10-Q 1 a10qq32012.htm 10-Q 10Q Q3 2012
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 
__________________________________________________________
Form 10-Q 
__________________________________________________________
Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2012
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-35281
__________________________________________________________
Forbes Energy Services Ltd.
(Exact name of registrant as specified in its charter)
__________________________________________________________
Texas
 
98-0581100
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
3000 South Business Highway 281
Alice, Texas
 
78332
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code:
(361) 664-0549 
__________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  x  Yes    ¨  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
¨
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
x  (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    ¨  Yes    x  No
Shares outstanding of each of the registrant’s classes of common stock as of November 9, 2012:
Class
  
Outstanding as of November 12, 2012
Common Stock, $.04 par value
  
21,151,749

 
 
 
 
 




FORBES ENERGY SERVICES LTD. AND SUBSIDIARIES (a/k/a the “Forbes Group”)
TABLE OF CONTENTS
 


2


FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q and any oral statements made in connection with it include certain forward-looking statements within the meaning of the federal securities laws. You can generally identify forward-looking statements by the appearance in such a statement of words like “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project” or “should” or other comparable words or the negative of these words. When you consider our forward-looking statements, you should keep in mind the risk factors we describe and other cautionary statements we make in this Quarterly Report on Form 10-Q. Our forward-looking statements are only predictions based on expectations that we believe are reasonable. Our actual results could differ materially from those anticipated in, or implied by, these forward-looking statements as a result of known risks and uncertainties set forth below and elsewhere in this Quarterly Report on Form 10-Q. These factors include or relate to the following:

supply and demand for oilfield services and industry activity levels;
potential for excess capacity;
spending by the oil and natural gas industry given the continuing worldwide economic slowdown;
our level of indebtedness in the current market;
possible impairment of our long-lived assets;
our ability to maintain stable pricing;
competition;
substantial capital requirements;
significant operating and financial restrictions under our indenture and revolving credit facility;
technological obsolescence of operating equipment;
dependence on certain key employees;
concentration of customers;
substantial additional costs of compliance with reporting obligations, the Sarbanes-Oxley Act and indenture covenants;
material weaknesses in internal controls over financial reporting;
seasonality of oilfield services activity;
collection of accounts receivable;
environmental and other governmental regulation, including potential climate change legislation;
the potential disruption of business activities caused by the physical effects, if any, of climate change;
risks inherent in our operations;
market response to global demands to curtail use of oil and natural gas;
ability to fully integrate future acquisitions;
variation from projected operating and financial data;
variation from budgeted and projected capital expenditures;
volatility of global financial markets; and
the other factors discussed under “Risk Factors” beginning on page 9 of the Annual Report on Form 10-K for the year ended December 31, 2011.
We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. To the extent these risks, uncertainties and assumptions give rise to events that vary from our expectations, the forward-looking events discussed in this Quarterly Report on Form 10-Q may not occur. All forward-looking statements attributable to us are qualified in their entirety by this cautionary statement.

3


PART I—FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements

Forbes Energy Services Ltd. and Subsidiaries (a/k/a the “Forbes Group”)
Condensed Consolidated Balance Sheets (unaudited)

 
September 30,
2012
 
December 31,
2011
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
5,311,287

 
$
36,600,091

Accounts receivable - trade, net of allowance of $4.0 and $6.4 million
 
 
 
for 2012 and 2011, respectively
103,771,271

 
132,024,147

Accounts receivable - related parties
464,335

 
1,573,132

Accounts receivable - other
2,129,064

 
3,324,759

Prepaid expenses
4,784,519

 
8,974,168

Other current assets
1,597,441

 
1,310,477

Total current assets
118,057,917

 
183,806,774

Property and equipment, net
353,391,113

 
285,944,684

Other intangible assets, net
28,730,492

 
30,876,389

Deferred financing costs, net of accumulated amortization of $1.8 and $0.7 million for 2012 and 2011, respectively
8,407,596

 
9,403,817

Restricted cash
16,555,688

 
16,150,433

Other assets
2,392,161

 
30,876

Noncurrent assets held for sale

 
24,210,080

Total assets
$
527,534,967

 
$
550,423,053

Liabilities and Shareholders’ Equity
 
 
 
Current liabilities
 
 
 
Current portions of long-term debt
$
5,050,303

 
$
10,517,232

Accounts payable - trade
25,431,380

 
50,569,454

Accounts payable - related parties
3,763,689

 
1,219,928

Accrued dividends
61,256

 
61,259

Deposit on assets held for sale

 
13,700,000

Accrued interest payable
7,636,844

 
1,220,316

Accrued expenses
11,356,549

 
19,752,868

Total current liabilities
53,300,021

 
97,041,057

Long-term debt
291,037,881

 
285,633,042

Deferred tax liability
33,326,479

 
27,491,812

Total liabilities
377,664,381

 
410,165,911

Commitments and contingencies (Note 10)

 


Temporary equity
 
 
 
Series B senior convertible preferred shares
14,507,896

 
14,476,783

Shareholders’ equity
 
 
 
Common stock, $.04 par value, 112,500,000 shares authorized, 21,068,417 and 20,918,417 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively
842,737

 
836,737

Additional paid-in capital
191,363,026

 
187,885,293

Accumulated other comprehensive loss

 
(1,077,678
)
Accumulated deficit
(56,843,073
)
 
(61,863,993
)
Total shareholders’ equity
135,362,690

 
125,780,359

Total liabilities and shareholders’ equity
$
527,534,967

 
$
550,423,053

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


Forbes Energy Services Ltd. and Subsidiaries (a/k/a the “Forbes Group”)
Condensed Consolidated Statements of Operations (unaudited)
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
2012
 
2011
 
2012
 
2011
Revenues
 
 
 
 
 
 
 
Well servicing
$
50,565,392

 
$
48,421,163

 
$
154,119,591

 
$
126,869,856

Fluid logistics and other
63,755,018

 
67,340,814

 
211,470,157

 
194,371,015

Total revenues
114,320,410

 
115,761,977

 
365,589,748

 
321,240,871

Expenses
 
 
 
 
 
 
 
Well servicing
41,371,866

 
38,880,709

 
117,912,986

 
103,029,914

Fluid logistics and other
47,185,691

 
49,816,736

 
151,395,792

 
142,730,107

General and administrative
7,278,249

 
6,187,055

 
26,022,710

 
24,983,659

Depreciation and amortization
13,187,483

 
9,861,254

 
37,073,641

 
29,077,466

Total expenses
109,023,289

 
104,745,754

 
332,405,129

 
299,821,146

Operating income
5,297,121

 
11,016,223

 
33,184,619

 
21,419,725

Other income
 
 
 
 
 
 
 
Interest income
19,970

 
15,395

 
70,106

 
41,753

Interest expense
(7,158,309
)
 
(6,756,090
)
 
(20,921,445
)
 
(20,510,568
)
Loss on early extinguishment of debt

 

 

 
(35,414,833
)
Other income, net

 

 

 
69,104

Income (loss) from continuing operations before taxes
(1,841,218
)
 
4,275,528

 
12,333,280

 
(34,394,819
)
Income tax expense (benefit)
(571,433
)
 
1,735,702

 
5,745,575

 
(10,455,365
)
Income (loss) from continuing operations
(1,269,785
)
 
2,539,826

 
6,587,705

 
(23,939,454
)
Income (loss) from discontinued operations, net of tax expense (benefit) of ($0.0 million), $1.1 million, $0.4 million and $3.2 million, respectively
(1,072,248
)
 
1,821,581

 
(1,566,785
)
 
5,510,677

Net income (loss)
(2,342,033
)
 
4,361,407

 
5,020,920

 
(18,428,777
)
Preferred stock dividends
(194,139
)
 
(194,135
)
 
(582,417
)
 
7,552

Net income (loss) attributable to common shareholders
$
(2,536,172
)
 
$
4,167,272

 
$
4,438,503

 
$
(18,421,225
)
Income (loss) per share of common stock from continuing operations (Note 12)
 
 
 
 
 
 
 
Basic
$
(0.07
)
 
$
0.11

 
$
0.29

 
$
(1.14
)
Diluted
$
(0.07
)
 
$
0.10

 
$
0.25

 
$
(1.14
)
Income (loss) per share of common stock from discontinued operations (Note 12)
 
 
 
 
 
 
 
Basic
$
(0.05
)
 
$
0.09

 
$
(0.08
)
 
$
0.26

Diluted
$
(0.05
)
 
$
0.06

 
$
(0.06
)
 
$
0.26

Income (loss) per share of common stock (Note 12)
 
 
 
 
 
 
 
Basic
$
(0.12
)
 
$
0.20

 
$
0.21

 
$
(0.88
)
Diluted
$
(0.12
)
 
$
0.16

 
$
0.19

 
$
(0.88
)
Weighted average number of shares outstanding (Note 12)
 
 
 
 
 
 
 
Basic
21,068,417

 
20,918,417

 
21,038,850

 
20,918,417

Diluted
21,068,417

 
26,600,004

 
26,650,490

 
20,918,417

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


Forbes Energy Services Ltd. and Subsidiaries (a/k/a the “Forbes Group”)
Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
2012
 
2011
 
2012
 
2011
Net income (loss)
$
(2,342,033
)
 
$
4,361,407

 
$
5,020,920

 
$
(18,428,777
)
Other comprehensive income (loss)
 
 
 
 
 
 
 
Foreign currency translation adjustments
634,690

 
(333,335
)
 
1,077,678

 
(767,556
)
Comprehensive income (loss)
$
(1,707,343
)
 
$
4,028,072

 
$
6,098,598

 
$
(19,196,333
)
The accompanying notes are an integral part of these condensed consolidated financial statements.

6


Forbes Energy Services Ltd. and Subsidiaries (a/k/a the “Forbes Group”)
Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited)
 
 
Preferred Shares
 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income
 
Accumulated
Deficit
 
Total
Shareholders’
Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Balance:
December 31, 2011
588,059

 
$
14,476,783

 
20,918,417

 
$
836,737

 
$
187,885,293

 
$
(1,077,678
)
 
$
(61,863,993
)
 
$
125,780,359

Share-based
compensation

 

 

 

 
3,996,150

 

 

 
3,996,150

Net income

 

 

 

 

 

 
5,020,920

 
5,020,920

Foreign currency
translation
    adjustment

 

 

 

 

 
1,077,678

 

 
1,077,678

Common shares issued under stock plan:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercise of stock options

 

 
25,000

 
1,000

 
64,000

 

 

 
65,000

Issuance of restricted stock

 

 
125,000

 
5,000

 

 

 

 
5,000

Preferred shares dividends
and accretion

 
31,113

 

 

 
(582,417
)
 

 

 
(582,417
)
Balance:
September 30, 2012
588,059

 
$
14,507,896

 
21,068,417

 
$
842,737

 
$
191,363,026

 
$

 
$
(56,843,073
)
 
$
135,362,690

The accompanying notes are an integral part of these condensed consolidated financial statements.

7


Forbes Energy Services Ltd. and Subsidiaries (a/k/a the “Forbes Group”)
Condensed Consolidated Statements of Cash Flows (unaudited)
 
 
 
Nine months ended September 30,
 
 
2012
 
2011
Cash flows from operating activities:
 
 
 
 
Net income (loss)
 
$
5,020,920

 
$
(18,428,777
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
 
Depreciation expense
 
34,927,744

 
28,429,547

Amortization expense
 
2,145,897

 
2,145,897

Amortization of Second Priority Notes OID
 

 
324,306

Share-based compensation
 
4,346,025

 
1,929,633

Deferred tax benefit
 
6,076,703

 
(9,302,873
)
Loss on disposal of assets, net
 
594,095

 
985,842

Loss on early extinguishment of debt
 

 
10,403,237

Gain on disposal of discontinued operations, net
 
(3,704,756
)
 

Bad debt expense
 
903,996

 
906,040

Amortization of deferred financing cost
 
1,102,037

 
1,248,577

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable
 
30,285,317

 
(43,517,043
)
Accounts receivable - related party
 
1,108,797

 
(1,516,333
)
Prepaid expenses and other assets
 
(5,399,617
)
 
(1,662,271
)
Accounts payable - trade
 
(17,082,342
)
 
18,805,764

Accounts payable - related party
 
2,543,761

 
(7,247,838
)
Accrued expenses
 
(9,585,480
)
 
3,777,809

Income taxes payable
 

 
(249,022
)
Accrued interest payable
 
6,416,528

 
(983,570
)
Net cash provided by (used in) operating activities
 
59,699,625

 
(13,951,075
)
Cash flows from investing activities:
 
 
 
 
Proceeds from sale of property and equipment
 

 
647,454

Purchases of property and equipment
 
(101,539,612
)
 
(35,829,895
)
Proceeds from sale of assets included in discontinued operations
 
14,461,078

 

Change in restricted cash
 
(405,255
)
 
(7,097,013
)
Net cash used in investing activities
 
(87,483,789
)
 
(42,279,454
)
Cash flows from financing activities:
 
 
 
 
Payments of debt
 
(3,406,414
)
 
(3,639,179
)
Retirement of First and Second Priority Notes
 

 
(212,500,000
)
Proceeds from issuance of Senior Notes
 

 
280,000,000

Payments for debt issuance costs
 

 
(9,993,262
)
Proceeds from the exercise of stock options
 
65,000

 

Proceeds from issuance of restricted stock
 
5,000

 

Proceeds from and payments of revolving credit facility
 

 

Dividends paid on Series B Senior Convertible Preferred Shares
 
(551,304
)
 
(735,075
)
Net cash provided by (used in) financing activities
 
(3,887,718
)
 
53,132,484

Effect of currency translation on cash and cash equivalents
 
383,078

 
(138,134
)
Net decrease in cash and cash equivalents
 
(31,288,804
)
 
(3,236,179
)
Cash and cash equivalents:
 
 
 
 
Beginning of period
 
36,600,091

 
30,458,457

End of period
 
$
5,311,287

 
$
27,222,278

The accompanying notes are an integral part of these condensed consolidated financial statements.

8


Forbes Energy Services Ltd. and Subsidiaries (a/k/a the “Forbes Group”)
Notes to Condensed Consolidated Financial Statements

1. Organization and Nature of Operations
Nature of Business
Forbes Energy Services Ltd. (“FES Ltd”) is an independent oilfield services contractor that provides a wide range of well site services to oil and natural gas drilling and producing companies to help develop and enhance the production of oil and natural gas. These services include fluid hauling, fluid disposal, well maintenance, completion services, workovers and recompletions, plugging and abandonment, and tubing testing. Our operations are concentrated in the major onshore oil and natural gas producing regions of Texas, with additional locations in Mississippi, in Pennsylvania and, prior to the disposition of our Mexican assets in January 2012, which is discussed in Note 17 below, in Mexico. We believe that our broad range of services, which extends from initial drilling, through production, to eventual abandonment, is fundamental to establishing and maintaining the flow of oil and natural gas throughout the life cycle of our customers’ wells.
As used in these condensed consolidated financial statements, the “Company,” the “Forbes Group,” “we,” and “our” mean FES Ltd and its direct and indirect subsidiaries, except as otherwise indicated.

2. Risk and Uncertainties
As an independent oilfield services contractor that provides a broad range of drilling-related and production-related services to oil and natural gas companies, primarily onshore in Texas, our revenue, profitability, cash flows and future rate of growth are substantially dependent on our ability to (1) maintain adequate equipment utilization, (2) maintain adequate pricing for the services we provide, and (3) maintain a trained work force. Failure to do so could adversely affect our financial position, results of operations, and cash flows.
Because our revenues are generated primarily from customers who are subject to the same factors generally impacting the oil and natural gas industry, our operations are also susceptible to market volatility resulting from economic, cyclical, weather related or other factors related to such industry. Changes in the level of operating and capital spending in the industry, decreases in oil and natural gas prices, or industry perception about future oil and natural gas prices could materially decrease the demand for our services, adversely affecting our financial position, results of operations and cash flows.

3. Basis of Presentation
Interim Financial Information
The unaudited condensed consolidated financial statements of the Forbes Group are prepared in conformity with accounting principles generally accepted in the United States of America, or “GAAP” for interim financial reporting. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted. Therefore, these condensed consolidated financial statements should be read along with the annual audited consolidated financial statements and notes thereto included in Forbes Group’s Annual Report on Form 10-K for the year ended December 31, 2011. In management’s opinion, all adjustments necessary for a fair statement are reflected in the interim periods presented. Interim results for the three and nine months ended September 30, 2012 may not be indicative of results that will be realized for the full year ending December 31, 2012. All significant intercompany accounts and transactions have been eliminated in consolidation.
Reclassification
Certain prior year amounts have been reclassified to conform to the current year presentation.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated balance sheets and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates. Management believes that these estimates and assumptions provide a reasonable basis for the fair presentation of the condensed consolidated financial statements.


9


Foreign Currency Gains and Losses
The functional currency of our Mexican subsidiary is the Mexican Peso. On January 12, 2012, we completed the
disposition of substantially all of our fixed assets and business located in Mexico. Through the quarter ended September 30, 2012, we continued to collect accounts receivables related to these prior operations in Mexico and a significant portion of the accounts receivable was in pesos. Prior to the quarter ended September 30, 2012, assets and liabilities were translated using the spot rate 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 shareholders' equity in other comprehensive income (loss). As of September 30, 2012, balances of our Mexican subsidiary have been substantially liquidated.  As a result, amounts there were accumulated in the translation adjustment component of equity were removed from equity and reduced the gain on sale of assets included in discontinued operations. Transactions that are denominated in a currency other than the functional currency are re-measured into the functional currency each reporting period. Transaction gains and losses that arise from exchange rate fluctuations on transactions and balances denominated in a currency other than the functional currency are included in the results of operations and cash flows as incurred. 
Share Consolidation
As of August 12, 2011, FES Ltd discontinued its existence in Bermuda and converted into a Texas corporation. In connection with and immediately prior to this Texas conversion, FES Ltd effected a 4-to-1 share consolidation, or the Share Consolidation. All references included in these financial statements and accompanying notes to the number of shares, par value and per share amounts of the common stock of FES Ltd prior to the Share Consolidation have been retroactively adjusted to give effect to the Share Consolidation.
Recent Accounting Pronouncements
In December 2011, the FASB issued ASU No. 2011-11, "Balance Sheet" ("ASU 2011-11"). The standard amends and expands disclosure requirements about balance sheet offsetting and related arrangements. ASU 2011-11 becomes effective for Forbes on January 1, 2013. We do not anticipate any impact to our results of operations, financial position or liquidity when the guidance becomes effective.

4. Other Intangible Assets
Other intangible assets are subject to amortization for the period of time which the assets are expected to contribute directly or indirectly to future cash flows under the guidance of ASC 350.
Our major classes of intangible assets subject to amortization under ASC 350 consist of our customer relationships, trade names, safety training program, dispatch software, and other. The Company expenses costs associated with extensions or renewals of intangible assets. There were no such extensions or renewals in the three and nine months ended September 30, 2012 or September 30, 2011. Amortization expense is calculated using the straight-line method over the period indicated. Amortization expense for the three months ended September 30, 2012 and September 30, 2011 from continuing operations was $0.7 million and for the nine months ended September 30, 2012 and September 30, 2011 was $2.1 million. Estimated amortization expense for each of the five succeeding fiscal years is $2.9 million per year. The weighted average amortization period remaining for intangible assets is 10.0 years.
 
The following sets forth the identified intangible assets by major asset class:
 
 
 
 
As of September 30, 2012
 
As of December 31, 2011
 
Useful
Life
(years)
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net Book
Value
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net Book
Value
Customer relationships
15
 
$
31,895,919

 
$
10,100,314

 
$
21,795,605

 
$
31,895,919

 
$
8,505,578

 
$
23,390,341

Trade names
15
 
8,049,750

 
2,549,087

 
5,500,663

 
8,049,750

 
2,146,600

 
5,903,150

Safety training program
15
 
1,181,924

 
374,277

 
807,647

 
1,181,924

 
315,180

 
866,744

Dispatch software
10
 
1,135,282

 
539,258

 
596,024

 
1,135,282

 
454,112

 
681,170

Other
10
 
58,300

 
27,747

 
30,553

 
58,300

 
23,316

 
34,984

 
 
 
$
42,321,175

 
$
13,590,683

 
$
28,730,492

 
$
42,321,175

 
$
11,444,786

 
$
30,876,389




10


5. Share-Based Compensation
Stock Options
From time to time, the Company grants stock options, restricted stock or other awards to its employees, including executive officers and directors. Prior to July 9, 2012, these awards were granted pursuant to the Company's 2008 Incentive Compensation Plan, or the 2008 Plan. On July 9, 2012, at the Company's 2012 Annual Meeting of Shareholders, the Company's shareholders approved the Company's 2012 Incentive Compensation Plan, or the 2012 Plan. No further awards will be made under the 2008 Plan, however, outstanding awards granted under the 2008 Plan will remain subject to the terms and conditions of the 2008 Plan. Any shares of common stock that are available to be granted under the 2008 Plan but which are not subject to outstanding awards under the 2008 Plan, including shares that become available due to the future lapse or forfeiture of outstanding awards, will be added to the 1,022,500 shares of common stock authorized for issuance under the 2012 Plan. After taking into account the restricted stock grants in the first quarter of 2012 (as discussed in the Restricted Stock paragraph below), and the 95,001 shares reserved for the equity portion of the executive performance incentive compensation plan (calculated using the closing price of the common stock on September 30, 2012), there were 633,242 shares available for future grants under the 2008 Incentive Compensation Plan these shares are automatically added into the shares authorized in the 2012 Plan. As of September 30, 2012, no awards had been issued under the 2012 Plan.
Stock options issued in 2008 under the 2008 plan originally vested over a three-year period. On August 11, 2011, however, the Company exchanged 667,500 of these options, which constituted all of the outstanding options issued in 2008, in a 0.72 to 1 exchange for 480,600 options issued under the 2008 plan(the “Exchange Options”). These Exchange Options vested one-third every four months from the exchange date and the Company recognized $0.1 million of compensation expense for this exchange over a 12 month period. With respect to the stock options issued in 2010, the standard option vested over a two year period with one fourth vesting every six months, until fully vested. With respect to options, unrelated to the Exchange Options issued in August 2011, vesting took place over a three-year period, with approximately one third vesting on the first, second and third anniversaries of the date of grant. For most grantees, vested options expire at the earlier of either one year after the termination of grantee’s employment by reason of death, disability or retirement, 90 days after termination of the grantee’s employment other than upon grantee’s death, disability or retirement, provided, however, that the Company may elect to extend the expiration beyond this 90-day period, or ten years after the date of grant.
The following table presents a summary of the Company’s stock option activity for the nine months ended September 30, 2012.
 
Shares
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value
Options outstanding at December 31, 2011
2,285,425

 
$
7.49

 
8.79 years
 
$
2,297,344

Stock options:
 
 
 
 
 
 
 
Granted

 


 

 


Exercised
(25,000
)
 
2.60

 

 


Forfeited
(262,500
)
 
8.87

 

 


Options outstanding at September 30, 2012
1,997,925

 
$
7.51

 
7.98 years
 
$
461,813

Vested and expected to vest at September 30, 2012
1,287,725

 
$
6.60

 
7.49 years
 
$
461,813

Exercisable at September 30, 2012
1,287,725

 
$
6.60

 
7.49 years
 
$
461,813


During the three months ended September 30, 2012 and September 30, 2011 the Company recorded total stock based compensation expense from continuing operations of $1.1 million and $0.6 million from restricted stock and stock options, respectively. During the nine months ended September 30, 2012 and September 30, 2011 the Company recorded total stock based compensation expense of $4.0 million and $1.9 million, respectively, from restricted stock and stock options. No stock-based compensation costs were capitalized for the periods ended September 30, 2012 or September 30, 2011. As of September 30, 2012, total unrecognized stock-based compensation costs amounted to $6.8 million (net of estimated forfeitures); and is expected to be recorded over a weighted-average period of 1.77 years years. For the nine months ended September 30, 2012, $0.3 million was recorded to accrue for the executive stock bonuses for the newly implemented, performance based, management bonus plan and is reflected as a current liability in our consolidated financial statements.

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Restricted Stock
On March 6, 2012, we granted 83,332 shares of restricted stock with a vesting period of one year. The aggregate fair value of this restricted stock is $497,117 which will be amortized over the next twelve months. In addition, we granted 125,000 shares of restricted stock with an aggregate fair value of $720,000 included in total stock-based compensation on February 17, 2012, which vested immediately and was expensed in the first quarter of 2012.
Grants Outside of the 2008 Incentive Compensation Plan
On August 23, 2010, the Company granted 65,000 stock options in an issuance outside the 2008 Incentive Compensation Plan. These options vested twenty-five percent on each six-month anniversary from the date of grant over a two year period.

6. Property and Equipment
Property and equipment consisted of the following:
 
 
Estimated
Life in Years
 
September 30,
2012
 
December 31,
2011
Well servicing equipment
3-15 years
 
$
385,214,430

 
$
317,883,278

Autos and trucks
5-10 years
 
102,336,764

 
95,667,664

Disposal wells
5-15 years
 
31,171,072

 
11,957,960

Building and improvements
5-30 years
 
10,522,316

 
7,842,246

Furniture and fixtures
3-10 years
 
3,449,066

 
2,426,219

Land
 
 
1,226,662

 
257,425

Other
3-15 years
 
153,851

 
44,204

 
 
 
534,074,161

 
436,078,996

Accumulated depreciation
 
 
(180,683,048
)
 
(150,134,312
)
 
 
 
$
353,391,113

 
$
285,944,684

Depreciation expense from continuing operations was $12.5 million and $34.9 million for the three and nine months ended September 30, 2012 and $9.1 million and $26.9 million for the three and nine months ended September 30, 2011, respectively.

7. Long-Term Debt
Long-term debt at September 30, 2012 and December 31, 2011 consisted of the following:
 
 
September 30,
2012
 
December 31,
2011
9% Senior Notes
$
280,000,000

 
$
280,000,000

Insurance note
177,116

 
7,119,310

Third party equipment notes
15,911,068

 
9,030,964

 
296,088,184

 
296,150,274

Less: Current portion
(5,050,303
)
 
(10,517,232
)
 
$
291,037,881

 
$
285,633,042

9% Senior Notes
On June 7, 2011, FES Ltd issued $280.0 million in principal amount of 9% Senior Notes due 2019 (the “9% Senior Notes”). The proceeds of the 9% Senior Notes were used to purchase and redeem 100% of the First Priority Notes and the outstanding Second Priority Notes (described below)issued by two of FES Ltd’s subsidiaries, Forbes Energy Services LLC and Forbes Energy Capital Inc. The 9% Senior Notes mature on June 15, 2019, and require semi-annual interest payments, in arrears, at an annual rate of 9% on June 15 and December 15 of each year until maturity commencing December 15, 2011. No principal payments are due until maturity.
The 9% Senior Notes are guaranteed by the current domestic subsidiaries (the “Guarantor Subs”) of FES Ltd, which includes FES LLC, C.C. Forbes, LLC (“CCF”), TX Energy Services, LLC (“TES”), Superior Tubing Testers, LLC (“STT”) and Forbes Energy International, LLC (“FEI LLC”). All of the Guarantor Subs are 100% owned. Each guarantee of the Guarantor

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Subs is on a full and unconditional and joint and several basis, subject to customary release provisions. Prior to January 12, 2012, FES Ltd had two 100% owned indirect Mexican subsidiaries or the Non-Guarantor Subs that had not guaranteed the 9% Senior Notes. In January 2012, one of those two Mexican subsidiaries was sold along with the business and substantially all of our long-lived assets located in Mexico. The Guarantor Subs represent the majority of the Company’s operations. On or after June 15, 2015, the Company may, at its option, redeem all or part of the 9% Senior Notes from time to time at specified redemption prices and subject to certain conditions required by the indenture governing the 9% Senior Notes (the “9% Senior Indenture”). The Company is required to make an offer to purchase the notes and to repurchase any notes for which the offer is accepted at 101% of their principal amount, plus accrued and unpaid interest, if there is a change of control. The Company is required to make an offer to repurchase the notes and to repurchase any notes for which the offer is accepted at 100% of their principal amount, plus accrued and unpaid interest, following certain asset sales.
The Company is permitted under the terms of the 9% Senior Indenture to incur additional indebtedness in the future, provided that certain financial conditions set forth in the 9% Senior Indenture are satisfied. The Company is subject to certain covenants contained in the 9% Senior Indenture, including provisions that limit or restrict the Company’s and certain future subsidiaries’ abilities to incur additional debt, to create, incur or permit to exist certain liens on assets, to make certain dispositions of assets, to make payments on certain subordinated indebtedness, to pay dividends or certain other payments to equity holders, to engage in mergers, consolidations or other fundamental changes, to change the nature of its business or to engage in transactions with affiliates. As of September 30, 2012, we are in compliance with all covenants in the indenture.
Revolving Credit Facility
On September 9, 2011, FES Ltd and its current domestic subsidiaries entered into a loan and security agreement with Regions Bank, SunTrust Bank, CIT Bank and Capital One Leverage Finance Corp., as lenders, and Regions Bank, as agent for the secured parties, or the Agent. The loan and security agreement provides for an asset based revolving credit facility with a maximum initial borrowing credit of $75.0 million, subject to borrowing base availability. As of September 30, 2012, $73.3 million was available under this new credit facility due to the $1.7 million in letters of credit outstanding against the facility. During the quarter ended September 30, 2012, we repaid $6.0 million that was outstanding under the revolving credit facility at June 30, 2012. The loan and security agreement has a stated maturity of September 9, 2016. The proceeds of this credit facility can be used for the purchase of well services equipment, permitted acquisitions, general operations, working capital and other general corporate purposes. There was nothing drawn on this facility and $1.7 million in letters of credit outstanding against the facility at September 30, 2012.
Under the loan and security agreement, our borrowing base at any time is equal to (i) 85% of eligible accounts, which are determined by Agent in its reasonable discretion, plus (ii) the lesser of 85% of the appraised value, subject to certain adjustments, of our well services equipment that has been properly pledged and appraised, is in good operating condition and is located in the United States, or 100% of the net book value of such equipment, minus (iii) any reserves established by the Agent in its reasonable discretion.
At our option, borrowings under this new credit facility will bear interest at a rate equal to either (i) the LIBOR rate plus an applicable margin of between 2.25% to 2.75% based on borrowing availability or (ii) a base rate plus an applicable margin of between 1.25% to 1.75% based on borrowing availability, where the base rate is equal to the greater of the prime rate established by Regions Bank, the overnight federal funds rate plus 0.5% or the LIBOR rate for a one month period plus 1%.
In addition to paying interest on outstanding principal under the facility, a fee of 0.375% per annum will accrue on unutilized availability under the credit facility. We are required to pay a fee of between 2.25% to 2.75%, based on borrowing availability, with respect to the principal amount of any letters of credit outstanding under the facility. We are also responsible for certain other administrative fees and expenses. In connection with the execution of the loan and security agreement, we paid the lenders an upfront fee of $0.5 million.
FES LLC, FEI LLC, TES, CCF and STT are the borrowers under the loan and security agreement. Their obligations have been guaranteed by one another and by FES Ltd. Subject to certain exceptions and permitted encumbrances, including the exemption of real property interests from the collateral package, the obligations under this facility are secured by a first priority security interest in all of our assets.
We are able to voluntarily repay outstanding loans at any time without premium or penalty (subject to the fees discussed above). If at anytime our outstanding loans under the credit facility exceed the availability under our borrowing base, we may be required to repay the excess. Further, we are required to use the net proceeds from certain events, including certain judgments, tax refunds or insurance awards to repay outstanding loans; however, we may reborrow following such repayments if the conditions to borrowing are met.
The loan and security agreement contains customary covenants for an asset-based credit facility, which include

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(i) restrictions on certain mergers, consolidations and sales of assets; (ii) restrictions on the creation or existence of liens; (iii) restrictions on making certain investments; (iv) restrictions on the incurrence or existence of indebtedness; (v) restrictions on transactions with affiliates; (vi) requirements to deliver financial statements, report and notices to the Agent and (vii) a springing requirement to maintain a consolidated fixed charge coverage ratio (which is defined in the loan and security agreement) of 1.1:1.0 in the event that our excess availability under the credit facility falls below the greater of $11.3 million or 15% of our maximum credit under the facility for sixty consecutive days; provided that, the restrictions described in (i)—(v) above are subject to certain exceptions and permissions limited in scope and dollar value. The loan and security agreement also contains customary representations and warranties and event of default provisions. As of September 30, 2012, we are in compliance with all covenants in the loan and security agreement.
The company recently entered into an amendment to the loan agreement governing our new credit facility, or the Second Amendment. Similar to the first amendment to the Loan Agreement, this Second Amendment modifies certain provisions of the Loan Agreement to, among other things, provide more flexibility on the Borrower Subsidiaries’ ability to enter into equipment leases, purchase money financings and insurance financing transactions. This amendment was effective on July 6, 2012 after the payment of an amendment fee.
Third Party Equipment Notes
During the past few years, the Forbes Group financed the purchase of certain vehicles and equipment through commercial loans with Paccar Financial Group, Mack Financial Services, Enterprise Fleet Management, and Regions Finance with aggregate principal amounts outstanding as of September 30, 2012 and December 31, 2011 of approximately $15.9 million and $9.0 million, respectively. These loans are repayable in a range of 42 to 60 monthly installments with the maturity dates ranging from May 2013 to November 2017. Interest accrues at rates ranging from 4.7% to 7.6% and is payable monthly. The loans are collateralized by equipment purchased with the proceeds of such loans. The Forbes Group paid total principal payments of approximately $3.3 million and $4.3 million for the nine months ended September 30, 2012 and year ended December 31, 2011, respectively.
Insurance Notes
During 2011, the Forbes Group entered into a promissory note with First Insurance Funding for the payment of insurance premiums during the period of insurance coverage with an aggregate principal amount outstanding as of September 30, 2012 and December 31, 2011 of approximately $0.2 million and $7.1 million, respectively. This note is payable in 12 monthly installments with maturity date of September 15, 2012. Interest accrues at a rate of approximately 3.6% and is payable monthly. The amount outstanding could be substantially offset by the cancellation of the related insurance coverage. The company recently signed a new insurance note effective October 15, 2012 for $10.4 million at a rate of 3.3% .

8. Fair Value of Financial Instruments
The following is a summary of the carrying amounts and estimated fair values of our financial instruments as of September 30, 2012 and December 31, 2011. Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The carrying amounts of cash and cash equivalents, accounts receivable-trade, accounts receivable-related parties, accounts receivable – other, prepaid expenses, other current assets, accounts payable – trade, accounts payable – related parties, insurance notes, deposits on assets held for sale, and accrued expenses approximate fair value because of the short maturity of these instruments. The fair values of third party notes and equipment notes, which approximate their carrying values, are based on current market rates at which the company could borrow funds with similar maturities.
 
 
September 30, 2012
 
December 31, 2011
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
 
(dollars in thousands)
9.0% Senior Notes
$
280,000

 
$
266,000

 
$
280,000

 
$
261,800


9. Related Party Transactions
The Company and its subsidiaries enter into transactions with related parties in the normal course of conducting business. References in this section to the Company include the Company’s subsidiaries, unless the context indicates otherwise. Accounts receivable – related parties and accounts payable – related parties result from the transactions with related parties, which the company believes are on terms consistent with those available to third-party customers from third-party vendors.
Messrs. John E. Crisp and Charles C. Forbes, Jr., executive officers and directors of FES Ltd, are also owners and

14


managers of Alice Environmental Holdings, LLC or AEH, and indirect owners and managers of Alice Environmental Services, LP, or AES. The Company has entered into the following transactions with AES and AEH:
AEH owns aircraft that the Company uses on a regular basis.
The Company entered into long-term operating leases with AES for well service rigs, vacuum trucks and related equipment and has subsequently purchased these assets from AES.
The Company entered into long-term real property leases, disposal well leases and disposal well operating agreements with AES and has subsequently purchased all but one of these leased disposal wells.
In June 2011, the Company purchased from AES certain workover rigs, trucks, tanks, swab units and other well servicing equipment being leased pursuant to two operating leases, as well as certain other frac tank equipment being rented from AES on a month-to-month basis. The Company paid AES and aggregate purchase price of approximately $18.0 million, plus a payment for estimated sales tax of $1.7 million.
The Company had been leasing the workover rigs that it purchased in June 2011 pursuant to a five-year operating lease entered into with AES in October 2008. The gross lease amount of this agreement was approximately $15.2 million with monthly payments of approximately $0.3 million.
The Company had been leasing certain other well servicing equipment purchased in June 2011 pursuant to an operating lease it entered into with AES effective January 2010. Prior to January 2010, this equipment was being rented month-to-month. The gross agreement amount was approximately $3.2 million with monthly payments of approximately $67,000.
In March 2012, the Company purchased ten vacuum trucks and trailers from AES for an aggregate purchase price of approximately $1.1 million.
Expenses paid to AES related to equipment and aircraft rental were approximately $0.3 million and $0.9 million for the three and nine months ended September 30, 2012 and $0.4 million and $4 million for the three and nine months ended September 30, 2011, respectively.
The Company entered into a waste water disposal operating agreement dated January 1, 2007, with AES pursuant to which AES leased its rights in a certain well bore and receives payments in the form of a minimum fee of $5,000 per month plus $0.15 per barrel injected over 50,000 barrels. Under this agreement, AES also received a “skim oil” payment of 20% of the amount realized by the Company for all oil and hydrocarbons removed from liquids injected into the premises. The agreement term was for three years and was automatically renewed on January 1, 2010 for a three year term. Beginning in January 2008, the Company began paying AES for the use of three additional disposal wells, on a month-to-month basis, without a written contract. The terms of this rental arrangement was on a usage basis. In April 2012, these four disposal wells were purchased by the Company for $14.5 million. The Company paid $7.5 million in April 2012 and $3.5 million in September 2012, and intends to pay the remainder in the fourth quarter of 2012.
The Company continues to operate one additional disposal well from AES pursuant to a waste water disposal lease agreement with AES dated April 1, 2007. Under this agreement, the Company is entitled to use leased land for the disposal of waste water for a term of five years with three successive three year renewal periods. The Company pays a monthly rental of $2,500 per month plus $0.05 per barrel for any barrel over 50,000 barrels of waste water injected per month. Additionally, the Company pays an amount equal to 10% of all oil or other hydrocarbons removed from the liquids injected into the premises. The Company also pays AES to dispose of a portion of the solid waste products generated from its salt water disposal wells.
Expenses paid to AES related to salt water disposal wells were approximately $0.1 million and $1.2 million related to the disposal of waste water for the three and nine months ended September 30, 2012 and $0.3 million and $0.9 million for the three and nine months ended September 30, 2011, respectively.
The Company has thirteen separate rental or lease agreements with AES for separate parcels of land and buildings. Ten of the leases were entered into at various dates subsequent to December 31, 2006. Ten of the leases are written and three are oral. Each written lease has a five-year term with the Company having the option to extend from between one and five years. Aggregate amounts paid for the thirteen rentals and leases were $0.3 million and $1.1 million for the three and nine months ended September 30, 2012 and $0.3 million and $1.1 million for the three and nine months ended September 30, 2011, respectively.
For the three months ended September 30, 2012 and 2011 the Company recognized no revenue from AES, total expenses of approximately $0.7 million and $1.1 million, respectively, and no capital expenditures. For the nine months ended September 30, 2012 and 2011, the Company recognized no revenues, expense of approximately $3.2 million and $6.0 million, and capital expenditures of approximately $15.6 million and $18.6 million, respectively. Accounts payable to AES as of

15


September 30, 2012 and December 31, 2011 resulting from such transactions were $3.4 million and $0.6 million, respectively. The Company had accounts receivable as of September 30, 2012 and December 31, 2011 of $0.4 million
CJ Petroleum Service LLC, or CJ Petroleum, is a company that owns salt water disposal wells and is owned by Messrs. Crisp and Forbes, two sons of Mr. Crisp, and Janet Forbes, a director of the FES Ltd. In 2010, we began paying CJ Petroleum to use their three disposal wells. The Company recognized no revenue, expenses of approximately $0.0 million and $0.2 million, and no capital expenditures for the three months ended September 30, 2012 and September 30, 2011, respectively. The Company recognized no revenue, approximate expenses of $0.3 million and $0.4 million, and no capital expenditures for the nine months ended September 30, 2012 and September 30, 2011. We had no accounts receivable from CJ Petroleum as of September 30, 2012 and December 31, 2011, respectively. We had accounts payable of approximately $0 and $0.1 millionto CJ Petroleum as of September 30, 2012 and December 31, 2011, respectively.
Dorsal Services, Inc. is a trucking service provider that provides services to the Company. Mr. Crisp, an executive officer and director of FES, Ltd, and Denyce Crisp, the ex-wife of John Crisp, are partial owners of Dorsal Services, Inc. The Company recognized no revenues, expenses of approximately $45,000 and $0.1 million and no capital expenditures to Dorsal Services Inc. for the three months ended September 30, 2012 and September 30, 2011, respectively. The company recognized no revenues, expenses of approximately $0.1 million and $0.4 million for the nine months ended September 30, 2012 and September 30, 2011, respectively. The Company had accounts receivable of $0.1 million and $0.1 million and accounts payable to Dorsal Services, Inc. of approximately $24,000 and $12,000 as of September 30, 2012 and December 31, 2011, respectively.
Tasco Tool Services, Inc. is a down-hole tool company that is partially owned and managed by a company that is owned by Mr. Forbes, both an executive officer and director of FES Ltd., along with Robert Jenkins, a manager of one of the subsidiaries of FES Ltd. Tasco rents and sells tools to the Company from time to time. The Company had no revenues from Tasco and recognized expenses of approximately $85,000 and $63,000 and capital expenditures of $155,000 and $0 related to transactions with Tasco for the three months ended September 30, 2012 and September 30, 2011, respectively. For the nine months ended September 30, 2012 and September 30, 2011 the company had no revenues, expenses of approximately $0.1 million and $0.1 million, and capital expenditures of $155,000 and $0, respectively. The Company had no accounts receivable and accounts payable to Tasco as of September 30, 2012 and December 31, 2011 were $0.1 million, resulting from these transactions.
FCJ Management, LLC or FCJ, is an entity that leases land and facilities to the Company and is owned by Messrs. Crisp and Forbes and Robert Jenkins, a manager of one of the subsidiaries of FES Ltd. The Company recognized expenses of $9,000 for the three months ended September 30, 2012 and September 30, 2011. The Company had expenses of $27,000 for the nine months ended September 30, 2012 and September 30, 2011. No revenues have been recognized from FCJ for any period. The Company had no accounts receivable from or accounts payable to FCJ as of September 30, 2012 and December 31, 2011.
C&F Partners, LLC is an entity that is owned by Messrs. Crisp and Forbes. The Company recognized no revenues, expenses of approximately $0 and $0.2 million and no capital expenditures for the three months ended September 30, 2012 and September 30, 2011, respectively. All expenses are related to aircraft rental. The Company recognized no revenues, expenses of approximately $0.2 million and $0.4 million, and no capital expenditures for the nine months ended September 30, 2012 and September 30, 2011. There were no accounts receivable or accounts payable as of September 30, 2012 and December 31, 2011, respectively. As of April 2012, the Company has no further transactions with this entity.
Resonant Technology Partners is a computer networking group that provides services to the Company. Travis Burris, a director of the Company has a noncontrolling interest in the computer networking company. The company recognized expenses of approximately $49,000 and $40,000 and capital expenditures of approximately $38,000 and $0 for the three months ended September 30, 2012 and September 30, 2011, respectively. The company recognized expenses of $0.4 million and $0.2 million and capital expenditures of approximately $0.2 million and $0 for the nine months ended September 30, 2012 and September 30, 2011, respectively. The Company had accounts payable of approximately $60,000 and $68,000 as of September 30, 2012 and December 31, 2011, respectively.
Wolverine Construction, Inc. is an entity that is owned by two sons and a brother of Mr. Crisp, an executive officer and director of FES Ltd., and a son of Mr. Forbes, an executive officer and director of FES Ltd.. During the time when Wolverine was engaged by the Company to provide construction and site preparation services to certain customers of the Company, the sons and brother of Mr. Crisp were full time employees of the Company. The Company provided additional services to customers that were sub-contracted to Wolverine beginning in the fiscal year 2010 until June 2011 when the Company ceased offering such services.
The Company recognized no capital expenditures, revenues of $40,000 and $1.1 million and expenses of $0 and $0.2 million, for the three months ended September 30, 2012 and September 30, 2011, respectively. The company had revenues of $41,000 and $1.1 million and expenses of approximately $36,000 and $10.3 million for the nine months ended September 30,

16


2012 and September 30, 2011, respectively. The Company had approximately $0 in accounts receivable from Wolverine as of September 30, 2012 and approximately $1.1 million as of December 31, 2011. The Company had $39,000 accounts payable due Wolverine as of September 30, 2012 and approximately $7,000 as of December 31, 2011.
JITSU Services, LLC, or JITSU, is a financial leasing company that, since October 2010, provides services to the Company. The Company currently leases ten vacuum trucks from JITSU. Janet Forbes and Mr. Crisp are owners of JITSU. For the three months ended September 30, 2012 and September 30, 2011, the Company recognized no revenues and expenses of approximately $0.1 million and no capital expenditures from transactions with JITSU. The Company recognized no revenues, expenses of approximately $0.3 million, and no capital transactions for the nine months ended September 30, 2012 and September 30, 2011. As of September 30, 2012 and December 31, 2011, the company had no accounts receivable from or accounts payable to JITSU.
Texas Quality Gate Guard Services, LLC, or Texas Quality Gate Guard Services, is an entity owned by Messrs. Crisp and Forbes and a son of Mr. Crisp, an executive officer and director of FES Ltd., which said son during that time was also a full time employee of the Company. Since October 2010, Texas Quality Gate Guard Services has provided security services to the Company. The Company bills its customers for these services without a markup. For the three months ended September 30, 2012 and September 30, 2011, the Company recognized no revenues, expenses of approximately $41,000 and $0.1 million and no capital expenditures from transactions with Texas Quality Gate Guard Services. The Company recognized $0 revenues, expenses of approximately $0.3 million and $0.2 million, and no capital expenditures for the nine months ended September 30, 2012 and September 30, 2011, respectively. As of September 30, 2012 and December 31, 2011, the company had no accounts receivable and accounts payable to Texas Quality Gate Guard of approximately $23,000 and $121,000, respectively.
Animas Holdings, LLC, or Animas, is a property and disposal company that is owned by the two sons of Mr. Crisp and three children of Mr. Forbes and Ms. Forbes. As of April 26, 2010, TES entered into a waste water disposal operating agreement with Animas whereby TES agrees to pay a monthly operational fee of $4,000 per month, plus $0.08 per barrel over 50,000 barrels per month. Animas agrees to pay TES ten percent of all skim oil payments obtained from this waste water disposal. The Company also has an oral agreement with Animas for the rental of two truck yards. The Company pays Animas $8,500 per month for the use of the two properties. For the three months ended September 30, 2012 and September 30, 2011, the Company recognized no revenues; expenses of approximately $0 and $0.1 million and no capital expenditures from transactions with Animas Holding, LLC. For the nine months ended September 30, 2012 and September 30, 2011, the Company recognized no revenues; expenses of $26,000 and $0.3 million, and no capital expenditures, respectively. As of September 30, 2012 and December 31, 2011, the Company had no accounts receivable and accounts payable of $0 and $31,000 to Animas Holding, LLC.
The Company has a relationship with Texas Champion Bank. Travis Burris, one of the directors of FES Ltd., is also the President, Chief Executive Officer, and director of Texas Champion Bank. Mr. Crisp, our President and Chief Executive Officer, serves on the board of directors of Texas Champion Bank. As of September 30, 2012 and December 31, 2011, the Company had $1.8 million and $2.4 million, respectively, on deposit with this bank.
Daniel Crisp, a son of John E. Crisp, the Chief Executive Officer of the Company, was employed as a manager by C.C. Forbes, LLC and TX Energy Services, LLC, both subsidiaries of the Company, until March 2012. Daniel Crisp received salary compensation of $199,831 in 2011 and $99,000 during the portion of 2012 when he was working for the Company. Daniel Crisp received an option to purchase 200,000 shares of common stock at $28.00 per share in May 2008, which award vested over three years. He received an option to purchase 25,000 shares of common stock at $2.60 per share in August 2010, which award vests over two years. Daniel Crisp tendered his May 2008 options in the previously discussed 2011 Option Exchange and received new options to purchase 36,000 shares of common stock, at an exercise price of $9.32 per share, which award vests over one year. On August 15, 2011, Daniel Crisp received options to purchase 214,000 shares of common stock, at an exercise price of $9.16 per share, which award vests over three years. When Daniel Crisp ceased working for the Company all unvested options were for forfeited. Daniel Crisp exercised 18,750 stock options on June 1, 2012 and the remaining vested options were forfeited on June 6, 2012.
Marcus Crisp, a brother of John E. Crisp, is employed as the West Texas Fluids Manager by C.C. Forbes, LLC and TX Energy Services, LLC, both subsidiaries of the Company. Marcus Crisp received salary compensation of $171,567 in 2011 and $160,385 through September 30, 2012. Marcus Crisp received an option to purchase 12,500 shares of common stock at $28.00 per share in May 2008, which award vested over three years. He received an option to purchase 18,750 shares of common stock at $2.60 per share in August 2010, which award vests over two years. Marcus Crisp tendered his May 2008 options in the previously discussed 2011 Option Exchange and received new options to purchase 9,000 shares of common stock, at an exercise price of $9.32 per share. In August 2011, Marcus Crisp received options to purchase 125,000 shares of common stock, at an exercise price of $9.16 per share, which award vests over three years. In February 2012, Marcus Crisp was granted a restricted stock award in the amount of 41,666 shares, vesting one year from the date of grant.

17


Messrs. Crisp and Forbes are directors and shareholders of Brush Country Bank, an institution with which the Company conducts business. As of September 30, 2012 and December 31, 2011, the Company had $0.1 million and $0.9 million on deposit with this bank.


10. Commitments and Contingencies
Concentrations of Credit Risk
Financial instruments which subject the Forbes Group to credit risk consist primarily of cash balances maintained in excess of federal depository insurance limits and trade receivables. All of our non-interest bearing cash balances were fully insured at September 30, 2012 due to a temporary federal program in effect from December 31, 2010 through December 31, 2012. Under the program, there is no limit to the amount of insurance for eligible accounts. Beginning 2013, insurance coverage will revert to $250,000 per depositor at each financial institution, and our non-interest bearing cash balances may again exceed federally insured limits. The Forbes Group restricts investment of temporary cash investments to financial institutions with high credit standings. The Forbes Group’s customer base consists primarily of multi-national and independent oil and natural gas producers. The Forbes Group does not require collateral on its trade receivables. For the three months ended September 30, 2012 the Company's largest customer, five largest customers, and ten largest customers constituted 11.7%, 38.2%, and 59.4% of revenues, respectively. For the nine months ended September 30, 2012 the Company's largest customer, five largest customers, and ten largest customers constituted 10.2%, 38.1%, 58.0% and of revenues, respectively. The loss of any one of our top five customers would have a negative impact on the revenues and profits of the company. Further, our trade accounts receivable are from companies within the oil and natural gas industry and as such the Forbes Group is exposed to normal industry credit risks. The Forbes Group continually evaluates its reserves for potential credit losses and establishes reserves for such losses.
Self-Insurance
The Forbes Group is self-insured under its Employee Group Medical Plan for the first $125,000 per individual plus a $235,000 aggregate specific deductible. Incurred and unprocessed claims as of September 30, 2012 and December 31, 2011 amount to approximately $3.7 and $3.9 million, respectively. These claims are unprocessed and therefore their values are estimated and included in accrued expenses in the accompanying condensed consolidated balance sheets.
Litigation
The Forbes Group is subject to various other claims and legal actions that arise in the ordinary course of business. We do not believe that any of these claims and actions, separately or in the aggregate, will have a material adverse effect on our business, financial condition, results of operations or cash flows, although we cannot guarantee that a material adverse effect will not occur.
Off-Balance Sheet Arrangements
We are often party to certain transactions that require off-balance sheet arrangements such as performance bonds, guarantees, operating leases for equipment, and bank guarantees that are not reflected in our condensed consolidated balance sheets. These arrangements are made in our normal course of business and they are not reasonably likely to have a current or future material adverse effect on our financial condition, results of operations, liquidity or cash flows.

11. Supplemental Cash Flow Information

18


 
 
Nine months ended September 30,
 
 
2012
 
2011
Cash paid for
 
 
 
 
Interest
 
$
13,455,493

 
$
24,344,157

Income tax
 
$
715,000

 
$

Supplemental schedule of non-cash investing and financing activities
 
 
 
 
Changes in accounts payable related to capital expenditures
 
$
(8,652,951
)
 
$
3,918,202

Capital leases on equipment
 
$
10,180,698

 
$
5,329,569

Preferred shares dividends and accretion costs
 
$
31,113

 
$
7,552

Adjustment to reclass dividends payable from temporary equity to liabilities
 
$

 
$
612,565





12. Earnings per Share
Basic earnings per share (“EPS”) is computed by dividing net income available to common shareholders by the weighted average common shares outstanding during the period. Diluted earnings (loss) per share takes into account the potential dilution that could occur if securities or other contracts to issue common shares, such as warrants, options and convertible preference shares, were exercised and converted into common shares. Potential common stock equivalents that have been issued by the Forbes Group relate to outstanding stock options and restricted stock which are determined using the treasury stock method, and the Series B Senior Convertible Preferred Shares (the “Series B Preferred Shares”), which are determined using the “if converted” method. In applying the if-converted method, conversion is not assumed for purposes of computing diluted EPS if the effect would be antidilutive. As of September 30, 2012 and September 30, 2011, there were 2.0 million and 1.3 million options to purchase common shares outstanding, respectively and 588,059 Series B Senior Convertible Preferred Shares. The preferred stock is convertible at a rate of nine common shares to one Series B Preferred Share.
The Company has determined that the Series B Preferred Shares are participating securities under ASC 260. Under ASC 260, a security is considered a participating security if the security may participate in undistributed earnings with common stock, whether that participation is conditioned upon the occurrence of a specified event or not. In accordance with ASC 260, a company is required to use the two-class method when computing EPS when a company has a security that qualifies as a “participating security.” The two-class method is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. A participating security is included in the computation of basic EPS using the two-class method. Under the two-class method, basic EPS for the Company’s common shares is computed by dividing net income applicable to common shares by the weighted-average common shares outstanding during the period. Under the certificate of designation for our Series B Preferred Shares (the “Series B Certificate of Designation”), if at any time the Company declares a dividend in cash which is greater in value than five percent on a cumulative basis over the previous twelve month period of the then current “Common Share Fair Market Value,” as that term is defined in the Series B Certificate of Designation, the Series B Preferred Shares will be entitled to receive a dividend payable in cash equal to the amount in excess of five percent of the then Common Share Fair Market Value per common share they would have received if all outstanding Series B Preferred Shares had been converted into common shares. There were no earnings allocated to the Series B Preferred Shares for the quarter ended September 30, 2012 since earnings for the quarter were not in excess of amounts prescribed by the Series B Certificate of Designation for our Series B Preferred Shares. Diluted EPS for the Company’s common shares is computed using the more dilutive of the two-class method or the if-converted method. The following table sets forth the reconciliation of weighted average shares outstanding and diluted weighted average shares outstanding:
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
2012
 
2011
 
2012
 
2011
Weighted average shares outstanding
21,068,417

 
20,918,417

 
21,038,850

 
20,918,417

Dilutive effect of stock options and restricted stock

 
389,056

 
319,109

 

Dilutive effect of preferred shares

 
5,292,531

 
5,292,531

 

Diluted weighted average shares outstanding
21,068,417

 
26,600,004

 
26,650,490

 
20,918,417


19



There were 1,997,925 stock options and 83,332 restricted stock units outstanding as of September 30, 2012, and 5,292,531 common share equivalents underlying the Series B Preferred Shares that were not included in the calculation of diluted EPS for the three months ended September 30, 2012 because their effect would have been antidilutive, but were included in the calculation of diluted EPS for the nine months ended September 30, 2012. There were 1,305,000 stock options outstanding as of September 30, 2011 and 5,292,531 common share equivalents underlying the Series B Preferred Shares that were included in the calculation of diluted EPS for the three months ended September 30, 2011, but were not included in the nine months ended September 30, 2011 because their effect would have been antidilutive.

20



The following table sets forth the computation of basic and diluted earnings per share:
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
2012
 
2011
 
2012
 
2011
Basic:
 
 
 
 
 
 
 
Net income (loss)
$
(2,342,033
)
 
$
4,361,407

 
$
5,020,920

 
$
(18,428,777
)
Preferred stock dividends and accretion
(194,139
)
 
(194,135
)
 
(582,417
)
 
7,552

Net income (loss) attributable to common shareholders
(2,536,172
)
 
4,167,272

 
4,438,503

 
(18,421,225
)
Weighted-average common shares
21,068,417

 
20,918,417

 
21,038,850

 
20,918,417

Basic income (loss) per share
$
(0.12
)
 
$
0.20

 
$
0.21

 
$
(0.88
)
Diluted:
 
 
 
 
 
 
 
Net income (loss)
$
(2,342,033
)
 
$
4,361,407

 
$
5,020,920

 
$
(18,428,777
)
Preferred stock dividends and accretion
(194,139
)
 
(194,135
)
 
(582,417
)
 
7,552

Net income (loss) attributable to common shareholders
(2,536,172
)
 
4,167,272

 
4,438,503



(18,421,225
)
Effect of dilutive securities

 
194,135

582,417

582,417

 

Net income (loss) attributable to common shareholders plus assumed conversions
(2,536,172
)
 
4,361,407

 
5,020,920


(18,421,225
)
Weighted-average common shares
21,068,417

 
26,600,004

 
26,650,490

 
20,918,417

Diluted earnings (loss) per share
$
(0.12
)
 
$
0.16

 
$
0.19

 
$
(0.88
)

13. Income Taxes
The Company’s tax expense from application of the effective tax rate for the nine months ended September 30, 2012 was estimated to be 46.59% based on pre-tax income of $12.3 million. For the nine months ended September 30, 2011, the Company's effective tax rate was a benefit of 30.4%. The difference between the effective rate and 35.0% statutory rate is primarily related to changes in forecast, Texas Margins Tax, and other non-deductible expenses.
The Forbes Group is subject to the Texas Margins Tax. The Texas Margins Tax is a tax equal to one percent of Texas-sourced revenue reduced by the greater of (a) cost of goods sold (as defined by Texas law), (b) compensation (as defined by Texas law) or (c) thirty percent of the Texas-sourced revenue. The Forbes Group accounts for the revised Texas Franchise tax in accordance with ASC 740, as the tax is derived from a taxable base that consists of income less deductible expenses. As of September 30, 2012, the annual franchise tax expense is estimated to be approximately $0.8 million for 2012.

14. Business Segment Information
The Forbes Group has determined that it has two reportable segments organized based on its products and services—well servicing and fluid logistics and other. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.
Well Servicing
The well servicing segment consists of operations in the U.S. that provides (i) well maintenance, including remedial repairs and removal and replacement of down-hole production equipment, (ii) well workovers, including significant down-hole repairs, re-completions and re-perforations, (iii) completion and swabbing activities, and (iv) plugging and abandoning services. In addition, the Forbes Group has tubing testing units that are used to conduct pressure testing of oil and natural gas production tubing.

21


Fluid Logistics and Other
The fluid logistics and other segment consists of operations in the U.S., which provide, transport, store and dispose of a variety of drilling and produced fluids used in and generated by oil and natural gas production activities. These services are required in most work-over and completion projects and are routinely used in daily producing well operations. In the fiscal year 2010, the Company began providing site preparation services which were complementary to the traditional services offered by the Company. Wolverine Construction, Inc., a related party, was sub-contracted to complete such services. The Company ceased offering these services in June 2011. The following table sets forth certain financial information from continuing operations with respect to the Company’s reportable segments in (000)’s for the three and nine months ended September 30, 2012 and September 30, 2011:
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
Well Servicing
 
Fluid Logistics
 
Consolidated
 
Well Servicing
 
Fluid Logistics
 
Consolidated
2012
 
 
 
 
 
 
 
 
 
 
 
Operating revenues
$
50,565

 
$
63,755

 
$
114,320

 
$
154,120

 
$
211,470

 
$
365,590

Direct operating costs
41,372

 
47,186

 
88,558

 
117,913

 
151,396

 
269,309

Segment profits
$
9,193

 
$
16,569

 
$
25,762

 
$
36,207

 
$
60,074

 
$
96,281

Depreciation and amortization
$
5,831

 
$
7,356

 
$
13,187

 
$
17,103

 
$
19,971

 
$
37,074

Capital expenditures
6,205

 
5,697

 
11,902

 
24,327

 
78,916

 
103,243

Total assets
518,193

 
460,307

 
978,500

 
518,193

 
460,307

 
978,500

2011
 
 
 
 
 
 
 
 
 
 
 
Operating revenues
$
48,421

 
$
67,341

 
$
115,762

 
$
126,870

 
$
194,371

 
$
321,241

Direct operating costs
38,881

 
49,817

 
88,698

 
103,030

 
142,730

 
245,760

Segment profits
$
9,540

 
$
17,524

 
$
27,064

 
$
23,840

 
$
51,641

 
$
75,481

Depreciation and amortization
$
5,050

 
$
4,811

 
$
9,861

 
$
15,296

 
$
13,781

 
$
29,077

Capital expenditures
8,088

 
9,718

 
17,806

 
21,072

 
17,341

 
38,413

Total assets
407,734

 
326,503

 
734,237

 
407,734

 
326,503

 
734,237

 
 
Three months ended September 30,
 
Nine months ended September 30,
 
2012
 
2011
 
2012
 
2011
Reconciliation of the Forbes Group Operating Income As Reported:
 
 
 
 
 
 
 
Segment profits
$
25,762

 
$
27,064

 
$
96,281

 
$
75,481

General and administrative expense
7,278

 
6,187

 
26,023

 
24,984

Depreciation and amortization
13,187

 
9,861

 
37,074

 
29,077

Operating income
5,297

 
11,016

 
33,184

 
21,420

Other income and expenses, net
(7,138
)
 
(6,740
)
 
(20,851
)
 
(55,815
)
Income (loss) from continuing operations before income taxes
$
(1,841
)
 
$
4,276

 
$
12,333

 
$
(34,395
)
 
 
September 30, 2012
 
December 31, 2011
Reconciliation of the Forbes Group Assets As Reported:
 
 
 
Total reportable segments
$
978,500

 
$
859,869

Elimination of internal transactions
(1,456,122
)
 
(1,280,509
)
Parent
1,005,157

 
971,063

Total assets
$
527,535

 
$
550,423


15. Guarantor and Non-Guarantor Condensed Consolidating Financial Statements
Prior to January 12, 2012, when the Company completed the disposition of its business and substantially all of its assets

22


in Mexico, the Company had certain foreign significant subsidiaries that did not guarantee the 9% Senior Notes discussed in Note 7 and is required to present the following condensed consolidating financial information pursuant to Rule 3-10 of Regulation S-X. These schedules are presented using the equity method of accounting for all periods presented. Under this method, investments in subsidiaries are recorded at cost and adjusted for the Company’s share in the subsidiaries’ cumulative results of operations, capital contributions and distributions and other changes in equity. Elimination entries relate primarily to the elimination of investments in subsidiaries and associated intercompany balances and transactions. As of September 30, 2012, the subsidiaries that are guarantors are 100% owned directly or indirectly by FES Ltd, guarantees are full and unconditional, joint and several, subject to customary release provisions, and other subsidiaries of FES Ltd issuer that are not guarantors are minor and FES Ltd has no independent assets or operations.
There are no significant restrictions on FES Ltd’s ability or the ability of any guarantor to obtain funds from its subsidiaries by such means as a dividend or loan.
Supplemental financial information for Forbes Energy Services Ltd., the parent and issuer, our combined subsidiary guarantors and our non-guarantor subsidiaries is presented below for the comparative period as of September 30, 2011.
Forbes Energy Services Ltd. and Subsidiaries (a/k/a the “Forbes Group”)
Condensed Consolidated Balance Sheets
As of December 31, 2011
 

23


 
Parent/Issuer
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
15,565,491

 
$
20,988,105

 
$
46,495

 
$

 
$
36,600,091

Accounts receivable
29,566,358

 
106,853,245

 
1,493,791

 
(991,356
)
 
136,922,038

Other current assets
10,599

 
10,274,046

 

 

 
10,284,645

Total current assets
45,142,448

 
138,115,396

 
1,540,286

 
(991,356
)
 
183,806,774

Property and equipment, net

 
285,944,684

 

 

 
285,944,684

Investments in affiliates
26,209,153

 
163,532,443

 

 
(189,741,596
)
 

Intercompany receivables
335,660,170

 

 
11,502,122

 
(347,162,292
)
 

Intercompany note receivable
1,024,301

 

 

 
(1,024,301
)
 

Other intangible assets, net

 
30,876,389

 

 

 
30,876,389

Deferred financing costs—net
6,976,241

 
2,427,576

 

 

 
9,403,817

Restricted cash

 
16,150,433

 

 

 
16,150,433

Other assets
14,890

 
11,482

 
4,504

 

 
30,876

Noncurrent assets held for sale
2,138,704

 
21,572,656

 
498,720

 

 
24,210,080

Total assets
$
417,165,907

 
$
658,631,059

 
$
13,545,632

 
$
(538,919,545
)
 
$
550,423,053

 
 
 
 
 
 
 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Current portions of long-term debt
$

 
$
10,517,232

 
$

 
$

 
$
10,517,232

Trade accounts payable
10,684,760

 
41,120,820

 
(16,198
)
 

 
51,789,382

Accrued dividends
61,259

 

 

 

 
61,259

Other liabilities
22,237,502

 
10,870,950

 
1,564,732

 

 
34,673,184

Total current liabilities
32,983,521

 
62,509,002

 
1,548,534

 

 
97,041,057

Long-term debt—net
280,000,000

 
5,633,042

 

 

 
285,633,042

Intercompany payables

 
334,959,907

 
13,193,742

 
(348,153,649
)
 

Intercompany notes payable

 

 
1,024,301

 
(1,024,301
)
 

Deferred tax liability
(36,074,758
)
 
63,627,639

 
(61,069
)
 

 
27,491,812

Total liabilities
276,908,763

 
466,729,590

 
15,705,508

 
(349,177,950
)
 
410,165,911

Series B convertible shares
14,476,783

 

 

 

 
14,476,783

Shareholders' equity:
125,780,361

 
191,901,469

 
(2,159,876
)
 
(189,741,595
)
 
125,780,359

Total liabilities and equity
$
417,165,907

 
$
658,631,059

 
$
13,545,632

 
$
(538,919,545
)
 
$
550,423,053



24


Forbes Energy Services Ltd. and Subsidiaries (a/k/a the “Forbes Group”)
Condensed Consolidated Statement of Operations (unaudited)
For the three months ended September 30, 2011
 
 
Parent/Issuer
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Revenue
 
 
 
 
 
 
 
 
 
Well servicing
$

 
$
48,421,163

 
$

 
$

 
$
48,421,163

Fluid logistics and other

 
67,340,814

 

 

 
67,340,814

Total revenues

 
115,761,977

 

 

 
115,761,977

Expenses
 
 
 
 
 
 
 
 
 
Well servicing
(456,090
)
 
39,336,799

 

 

 
38,880,709

Fluid logistics and other

 
49,816,736

 

 

 
49,816,736

General and administrative
(2,066,341
)
 
8,253,396

 

 

 
6,187,055

Depreciation and amortization

 
9,861,254

 

 

 
9,861,254

Total expenses
(2,522,431
)
 
107,268,185

 

 

 
104,745,754

Operating income (loss)
2,522,431

 
8,493,792

 

 

 
11,016,223

Other income (expense)
 
 
 
 
 
 
 
 
 
Interest expense - net
4,924,733

 
(11,665,428
)
 

 

 
(6,740,695
)
Other income (expense) - net
35,483,937

 
(35,483,937
)
 

 

 

Equity in income of affiliates
(40,369,119
)
 

 

 
40,369,119

 

Income (loss) before taxes
2,561,982

 
(38,655,573
)
 

 
40,369,119

 
4,275,528

Income tax benefit
1,735,702

 

 

 

 
1,735,702

Net income (loss) from continuing operations
826,280

 
(38,655,573
)
 

 
40,369,119

 
2,539,826

Net income from discontinued operations, net of tax expense
1,821,581

 

 

 

 
1,821,581

Net income (loss)
$
2,647,861

 
$
(38,655,573
)
 
$

 
$
40,369,119

 
$
4,361,407








25


Forbes Energy Services Ltd. and Subsidiaries (a/k/a the “Forbes Group”)
Condensed Consolidated Statement of Operations (unaudited)
For the nine months ended September 30, 2011
 
 
Parent/Issuer
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Revenue
 
 
 
 
 
 
 
 
 
Well servicing
$

 
$
126,869,856

 
$

 
$

 
$
126,869,856

Fluid logistics and other

 
194,371,015

 

 

 
194,371,015

Total revenues

 
321,240,871

 

 

 
321,240,871

Expenses
 
 
 
 
 
 
 
 
 
Well servicing
837,786

 
102,192,128

 

 

 
103,029,914

Fluid logistics and other

 
142,730,107

 

 

 
142,730,107

General and administrative
8,561,942

 
16,421,717

 

 

 
24,983,659

Depreciation and amortization

 
29,077,466

 

 

 
29,077,466

Total expenses
9,399,728

 
290,421,418

 

 

 
299,821,146

Operating income (loss)
(9,399,728
)
 
30,819,453

 

 

 
21,419,725

Other income (expense)
 
 
 
 
 
 
 
 
 
Interest expense - net
(8,309,498
)
 
(12,159,317
)
 

 

 
(20,468,815
)
Other income (expense) - net

 
(35,414,833
)
 

 

 
(35,414,833
)
Equity in income of affiliates
(18,399,139
)
 

 

 
18,468,243

 
69,104

Income (loss) before taxes
(36,108,365
)
 
(16,754,697
)
 

 
18,468,243