facility
On December 15, 2016, the Company and Key Energy Services, LLC, as borrowers (the “ABL Borrowers”), entered into the ABL Facility with the financial institutions party thereto from time to time as lenders (the “ABL Lenders”), Bank of America, N.A., as administrative agent for the lenders, and Bank of America, N.A. and Wells Fargo Bank, National Association, as co-collateral agents for the lenders. The ABL Facility provides for aggregate initial commitments from the ABL Lenders of
$80 million
, which, on February 3, 2017 was increased to
$100 million
, and matures on
June 15, 2021
.
The ABL Facility provides the ABL Borrowers with the ability to borrow up to an aggregate principal amount equal to the lesser of (i) the aggregate revolving commitments then in effect and (ii) the sum of (a)
85%
of the value of eligible accounts receivable
plus
(b)
80%
of the value of eligible unbilled accounts receivable, subject to a limit equal to the greater of (x)
$35
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
million
and (y)
25%
of the Commitments. The amount that may be borrowed under the ABL Facility is subject to increase or reduction based on certain segregated cash or reserves provided for by the ABL Facility. In addition, the percentages of accounts receivable and unbilled accounts receivable included in the calculation described above is subject to reduction to the extent of certain bad debt write-downs and other dilutive items provided in the ABL Facility.
Borrowings under the ABL Facility will bear interest, at the ABL Borrowers’ option, at a per annum rate equal to (i) LIBOR for 30, 60, 90, 180, or, with the consent of the ABL Lenders, 360 days, plus an applicable margin that varies from
2.50%
to
4.50%
depending on the Borrowers’ fixed charge coverage ratio at such time or (ii) a base rate equal to the sum of (a) the greatest of (x) the prime rate, (y) the federal funds rate, plus
0.50%
or (z) 30-day LIBOR, plus
1.0%
plus (b) an applicable margin that varies from
1.50%
to
3.50%
depending on the Borrowers’ fixed charge coverage ratio at such time. In addition, the ABL Facility provides for unused line fees of
1.0%
to
1.25%
per year, depending on utilization, letter of credit fees and certain other factors.
The ABL Facility may in the future be guaranteed by certain of the Company’s existing and future subsidiaries (the “ABL Guarantors,” and together with the ABL Borrowers, the “ABL Loan Parties”). To secure their obligations under the ABL Facility, each of the ABL Loan Parties has granted or will grant, as applicable, to the Administrative Agent a first-priority security interest for the benefit of the ABL Lenders in its present and future accounts receivable, inventory and related assets and proceeds of the foregoing (the “ABL Priority Collateral”). In addition, the obligations of the ABL Loan Parties under the ABL Facility are secured by second-priority liens on the Term Priority Collateral (as described below under “Term Loan Facility”).
The revolving loans under the ABL Facility may be voluntarily prepaid, in whole or in part, without premium or penalty, subject to breakage or similar costs.
The ABL Facility contains certain affirmative and negative covenants, including covenants that restrict the ability of the ABL Loan Parties to take certain actions including, among other things and subject to certain significant exceptions, the incurrence of debt, the granting of liens, the making of investments, entering into transactions with affiliates, the payment of dividends and the sale of assets. The ABL Facility also contains a requirement that the ABL Borrowers comply, during certain periods, with a fixed charge coverage ratio of
1.00
to 1.00.
As of
December 31, 2018
, we had
no
borrowings outstanding under the ABL Facility and
$34.8 million
of letters of credit outstanding with borrowing capacity of
$24.0 million
available subject to covenant constraints under our ABL Facility.
Term Loan Facility
On December 15, 2016, the Company entered into the Term Loan Facility among the Company, as borrower, certain subsidiaries of the Company named as guarantors therein, the financial institutions party thereto from time to time as Lenders (collectively, the “Term Loan Lenders”) and Cortland Capital Market Services LLC and Cortland Products Corp., as agent for the Lenders. The Term Loan Facility had an outstanding principal amount of
$250 million
.
The Term Loan Facility will mature on
December 15, 2021
, although such maturity date may, at the Company’s request, be extended by one or more of the Term Loan Lenders pursuant to the terms of the Term Loan Facility. Borrowings under the Term Loan Facility will bear interest, at the Company’s option, at a per annum rate equal to (i) LIBOR for one, two, three, six, or, with the consent of the Term Loan Lenders, 12 months, plus
10.25%
or (ii) a base rate equal to the sum of (a) the greatest of (x) the prime rate, (y) the Federal Funds rate, plus
0.50%
and (z) 30-day LIBOR, plus
1.0%
plus (b)
9.25%
.
The Term Loan Facility is guaranteed by certain of the Company’s existing and future subsidiaries (the “Term Loan Guarantors,” and together with the Company, the “Term Loan Parties”). To secure their obligations under the Term Loan Facility, each of the Term Loan Parties has granted or will grant, as applicable, to the agent a first-priority security interest for the benefit of the Term Loan Lenders in substantially all of each Term Loan Party’s assets other than certain excluded assets and the ABL Priority Collateral (the “Term Priority Collateral”). In addition, the obligations of the Term Loan Parties under the Term Loan Facility are secured by second-priority liens on the ABL Priority Collateral (as described above under “ABL Facility”).
The loans under the Term Loan Facility may be prepaid at the Company’s option, subject to the payment of a prepayment premium in certain circumstances as provided in the Term Loan Facility. If a prepayment is made after the first anniversary of the loan but prior to the second anniversary, such prepayment must be made at
106%
of the principle amount, if a prepayment is made after the second anniversary but prior to the third anniversary, such prepayment must be made at
103%
of the principle amount. After the third anniversary, if a prepayment is made, no prepayment premium is due. The Company is required to make principal payments in the amount of
$625,000
per quarter commencing with the quarter ending March 31, 2017. In addition, pursuant to the Term Loan Facility, the Company must prepay or offer to prepay, as applicable, term loans with the net cash proceeds of certain debt incurrences and asset sales, excess cash flow, and upon certain change of control transactions, subject in each case to certain exceptions.
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Term Loan Facility contains certain affirmative and negative covenants, including covenants that restrict the ability of the Term Loan Parties to take certain actions including, among other things and subject to certain significant exceptions, the incurrence of debt, the granting of liens, the making of investments, entering into transactions with affiliates, the payment of dividends and the sale of assets. The Term Loan Facility also contains financial covenants requiring that the Company maintain an asset coverage ratio of at least
1.35
to 1.0 and that Liquidity (as defined in the Term Loan Facility) must not be less than
$37.5 million
(of which at least
$20.0 million
must be in cash or cash equivalents held in deposit accounts) as of the last day of any fiscal quarter, subject to certain exceptions and cure rights.
The weighted average interest rates on the outstanding borrowings under the Term Loan Facility for the year ended
December 31, 2018
was as follows:
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
Term Loan Facility
|
12.42
|
%
|
Debt Compliance
At
December 31, 2018
, we were in compliance with all the financial covenants under our ABL Facility and the Term Loan Facility. Based on management’s current projections, we expect to be in compliance with all the covenants under our ABL Facility and Term Loan Facility for the next twelve months. A breach of any of these covenants, ratios or tests could result in a default under our indebtedness.
Long-Term Debt Principal Repayment and Interest Expense
Presented below is a schedule of the repayment requirements of long-term debt as of
December 31, 2018
(in thousands):
|
|
|
|
|
|
|
|
|
Principal Amount of Long-Term Debt
|
|
2019
|
$
|
2,500
|
|
|
2020
|
2,500
|
|
|
2021
|
240,000
|
|
|
Total long-term debt
|
$
|
245,000
|
|
Interest expense for
the years ended December 31, 2018 and 2017, the period from December 16, 2016 through December 31, 2016 and the period from January 1, 2016 through December 15, 2016
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Year Ended December 31, 2018
|
|
Year Ended December 31, 2017
|
|
Period from December 16, 2016 through December 31, 2016
|
|
|
Period from January 1, 2016 through December 15, 2016
|
|
Cash payments
|
$
|
32,718
|
|
|
$
|
30,397
|
|
|
$
|
1,312
|
|
|
|
$
|
69,134
|
|
|
Commitment and agency fees paid
|
969
|
|
|
924
|
|
|
35
|
|
|
|
772
|
|
|
Amortization of discount and premium on debt
|
—
|
|
|
—
|
|
|
—
|
|
|
|
1,086
|
|
|
Amortization of deferred financing costs
|
476
|
|
|
476
|
|
|
17
|
|
|
|
3,328
|
|
|
Write-off of deferred financing costs
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
Net interest expense
|
$
|
34,163
|
|
|
$
|
31,797
|
|
|
$
|
1,364
|
|
|
|
$
|
74,320
|
|
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Deferred Financing Costs
A summary of deferred financing costs including capitalized costs, write-offs and amortization are presented in the table below (in thousands):
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Balance at December 15, 2016
|
$
|
—
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Balance at December 15, 2016
|
2,040
|
|
|
Capitalized costs
|
—
|
|
|
Amortization
|
(17
|
)
|
|
Balance at December 31, 2016
|
2,023
|
|
|
Capitalized costs
|
350
|
|
|
Amortization
|
(476
|
)
|
|
Balance at December 31, 2017
|
1,897
|
|
|
Capitalized costs
|
—
|
|
|
Amortization
|
(476
|
)
|
|
Balance at December 31, 2018
|
$
|
1,421
|
|
The Predecessor balance of
$14.8 million
was eliminated in accordance with ASC 852, recorded as a reorganization item on the consolidated statement of operations. See “
Note 5. Reorganization Items
” for more details.
NOTE 17. COMMITMENTS AND CONTINGENCIES
Operating Lease Arrangements
We lease certain property and equipment under non-cancelable operating leases that expire at various dates through 2024, with varying payment dates throughout each month. In addition, we have a number of leases scheduled to expire during 2018.
As of
December 31, 2018
, the future minimum lease payments under non-cancelable operating leases are as follows (in thousands):
|
|
|
|
|
|
|
|
|
Lease Payments
|
|
2019
|
$
|
4,617
|
|
|
2020
|
2,849
|
|
|
2021
|
2,052
|
|
|
2022
|
1,671
|
|
|
2023
|
1,660
|
|
|
Thereafter
|
1,510
|
|
|
Total
|
$
|
14,359
|
|
We are also party to a significant number of month-to-month leases that can be cancelled at any time. Operating lease expenses were
$4.8 million
,
$6.4 million
, less than
$0.1 million
, and
$11.4 million
for
the years ended December 31, 2018 and 2017, the period from December 16, 2016 through December 31, 2016 and the period from January 1, 2016 through December 15, 2016
, respectively.
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Litigation
Various suits and claims arising in the ordinary course of business are pending against us. We conduct business throughout the continental United States and may be subject to jury verdicts or arbitrations that result in outcomes in favor of the plaintiffs. We are also exposed to various claims abroad. We continually assess our contingent liabilities, including potential litigation liabilities, as well as the adequacy of our accruals and the need for disclosure of these items, if any. We establish a provision for a contingent liability when it is probable that a liability has been incurred and the amount is reasonably estimable. As of
December 31, 2018
, the aggregate amount of our liabilities related to litigation that are deemed probable and reasonably estimable is
$4.4 million
. We do not believe that the disposition of any of these matters will result in an additional loss materially in excess of amounts that have been recorded. Our liabilities related to litigation matters that were deemed probable and reasonably estimable as of
December 31, 2017
were
$4.7 million
.
Tax Audits
We are routinely the subject of audits by tax authorities, and in the past have received material assessments from tax auditors. As of
December 31, 2018
and
2017
, we have recorded reserves that management feels are appropriate for future potential liabilities as a result of prior audits. While we believe we have fully reserved for these assessments, the ultimate amount of settlements can vary from our estimates.
Self-Insurance Reserves
We maintain reserves for workers’ compensation and vehicle liability on our balance sheet based on our judgment and estimates using an actuarial method based on claims incurred. We estimate general liability claims on a case-by-case basis. We maintain insurance policies for workers’ compensation, vehicular liability and general liability claims. These insurance policies carry self-insured retention limits or deductibles on a per occurrence basis. The retention limits or deductibles are accounted for in our accrual process for all workers’ compensation, vehicular liability and general liability claims. The deductibles have a
$5 million
maximum per vehicular liability claim, and a
$2 million
maximum per general liability claim and a
$1 million
maximum per workers’ compensation claim. As of
December 31, 2018
and
2017
, we have recorded
$50.1 million
and
$52.2 million
, respectively, of self-insurance reserves related to workers’ compensation, vehicular liabilities and general liability claims. Partially offsetting these liabilities, we had approximately
$13.1 million
and
$15.1 million
of insurance receivables as of
December 31, 2018
and
2017
, respectively. We believe that the liabilities we have recorded are appropriate based on the known facts and circumstances and do not expect further losses materially in excess of the amounts already accrued for existing claims.
Environmental Remediation Liabilities
For environmental reserve matters, including remediation efforts for current locations and those relating to previously-disposed properties, we record liabilities when our remediation efforts are probable and the costs to conduct such remediation efforts can be reasonably estimated. As of
December 31, 2018
and
2017
, we have recorded
$2.2 million
and
$2.0 million
, respectively, for our environmental remediation liabilities. We believe that the liabilities we have recorded are appropriate based on the known facts and circumstances and do not expect further losses materially in excess of the amounts already accrued.
We provide performance bonds to provide financial surety assurances for the remediation and maintenance of our SWD properties to comply with environmental protection standards. Costs for SWD properties may be mandatory (to comply with applicable laws and regulations), in the future (required to divest or cease operations), or for optimization (to improve operations, but not for safety or regulatory compliance).
NOTE 18. EMPLOYEE BENEFIT PLANS
We maintain a 401(k) plan as part of our employee benefits package. In the third quarter of 2015, management suspended the 401(k) matching program as part of our cost cutting efforts. Prior to this, we matched
100%
of employee contributions up to
4%
of the employee’s salary, which vest immediately, into our 401(k) plan, subject to maximums of
$11,000
,
$10,800
and
$10,600
for the years ended
December 31, 2018
,
2017
and
2016
, respectively. Our matching contributions were
zero
for
the years ended December 31, 2018 and 2017, the period from December 16, 2016 through December 31, 2016 and the period from January 1, 2016 through December 15, 2016
. The 401(k) matching program was reinstated January 1, 2019. We do not offer participants the option to purchase shares of our common stock through a 401(k) plan fund.
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 19. STOCKHOLDERS’ EQUITY
Preferred Stock
As of
December 31, 2018
, we had
10,000,000
shares of preferred stock authorized with a par value of
$0.01
per share. As of
December 31, 2018
, the sole share of the Successor Company’s Series A Preferred Stock, which confers certain rights to elect directors (but has no economic rights), was held by Soter.
Common Stock
As of
December 31, 2018
and
December 31, 2017
, we had
100,000,000
shares of common stock authorized with a par value of
$0.01
per share, of which
20,363,198
and
20,217,641
shares were issued and outstanding, respectively. During
2018
,
2017
and
2016
, no dividends were declared or paid and we currently do not intend to pay dividends.
Tax Withholding
We repurchase shares of restricted common stock that have been previously granted to certain of our employees, pursuant to an agreement under which those individuals are permitted to sell shares back to us in order to satisfy the minimum income tax withholding requirements related to vesting of these grants. We
repurchased a total of
48,403
shares,
56,328
shares,
zero
shares and
1,614,047
shares for an aggregate cost of
$0.3 million
,
$0.7 million
,
zero
and
$0.2 million
during
the years ended December 31, 2018 and 2017, the period from December 16, 2016 through December 31, 2016 and the period from January 1, 2016 through December 15, 2016
, respectively, which represented the fair market value of the shares based on the price of our stock on the dates of purchase.
NOTE 20. SHARE-BASED COMPENSATION
Equity and Cash Incentive Plan
On the Effective Date, pursuant to the Plan, the Company adopted a new management incentive plan titled the Key Energy Services, Inc. 2016 Equity and Cash Incentive Plan. The 2016 Incentive Plan authorizes the grant of compensation described in the following sentence comprised of stock or economic rights tied to the value of stock collectively representing up to 11% of the fully diluted shares of Common Stock as of the Effective Date (without regard to shares reserved for issuance pursuant to the Warrants) (as increased by the Board from the initial pool of 7% of fully diluted shares on the Effective Date, as permitted under the terms of the 2016 Incentive Plan). The 2016 Incentive Plan provides for awards of restricted stock, restricted stock units, options, stock appreciation rights and cash-based awards, for distribution to officers, directors and employees of the Company and its subsidiaries as determined by the New Board. As of the Effective Date, the New Board or an authorized committee thereof is authorized, without further approval of Key equity holders, to execute and deliver all agreements, documents, instruments and certificates relating to the 2016 Incentive Plan and to perform their obligations thereunder in accordance with, and subject to, the terms of the 2016 Incentive Plan. As of
December 31, 2018
, there were
0.4 million
shares available for grant under the 2016 ECIP.
Stock Option Awards
Stock option awards granted under our incentive plans have a maximum contractual term of
ten years
from the date of grant. Shares issuable upon exercise of a stock option are issued from authorized but unissued shares of our common stock.
The following tables summarize the stock option activity for the year ended
December 31, 2018
(shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
Options
|
|
Weighted Average
Exercise Price
|
|
Weighted Average
Fair Value
|
|
Outstanding at beginning of period
|
164
|
|
|
$
|
34.24
|
|
|
$
|
10.66
|
|
|
Granted
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Exercised
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cancelled or expired
|
(90
|
)
|
|
$
|
33.67
|
|
|
$
|
10.53
|
|
|
Outstanding at end of period
|
74
|
|
|
$
|
34.92
|
|
|
$
|
10.82
|
|
|
Exercisable at end of period
|
74
|
|
|
$
|
34.92
|
|
|
$
|
10.82
|
|
No stock options were granted or exercised for the year ended
December 31, 2018
. The total fair value of stock options vested during the year ended
December 31, 2018
,
2017
,
periods from December 16, 2016 through December 31, 2016 and January 1, 2016 through December 15, 2016
and
period from January 1, 2016 through December 15, 2016
was
zero
,
$1.7 million
,
zero
and
zero
, respectively. For
the years ended December 31, 2018 and 2017, the period from December 16, 2016 through December
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
31, 2016 and the period from January 1, 2016 through December 15, 2016
, we recognized
zero
,
$1.8 million
,
$0.1 million
and
zero
of pre-tax expenses related to stock options, respectively. All outstanding stock options are vested as of
December 31, 2018
.The weighted average remaining contractual term for stock option awards exercisable as of
December 31, 2018
is
8.0
years.
Common Stock Awards
Our common stock awards include restricted stock awards and restricted stock units. The weighted average grant date fair market value of all common stock awards granted during the years ended
December 31, 2018
and 2017 and for the
periods from December 16, 2016 through December 31, 2016 and January 1, 2016 through December 15, 2016
, were
$13.74
,
$12.37
,
$31.99
and
$0.26
, respectively. The total fair market value of all common stock awards vested during the years ended
December 31, 2018
and 2017 and for the
periods from December 16, 2016 through December 31, 2016 and January 1, 2016 through December 15, 2016
were
$2.3 million
,
6.2 million
,
zero
and
14.5 million
, respectively.
The following tables summarize information for the year ended
December 31, 2018
about our unvested common stock awards that we have outstanding (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
Outstanding
|
|
Weighted Average
Issuance Price
|
|
Shares at beginning of period
|
1,112
|
|
|
$
|
11.90
|
|
|
Granted
|
457
|
|
|
$
|
13.74
|
|
|
Vested
|
(194
|
)
|
|
$
|
11.98
|
|
|
Cancel1ed
|
(646
|
)
|
|
$
|
12.47
|
|
|
Shares at end of period
|
729
|
|
|
$
|
12.52
|
|
The grant-date fair value of our time-based restricted stock units and restricted stock awards is determined using our stock price on the grant date. The grant-date fair value of our performance-based restricted stock units is determined using our stock price on the grant date assuming a 1.0x payout target, however, a maximum 2.0x payout could be achieved if certain EBITDA-based performance measures are met. We recognize compensation expense ratably over the graded vesting period of the grant, net of forfeitures.
For the years ended
December 31, 2018
,
2017
and the
periods from December 16, 2016 through December 31, 2016 and January 1, 2016 through December 15, 2016
, we recognized
$2.6 million
,
$5.3 million
,
$0.4 million
and
$5.7 million
, respectively, of pre-tax expenses from continuing operations associated with common stock awards. For the unvested common stock awards outstanding as of
December 31, 2018
, we anticipate that we will recognize
$5.5 million
of pre-tax expense over the next
1.5 years
weighted average years.
Phantom Share Plan
In December 2017, we implemented a “Phantom Share Plan,” in which certain of our employees were granted “Phantom Shares.” Phantom Shares vest ratably over a three-year period and convey the right to the grantee to receive a cash payment on the anniversary date of the grant equal to the fair market value of the Phantom Shares vesting on that date. Grantees are not permitted to defer this payment to a later date. The Phantom Shares are a “liability” type award and we account for these awards at fair value. We recognize compensation expense related to the Phantom Shares based on the change in the fair value of the awards during the period and the percentage of the service requirement that has been performed, net of forfeitures, with an offsetting liability recorded on our consolidated balance sheets.
For the years ended
December 31, 2018
,
2017
and the
periods from December 16, 2016 through December 31, 2016 and January 1, 2016 through December 15, 2016
, we recognized
$0.3 million
,
zero
,
zero
and
zero
, respectively, of pre-tax expenses from continuing operations associated with common stock awards. For the unvested common stock awards outstanding as of
December 31, 2018
, we anticipate that we will recognize
$0.1 million
of pre-tax expense over the next
1.5
weighted average years.
NOTE 21. TRANSACTIONS WITH RELATED PARTIES
The Company has purchased or sold equipment or services from a few affiliates of certain directors. Additionally, the Company has a corporate advisory services agreement with Platinum Equity Advisors, LLC (“Platinum”) pursuant to which Platinum provides certain business advisory services to the Company. The dollar amounts related to these related party activities are not material to the Company’s condensed consolidated financial statements.
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 22. SUPPLEMENTAL CASH FLOW INFORMATION
Presented below is a schedule of noncash investing and financing activities and supplemental cash flow entries (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Year Ended December 31, 2018
|
|
Year Ended December 31, 2017
|
|
Period from December 16, 2016 through December 31, 2016
|
|
|
Period from January 1, 2016 through December 15, 2016
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash paid for reorganization items
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
$
|
6,955
|
|
|
Cash paid for interest
|
32,718
|
|
|
30,397
|
|
|
1,312
|
|
|
|
69,134
|
|
|
Cash paid for taxes
|
40
|
|
|
—
|
|
|
—
|
|
|
|
57
|
|
|
Tax refunds
|
1,097
|
|
|
—
|
|
|
—
|
|
|
|
1,834
|
|
Cash paid for interest includes cash payments for interest on our long-term debt and capital lease obligations, and commitment and agency fees paid.
NOTE 23. SEGMENT INFORMATION
Our reportable business segments are Rig Services, Fishing and Rental Services, Coiled Tubing Services and Fluid Management Services. Our reportable business segments previously included an International segment. We also have a “Functional Support” segment associated with overhead and other costs in support of our reportable segments. Our Rig Services, Fishing and Rental Services, Coiled Tubing Services, Fluid Management Services operate geographically within the United States. Our International segment included our former operations in Mexico, Canada and Russia. During the fourth quarter of 2016, we completed the sale of our business in Mexico. We completed the sale of our Canadian subsidiary and Russian subsidiary in the second and third quarters of 2017, respectively. We evaluate the performance of our segments based on gross margin measures. All inter-segment sales pricing is based on current market conditions. We aggregate services that create our reportable segments in accordance with ASC 280, and the accounting policies for our segments are the same as those described in “Note 1. Organization and Summary of Significant Accounting Policies” above.
Rig Services
Our Rig Services include the completion of newly drilled wells, workover and recompletion of existing oil and natural gas wells, well maintenance, and the plugging and abandonment of wells at the end of their useful lives. We also provide specialty drilling services to oil and natural gas producers with certain of our larger rigs that are capable of providing conventional and horizontal drilling services. Our rigs encompass various sizes and capabilities, allowing us to service all types of oil and gas wells. Many of our rigs are outfitted with our proprietary KeyView
®
technology, which captures and reports well site operating data and provides safety control systems. We believe that this technology allows our customers and our crews to better monitor well site operations, improves efficiency and safety, and adds value to the services that we offer.
The completion and recompletion services provided by our rigs prepare wells for production, whether newly drilled, or recently extended through a workover operation. The completion process may involve selectively perforating the well casing to access production zones, stimulating and testing these zones, and installing tubular and downhole equipment. We typically provide a well service rig and may also provide other equipment to assist in the completion process. Completion services vary by well and our work may take a few days to several weeks to perform, depending on the nature of the completion.
The workover services that we provide are designed to enhance the production of existing wells and generally are more complex and time consuming than normal maintenance services. Workover services can include deepening or extending wellbores into new formations by drilling horizontal or lateral wellbores, sealing off depleted production zones and accessing previously bypassed production zones, converting former production wells into injection wells for enhanced recovery operations and conducting major subsurface repairs due to equipment failures. Workover services may last from a few days to several weeks, depending on the complexity of the workover.
Maintenance services provided with our rig fleet are generally required throughout the life cycle of an oil or natural gas well. Examples of these maintenance services include routine mechanical repairs to the pumps, tubing and other equipment, removing debris and formation material from wellbores, and pulling rods and other downhole equipment from wellbores to identify
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
and resolve production problems. Maintenance services are generally less complicated than completion and workover related services and require less time to perform.
Our rig fleet is also used in the process of permanently shutting-in oil or natural gas wells that are at the end of their productive lives. These plugging and abandonment services generally require auxiliary equipment in addition to a well servicing rig. The demand for plugging and abandonment services is not significantly impacted by the demand for oil and natural gas because well operators are required by state regulations to plug wells that are no longer productive.
Fishing and Rental Services
We offer a full line of services and rental equipment designed for use in providing drilling and workover services. Fishing services involve recovering lost or stuck equipment in the wellbore utilizing a broad array of “fishing tools.” Our rental tool inventory consists of drill pipe, tubulars, handling tools (including our patented Hydra-Walk
®
pipe-handling units and services), pressure-control equipment, pumps, power swivels, reversing units, foam air units. Our rental inventory also included frac stack equipment used to support hydraulic fracturing operations and the associated flowback of frac fluids, proppants, oil and natural gas. We also had provided well-testing services. Our frac stack equipment and well-testing services business were sold in the second quarter of 2017.
Demand for our Fishing and Rental Services is closely related to capital spending by oil and natural gas producers, which is generally driven by oil and natural gas prices.
Coiled Tubing Services
Coiled Tubing Services involve the use of a continuous metal pipe spooled onto a large reel which is then deployed into oil and natural gas wells to perform various applications, such as wellbore clean-outs, nitrogen jet lifts, through-tubing fishing, and formation stimulations utilizing acid and chemical treatments. Coiled tubing is also used for a number of horizontal well applications such as milling temporary isolation plugs that separate frac zones, and various other pre- and post- hydraulic fracturing well preparation services.
Fluid Management Services
We provide transportation and well-site storage services for various fluids utilized in connection with drilling, completions, workover and maintenance activities. We also provide disposal services for fluids produced subsequent to well completion. These fluids are removed from the well site and transported for disposal in SWD wells owned by us or a third party. In addition, we operate a fleet of hot oilers capable of pumping heated fluids used to clear soluble restrictions in a wellbore. Demand and pricing for these services generally correspond to demand for our well service rigs.
International
Our International segment included our former operations in Mexico, Canada and Russia. In April 2015, we announced our decision to exit markets in which we participate outside of North America. During the fourth quarter of 2016, we completed the sale of our business in Mexico, and we completed the sale of our Canadian subsidiary and Russian subsidiary in the second and third quarters of 2017, respectively. Our services in these international markets consisted of rig-based services such as the maintenance, workover, and recompletion of existing oil wells, completion of newly-drilled wells, and plugging and abandonment of wells at the end of their useful lives. We also had a technology development and control systems business based in Canada, which was focused on the development of hardware and software related to oilfield service equipment controls, data acquisition and digital information flow.
Functional Support
Our Functional Support segment includes unallocated overhead costs associated with administrative support for our U.S. and International reporting segments.
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Financial Summary
The following table presents our segment information as of and for
the years ended December 31, 2018 and 2017, the period from December 16, 2016 through December 31, 2016 and the period from January 1, 2016 through December 15, 2016
(in thousands):
Successor company as of and for the year ended
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rig Services
|
|
Fishing and Rental Services
|
|
Coiled Tubing Services
|
|
Fluid Management Services
|
|
Functional
Support(2)
|
|
Reconciling
Eliminations
|
|
Total
|
|
Revenues from external customers
|
$
|
296,969
|
|
|
$
|
64,691
|
|
|
$
|
71,013
|
|
|
$
|
89,022
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
521,695
|
|
|
Intersegment revenues
|
710
|
|
|
2,465
|
|
|
48
|
|
|
1,101
|
|
|
—
|
|
|
(4,324
|
)
|
|
—
|
|
|
Depreciation and amortization
|
31,519
|
|
|
23,361
|
|
|
5,223
|
|
|
20,091
|
|
|
2,445
|
|
|
—
|
|
|
82,639
|
|
|
Impairment expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other operating expenses
|
245,898
|
|
|
49,983
|
|
|
60,594
|
|
|
77,781
|
|
|
63,766
|
|
|
—
|
|
|
498,022
|
|
|
Operating income (loss)
|
19,552
|
|
|
(8,653
|
)
|
|
5,196
|
|
|
(8,850
|
)
|
|
(66,211
|
)
|
|
—
|
|
|
(58,966
|
)
|
|
Interest expense, net of amounts capitalized
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
34,163
|
|
|
—
|
|
|
34,163
|
|
|
Income (loss) before taxes
|
19,689
|
|
|
(8,622
|
)
|
|
5,201
|
|
|
(8,773
|
)
|
|
(98,270
|
)
|
|
—
|
|
|
(90,775
|
)
|
|
Long-lived assets(1)
|
141,469
|
|
|
50,629
|
|
|
17,274
|
|
|
55,263
|
|
|
19,637
|
|
|
404
|
|
|
284,676
|
|
|
Total assets
|
192,376
|
|
|
65,711
|
|
|
27,283
|
|
|
70,003
|
|
|
80,507
|
|
|
7,294
|
|
|
443,174
|
|
|
Capital expenditures
|
18,126
|
|
|
3,671
|
|
|
4,872
|
|
|
2,907
|
|
|
7,959
|
|
|
—
|
|
|
37,535
|
|
Successor company as of and for the year ended
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rig Services
|
|
Fishing and Rental Services
|
|
Coiled Tubing Services
|
|
Fluid Management Services
|
|
International
|
|
Functional
Support(2)
|
|
Reconciling
Eliminations
|
|
Total
|
|
Revenues from external customers
|
$
|
248,830
|
|
|
$
|
59,172
|
|
|
$
|
41,866
|
|
|
$
|
80,726
|
|
|
$
|
5,571
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
436,165
|
|
|
Intersegment revenues
|
325
|
|
|
3,181
|
|
|
60
|
|
|
1,218
|
|
|
—
|
|
|
—
|
|
|
(4,784
|
)
|
|
—
|
|
|
Depreciation and amortization
|
31,493
|
|
|
23,454
|
|
|
5,187
|
|
|
21,917
|
|
|
791
|
|
|
1,700
|
|
|
—
|
|
|
84,542
|
|
|
Impairment expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
187
|
|
|
—
|
|
|
—
|
|
|
187
|
|
|
Other operating expenses
|
220,957
|
|
|
28,212
|
|
|
35,048
|
|
|
78,341
|
|
|
9,586
|
|
|
75,472
|
|
|
—
|
|
|
447,616
|
|
|
Operating income (loss)
|
(3,620
|
)
|
|
7,506
|
|
|
1,631
|
|
|
(19,532
|
)
|
|
(4,993
|
)
|
|
(77,172
|
)
|
|
—
|
|
|
(96,180
|
)
|
|
Reorganization items, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,501
|
|
|
—
|
|
|
1,501
|
|
|
Interest expense, net of amounts capitalized
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31,797
|
|
|
—
|
|
|
31,797
|
|
|
Income (loss) before taxes
|
(3,449
|
)
|
|
7,748
|
|
|
1,643
|
|
|
(19,537
|
)
|
|
(298
|
)
|
|
(108,398
|
)
|
|
—
|
|
|
(122,291
|
)
|
|
Long-lived assets(1)
|
160,170
|
|
|
63,340
|
|
|
19,064
|
|
|
74,591
|
|
|
7
|
|
|
122,965
|
|
|
(97,819
|
)
|
|
342,318
|
|
|
Total assets
|
287,856
|
|
|
360,581
|
|
|
41,523
|
|
|
(985
|
)
|
|
9,473
|
|
|
513,393
|
|
|
(682,720
|
)
|
|
529,121
|
|
|
Capital expenditures
|
8,375
|
|
|
741
|
|
|
886
|
|
|
3,288
|
|
|
475
|
|
|
2,314
|
|
|
—
|
|
|
16,079
|
|
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Successor company as of December 31, 2016 and for the period from December 16, 2016 through December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rig Services
|
|
Fishing and Rental Services
|
|
Coiled Tubing Services
|
|
Fluid Management Services
|
|
International
|
|
Functional
Support(2)
|
|
Reconciling
Eliminations
|
|
Total
|
|
Revenues from external customers
|
$
|
8,549
|
|
|
$
|
3,389
|
|
|
$
|
1,392
|
|
|
$
|
3,208
|
|
|
$
|
1,292
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17,830
|
|
|
Depreciation and amortization
|
1,129
|
|
|
1,158
|
|
|
202
|
|
|
987
|
|
|
16
|
|
|
82
|
|
|
—
|
|
|
3,574
|
|
|
Impairment expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other operating expenses
|
9,352
|
|
|
2,496
|
|
|
1,446
|
|
|
3,359
|
|
|
1,209
|
|
|
5,242
|
|
|
—
|
|
|
23,104
|
|
|
Operating income (loss)
|
(1,932
|
)
|
|
(265
|
)
|
|
(256
|
)
|
|
(1,138
|
)
|
|
67
|
|
|
(5,324
|
)
|
|
—
|
|
|
(8,848
|
)
|
|
Interest expense, net of amounts capitalized
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,364
|
|
|
—
|
|
|
1,364
|
|
|
Income (loss) before taxes
|
(1,932
|
)
|
|
(265
|
)
|
|
(256
|
)
|
|
(1,138
|
)
|
|
49
|
|
|
(6,702
|
)
|
|
—
|
|
|
(10,244
|
)
|
|
Long-lived assets(1)
|
172,871
|
|
|
95,544
|
|
|
24,741
|
|
|
94,887
|
|
|
1,236
|
|
|
142,580
|
|
|
(108,448
|
)
|
|
423,411
|
|
|
Total assets
|
1,348,587
|
|
|
462,163
|
|
|
106,609
|
|
|
226,503
|
|
|
62,971
|
|
|
(1,276,652
|
)
|
|
(272,200
|
)
|
|
657,981
|
|
|
Capital expenditures
|
331
|
|
|
10
|
|
|
—
|
|
|
29
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
375
|
|
Predecessor company as of December 15, 2016 and for the
period from January 1, 2016 through December 15, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rig Services
|
|
Fishing and Rental Services
|
|
Coiled Tubing Services
|
|
Fluid Management Services
|
|
International
|
|
Functional
Support(2)
|
|
Reconciling
Eliminations
|
|
Total
|
|
Revenues from external customers
|
$
|
222,877
|
|
|
$
|
55,790
|
|
|
$
|
30,569
|
|
|
$
|
76,008
|
|
|
$
|
14,179
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
399,423
|
|
|
Intersegment revenues
|
922
|
|
|
4,958
|
|
|
73
|
|
|
934
|
|
|
284
|
|
|
—
|
|
|
(7,171
|
)
|
|
—
|
|
|
Depreciation and amortization
|
56,241
|
|
|
26,547
|
|
|
10,730
|
|
|
22,583
|
|
|
6,497
|
|
|
8,698
|
|
|
—
|
|
|
131,296
|
|
|
Impairment expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
44,646
|
|
|
—
|
|
|
—
|
|
|
44,646
|
|
|
Other operating expenses
|
206,094
|
|
|
55,651
|
|
|
39,161
|
|
|
91,361
|
|
|
22,262
|
|
|
111,553
|
|
|
—
|
|
|
526,082
|
|
|
Operating loss
|
(39,458
|
)
|
|
(26,408
|
)
|
|
(19,322
|
)
|
|
(37,936
|
)
|
|
(59,226
|
)
|
|
(120,251
|
)
|
|
—
|
|
|
(302,601
|
)
|
|
Reorganization items, net
|
262,455
|
|
|
76,918
|
|
|
(52,094
|
)
|
|
9,374
|
|
|
377
|
|
|
(542,601
|
)
|
|
—
|
|
|
(245,571
|
)
|
|
Interest expense, net of amounts capitalized
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
74,320
|
|
|
—
|
|
|
74,320
|
|
|
Income (loss) before taxes
|
(301,647
|
)
|
|
(103,474
|
)
|
|
32,891
|
|
|
(48,014
|
)
|
|
(59,773
|
)
|
|
351,110
|
|
|
—
|
|
|
(128,907
|
)
|
|
Long-lived assets(1)
|
173,762
|
|
|
96,692
|
|
|
24,944
|
|
|
95,848
|
|
|
1,252
|
|
|
142,704
|
|
|
(108,449
|
)
|
|
426,753
|
|
|
Total assets
|
1,350,566
|
|
|
462,759
|
|
|
106,760
|
|
|
227,749
|
|
|
62,520
|
|
|
(1,274,533
|
)
|
|
(272,199
|
)
|
|
663,622
|
|
|
Capital expenditures
|
1,477
|
|
|
3,005
|
|
|
110
|
|
|
2,950
|
|
|
711
|
|
|
228
|
|
|
—
|
|
|
8,481
|
|
|
|
|
|
(1)
|
Long-lived assets include: fixed assets, goodwill, intangibles and other assets.
|
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
(2)
|
Functional Support is geographically located in the United States.
|
NOTE 24. UNAUDITED QUARTERLY RESULTS OF OPERATIONS
The following table presents our summarized, unaudited quarterly information for the two most recent years covered by these consolidated financial statements (in thousands, except for per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
Year Ended December 31, 2018:
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
125,316
|
|
|
$
|
144,405
|
|
|
$
|
134,721
|
|
|
$
|
117,253
|
|
|
Direct operating expenses
|
98,211
|
|
|
109,747
|
|
|
106,103
|
|
|
92,335
|
|
|
Net loss
|
(24,963
|
)
|
|
(16,895
|
)
|
|
(23,860
|
)
|
|
(23,078
|
)
|
|
Loss per share
(1)
:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
(1.23
|
)
|
|
(0.84
|
)
|
|
(1.18
|
)
|
|
(1.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
Year Ended December 31, 2017:
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
101,452
|
|
|
$
|
107,780
|
|
|
$
|
110,653
|
|
|
$
|
116,280
|
|
|
Direct operating expenses
|
87,306
|
|
|
63,560
|
|
|
87,115
|
|
|
94,351
|
|
|
Net loss
|
(46,859
|
)
|
|
(13,183
|
)
|
|
(38,220
|
)
|
|
(22,327
|
)
|
|
Loss per share(1):
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
(2.33
|
)
|
|
(0.66
|
)
|
|
(1.90
|
)
|
|
(1.11
|
)
|
|
|
|
|
(1)
|
Quarterly earnings per common share are based on the weighted average number of shares outstanding during the quarter, and the sum of the quarters may not equal annual earnings per common share.
|
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 25. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The senior notes of the Predecessor Company were registered securities. As a result of these registered securities, we are required to present the following condensed consolidating financial information pursuant to SEC Regulation S-X Rule 3-10, “
Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.”
Our ABL Facility and Term Loan Facility of the Successor Company are not registered securities, so the presentation of condensed consolidating financial information is not required for the Successor period. The following is our condensed consolidated statement of operations and statement of cash flows for the Predecessor periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
|
|
|
Period from January 1, 2016 through December 15, 2016
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
(in thousands)
|
|
Revenues
|
$
|
—
|
|
|
$
|
387,291
|
|
|
$
|
15,121
|
|
|
$
|
(2,989
|
)
|
|
399,423
|
|
|
Direct operating expense
|
—
|
|
|
353,152
|
|
|
10,963
|
|
|
(1,290
|
)
|
|
362,825
|
|
|
Depreciation and amortization expense
|
—
|
|
|
129,364
|
|
|
1,932
|
|
|
—
|
|
|
131,296
|
|
|
General and administrative expense
|
1,225
|
|
|
155,097
|
|
|
8,601
|
|
|
(1,666
|
)
|
|
163,257
|
|
|
Impairment expense
|
—
|
|
|
44,646
|
|
|
—
|
|
|
—
|
|
|
44,646
|
|
|
Operating loss
|
(1,225
|
)
|
|
(294,968
|
)
|
|
(6,375
|
)
|
|
(33
|
)
|
|
(302,601
|
)
|
|
Reorganization items, net
|
(560,058
|
)
|
|
313,691
|
|
|
377
|
|
|
419
|
|
|
(245,571
|
)
|
|
Interest expense, net of amounts capitalized
|
74,320
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
74,320
|
|
|
Other (income) expense, net
|
9,337
|
|
|
(11,607
|
)
|
|
(553
|
)
|
|
380
|
|
|
(2,443
|
)
|
|
Income (loss) before income taxes
|
475,176
|
|
|
(597,052
|
)
|
|
(6,199
|
)
|
|
(832
|
)
|
|
(128,907
|
)
|
|
Income tax (expense) benefit
|
(6,484
|
)
|
|
15,095
|
|
|
(11,859
|
)
|
|
419
|
|
|
(2,829
|
)
|
|
Net income (loss)
|
$
|
468,692
|
|
|
$
|
(581,957
|
)
|
|
$
|
(18,058
|
)
|
|
$
|
(413
|
)
|
|
$
|
(131,736
|
)
|
Key Energy Services, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
|
|
|
Period from January 1, 2016 through December 15, 2016
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
(in thousands)
|
|
Net cash provided by (used in) operating activities
|
$
|
—
|
|
|
$
|
(139,713
|
)
|
|
$
|
1,264
|
|
|
$
|
—
|
|
|
$
|
(138,449
|
)
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(8,134
|
)
|
|
(347
|
)
|
|
—
|
|
|
(8,481
|
)
|
|
Intercompany notes and accounts
|
—
|
|
|
122,798
|
|
|
—
|
|
|
(122,798
|
)
|
|
—
|
|
|
Other investing activities, net
|
—
|
|
|
15,025
|
|
|
—
|
|
|
—
|
|
|
15,025
|
|
|
Net cash provided by (used in) investing activities
|
—
|
|
|
129,689
|
|
|
(347
|
)
|
|
(122,798
|
)
|
|
6,544
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Repayment of long-term debt
|
(313,424
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(313,424
|
)
|
|
Proceeds from long-term debt
|
250,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
250,000
|
|
|
Proceeds from stock rights offering
|
109,082
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
109,082
|
|
|
Payment of deferred financing costs
|
(2,040
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,040
|
)
|
|
Intercompany notes and accounts
|
(122,798
|
)
|
|
—
|
|
|
—
|
|
|
122,798
|
|
|
—
|
|
|
Other financing activities, net
|
(167
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(167
|
)
|
|
Net cash provided by (used in) financing activities
|
(79,347
|
)
|
|
—
|
|
|
—
|
|
|
122,798
|
|
|
43,451
|
|
|
Effect of changes in exchange rates on cash
|
—
|
|
|
—
|
|
|
(20
|
)
|
|
—
|
|
|
(20
|
)
|
|
Net increase (decrease) in cash and cash equivalents
|
(79,347
|
)
|
|
(10,024
|
)
|
|
897
|
|
|
—
|
|
|
(88,474
|
)
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
191,065
|
|
|
10,024
|
|
|
3,265
|
|
|
—
|
|
|
204,354
|
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
111,718
|
|
|
$
|
—
|
|
|
$
|
4,162
|
|
|
$
|
—
|
|
|
$
|
115,880
|
|