10-Q 1 a2014q210q.htm 10-Q 2014 Q2 10Q

 
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, 2014
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: (855) 884-0575
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, 2014, there were 63,200,570 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,
2014
 
December 31,
2013
 
(unaudited)
 
(audited)
 
(in thousands, except share data)
ASSETS
 
Current assets:
 
 
 
Cash and cash equivalents
$
23,711

 
$
27,385

Receivables:
 
 
 
Trade, net of allowance for doubtful accounts
132,215

 
115,908

Unbilled receivables
52,156

 
49,535

Insurance recoveries
9,717

 
8,607

Income taxes and other
6,449

 
2,310

Deferred income taxes
32,365

 
13,092

Inventory
13,466

 
13,232

Prepaid expenses and other current assets
9,390

 
9,311

Total current assets
279,469

 
239,380

Property and equipment, at cost
1,778,653

 
1,724,124

Less accumulated depreciation
855,213

 
786,467

Net property and equipment
923,440

 
937,657

Intangible assets, net of accumulated amortization of $36.3 million and $32.8 million at June 30, 2014 and December 31, 2013, respectively
28,276

 
32,269

Noncurrent deferred income taxes
4,010

 
1,156

Other long-term assets
16,236

 
19,161

Total assets
$
1,251,431

 
$
1,229,623

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
54,735

 
$
43,718

Current portion of long-term debt
429

 
2,847

Deferred revenues
3,306

 
699

Accrued expenses:
 
 
 
Payroll and related employee costs
29,644

 
30,020

Insurance premiums and deductibles
11,575

 
10,940

Insurance claims and settlements
9,716

 
8,607

Interest
8,744

 
12,275

Other
12,104

 
11,727

Total current liabilities
130,253

 
120,833

Long-term debt, less current portion
493,630

 
499,666

Noncurrent deferred income taxes
102,988

 
84,636

Other long-term liabilities
4,771

 
6,055

Total liabilities
731,642

 
711,190

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; 63,101,570 and 62,534,636 shares outstanding at June 30, 2014 and December 31, 2013, respectively
6,342

 
6,275

Additional paid-in capital
462,131

 
456,812

Treasury stock, at cost; 316,682 and 219,304 shares at June 30, 2014 and December 31, 2013, respectively
(3,027
)
 
(1,895
)
Accumulated earnings
54,343

 
57,241

Total shareholders’ equity
519,789

 
518,433

Total liabilities and shareholders’ equity
$
1,251,431

 
$
1,229,623


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,
 
2014
 
2013
 
2014
 
2013
 
(in thousands, except per share data)
Revenues:
 
 
 
 
 
 
 
Drilling services
$
127,553

 
$
138,250

 
$
245,510

 
$
271,324

Production services
132,259

 
110,104

 
253,336

 
206,700

Total revenues
259,812

 
248,354

 
498,846

 
478,024

Costs and expenses:
 
 
 
 
 
 
 
Drilling services
83,762

 
89,294

 
160,100

 
178,280

Production services
82,505

 
70,450

 
160,257

 
131,069

Depreciation and amortization
45,791

 
47,348

 
91,317

 
93,633

General and administrative
25,276

 
23,605

 
49,759

 
46,659

Bad debt expense
561

 
137

 
437

 
418

Impairment charges

 
44,788

 

 
44,788

Total costs and expenses
237,895

 
275,622

 
461,870

 
494,847

Income (loss) from operations
21,917

 
(27,268
)
 
36,976

 
(16,823
)
Other (expense) income:
 
 
 
 
 
 
 
Interest expense
(10,728
)
 
(12,331
)
 
(23,116
)
 
(23,793
)
Loss on extinguishment of debt
(14,595
)
 

 
(22,482
)
 

Other
2,017

 
(1,249
)
 
4,691

 
(2,070
)
Total other expense
(23,306
)
 
(13,580
)
 
(40,907
)
 
(25,863
)
Loss before income taxes
(1,389
)
 
(40,848
)
 
(3,931
)
 
(42,686
)
Income tax benefit
1,070

 
14,953

 
1,033

 
15,499

Net loss
$
(319
)
 
$
(25,895
)
 
$
(2,898
)
 
$
(27,187
)
 
 
 
 
 
 
 
 
Loss per common share—Basic
$
(0.01
)
 
$
(0.42
)
 
$
(0.05
)
 
$
(0.44
)
 
 
 
 
 
 
 
 
 Loss per common share—Diluted
$
(0.01
)
 
$
(0.42
)
 
$
(0.05
)
 
$
(0.44
)
 
 
 
 
 
 
 
 
Weighted average number of shares outstanding—Basic
62,877

 
62,177

 
62,710

 
62,073

 
 
 
 
 
 
 
 
Weighted average number of shares outstanding—Diluted
62,877

 
62,177

 
62,710

 
62,073


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,
 
2014
 
2013
 
(in thousands)
Cash flows from operating activities:
 
 
 
Net loss
$
(2,898
)
 
$
(27,187
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
91,317

 
93,633

Allowance for doubtful accounts
396

 
408

Gain on dispositions of property and equipment
(1,731
)
 
(1,721
)
Stock-based compensation expense
3,827

 
3,064

Amortization of debt issuance costs, discount and premium
1,504

 
1,534

Loss on extinguishment of debt
22,482

 

Impairment charges

 
44,788

Deferred income taxes
(3,762
)
 
(16,717
)
Change in other long-term assets
4,448

 
(2,113
)
Change in other long-term liabilities
(1,284
)
 
(1,340
)
Changes in current assets and liabilities:
 
 
 
Receivables
(23,463
)
 
(22,179
)
Inventory
(234
)
 
(592
)
Prepaid expenses and other current assets
(77
)
 
4,147

Accounts payable
7,667

 
353

Deferred revenues
2,607

 
(1,513
)
Accrued expenses
(5,312
)
 
(3,888
)
Net cash provided by operating activities
95,487

 
70,677

 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(74,567
)
 
(112,179
)
Proceeds from sale of property and equipment
6,538

 
6,059

Net cash used in investing activities
(68,029
)
 
(106,120
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Debt repayments
(330,013
)
 
(10,862
)
Proceeds from issuance of debt
320,000

 
40,000

Debt issuance costs
(6,187
)
 
(13
)
Tender premium costs
(15,381
)
 

Proceeds from exercise of options
1,581

 
789

Purchase of treasury stock
(1,132
)
 
(628
)
Net cash provided by (used in) financing activities
(31,132
)
 
29,286

 
 
 
 
Net decrease in cash and cash equivalents
(3,674
)
 
(6,157
)
Beginning cash and cash equivalents
27,385

 
23,733

Ending cash and cash equivalents
$
23,711

 
$
17,576

 
 
 
 
Supplementary disclosure:
 
 
 
Interest paid
$
25,250

 
$
23,180

Income tax paid
$
2,131

 
$
1,627

 



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
Pioneer Energy Services Corp. 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 62 drilling rigs which are currently assigned to the following divisions:
Drilling Division
Rig Count
South Texas
14

West Texas
20

North Dakota
9

Utah
7

Appalachia
4

Colombia
8

 
62

As of June 30, 2014, 57 of our 62 drilling rigs are earning revenues under drilling contracts, 43 of which are under term contracts, and we are actively marketing all of our idle drilling rigs. All eight of our drilling rigs in Colombia are currently under term contracts that extend through the end of 2014, seven of which are currently earning revenues with the remaining rig waiting on the well site location to be prepared by our client. We are also currently constructing three new-build 1,500 HP AC drilling rigs which we expect to deliver and begin operating under long-term drilling contracts in the second and third quarters of 2015.
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 June 30, 2014, we have a fleet of 112 well servicing rigs consisting of one hundred two 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 121 wireline units and 14 coiled tubing units, and we provide rental services with a gross book value of $17.4 million in fishing and rental tools.
Basis of Presentation
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

5




financial statements. In the opinion of our management, all adjustments (consisting of normal, recurring accruals) necessary for a fair presentation have been included. 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, 2013.
In preparing the accompanying unaudited 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 expenses, 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.
In preparing the accompanying unaudited condensed consolidated financial statements, we have reviewed events that have occurred after June 30, 2014, 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. Spot market contracts generally 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 original terms of six months to four years in duration. As of June 30, 2014, we have 44 drilling rigs 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
 
36

 
21

 
8

 
2

 
3

 
2

Colombia
 
8

 
8

 

 

 

 

 
 
44

 
29

 
8

 
2

 
3

 
2

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 $52.2 million at June 30, 2014, of which $0.4 million related to turnkey drilling contract revenues, $47.1 million represented revenue recognized but not yet billed on daywork drilling contracts in progress at June 30, 2014 and $4.7 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 current portion of deferred mobilization costs for certain drilling contracts that are recognized on a straight-line basis over the contract term.

6




Property and Equipment
During the six months ended June 30, 2014 and 2013, we spent $74.6 million and $112.2 million, respectively, on purchases of property and equipment. As of June 30, 2014 and December 31, 2013, capital expenditures for property and equipment that has not yet been placed in service was $43.8 million and $19.4 million, respectively. During the six months ended June 30, 2014 and 2013, we capitalized $0.1 million and $0.9 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 for both the six months ended June 30, 2014 and 2013 in our drilling and production services costs and expenses. In February 2014, we completed the sale of our trucking assets for a sales price of $4.5 million which included a fleet of 40 trucks and related transportation equipment that we used to transport our drilling rigs to and from drilling sites. By owning our own trucks, we have historically been able to reduce the overall cost and downtime between rig moves. However, with the industry trend toward pad drilling, we have upgraded a number of our drilling rigs in recent years to equip them with walking or skidding systems, which enable the drilling rigs to move between wells in pad drilling, and thus operating our own trucking fleet has become less beneficial. The net book value of the trucking assets sold was $3.4 million, for which we recognized a total gain of $1.1 million in our condensed consolidated statement of operations for the first quarter of 2014. 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 June 30, 2014, we have identified certain real estate properties and other production services equipment which are currently held for sale. The total value of these properties, which are recorded at the lower of cost or fair market value and which is included in property and equipment in our condensed consolidated balance sheet, is approximately $0.7 million.
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. 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). For our Drilling Services Segment, we perform an impairment evaluation and estimate future undiscounted cash flows for individual drilling rig assets. 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.
Intangible Assets
Substantially all of our intangible assets were recorded in connection with the acquisitions of 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. 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.

7




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 coiled tubing tangible long-lived assets, substantially all of which was related to the 13 coiled tubing units owned at June 30, 2013. As discussed further below, we also recorded a non-cash impairment charge to reduce the carrying value of goodwill to zero.
Due to continued increases in competition in certain coiled tubing markets and lower than anticipated operating results, we performed another impairment analysis of our long-lived tangible and intangible assets as of December 31, 2013. We determined that the sum of the estimated future undiscounted net cash flows for our coiled tubing services reporting unit was in excess of the carrying amount and concluded that no impairment existed as of December 31, 2013. The future undiscounted cash flows used in our impairment analysis include projected increases in utilization and pricing from what we have historically experienced. If we fail to meet the projected increases in utilization and pricing for our coiled tubing services, or in the event of significant unfavorable changes in the forecasted cash flows or key assumptions used in our analysis, the most significant of these being the projected utilization and pricing of our coiled tubing services, then we may incur a future impairment. Our coiled tubing services' operating results for the six months ended June 30, 2014 are meeting our projections.
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 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.

8




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 noncurrent prepaid taxes in Colombia which are creditable against future income taxes, debt issuance costs net of amortization, cash deposits related to the deductibles on our workers’ compensation insurance policies and the long-term portion of deferred mobilization costs.
Other Current Liabilities
Our other accrued expenses include accruals for items such as property tax, sales tax, professional and other fees. We routinely expense these items in the normal course of business over the periods these expenses benefit. Our other accrued expenses also consist of the current portion of the Colombian net equity tax.
Other Long-Term Liabilities
Our other long-term liabilities consist of the noncurrent portion of liabilities associated with our long-term compensation plans, deferred mobilization revenues, and other deferred liabilities.


9




Recently Issued Accounting Standards
Discontinued Operations. In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-08, Discontinued Operations (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This update, among other things, raises the threshold for a disposal to qualify for discontinued operations accounting and requires additional disclosures about disposals. We are required to apply this guidance prospectively beginning with our first quarterly filing in 2015.
Revenue Recognition. In May 2014, the FASB issued ASU No. 2014-09, a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance. The standard outlines a single comprehensive model for revenue recognition based on the core principle that a company will recognize revenue when promised goods or services are transferred to clients, in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. We are required to apply this new standard beginning with our first quarterly filing in 2017. We are currently evaluating the potential impact of this guidance, but at this time, do not expect that the adoption of this new standard will have a material effect on our financial position or results of operations.
Reclassifications
Certain amounts in the financial statements for the prior years have been reclassified to conform to the current year’s presentation.
2.     Debt
Our debt consists of the following (amounts in thousands):
 
June 30, 2014
 
December 31, 2013
Senior secured revolving credit facility
$
70,000

 
$
80,000

Senior notes
423,563

 
419,586

Other
496

 
2,927

 
494,059

 
502,513

Less current portion
(429
)
 
(2,847
)
 
$
493,630

 
$
499,666

Senior Secured Revolving Credit Facility
We have a credit agreement, as amended on June 30, 2011 and March 3, 2014, 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 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 3.00% and 2.00%, 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.

10




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 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 June 30, 2014, we had $70.0 million outstanding under our Revolving Credit Facility and $14.0 million in committed letters of credit, which resulted in borrowing availability of $166.0 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, 2014, we were in compliance with our financial covenants under the Revolving Credit Facility. Our total consolidated leverage ratio was 2.0 to 1.0, our senior consolidated leverage ratio was 0.3 to 1.0, and our interest coverage ratio was 5.4 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, 2014, 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.
On March 3, 2014, the Revolving Credit Facility was amended to increase the amount of unsecured debt that we could incur, in order to facilitate the offering of our 2014 Senior Notes and the use of proceeds therefrom to repurchase a portion of our 2010 and 2011 Senior Notes, as described in the following section.

11




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 $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 the coiled tubing business of Go-Coil, L.L.C. ("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 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 2010 and 2011 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 “2010 and 2011 Indenture”) plus any accrued and unpaid interest and any additional interest thereon to the date of redemption.
In order to reduce our overall interest expense and lengthen the overall maturity of our senior indebtedness, on March 4, 2014, we announced a tender offer for up to an aggregate principal amount of $300 million of our 2010 and 2011 Senior Notes, to be funded by proceeds from the issuance of our 2014 Senior Notes, which is further described below. The tender offer for our 2010 and 2011 Senior Notes expired on March 31, 2014, at which time we had received valid tenders with respect to approximately $99.5 million of the $425 million aggregate principal amount of 2010 and 2011 Senior Notes outstanding. The holders of the $99.5 million of 2010 and 2011 Senior Notes tendered received the total consideration of $1,055.08 for each $1,000 principal amount, the premium portion of which totaled approximately $5.5 million, which was recorded as loss on debt extinguishment during the three months ended March 31, 2014. Additionally, we wrote off $1.2 million related to the net unamortized discount and $1.2 million of unamortized debt costs associated with the $99.5 million of notes tendered, for a total loss on extinguishment of $7.9 million.
On April 1, 2014, we announced the redemption of $200.5 million in aggregate principal amount of the 2010 and 2011 Senior Notes (the "Redemption") which occurred on May 1, 2014 (the "Redemption Date") at a redemption price equal to 104.938% of the principal amount thereof, plus accrued and unpaid interest on the notes redeemed to, but not including, the Redemption Date. The redemption of these notes was primarily funded by the remaining net proceeds from the issuance of our 2014 Senior Notes described below, and through cash on hand. Upon redemption, we recognized a loss on debt extinguishment of approximately $14.6 million during the three months ended June 30, 2014, which included the redemption premium of $9.9 million, $2.4 million of net unamortized discount and $2.3 million of unamortized debt issuance costs associated with the Redemption.
The 2010 and 2011 Senior Notes are reflected on our condensed consolidated balance sheet at June 30, 2014 with a total carrying value of $123.6 million, which represents the $125.0 million total face value outstanding net of the $1.7 million unamortized portion of original issue discount and $0.3 million unamortized portion of original issue premium. The original issue discount and premium are being amortized over the term of the 2010 and 2011 Senior Notes based on the effective interest method.

12




On March 18, 2014, we issued $300 million of unregistered senior notes with a coupon interest rate of 6.125% that are due in 2022 (the “2014 Senior Notes”). The 2014 Senior Notes were sold at 100% of their face value. On March 18, 2014, we received $293.9 million of net proceeds from the issuance of the 2014 Senior Notes after deductions were made for the $6.1 million for underwriters’ fees and other debt offering costs. The net proceeds were used to fund the tender and redemption of 2010 and 2011 Senior Notes in March and May 2014.
The 2014 Senior Notes will mature on March 15, 2022 with interest due semi-annually in arrears on March 15 and September 15 of each year. We have the option to redeem the 2014 Senior Notes, in whole or in part, at any time on or after March 15, 2017 in each case at the redemption price specified in the Indenture dated March 18, 2014 (the “2014 Indenture”) plus any accrued and unpaid interest and any additional interest (as defined in the 2014 Indenture) thereon to the date of redemption. Prior to March 15, 2017, we may also redeem the 2014 Senior Notes, in whole or in part, at a “make-whole” redemption price specified in the 2014 Indenture, plus any accrued and unpaid interest and any additional interest thereon to the date of redemption. In addition, prior to March 15, 2017, we may, on one or more occasions, redeem up to 35% of the aggregate principal amount of the 2014 Senior Notes at a redemption price equal to 106.125% of the principal amount thereof, plus accrued and unpaid interest and additional interest, if any, to the redemption date, with the net cash proceeds of certain equity offerings, provided that at least 65% of the aggregate principal amount of the 2014 Senior Notes remains outstanding after the occurrence of such redemption and that the redemption occurs within 120 days of the date of the closing of such equity offering.
If we experience a change of control (as defined in the 2010 and 2011 Indenture and the 2014 Indenture (collectively, the "Indentures")), we will be required to make an offer to each holder of the 2010 Senior Notes, 2011 Senior Notes and 2014 Senior Notes (collectively, the "Senior Notes") to repurchase all or any part of the Senior Notes at a purchase price equal to 101% of the principal amount of each Senior Note, plus accrued and unpaid interest, if any to the date of repurchase. If we engage in certain asset sales, within 365 days of such sale we will be required to use the net cash proceeds from such sale, to the extent we do not reinvest those proceeds in our business, to make an offer to repurchase the Senior Notes at a price equal to 100% of the principal amount of each Senior Note, plus accrued and unpaid interest to the repurchase date.
The Indentures, among other things, limit our ability and the ability of certain of our subsidiaries to:
pay dividends on stock, repurchase stock, redeem subordinated indebtedness or make other restricted payments and investments;
incur, assume or guarantee additional indebtedness or issue preferred or disqualified stock;
create liens on our or their assets;
enter into sale and leaseback transactions;
sell or transfer assets;
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 any other person;
enter into transactions with affiliates; and
enter into new lines of business.
We were in compliance with these covenants as of June 30, 2014. 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. (See Note 8, Guarantor/Non-Guarantor Condensed Consolidated Financial Statements.)
Other Debt
Our other debt consists of a short-term financing of insurance premiums with monthly payments due through August 2014 and a capital lease obligation for equipment with monthly payments due through November 2016.

13




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 and 2022.
Capitalized debt costs related to the issuance of our long-term debt were $9.1 million and $7.5 million as of June 30, 2014 and December 31, 2013, respectively. We recognized $1.1 million and $1.1 million of associated amortization during the six months ended June 30, 2014 and 2013, respectively, which excludes the $3.5 million of debt costs recognized as loss on extinguishment of debt.
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, 2014 and December 31, 2013, 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, 2014 and December 31, 2013 (amounts in thousands):
 
June 30, 2014
 
December 31, 2013
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Total debt
$
494,059

 
$
501,699

 
$
502,513

 
$
538,074


14




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,
 
2014
 
2013
 
2014
 
2013
Basic
 
 
 
 
 
 
 
Net loss
$
(319
)
 
$
(25,895
)
 
$
(2,898
)
 
$
(27,187
)
 
 
 
 
 
 
 
 
Weighted-average shares
62,877

 
62,177

 
62,710

 
62,073

 
 
 
 
 
 
 
 
Loss per common share—Basic
$
(0.01
)
 
$
(0.42
)
 
$
(0.05
)
 
$
(0.44
)
 
 
 
 
 
 
 
 
Diluted
 
 
 
 
 
 
 
Net loss
$
(319
)
 
$
(25,895
)
 
$
(2,898
)
 
$
(27,187
)
 
 
 
 
 
 
 
 
Weighted-average shares
 
 
 
 
 
 
 
Outstanding
62,877

 
62,177

 
62,710

 
62,073

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

 

 

 

 
62,877

 
62,177

 
62,710

 
62,073

 
 
 
 
 
 
 
 
 Loss per common share—Diluted
$
(0.01
)
 
$
(0.42
)
 
$
(0.05
)
 
$
(0.44
)
Potentially dilutive stock options, restricted stock and restricted stock unit awards representing a total of 3,213,088 and 4,170,854 shares of common stock for the three and six months ended June 30, 2014, respectively, and 5,584,899 and 5,461,022 for the three and six months ended June 30, 2013, respectively, were excluded from the computation of diluted weighted average shares outstanding due to their antidilutive effect.

5.
Equity Transactions and Stock-Based Compensation Plans
Equity Transactions
In May 2012, we filed a registration statement that permits us to sell equity or debt in one or more offerings up to a total dollar amount of $300 million. As of June 30, 2014, the entire $300 million under the shelf registration statement is available for equity or debt offerings. In the future, we may consider equity or debt offerings, as appropriate, to meet our liquidity needs.
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.

15




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, 2014 and 2013 (amounts in thousands):
 
Three months ended June 30,
 
Six months ended June 30,
 
2014
 
2013
 
2014
 
2013
Stock option awards
$
310

 
$
421

 
$
653

 
$
947

Restricted stock awards
141

 
130

 
294

 
263

Restricted stock unit awards
1,520

 
1,001

 
2,880

 
1,854

 
$
1,971

 
$
1,552

 
$
3,827

 
$
3,064

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, 2014 or 2013. The following table summarizes the assumptions used in the Black-Scholes option pricing model based on a weighted-average calculation for the six months ended June 30, 2014 and 2013:
 
Six months ended June 30,
 
2014
 
2013
Expected volatility
66
%
 
66
%
Risk-free interest rates
1.7
%
 
1.0
%
Expected life in years
5.49

 
5.53

Options granted
221,440
 
220,656
Grant-date fair value
$4.87
 
$4.36
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, 2014, 168,500 and 215,400 stock options were exercised at a weighted-average exercise price of $7.74 and $7.34, respectively. 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. 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.
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, 2014 and 2013, we granted 32,100 and 61,248 shares of restricted stock awards, with a weighted-average grant-date fair value of $14.33 and $7.57, respectively.

16




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.
There were no restricted stock units granted during the three months ended June 30, 2014. The following table summarizes the number and weighted-average grant-date fair value of the restricted stock unit awards granted during the six months ended June 30, 2014 and the three and six months ended June 30, 2013:
 
Three months ended June 30,
 
Six months ended June 30,
 
2013
 
2014
 
2013
Time-based RSUs:
 
 
 
 
 
Time-based RSUs granted
252,749

 
347,335

 
406,027

Weighted-average grant-date fair value
$
7.54

 
$
8.44

 
$
7.59

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

 
321,606

 
346,731

Weighted-average grant-date fair value
$
8.33

 
$
9.90

 
$
8.34

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 granted during 2011, 2012 and 2013, and half of the performance-based RSUs granted during 2014, are subject to a market condition based on total shareholder return, 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 performance-based RSUs are subject to performance conditions, based on EBITDA and return on capital employed, 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.
In April 2014, we determined that 116.6% of the target number of shares granted during 2011 were actually earned based on the Company’s achievement of certain performance measures, as compared to the predefined peer group, over the performance period from January 1, 2011 through December 31, 2013. The performance-based RSUs granted during 2011 have vested and were converted to common stock at the end of April 2014.
As of June 30, 2014, we estimated that our actual achievement level for the performance-based RSUs granted during 2012, 2013 and 2014 will be approximately 125%, 100% and 100% of the predetermined performance conditions, respectively.

17




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 62 drilling rigs which are currently assigned to the following divisions:
Drilling Division
Rig Count
South Texas
14

West Texas
20

North Dakota
9

Utah
7

Appalachia
4

Colombia
8

 
62

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. As of June 30, 2014, we have a fleet of 112 well servicing rigs consisting of one hundred two 550 horsepower rigs and ten 600 horsepower rigs. We provide wireline services and coiled tubing services with a fleet of 121 wireline units and 14 coiled tubing units, and we provide rental services with a gross book value of $17.4 million in fishing and rental tools.
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, 2014 and 2013 (amounts in thousands):
 
As of and for the three months ended June 30, 2014
 
Drilling
Services
Segment
 
Production
Services
Segment
 
Corporate
 
Total
Identifiable assets
$
778,148

 
$
413,308

 
$
59,975

 
$
1,251,431

Revenues
$
127,553

 
$
132,259

 
$

 
$
259,812

Operating costs
83,762

 
82,505

 

 
166,267

Segment margin
$
43,791

 
$
49,754

 
$

 
$
93,545

Depreciation and amortization
$
28,969

 
$
16,466

 
$
356

 
$
45,791

Capital expenditures
$
19,383

 
$
21,486

 
$
127

 
$
40,996


 
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

 
70,450

 

 
159,744

Segment margin
$
48,956

 
$
39,654

 
$

 
$
88,610

Depreciation and amortization
$
31,041

 
$
16,025

 
$
282

 
$
47,348

Capital expenditures
$
19,548

 
$
12,361

 
$
751

 
$
32,660


18




 
As of and for the six months ended June 30, 2014
 
Drilling
Services
Segment
 
Production
Services
Segment
 
Corporate
 
Total
Identifiable assets
$
778,148

 
$
413,308

 
$
59,975

 
$
1,251,431

Revenues
$
245,510

 
$
253,336

 
$

 
$
498,846

Operating costs
160,100

 
160,257

 

 
320,357

Segment margin
$
85,410

 
$
93,079

 
$

 
$
178,489

Depreciation and amortization
$
58,208

 
$
32,485

 
$
624

 
$
91,317

Capital expenditures
$
40,639

 
$
36,829

 
$
445

 
$
77,913

 
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

 
131,069

 

 
309,349

Segment margin
$
93,044

 
$
75,631

 
$

 
$
168,675

Depreciation and amortization
$
61,087

 
$
32,012

 
$
534

 
$
93,633

Capital expenditures
$
47,344

 
$
26,234

 
$
1,132

 
$
74,710

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, 2014 and 2013 (amounts in thousands):
 
Three months ended June 30,
 
Six months ended June 30,
 
2014
 
2013
 
2014
 
2013
Segment margin
$
93,545

 
$
88,610

 
$
178,489

 
$
168,675

Depreciation and amortization
(45,791
)
 
(47,348
)
 
(91,317
)
 
(93,633
)
General and administrative
(25,276
)
 
(23,605
)
 
(49,759
)
 
(46,659
)
Bad debt expense
(561
)
 
(137
)
 
(437
)
 
(418
)
Impairment charges

 
(44,788
)
 

 
(44,788
)
Income (loss) from operations
$
21,917

 
$
(27,268
)
 
$
36,976

 
$
(16,823
)
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, 2014 and 2013 (amounts in thousands):
 
As of and for the three months ended June 30,
 
As of and for the six months
ended June 30,
 
2014
 
2013
 
2014
 
2013
Identifiable assets
$
157,025

 
$
150,223

 
$
157,025

 
$
150,223

Revenues
$
25,527

 
$
30,627

 
$
47,691

 
$
61,402

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.

19




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 $41.9 million relating to our performance under these bonds as of June 30, 2014.
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 2010 and 2011 Indenture was supplemented to add Pioneer Coiled Tubing Services, LLC 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, 2014, 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.



20




CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
 
June 30, 2014
 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
22,010

 
(1,485
)
 
3,186

 

 
$
23,711

Receivables, net of allowance
1,203

 
146,019

 
54,424

 
(1,109
)
 
200,537

Intercompany receivable (payable)
(24,837
)
 
52,296

 
(27,459
)
 

 

Deferred income taxes
22,710

 
8,122

 
1,533

 

 
32,365

Inventory

 
7,423

 
6,043

 

 
13,466

Prepaid expenses and other current assets
1,592

 
5,364

 
2,434

 

 
9,390

Total current assets
22,678

 
217,739

 
40,161

 
(1,109
)
 
279,469

Net property and equipment
4,351

 
828,830

 
91,009

 
(750
)
 
923,440

Investment in subsidiaries
913,402

 
124,684

 

 
(1,038,086
)
 

Intangible assets, net of accumulated amortization
76

 
28,200

 

 

 
28,276

Noncurrent deferred income taxes
77,957

 

 
4,010

 
(77,957
)
 
4,010

Other long-term assets
9,230

 
1,722

 
5,284

 

 
16,236

Total assets
$
1,027,694

 
$
1,201,175

 
$
140,464

 
$
(1,117,902
)
 
$
1,251,431

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
1,447

 
$
47,929

 
$
5,359

 

 
$
54,735

Current portion of long-term debt

 
429

 

 

 
429

Deferred revenues

 
1,563

 
1,743

 

 
3,306

Accrued expenses
11,825

 
52,891

 
8,176

 
(1,109
)
 
71,783

Total current liabilities
13,272

 
102,812

 
15,278

 
(1,109
)
 
130,253

Long-term debt, less current portion
493,564

 
66

 

 

 
493,630

Noncurrent deferred income taxes

 
180,945

 

 
(77,957
)
 
102,988

Other long-term liabilities
319

 
3,950

 
502

 

 
4,771

Total liabilities
507,155

 
287,773

 
15,780

 
(79,066
)
 
731,642

Total shareholders’ equity
520,539

 
913,402

 
124,684

 
(1,038,836
)
 
519,789

Total liabilities and shareholders’ equity
$
1,027,694

 
$
1,201,175

 
$
140,464

 
$
(1,117,902
)
 
$
1,251,431

 
 
 
 
 
 
 
 
 
 
 
December 31, 2013
 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
28,368

 
$
(2,059
)
 
$
1,076

 
$

 
$
27,385

Receivables, net of allowance
905

 
125,979

 
49,476

 

 
176,360

Intercompany receivable (payable)
(24,837
)
 
52,671

 
(27,834
)
 

 

Deferred income taxes
1,143

 
8,005

 
3,944

 

 
13,092

Inventory

 
7,415

 
5,817

 

 
13,232

Prepaid expenses and other current assets
1,013

 
7,094

 
1,204

 

 
9,311

Total current assets
6,592

 
199,105

 
33,683

 

 
239,380

Net property and equipment
4,531

 
846,632

 
87,244

 
(750
)
 
937,657

Investment in subsidiaries
939,091

 
120,630

 

 
(1,059,721
)
 

Intangible assets, net of accumulated amortization
75

 
32,194

 

 

 
32,269

Noncurrent deferred income taxes
78,486

 

 
1,156

 
(78,486
)
 
1,156

Other long-term assets
7,513

 
2,009

 
9,639

 

 
19,161

Total assets
$
1,036,288

 
$
1,200,570

 
$
131,722

 
$
(1,138,957
)
 
$
1,229,623

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
757

 
$
37,797

 
$
5,164

 
$

 
$
43,718

Current portion of long-term debt

 
2,847

 

 

 
2,847

Deferred revenues

 
699

 

 

 
699

Accrued expenses
16,368

 
51,739

 
5,462

 

 
73,569

Total current liabilities
17,125

 
93,082

 
10,626

 

 
120,833

Long-term debt, less current portion
499,586

 
80

 

 

 
499,666

Noncurrent deferred income taxes

 
163,122

 

 
(78,486
)
 
84,636

Other long-term liabilities
394

 
5,195

 
466

 

 
6,055

Total liabilities
517,105

 
261,479

 
11,092

 
(78,486
)
 
711,190

Total shareholders’ equity
519,183

 
939,091

 
120,630

 
(1,060,471
)
 
518,433

Total liabilities and shareholders’ equity
$
1,036,288

 
$
1,200,570

 
$
131,722

 
$
(1,138,957
)
 
$
1,229,623


21




CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands)

 
Three months ended June 30, 2014
 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues
$

 
$
234,285

 
$
25,527

 
$

 
$
259,812

Costs and expenses:
 
 
 
 
 
 
 
 
 
Operating costs

 
149,353

 
16,914

 

 
166,267

Depreciation and amortization
356

 
41,979

 
3,456

 

 
45,791

General and administrative
6,800

 
17,438

 
1,176

 
(138
)
 
25,276

Intercompany leasing

 
(1,215
)
 
1,215

 

 

Bad debt expense

 
561

 

 

 
561

Total costs and expenses
7,156

 
208,116

 
22,761

 
(138
)
 
237,895

Income (loss) from operations
(7,156
)
 
26,169

 
2,766

 
138

 
21,917

Other income (expense):
 
 
 
 
 
 
 
 
 
Equity in earnings of subsidiaries
19,707

 
3,512

 

 
(23,219
)
 

Interest expense
(10,707
)
 
(24
)
 
3

 

 
(10,728
)
Loss on extinguishment of debt
(14,595
)
 

 

 

 
(14,595
)
Other
7

 
617

 
1,531

 
(138
)
 
2,017

Total other income (expense)
(5,588
)
 
4,105

 
1,534

 
(23,357
)
 
(23,306
)
Income (loss) before income taxes
(12,744
)
 
30,274

 
4,300

 
(23,219
)
 
(1,389
)
Income tax expense (benefit)
12,425

 
(10,567
)
 
(788
)
 

 
1,070

Net income (loss)
$
(319
)
 
$
19,707

 
$
3,512

 
$
(23,219
)
 
$
(319
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 
138,946

 
20,798

 

 
159,744

Depreciation and amortization
282

 
43,745

 
3,321

 

 
47,348

General and administrative
6,085

 
16,867

 
791

 
(138
)
 
23,605

Intercompany leasing

 
(1,215
)
 
1,215

 

 

Bad debt expense
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 income (expense)
(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
)
 
 
 
 
 
 
 
 
 
 




22




CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands)


 
Six months ended June 30, 2014
 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues
$

 
$
451,155

 
$
47,691

 
$

 
$
498,846

Costs and expenses:
 
 
 
 
 
 
 
 
 
Operating costs

 
288,840

 
31,517

 

 
320,357

Depreciation and amortization
625

 
83,843

 
6,849

 

 
91,317

General and administrative
13,535

 
34,636

 
1,864

 
(276
)
 
49,759

Intercompany leasing

 
(2,430
)
 
2,430

 

 

Bad debt expense

 
437

 

 

 
437

Total costs and expenses
14,160

 
405,326

 
42,660

 
(276
)
 
461,870

Income (loss) from operations
(14,160
)
 
45,829

 
5,031

 
276

 
36,976

Other (expense) income:
 
 
 
 
 
 
 
 
 
Equity in earnings of subsidiaries
32,592

 
4,087

 

 
(36,679
)
 

Interest expense
(23,106
)
 
(17
)
 
7

 

 
(23,116
)
Loss on extinguishment of debt
(22,482
)
 

 

 

 
(22,482
)
Other
2,886

 
1,288

 
793

 
(276
)
 
4,691

Total other (expense) income
(10,110
)
 
5,358

 
800

 
(36,955
)
 
(40,907
)
Income (loss) before income taxes
(24,270
)
 
51,187

 
5,831

 
(36,679
)
 
(3,931
)
Income tax (expense) benefit
21,372

 
(18,595
)
 
(1,744
)
 

 
1,033

Net income (loss)
$
(2,898
)
 
$
32,592

 
$
4,087

 
$
(36,679
)
 
$
(2,898
)