10-Q 1 a201310qq2.htm 10-Q 2013 10Q Q2

 
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 June 30, 2013
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-8182

PIONEER ENERGY SERVICES CORP.
(Exact name of registrant as specified in its charter)
_____________________________________________ 
TEXAS
 
74-2088619
(State or other jurisdiction
of incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
 
 
1250 NE Loop 410, Suite 1000
San Antonio, Texas
 
78209
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code: (210) 828-7689
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.    Yes  x    No  o
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x  No  o
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 the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
o
Accelerated filer
x
 
 
 
 
Non-accelerated filer
o
Smaller reporting company
o
   (Do not check if a small reporting company.)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No x

As of July 15, 2013, there were 62,425,390 shares of common stock, par value $0.10 per share, of the registrant outstanding.
 





PART 1. FINANCIAL INFORMATION
Item 1.
Financial Statements
PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
June 30, 2013
 
December 31, 2012
 
(Unaudited)
 
(Audited)
 
(In thousands, except share data)
ASSETS
 
Current assets:
 
 
 
Cash and cash equivalents
$
17,576

 
$
23,733

Receivables:
 
 
 
Trade, net of allowance for doubtful accounts
126,620

 
116,352

Unbilled receivables
46,145

 
35,140

Insurance recoveries
16,323

 
6,518

Income taxes
1,503

 
834

Deferred income taxes
12,230

 
11,058

Inventory
12,704

 
12,111

Prepaid expenses and other current assets
8,890

 
13,040

Total current assets
241,991

 
218,786

Property and equipment, at cost
1,744,221

 
1,698,517

Less accumulated depreciation
748,784

 
684,177

Net property and equipment
995,437

 
1,014,340

Intangible assets, net of accumulated amortization of
$28.7 million and $24.4 million at June 30, 2013 and December 31, 2012, respectively
36,385

 
43,843

Goodwill

 
41,683

Noncurrent deferred income taxes
1,095

 
5,519

Other long-term assets
16,625

 
15,605

Total assets
$
1,291,533

 
$
1,339,776

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
46,703

 
$
83,823

Current portion of long-term debt
23

 
872

Deferred revenues
2,366

 
3,880

Accrued expenses:
 
 
 
Payroll and related employee costs
25,397

 
27,991

Insurance premiums and deductibles
11,063

 
9,708

Insurance claims and settlements
16,323

 
6,348

Interest
12,347

 
12,343

Other
8,931

 
11,585

Total current liabilities
123,153

 
156,550

Long-term debt, less current portion
549,184

 
518,725

Noncurrent deferred income taxes
89,106

 
108,838

Other long-term liabilities
6,643

 
7,983

Total liabilities
768,086

 
792,096

Commitments and contingencies (Note 7)

 

Shareholders’ equity:
 
 
 
Preferred stock, 10,000,000 shares authorized; none issued and outstanding

 

Common stock $.10 par value; 100,000,000 shares authorized;
62,421,390 and 62,032,517 shares outstanding at
June 30, 2013 and December 31, 2012, respectively
6,264

 
6,217

Additional paid-in capital
453,089

 
449,554

Treasury stock, at cost; 218,883 and 134,612 shares at
June 30, 2013 and December 31, 2012, respectively
(1,892
)
 
(1,264
)
Accumulated earnings
65,986

 
93,173

Total shareholders’ equity
523,447

 
547,680

Total liabilities and shareholders’ equity
$
1,291,533

 
$
1,339,776

See accompanying notes to condensed consolidated financial statements.


2



PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Three months ended June 30,
 
Six months ended June 30,
 
2013
 
2012
 
2013
 
2012
 
(In thousands, except per share data)
Revenues:
 
 
 
 
 
 
 
Drilling services
$
138,250

 
$
119,048

 
$
271,324

 
$
243,352

Production services
110,104

 
110,776

 
206,700

 
218,450

Total revenues
248,354

 
229,824

 
478,024

 
461,802

Costs and expenses:
 
 
 
 
 
 
 
Drilling services
89,294

 
78,631

 
178,280

 
159,708

Production services
70,287

 
65,683

 
130,752

 
126,379

Depreciation and amortization
47,348

 
39,989

 
93,633

 
78,362

General and administrative
23,768

 
22,265

 
46,976

 
43,408

Bad debt expense (recovery)
137

 
(56
)
 
418

 
(147
)
Impairment charges
44,788

 

 
44,788

 
1,032

Total costs and expenses
275,622

 
206,512

 
494,847

 
408,742

Income (loss) from operations
(27,268
)
 
23,312

 
(16,823
)
 
53,060

Other (expense) income:
 
 
 
 
 
 
 
Interest expense
(12,331
)
 
(7,650
)
 
(23,793
)
 
(17,205
)
Other
(1,249
)
 
20

 
(2,070
)
 
952

Total other expense
(13,580
)
 
(7,630
)
 
(25,863
)
 
(16,253
)
Income (loss) before income taxes
(40,848
)
 
15,682

 
(42,686
)
 
36,807

Income tax benefit (expense)
14,953

 
(5,997
)
 
15,499

 
(12,950
)
Net income (loss)
$
(25,895
)
 
$
9,685

 
$
(27,187
)
 
$
23,857

 
 
 
 
 
 
 
 
Income (loss) per common share—Basic
$
(0.42
)
 
$
0.16

 
$
(0.44
)
 
$
0.39

 
 
 
 
 
 
 
 
Income (loss) per common share—Diluted
$
(0.42
)
 
$
0.15

 
$
(0.44
)
 
$
0.38

 
 
 
 
 
 
 
 
Weighted average number of shares outstanding—Basic
62,177

 
61,768

 
62,073

 
61,673

 
 
 
 
 
 
 
 
Weighted average number of shares outstanding—Diluted
62,177

 
62,620

 
62,073

 
62,624


See accompanying notes to condensed consolidated financial statements.



3



PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Six months ended June 30,
 
2013
 
2012
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(27,187
)
 
$
23,857

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
93,633

 
78,362

Allowance for doubtful accounts
408

 
370

Gain on dispositions of property and equipment
(1,721
)
 
(1,004
)
Stock-based compensation expense
3,064

 
3,670

Amortization of debt issuance costs, discount and premium
1,534

 
1,475

Impairment charges
44,788

 
1,032

Deferred income taxes
(16,717
)
 
11,221

Change in other long-term assets
(2,113
)
 
744

Change in other long-term liabilities
(1,340
)
 
(1,549
)
Changes in current assets and liabilities:
 
 
 
Receivables
(22,179
)
 
(22,518
)
Inventory
(592
)
 
(2,027
)
Prepaid expenses and other current assets
4,147

 
(1,560
)
Accounts payable
353

 
1,279

Deferred revenues
(1,513
)
 
105

Accrued expenses
(3,888
)
 
(1,759
)
Net cash provided by operating activities
70,677

 
91,698

 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(112,179
)
 
(193,884
)
Proceeds from sale of property and equipment
6,059

 
1,957

Net cash used in investing activities
(106,120
)
 
(191,927
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Debt repayments
(10,862
)
 
(863
)
Proceeds from issuance of debt
40,000

 
35,000

Debt issuance costs
(13
)
 
(23
)
Proceeds from exercise of options
789

 
655

Purchase of treasury stock
(628
)
 
(357
)
Net cash provided by financing activities
29,286

 
34,412

 
 
 
 
Net decrease in cash and cash equivalents
(6,157
)
 
(65,817
)
Beginning cash and cash equivalents
23,733

 
86,197

Ending cash and cash equivalents
$
17,576

 
$
20,380

 
 
 
 
Supplementary disclosure:
 
 
 
Interest paid
$
23,180

 
$
21,783

Income tax paid
$
1,627

 
$
823

 
See accompanying notes to condensed consolidated financial statements.


4



PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1.
Organization and Summary of Significant Accounting Policies
Business and Principles of Consolidation
Pioneer Energy Services provides drilling services and production services to a diverse group of independent and large oil and gas exploration and production companies throughout much of the onshore oil and gas producing regions of the United States and internationally in Colombia. We also provide coiled tubing and wireline services offshore in the Gulf of Mexico.
Our Drilling Services Segment provides contract land drilling services with its fleet of 70 drilling rigs which are currently assigned to the following divisions:
Drilling Division
 
Rig Count
South Texas
 
13

East Texas
 
3

West Texas
 
23

North Dakota
 
12

Utah
 
7

Appalachia
 
4

Colombia
 
8

 
 
70

In early 2011, we began construction, based on term contracts, of ten new-build AC drilling rigs that are fit for purpose for domestic shale plays. We deployed seven of these new-build drilling rigs during 2012, and deployed the final three in early 2013. All of our new-build drilling rigs are currently operating in shale or unconventional plays under long-term drilling contracts. During the second quarter of 2013, we sold two mechanical drilling rigs that were previously idle in our East Texas division, for which we recognized an associated gain of approximately $0.8 million.
As of July 15, 2013, 60 of our 70 drilling rigs are earning revenues under drilling contracts, 43 of which are under term contracts. Included in the 43 drilling rigs currently operating under term contracts is one rig which our client early released due to the recent decrease in demand for vertical conventional drilling in West Texas. We are receiving a standby dayrate for the remainder of this drilling rig's contract term. All of our drilling rigs in Colombia are currently working, six of which are working under term contracts that were extended through the end of 2013. We are actively marketing all of our idle drilling rigs.
In addition to our drilling rigs, we provide the drilling crews and most of the ancillary equipment needed to operate our drilling rigs. We obtain our contracts for drilling oil and natural gas wells either through competitive bidding or through direct negotiations with existing or potential clients. Our drilling contracts generally provide for compensation on either a daywork, turnkey or footage basis. Contract terms generally depend on the complexity and risk of operations, the on-site drilling conditions, the type of equipment used, and the anticipated duration of the work to be performed.
Our Production Services Segment provides a range of services to exploration and production companies, including well servicing, wireline services, coiled tubing services, and fishing and rental services. Our production services operations are concentrated in the major United States onshore oil and gas producing regions in the Mid-Continent and Rocky Mountain states and in the Gulf Coast, both onshore and offshore. As of July 15, 2013, we have a fleet of 109 well servicing rigs consisting of ninety-nine 550 horsepower rigs and ten 600 horsepower rigs, all of which are currently operating or are being actively marketed. We currently provide wireline services and coiled tubing services with a fleet of 118 wireline units and 13 coiled tubing units, and we provide rental services with a gross book value of $17.0 million in fishing and rental tools.
The accompanying unaudited condensed consolidated financial statements include the accounts of Pioneer Energy Services Corp. and our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of our management, all adjustments (consisting of normal, recurring accruals) necessary for a fair presentation have been included. In preparing the accompanying unaudited


5



condensed consolidated financial statements, we make various estimates and assumptions that affect the amounts of assets and liabilities we report as of the dates of the balance sheets and income and expenses we report for the periods shown in the income statements and statements of cash flows. Our actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to our recognition of revenues and costs for turnkey contracts, our estimate of the allowance for doubtful accounts, our determination of depreciation and amortization expense, our estimates of fair value for impairment evaluations, our estimate of deferred taxes, our estimate of the liability relating to the self-insurance portion of our health and workers’ compensation insurance, and our estimate of compensation related accruals. The condensed consolidated balance sheet as of December 31, 2012 has been derived from our audited financial statements. We suggest that you read these condensed consolidated financial statements together with the consolidated financial statements and the related notes included in our annual report on Form 10-K for the fiscal year ended December 31, 2012.
In preparing the accompanying unaudited condensed consolidated financial statements, we have reviewed events that have occurred after June 30, 2013, through the filing of this Form 10-Q, for inclusion as necessary.
Drilling Contracts
Our drilling contracts generally provide for compensation on either a daywork, turnkey or footage basis. Contract terms generally depend on the complexity and risk of operations, the on-site drilling conditions, the type of equipment used, and the anticipated duration of the work to be performed. Generally, our contracts provide for the drilling of a single well and typically permit the client to terminate on short notice. During periods of high rig demand, or for our newly constructed rigs, we enter into longer-term drilling contracts. Currently, we have contracts with terms of six months to four years in duration. As of July 15, 2013, we have 43 drilling rigs operating under term contracts, which if not renewed at the end of their terms, will expire as follows:
 
 
 
 
Term Contract Expiration by Period
 
 
Total
Term Contracts
 
Within
6 Months
 
6 Months
to 1 Year
 
1 Year to
18 Months
 
18 Months
to 2 Years
 
2 to 4 Years
United States
 
37

 
21

 
4

 
3

 
3

 
6

Colombia
 
6

 
6

 

 

 

 

 
 
43

 
27

 
4

 
3

 
3

 
6

Unbilled Accounts Receivable
The asset “unbilled receivables” represents revenues we have recognized in excess of amounts billed on drilling contracts and production services completed but not yet invoiced. We typically invoice our clients at 15-day intervals during the performance of daywork drilling contracts and upon completion of the daywork contract. Turnkey and footage drilling contracts are invoiced upon completion of the contract.
Our unbilled receivables totaled $46.1 million at June 30, 2013, of which $0.6 million related to turnkey drilling contract revenues, $41.3 million represented revenue recognized but not yet billed on daywork drilling contracts in progress at June 30, 2013 and $4.2 million related to unbilled receivables for our Production Services Segment.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets include items such as insurance, rent deposits and fees. We routinely expense these items in the normal course of business over the periods these expenses benefit. Prepaid expenses and other current assets also include the short-term portion of deferred mobilization costs for certain drilling contracts that are recognized on a straight-line basis over the contract term.
Property and Equipment
As of June 30, 2013 and December 31, 2012, we had incurred $30.0 million and $134.9 million, respectively, in construction costs for ongoing projects, primarily for our new-build drilling rigs and additions to our production services fleets. During the six months ended June 30, 2013 and 2012, we capitalized $0.9 million and $6.0 million, respectively, of interest costs incurred during the construction periods of new-build drilling rigs and other drilling equipment.
We recorded gains on disposition of our property and equipment of $1.7 million and $1.0 million for the six months ended June 30, 2013 and 2012, respectively, in our drilling services costs and expenses. During the second quarter of 2013, we sold two mechanical drilling rigs that were previously idle in our East Texas division, for which we recognized an associated gain of approximately $0.8 million. In March 2012, we retired two mechanical drilling rigs, with most of their components to be used as


6



spare parts, as well as two wireline units and other wireline equipment, and recognized an associated impairment charge of $1.0 million.
Intangible Assets
Substantially all of our intangible assets were recorded in connection with the acquisitions of the production services businesses and are subject to amortization. We evaluate for potential impairment of long-lived tangible and intangible assets subject to amortization when indicators of impairment are present. Circumstances that could indicate a potential impairment include significant adverse changes in industry trends, economic climate, legal factors, and an adverse action or assessment by a regulator. More specifically, significant adverse changes in industry trends include significant declines in revenue rates, utilization rates, oil and natural gas market prices and industry rig counts for drilling rigs and well servicing rigs. In performing an impairment evaluation, we estimate the future undiscounted net cash flows from the use and eventual disposition of long-lived tangible and intangible assets grouped at the lowest level that cash flows can be identified. For our Production Services Segment, we perform an impairment evaluation and estimate future undiscounted cash flows for the individual reporting units (well servicing, wireline, coiled tubing and fishing and rental services). If the sum of the estimated future undiscounted net cash flows is less than the carrying amount of the asset group, then we would determine the fair value of the asset group. The amount of an impairment charge would be measured as the difference between the carrying amount and the fair value of these assets. The assumptions used in the impairment evaluation for long-lived assets are inherently uncertain and require management judgment.
Due to several significant adverse factors affecting our coiled tubing services reporting unit, including increased competition in certain coiled tubing markets, turnover of key personnel and lower than anticipated utilization, all of which contributed to a decline in our projected cash flows for the coiled tubing reporting unit, we performed an impairment analysis of our long-lived tangible and intangible assets as of June 30, 2013. We determined that the sum of the estimated future undiscounted net cash flows for our coiled tubing services reporting unit was less than the carrying amount at June 30, 2013. We then performed a valuation of the assets which resulted in a non-cash impairment charge of $3.1 million to reduce our intangible asset carrying value of client relationships. This impairment charge did not have an impact on our liquidity or debt covenants; however, it was a reflection of the increased competition in certain coiled tubing markets where we operate and a decline in our projected cash flows for the coiled tubing reporting unit.
The most significant inputs used in our impairment analysis include the projected utilization and pricing of our coiled tubing services, which are classified as Level 3 inputs as defined by ASC Topic 820, Fair Value Measurements and Disclosures. An increase of 1% in either the utilization or pricing assumptions would have resulted in a decrease to our impairment charge for our long-lived intangible assets of approximately $1 million. Similarly, a decrease of 1% in either of these assumptions would have led to an approximate $1 million increase to our impairment charge. Although we believe the assumptions and estimates used in our analysis are reasonable and appropriate, different assumptions and estimates could materially impact the analysis and resulting conclusions. The assumptions used in estimating fair values and performing the impairment test are inherently uncertain and require management judgment.
Our impairment analysis did not result in any impairment charges to our tangible long-lived assets, substantially all of which was related to the 13 coiled tubing units. As discussed further below, we also recorded a non-cash impairment charge to reduce the carrying value of goodwill to zero.
Goodwill
Goodwill results from business acquisitions and represents the excess of acquisition costs over the fair value of the net assets acquired. In connection with the acquisition of the production services business from Go-Coil, we recorded $41.7 million of goodwill at December 31, 2011, all of which was allocated to the coiled tubing services reporting unit within our Production Services Segment.
We perform a qualitative assessment of goodwill annually as of December 31 or more frequently if events or changes in circumstances indicate that the asset might be impaired. Circumstances that could indicate a potential impairment include a significant adverse change in the economic or business climate, a significant adverse change in legal factors, an adverse action or assessment by a regulator, unanticipated competition, loss of key personnel and the likelihood that a reporting unit or significant portion of a reporting unit will be sold or otherwise disposed of. In addition, these circumstances could lead to our net book value exceeding our market capitalization which is another indicator of a potential impairment of goodwill.
If our qualitative assessment of goodwill indicates a possible impairment, we test for goodwill impairment using a two-step process. First, the fair value of each reporting unit with goodwill is compared to its carrying value to determine whether an indication of impairment exists. Second, if impairment is indicated, then the fair value of the reporting unit's goodwill is determined by allocating the unit's fair value to its assets and liabilities (including any unrecognized intangible assets) as if the reporting unit had


7



been acquired in a business combination on the impairment test date. The amount of impairment for goodwill is measured as the excess of the carrying value of the reporting unit over its fair value.
When estimating fair values of a reporting unit for our goodwill impairment test, we use an income approach which provides an estimated fair value based on the reporting unit’s anticipated cash flows that are discounted using a weighted average cost of capital rate. The primary assumptions used in the income approach are estimated cash flows and weighted average cost of capital. Estimated cash flows are primarily based on projected revenues, operating costs and capital expenditures and are discounted at a rate that is based on our weighted average cost of capital and estimated industry average rates for cost of capital. To ensure the reasonableness of the estimated fair value of our reporting units, we consider current industry market multiples and we perform a reconciliation of our total market capitalization to the total estimated fair value of all our reporting units.
Due to several significant adverse factors affecting our coiled tubing services reporting unit, including increased competition in certain coiled tubing markets, turnover of key personnel and lower than anticipated utilization, all of which contributed to a decline in our projected cash flows for the coiled tubing reporting unit, we performed an impairment analysis of our goodwill as of June 30, 2013. We determined that the fair value of our coiled tubing services reporting unit was less than its carrying value, including goodwill, and therefore, we performed the second step of the goodwill impairment test which led us to conclude that there would be no remaining implied fair value attributable to goodwill. Accordingly, we recorded a non-cash impairment charge of $41.7 million to reduce the carrying value of our goodwill to zero. This impairment charge did not have an impact on our liquidity or debt covenants; however, it was a reflection of the increased competition in certain coiled tubing markets where we operate and a decline in our projected cash flows for the coiled tubing reporting unit.
The most significant inputs used in our impairment analysis include the projected utilization and pricing of our coiled tubing services and the weighted average cost of capital (discount rate) used in order to calculate the discounted cash flows for the reporting unit. These inputs are classified as Level 3 inputs as defined by ASC Topic 820, Fair Value Measurements and Disclosures. We assumed a 13% discount rate to estimate the fair value of the coiled tubing services reporting unit. A decrease in this assumption of 5% would have resulted in a decrease to our goodwill impairment charge of approximately $3.5 million. An increase of 1% in either the utilization or pricing assumptions would have resulted in a decrease to our goodwill impairment charge of approximately $2 million or $3 million, respectively. Although we believe the assumptions and estimates used in our analysis are reasonable and appropriate, different assumptions and estimates could materially impact the analysis and resulting conclusions. The assumptions used in estimating fair values of reporting units and performing the goodwill impairment test are inherently uncertain and require management judgment.
Other Long-Term Assets
Other long-term assets consist of cash deposits related to the deductibles on our workers’ compensation insurance policies, the long-term portion of deferred mobilization costs, debt issuance costs, net of amortization, and noncurrent prepaid taxes in Colombia which are creditable against future income taxes.
Other Long-Term Liabilities
Our other long-term liabilities consist of the noncurrent portion of deferred mobilization revenues, liabilities associated with our long-term compensation plans, the noncurrent portion of the Colombia net equity tax and other deferred liabilities.
2.
Long-Term Debt
Long-term debt consists of the following (amounts in thousands):
 
June 30, 2013
 
December 31, 2012
Senior secured revolving credit facility
$
130,000

 
$
100,000

Senior notes
419,089

 
418,617

Other notes payable
118

 
980

 
549,207

 
519,597

Less current portion
(23
)
 
(872
)
 
$
549,184

 
$
518,725

Senior Secured Revolving Credit Facility
We have a credit agreement, as amended on June 30, 2011, with Wells Fargo Bank, N.A. and a syndicate of lenders which provides for a senior secured revolving credit facility, with sub-limits for letters of credit and swing-line loans, of up to an aggregate


8



principal amount of $250 million, all of which matures on June 30, 2016 (the “Revolving Credit Facility”). The Revolving Credit Facility contains customary mandatory prepayments from the proceeds of certain asset dispositions or debt issuances, which are applied to reduce outstanding revolving and swing-line loans and letter of credit exposure, but in no event will reduce the borrowing availability under the Revolving Credit Facility to less than $250 million.
Borrowings under the Revolving Credit Facility bear interest, at our option, at the LIBOR rate or at the bank prime rate, plus an applicable per annum margin that ranges from 2.50% to 3.25% and 1.50% to 2.25%, respectively. The LIBOR margin and bank prime rate margin currently in effect are 2.75% and 1.75%, respectively. The Revolving Credit Facility requires a commitment fee due quarterly based on the average daily unused amount of the commitments of the lenders, a fronting fee due for each letter of credit issued, and a quarterly letter of credit fee due based on the average undrawn amount of letters of credit outstanding during such period.
Our obligations under the Revolving Credit Facility are secured by substantially all of our domestic assets (including equity interests in Pioneer Global Holdings, Inc. and 65% of the outstanding equity interests of any first-tier foreign subsidiaries owned by Pioneer Global Holdings, Inc., but excluding any equity interest in, and any assets of, Pioneer Services Holdings, LLC) and are guaranteed by certain of our domestic subsidiaries, including Pioneer Global Holdings, Inc. Effective October 1, 2012, Pioneer Coiled Tubing Services, LLC (formerly Go-Coil, L.L.C.) was added as a subsidiary guarantor under the Revolving Credit Facility. Borrowings under the Revolving Credit Facility are available for acquisitions, working capital and other general corporate purposes.

As of July 15, 2013, we had $130.0 million outstanding under our Revolving Credit Facility and $8.9 million in committed letters of credit, which resulted in borrowing availability of $111.1 million under our Revolving Credit Facility. There are no limitations on our ability to access this borrowing capacity other than maintaining compliance with the covenants under the Revolving Credit Facility. At June 30, 2013, we were in compliance with our financial covenants under the Revolving Credit Facility. Our total consolidated leverage ratio was 2.3 to 1.0, our senior consolidated leverage ratio was 0.6 to 1.0, and our interest coverage ratio was 5.7 to 1.0. The financial covenants contained in our Revolving Credit Facility include the following:
A maximum total consolidated leverage ratio that cannot exceed 4.00 to 1.00;
A maximum senior consolidated leverage ratio, which excludes unsecured and subordinated debt, that cannot exceed 2.50 to 1.00;
A minimum interest coverage ratio that cannot be less than 2.50 to 1.00; and
If our senior consolidated leverage ratio is greater than 2.00 to 1.00 at the end of any fiscal quarter, our minimum asset coverage ratio cannot be less than 1.00 to 1.00.
The Revolving Credit Facility does not restrict capital expenditures as long as (a) no event of default exists under the Revolving Credit Facility or would result from such capital expenditures, (b) after giving effect to such capital expenditures there is availability under the Revolving Credit Facility equal to or greater than $25 million and (c) the senior consolidated leverage ratio as of the last day of the most recent reported fiscal quarter is less than 2.00 to 1.00. If the senior consolidated leverage ratio as of the last day of the most recent reported fiscal quarter is equal to or greater than 2.00 to 1.00, then capital expenditures are limited to $100 million for the fiscal year. The capital expenditure threshold may be increased by any unused portion of the capital expenditure threshold from the immediate preceding fiscal year up to $30 million.
At June 30, 2013, our senior consolidated leverage ratio was not greater than 2.00 to 1.00 and therefore, we were not subject to the capital expenditure threshold restrictions listed above.
The Revolving Credit Facility has additional restrictive covenants that, among other things, limit the incurrence of additional debt, investments, liens, dividends, acquisitions, redemptions of capital stock, prepayments of indebtedness, asset dispositions, mergers and consolidations, transactions with affiliates, hedging contracts, sale leasebacks and other matters customarily restricted in such agreements. In addition, the Revolving Credit Facility contains customary events of default, including without limitation, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to certain other material indebtedness in excess of specified amounts, certain events of bankruptcy and insolvency, judgment defaults in excess of specified amounts, failure of any guaranty or security document supporting the credit agreement and change of control.
Senior Notes
On March 11, 2010, we issued $250 million of unregistered senior notes with a coupon interest rate of 9.875% that are due in 2018 (the “2010 Senior Notes”). The 2010 Senior Notes were sold with an original issue discount of $10.6 million that was based on 95.75% of their face value, which will result in an effective yield to maturity of approximately 10.677%. On March 11, 2010, we received $234.8 million of net proceeds from the issuance of the 2010 Senior Notes after deductions were made for the


9



$10.6 million of original issue discount and $4.6 million for underwriters’ fees and other debt offering costs. The net proceeds were used to repay a portion of the borrowings outstanding under our Revolving Credit Facility.
On November 21, 2011, we issued $175 million of unregistered Senior Notes (the “2011 Senior Notes”). The 2011 Senior Notes have the same terms and conditions as the 2010 Senior Notes. The 2011 Senior Notes were sold with an original issue premium of $1.8 million that was based on 101% of their face value, which will result in an effective yield to maturity of approximately 9.66%. On November 21, 2011, we received $172.7 million of net proceeds from the issuance of the 2011 Senior Notes, including the original issue premium, and after $4.1 million of deductions were made for underwriters' fees and other debt offering costs. A portion of the net proceeds were used to fund the acquisition of Go-Coil in December 2011.
In accordance with a registration rights agreement with the holders of both our 2010 Senior Notes and 2011 Senior Notes, we filed exchange offer registration statements on Form S-4 with the Securities and Exchange Commission that became effective on September 2, 2010 and July 13, 2012, respectively. These exchange offer registration statements enabled the holders of both our 2010 Senior Notes and 2011 Senior Notes to exchange their senior notes for publicly registered notes with substantially identical terms. References to the “2010 Senior Notes” and “2011 Senior Notes” herein include the senior notes issued in the exchange offers.
The 2010 and 2011 Senior Notes (the “Senior Notes”) are reflected on our condensed consolidated balance sheet at June 30, 2013 with a total carrying value of $419.1 million, which represents the $425.0 million total face value net of the $7.3 million unamortized portion of original issue discount and $1.4 million unamortized portion of original issue premium. The original issue discount and premium are being amortized over the term of the Senior Notes based on the effective interest method.
The Senior Notes will mature on March 15, 2018 with interest due semi-annually in arrears on March 15 and September 15 of each year. We have the option to redeem the Senior Notes, in whole or in part, at any time on or after March 15, 2014 in each case at the redemption price specified in the Indenture dated March 11, 2010 (the “Indenture”) together with any accrued and unpaid interest to the date of redemption. Prior to March 15, 2014, we may also redeem the Senior Notes, in whole or in part, at a “make-whole” redemption price specified in the Indenture, together with any accrued and unpaid interest to the date of redemption.
Upon the occurrence of a change of control, holders of the Senior Notes will have the right to require us to purchase all or a portion of the Senior Notes at a price equal to 101% of the principal amount of each Senior Note, together with any accrued and unpaid interest to the date of purchase. Under certain circumstances in connection with asset dispositions, we will be required to use the excess proceeds of asset dispositions to make an offer to purchase the Senior Notes at a price equal to 100% of the principal amount of each Senior Note, together with any accrued and unpaid interest to the date of purchase.
The Indenture contains certain restrictions generally on our and certain of our subsidiaries’ ability to:
pay dividends on stock;
repurchase stock or redeem subordinated debt or make other restricted payments;
incur, assume or guarantee additional indebtedness or issue disqualified stock;
create liens on our assets;
enter into sale and leaseback transactions;
pay dividends, engage in loans, or transfer other assets from certain of our subsidiaries;
consolidate with or merge with or into, or sell all or substantially all of our properties to another person;
enter into transactions with affiliates; and
enter into new lines of business.
We were in compliance with these covenants as of June 30, 2013. The Senior Notes are not subject to any sinking fund requirements. The Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by certain of our existing domestic subsidiaries and by certain of our future domestic subsidiaries. Effective October 1, 2012, Pioneer Coiled Tubing Services, LLC (formerly Go-Coil, L.L.C.) was added as a subsidiary guarantor under the Indenture. (See Note 8, Guarantor/Non-Guarantor Condensed Consolidated Financial Statements.)
Other Notes Payable
Our other debt represents a capital lease obligation for equipment with monthly payments due through November 2016.


10



Debt Issuance Costs
Costs incurred in connection with the Revolving Credit Facility were capitalized and are being amortized using the straight-line method over the term of the Revolving Credit Facility which matures in June 2016. Costs incurred in connection with the issuance of our Senior Notes were capitalized and are being amortized using the straight-line method (which approximates the use of the interest method) over the term of the Senior Notes which mature in March 2018.
Capitalized debt costs related to the issuance of our long-term debt were approximately $8.5 million and $9.6 million as of June 30, 2013 and December 31, 2012, respectively. We recognized approximately $1.1 million and $1.1 million of associated amortization during the six months ended June 30, 2013 and 2012, respectively.
3.
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value and provides a hierarchal framework associated with the level of subjectivity used in measuring assets and liabilities at fair value.
At June 30, 2013 and December 31, 2012, our financial instruments consist primarily of cash, trade and other receivables, trade payables, and long-term debt. The carrying value of cash, trade and other receivables and trade payables are considered to be representative of their respective fair values due to the short-term nature of these instruments.
The fair value of our long-term debt is estimated using a discounted cash flow analysis, based on rates that we believe we would currently pay for similar types of debt instruments. This discounted cash flow analysis is based on inputs defined by ASC Topic 820 as level 2 inputs, which are observable inputs for similar types of debt instruments. The following table presents the supplemental fair value information about long-term debt at June 30, 2013 and December 31, 2012 (amounts in thousands):
 
June 30, 2013
 
December 31, 2012
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Total debt
$
549,207

 
$
588,279

 
$
519,597

 
$
565,257

4.
Earnings Per Common Share
The following table presents a reconciliation of the numerators and denominators of the basic income per share and diluted income per share computations (amounts in thousands, except per share data):
 
 
Three months ended June 30,
 
Six months ended June 30,
 
2013
 
2012
 
2013
 
2012
Basic
 
 
 
 
 
 
 
Net income (loss)
$
(25,895
)
 
$
9,685

 
$
(27,187
)
 
$
23,857

Weighted-average shares
62,177

 
61,768

 
62,073

 
61,673

Income (loss) per share
$
(0.42
)
 
$
0.16

 
$
(0.44
)
 
$
0.39

Diluted
 
 
 
 
 
 
 
Net income (loss)
$
(25,895
)
 
$
9,685

 
$
(27,187
)
 
$
23,857

Weighted average shares:
 
 
 
 
 
 
 
Outstanding
62,177

 
61,768

 
62,073

 
61,673

Diluted effect of stock options, restricted stock,
and restricted stock unit awards

 
852

 

 
951

 
62,177

 
62,620

 
62,073

 
62,624

Income (loss) per share
$
(0.42
)
 
$
0.15

 
$
(0.44
)
 
$
0.38

Potentially dilutive stock options, restricted stock and restricted stock unit awards representing a total of 5,584,899 and 5,461,022 shares of common stock for the three and six months ended June 30, 2013, respectively, and 4,416,886 and 4,309,528 for the three and six months ended June 30, 2012, respectively, were excluded from the computation of diluted weighted average shares outstanding due to their antidilutive effect.


11



5.
Equity Transactions and Stock-Based Compensation Plans
Stock-based Compensation Plans
We grant stock option and restricted stock awards with vesting based on time of service conditions. We also grant restricted stock unit awards with vesting based on time of service conditions, and in certain cases, subject to performance and market conditions. We recognize compensation cost for stock option, restricted stock and restricted stock unit awards based on the fair value estimated in accordance with ASC Topic 718, Compensation—Stock Compensation. For our awards with graded vesting, we recognize compensation expense on a straight-line basis over the service period for each separately vesting portion of the award as if the award was, in substance, multiple awards.
The following table summarizes the compensation expense recognized for stock option, restricted stock and restricted stock unit awards during the three and six months ended June 30, 2013 and 2012 (amounts in thousands):
 
Three months ended June 30,
 
Six months ended June 30,
 
2013
 
2012
 
2013
 
2012
Stock option awards
$
421

 
$
645

 
$
947

 
$
1,608

Restricted stock awards
130

 
192

 
263

 
423

Restricted stock unit awards
1,001

 
833

 
1,854

 
1,639

 
$
1,552

 
$
1,670

 
$
3,064

 
$
3,670

Stock Options
We grant stock option awards which generally become exercisable over a three-year period and expire ten years after the date of grant. Our stock-based compensation plans require that all stock option awards have an exercise price that is not less than the fair market value of our common stock on the date of grant. We issue shares of our common stock when vested stock option awards are exercised.
We estimate the fair value of each option grant on the date of grant using a Black-Scholes option pricing model. There were no stock options granted during the three months ended June 30, 2013. The following table summarizes the assumptions used in the Black-Scholes option pricing model based on a weighted-average calculation for the stock options granted during the six months ended June 30, 2013 and the three and six months ended June 30, 2012:
 
 
Three months ended June 30,
 
Six months ended June 30,
 
2012
 
2013
 
2012
Expected volatility
68
%
 
66
%
 
70
%
Risk-free interest rates
0.4
%
 
1.0
%
 
0.8
%
Expected life in years
3.50

 
5.53

 
5.12

Options granted
55,000
 
220,656
 
530,156
Grant-date fair value
$3.35
 
$4.36
 
$5.02
The assumptions used in the Black-Scholes option pricing model are based on multiple factors, including historical exercise patterns of homogeneous groups with respect to exercise and post-vesting employment termination behaviors, expected future exercising patterns for these same homogeneous groups and volatility of our stock price. As we have not declared dividends since we became a public company, we did not use a dividend yield. In each case, the actual value that will be realized, if any, will depend on the future performance of our common stock and overall stock market conditions. There is no assurance the value an optionee actually realizes will be at or near the value we have estimated using the Black-Scholes options-pricing model.
During the three and six months ended June 30, 2013, 104,500 and 162,867 stock options were exercised at a weighted-average exercise price of $4.73 and $4.84, respectively. During the three and six months ended June 30, 2012, 95,166 and 163,266 stock options were exercised at a weighted-average exercise price of $4.22 and $4.01, respectively. We receive a tax deduction for certain stock option exercises during the period the options are exercised, generally for the excess of the fair market value of our stock on the date of exercise over the exercise price of the options. In accordance with ASC Topic 718, we reported all excess tax benefits resulting from the exercise of stock options as financing cash flows in our condensed consolidated statement of cash flows.


12



Restricted Stock
Historically, we have generally granted restricted stock awards that vest over a three-year period with a fair value based on the closing price of our common stock on the date of the grant. However, beginning in 2013, we began granting restricted stock awards with a vesting period of one year. When restricted stock awards are granted, or when restricted stock unit awards are converted to restricted stock, shares of our common stock are considered issued, but subject to certain restrictions. During the six months ended June 30, 2013 and 2012, we granted 61,248 and 49,748 shares of restricted stock awards, with a weighted-average grant-date fair value of $7.57 and $8.04, respectively.
Restricted Stock Units
We grant restricted stock unit awards with vesting based on time of service conditions only (“time-based RSUs”), and we grant restricted stock unit awards with vesting based on time of service, which are also subject to performance and market conditions (“performance-based RSUs”). Shares of our common stock are issued to recipients of restricted stock units only when they have satisfied the applicable vesting conditions.
The following table summarizes the number and weighted-average grant-date fair value of the restricted stock unit awards granted during the three and six months ended June 30, 2013 and 2012:
 
Three months ended June 30,
 
Six months ended June 30,
 
2013
 
2012
 
2013
 
2012
Time-based RSUs:
 
 
 
 
 
 
 
Time-based RSUs granted
252,749

 
151,500

 
406,027

 
356,813

Weighted-average grant-date fair value
$
7.54

 
$
7.04

 
$
7.59

 
$
8.21

 
 
 
 
 
 
 
 
Performance-based RSUs:
 
 
 
 
 
 
 
Performance-based RSUs granted
295,873

 

 
346,731

 
221,495

Weighted-average grant-date fair value
$
8.33

 
$

 
$
8.34

 
$
9.85

Our time-based RSUs generally vest over a three-year period, with fair values based on the closing price of our common stock on the date of grant.
Our performance-based RSUs generally cliff vest after 39 months from the date of grant and are granted at a target number of issuable shares, for which the final number of shares of common stock is adjusted based on our actual achievement levels that are measured against predetermined performance conditions. The number of shares of common stock awarded will be based upon the Company’s achievement in certain performance conditions, as compared to a predefined peer group, over the performance period, generally three years. Approximately one-third of the performance-based RSUs are subject to a market condition, and therefore the fair value of these awards is measured using a Monte Carlo simulation model. Compensation expense for awards with a market condition is reduced only for estimated forfeitures; no adjustment to expense is otherwise made, regardless of the number of shares issued, if any. The remaining two-thirds of the performance-based RSUs are subject to performance conditions, and therefore the fair value is based on the closing price of our common stock on the date of grant, applied to the estimated number of shares that will be awarded. Compensation expense ultimately recognized for awards with performance conditions will be equal to the fair value of the restricted stock unit award based on the actual outcome of the service and performance conditions. As of June 30, 2013, we estimated that our actual achievement level for the performance-based RSUs granted during 2011 and 2012 will be approximately 135% and 140% of the predetermined performance conditions, respectively.


13



6.
Segment Information
We have two operating segments referred to as the Drilling Services Segment and the Production Services Segment which is the basis management uses for making operating decisions and assessing performance.
Drilling Services Segment—Our Drilling Services Segment provides contract land drilling services to a diverse group of oil and gas exploration and production companies with its fleet of 70 drilling rigs which are currently assigned to the following divisions:
Drilling Division
 
Rig Count
South Texas
 
13

East Texas
 
3

West Texas
 
23

North Dakota
 
12

Utah
 
7

Appalachia
 
4

Colombia
 
8

 
 
70

Production Services SegmentOur Production Services Segment provides a range of services to exploration and production companies, including well servicing, wireline services, coiled tubing services, and fishing and rental services. Our production services operations are concentrated in the major United States onshore oil and gas producing regions in the Mid-Continent and Rocky Mountain states and in the Gulf Coast, both onshore and offshore. We currently have a fleet of 109 well servicing rigs consisting of ninety-nine 550 horsepower rigs and ten 600 horsepower rigs. We currently provide wireline services and coiled tubing services with a fleet of 118 wireline units and 13 coiled tubing units, and we provide rental services with a gross book value of $17.0 million in fishing and rental tools.


14



The following tables set forth certain financial information for our two operating segments and corporate as of and for the three and six months ended June 30, 2013 and 2012 (amounts in thousands):
 
As of and for the three months ended June 30, 2013
 
Drilling
Services
Segment
 
Production
Services
Segment
 
Corporate
 
Total
Identifiable assets
$
849,649

 
$
414,729

 
$
27,155

 
$
1,291,533

Revenues
$
138,250

 
$
110,104

 
$

 
$
248,354

Operating costs
89,294

 
70,287

 

 
159,581

Segment margin
$
48,956

 
$
39,817

 
$

 
$
88,773

Depreciation and amortization
$
31,041

 
$
16,025

 
$
282

 
$
47,348

Capital expenditures
$
19,548

 
$
12,361

 
$
751

 
$
32,660

 
As of and for the three months ended June 30, 2012
 
Drilling
Services
Segment
 
Production
Services
Segment
 
Corporate
 
Total
Identifiable assets
$
803,264

 
$
432,584

 
$
35,560

 
$
1,271,408

Revenues
$
119,048

 
$
110,776

 
$

 
$
229,824

Operating costs
78,631

 
65,683

 

 
144,314

Segment margin
$
40,417

 
$
45,093

 
$

 
$
85,510

Depreciation and amortization
$
26,307

 
$
13,391

 
$
291

 
$
39,989

Capital expenditures
$
80,608

 
$
27,634

 
$
734

 
$
108,976

 
As of and for the six months ended June 30, 2013
 
Drilling
Services
Segment
 
Production
Services
Segment
 
Corporate
 
Total
Identifiable assets
$
849,649

 
$
414,729

 
$
27,155

 
$
1,291,533

Revenues
$
271,324

 
$
206,700

 
$

 
$
478,024

Operating costs
178,280

 
130,752

 

 
309,032

Segment margin
$
93,044

 
$
75,948

 
$

 
$
168,992

Depreciation and amortization
$
61,087

 
$
32,012

 
$
534

 
$
93,633

Capital expenditures
$
47,344

 
$
26,234

 
$
1,132

 
$
74,710

 
As of and for the six months ended June 30, 2012
 
Drilling
Services
Segment
 
Production
Services
Segment
 
Corporate
 
Total
Identifiable assets
$
803,264

 
$
432,584

 
$
35,560

 
$
1,271,408

Revenues
$
243,352

 
$
218,450

 
$

 
$
461,802

Operating costs
159,708

 
126,379

 

 
286,087

Segment margin
$
83,644

 
$
92,071

 
$

 
$
175,715

Depreciation and amortization
$
51,796

 
$
26,109

 
$
457

 
$
78,362

Capital expenditures
$
161,192

 
$
59,188

 
$
973

 
$
221,353



15



The following table reconciles the segment profits reported above to income from operations as reported on the consolidated statements of operations for the three and six months ended June 30, 2013 and 2012 (amounts in thousands):
 
Three months ended June 30,
 
Six months ended June 30,
 
2013
 
2012
 
2013
 
2012
Segment margin
$
88,773

 
$
85,510

 
$
168,992

 
$
175,715

Depreciation and amortization
(47,348
)
 
(39,989
)
 
(93,633
)
 
(78,362
)
General and administrative
(23,768
)
 
(22,265
)
 
(46,976
)
 
(43,408
)
Bad debt recovery (expense)
(137
)
 
56

 
(418
)
 
147

Impairment charges
(44,788
)
 

 
(44,788
)
 
(1,032
)
Income (loss) from operations
$
(27,268
)
 
$
23,312

 
$
(16,823
)
 
$
53,060

The following table sets forth certain financial information for our international operations in Colombia as of and for the three and six months ended June 30, 2013 and 2012 (amounts in thousands):
 
As of and for the three months ended June 30,
 
As of and for the six months ended June 30,
 
2013
 
2012
 
2013
 
2012
Identifiable assets
$
150,223

 
$
149,305

 
$
150,223

 
$
149,305

Revenues
$
30,627

 
$
22,485

 
$
61,402

 
$
46,301

Identifiable assets for our international operations in Colombia include five drilling rigs that are owned by our Colombia subsidiary and three drilling rigs that are owned by one of our domestic subsidiaries and leased to our Colombia subsidiary.
7.
Commitments and Contingencies
In connection with our operations in Colombia, our foreign subsidiaries have obtained bonds for bidding on drilling contracts, performing under drilling contracts, and remitting customs and importation duties. We have guaranteed payments of $34.3 million relating to our performance under these bonds as of June 30, 2013.
Due to the nature of our business, we are, from time to time, involved in litigation or subject to disputes or claims related to our business activities, including workers’ compensation claims and employment-related disputes. Legal costs relating to these matters are expensed as incurred. In the opinion of our management, none of the pending litigation, disputes or claims against us will have a material adverse effect on our financial condition, results of operations or cash flow from operations.
8.
Guarantor/Non-Guarantor Condensed Consolidated Financial Statements
Our Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by all existing domestic subsidiaries, except for Pioneer Services Holdings, LLC, and certain of our future domestic subsidiaries. Effective October 1, 2012, the Indenture was supplemented to add Pioneer Coiled Tubing Services, LLC (formerly Go-Coil, L.L.C.) as a subsidiary guarantor. The subsidiaries that generally operate our non-U.S. business concentrated in Colombia do not guarantee our Senior Notes. The non-guarantor subsidiaries do not have any payment obligations under the Senior Notes, the guarantees or the Indenture.
In the event of a bankruptcy, liquidation or reorganization of any non-guarantor subsidiary, such non-guarantor subsidiary will pay the holders of its debt and other liabilities, including its trade creditors, before it will be able to distribute any of its assets to us. In the future, any non-U.S. subsidiaries, immaterial subsidiaries and subsidiaries that we designate as unrestricted subsidiaries under the Indenture will not guarantee the Senior Notes. As of June 30, 2013, there were no restrictions on the ability of subsidiary guarantors to transfer funds to the parent company.
As a result of the guarantee arrangements, we are presenting the following condensed consolidated balance sheets, statements of operations and statements of cash flows of the issuer, the guarantor subsidiaries and the non-guarantor subsidiaries.



16




CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
 
June 30, 2013
 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
12,491

 
$
(1,771
)
 
$
6,856

 
$

 
$
17,576

Receivables, net of allowance
1,019

 
148,452

 
41,533

 
(413
)
 
190,591

Intercompany receivable (payable)
(24,836
)
 
51,869

 
(27,033
)
 

 

Deferred income taxes
680

 
7,088

 
4,462

 

 
12,230

Inventory

 
6,740

 
5,964

 

 
12,704

Prepaid expenses and other current assets
1,362

 
6,357

 
1,171

 

 
8,890

Total current assets
(9,284
)
 
218,735

 
32,953

 
(413
)
 
241,991

Net property and equipment
4,072

 
902,764

 
89,351

 
(750
)
 
995,437

Investment in subsidiaries
1,021,444

 
117,269

 

 
(1,138,713
)
 

Intangible assets, net of accumulated amortization
72

 
36,313

 

 

 
36,385

Noncurrent deferred income taxes
64,938

 

 
1,095

 
(64,938
)
 
1,095

Other long-term assets
8,543

 
2,228

 
5,854

 

 
16,625

Total assets
$
1,089,785

 
$
1,277,309

 
$
129,253

 
$
(1,204,814
)
 
$
1,291,533

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
1,680

 
$
42,203

 
$
3,233

 
(413
)
 
$
46,703

Current portion of long-term debt

 
23

 

 

 
23

Deferred revenues

 
1,916

 
450

 

 
2,366

Accrued expenses
14,630

 
52,177

 
7,254

 

 
74,061

Total current liabilities
16,310

 
96,319

 
10,937

 
(413
)
 
123,153

Long-term debt, less current portion
549,089

 
95

 

 

 
549,184

Noncurrent deferred income taxes

 
154,044

 

 
(64,938
)
 
89,106

Other long-term liabilities
189

 
5,407

 
1,047

 

 
6,643

Total liabilities
565,588

 
255,865

 
11,984

 
(65,351
)
 
768,086

Total shareholders’ equity
524,197

 
1,021,444

 
117,269

 
(1,139,463
)
 
523,447

Total liabilities and shareholders’ equity
$
1,089,785

 
$
1,277,309

 
$
129,253

 
$
(1,204,814
)
 
$
1,291,533

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
18,479

 
$
(5,401
)
 
$
10,655

 
$

 
$
23,733

Receivables, net of allowance
440

 
129,570

 
29,128

 
(294
)
 
158,844

Intercompany receivable (payable)
(124,516
)
 
146,652

 
(22,136
)
 

 

Deferred income taxes
869

 
8,162

 
2,027

 

 
11,058

Inventory

 
5,956

 
6,155

 

 
12,111

Prepaid expenses and other current assets
655

 
9,163

 
3,222

 

 
13,040

Total current assets
(104,073
)
 
294,102

 
29,051

 
(294
)
 
218,786

Net property and equipment
3,474

 
921,393

 
90,223

 
(750
)
 
1,014,340

Investment in subsidiaries
1,122,814

 
114,416

 

 
(1,237,230
)
 

Intangible assets, net of accumulated amortization
68

 
43,775

 

 

 
43,843

Goodwill

 
41,683

 

 

 
41,683

Noncurrent deferred income taxes
51,834

 

 
5,519

 
(51,834
)
 
5,519

Other long-term assets
9,582

 
2,340

 
3,683

 

 
15,605

Total assets
$
1,083,699

 
$
1,417,709

 
$
128,476

 
$
(1,290,108
)
 
$
1,339,776

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
1,558

 
$
76,828

 
$
5,437

 
$

 
$
83,823

Current portion of long-term debt

 
872

 

 

 
872

Deferred revenues

 
1,954

 
1,926

 

 
3,880

Accrued expenses
14,905

 
48,892

 
4,472

 
(294
)
 
67,975

Total current liabilities
16,463

 
128,546

 
11,835

 
(294
)
 
156,550

Long-term debt, less current portion
518,618

 
107

 

 

 
518,725

Noncurrent deferred income taxes
(4
)
 
160,676

 

 
(51,834
)
 
108,838

Other long-term liabilities
192

 
5,566

 
2,225

 

 
7,983

Total liabilities
535,269

 
294,895

 
14,060

 
(52,128
)
 
792,096

Total shareholders’ equity
548,430

 
1,122,814

 
114,416

 
(1,237,980
)
 
547,680

Total liabilities and shareholders’ equity
$
1,083,699

 
$
1,417,709

 
$
128,476

 
$
(1,290,108
)
 
$
1,339,776



17



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands)

 
Three months ended June 30, 2013
 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues
$

 
$
217,727

 
$
30,627

 
$

 
$
248,354

Costs and expenses:
 
 
 
 
 
 
 
 
 
Operating costs

 
138,783

 
20,798

 

 
159,581

Depreciation and amortization
282

 
43,745

 
3,321

 

 
47,348

General and administrative
6,085

 
17,030

 
791

 
(138
)
 
23,768

Intercompany leasing

 
(1,215
)
 
1,215

 

 

Bad debt expense (recovery)
67

 
70

 

 

 
137

Impairment charges

 
44,788

 

 

 
44,788

Total costs and expenses
6,434

 
243,201

 
26,125

 
(138
)
 
275,622

Income (loss) from operations
(6,434
)
 
(25,474
)
 
4,502

 
138

 
(27,268
)
Other income (expense):
 
 
 
 
 
 
 
 
 
Equity in earnings of subsidiaries
(13,455
)
 
1,511

 

 
11,944

 

Interest expense
(12,341
)
 

 
10

 

 
(12,331
)
Other
1

 
574

 
(1,686
)
 
(138
)
 
(1,249
)
Total other expense (income)
(25,795
)
 
2,085

 
(1,676
)
 
11,806

 
(13,580
)
Income (loss) before income taxes
(32,229
)
 
(23,389
)
 
2,826

 
11,944

 
(40,848
)
Income tax expense (benefit)
6,334

 
9,934

 
(1,315
)
 

 
14,953

Net income (loss)
$
(25,895
)
 
$
(13,455
)
 
$
1,511

 
$
11,944

 
$
(25,895
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30, 2012
 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues
$

 
$
193,332

 
$
36,492

 
$

 
$
229,824

Costs and expenses:
 
 
 
 
 
 
 
 
 
Operating costs

 
116,644

 
27,670

 

 
144,314

Depreciation and amortization
292

 
33,800

 
5,897

 

 
39,989

General and administrative
5,552

 
14,339

 
2,512

 
(138
)
 
22,265

Intercompany leasing

 
(1,215
)
 
1,199

 
16

 

Bad debt expense (recovery)

 
(95
)
 
39

 

 
(56
)
Total costs and expenses
5,844

 
163,473

 
37,317

 
(122
)
 
206,512

Income (loss) from operations
(5,844
)
 
29,859

 
(825
)
 
122

 
23,312

Other income (expense):
 
 
 
 
 
 
 
 
 
Equity in earnings of subsidiaries
17,970

 
(387
)
 

 
(17,583
)
 

Interest expense
(7,695
)
 
43

 
2

 

 
(7,650
)
Other
(72
)
 
250

 
(36
)
 
(122
)
 
20

Total other income (expense)
10,203

 
(94
)
 
(34
)
 
(17,705
)
 
(7,630
)
Income (loss) before income taxes
4,359

 
29,765

 
(859
)
 
(17,583
)
 
15,682

Income tax expense (benefit)
5,326

 
(11,795
)
 
472

 

 
(5,997
)
Net income (loss)
$
9,685

 
$
17,970

 
$
(387
)
 
$
(17,583
)
 
$
9,685

 
 
 
 
 
 
 
 
 
 



18



 
Six months ended June 30, 2013
 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues
$

 
$
416,622

 
$
61,402

 
$

 
$
478,024

Costs and expenses:
 
 
 
 
 
 
 
 
 
Operating costs

 
267,845

 
41,187

 

 
309,032

Depreciation and amortization
534

 
86,447

 
6,652

 

 
93,633

General and administrative
11,511

 
34,162

 
1,579

 
(276
)
 
46,976

Intercompany leasing

 
(2,430
)
 
2,430

 

 

Bad debt expense (recovery)
67

 
351

 

 

 
418

Impairment charges

 
44,788

 

 

 
44,788

Total costs and expenses
12,112

 
431,163

 
51,848

 
(276
)
 
494,847

Income (loss) from operations
(12,112
)
 
(14,541
)
 
9,554

 
276

 
(16,823
)
Other (expense) income:
 
 
 
 
 
 
 
 
 
Equity in earnings of subsidiaries
(4,266
)
 
3,853

 

 
413

 

Interest expense
(23,790
)
 
(20
)
 
17

 

 
(23,793
)
Other
2

 
857

 
(2,653
)
 
(276
)
 
(2,070
)
Total other (expense) income
(28,054
)
 
4,690

 
(2,636
)
 
137

 
(25,863
)
Income (loss) before income taxes
(40,166
)
 
(9,851
)
 
6,918

 
413

 
(42,686
)
Income tax (expense) benefit
12,979

 
5,585

 
(3,065
)
 

 
15,499

Net income (loss)
$
(27,187
)
 
$
(4,266
)
 
$
3,853

 
$
413

 
$
(27,187
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2012
 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues
$

 
$
384,174

 
$
77,628

 
$

 
$
461,802

Costs and expenses:
 
 
 
 
 
 
 
 
 
Operating costs

 
231,585

 
54,502

 

 
286,087

Depreciation and amortization
457

 
66,489

 
11,416

 

 
78,362

General and administrative
11,060

 
27,371

 
5,253